Global Works alleged that work by Readysteel was defective and that it would cost £30,000 to put it right. Global started arbitration proceedings. The arbitrator asked Global and Readysteel to estimate their costs, which were £80,000 and £70,000 respectively. As the arbitrator, you consider invoking your power, under section 65 of the Arbitration Act 1996, to limit the recoverable costs to keep them in proportion with the amount of the claim. Readysteel says that if you did that, it couldn't afford to defend the case. How do you proceed?
The answers - Cost isn't everything
The arbitrator can limit recoverable cost. This usually is a consideration when one party is financially less able than the other. In this case the less financially able party appears to be Readysteel.
However, it appears that it is Readysteel that objects to a limit being put on recoverable costs. Global does not claim any disadvantage in the absence of a limit on recoverable costs.
Whereas Readysteel claims that it could not proceed with its defence unless it can recover all its reasonable costs.
As both Global's and Readysteel's estimated costs are approximately the same, one party is not proposing to spend more on legal costs than the other, and therefore these costs appear to be reasonable – but they are disproportionate. However, the matter should proceed with no order to limit recoverable costs as any such order would result in Readysteel being unable to proceed with its defence and Global Works winning by default.
Patrick Cunningham, via email
Look at the alternatives
Given that the object of the exercise is to reach an equitable and, above all, just resolution the arbitrator has very sensibly focused the minds of the parties on the totally disproportionate costs of the arbitration versus the amount at issue.
Bearing in mind that arbitration is a private and to a large degree a consensual procedure, the arbitrator would be dilatory if he did not raise this matter of disproportionate cost especially since he is patently aware that Readysteel may well be put to severe financial difficulty if the arbitration proceeds. Under these circumstances I believe the arbitrator would be entitled to put before the parties some alternatives to reach a much quicker and thus cheaper resolution of the issues such as:
- A documents-only consideration
- Stay proceedings to allow an attempt at mediation
- By pointing out that the arbitrator will be obliged to carefully weigh up the matter of costs having regard to the conduct and circumstances of both parties in view of the significant arbitration costs versus the amount at issue.
That said, if both parties are determined to proceed, particularly Readysteel, then the arbitrator has no alternative but to let matters take their course. However, he should also explain that since the contract contains an arbitration clause the litigation route will be closed until the arbitration has been concluded, and in any event the courts are likely to take a less than favourable view, in the matter of costs, of any party that does not attempt to find a resolution by the other routes suggested to them.
Given the overall circumstances and having given the parties the opportunity to substantially reduce costs, I believe the arbitrator, particularly in the face of the objections from both parties, would be ill advised to place a Section 65 limit on recoverable costs.
Harry Mooney, via email
The judgment of Solomon
You have for sometime been dissatisfied with your role as arbitrator and with the length of time it takes to resolve disputes through this method, you decide on a new approach.
You have noticed that Global's managing director is a rather handsome young man and Readysteel's boss is an attractive young woman, neither of whom is wear a wedding ring, and you notice a certain chemistry between the two.
You decide to arrange a series of late meetings and the inevitable happens, they fall in love. They start a family and you call them to a meeting with their first-born child. You place the child on your desk and produce a large knife. You then threaten to cut the baby in half unless they settle the dispute.
I guarantee this will work and they will thank you for resolving their differences so speedily.
Douglas Fiddes, Baxter Dunn & Gray, Aberdeen
Expert answer - A matter of discretion
This kind of problem arises in practice. There is no right or wrong answer. It is a matter of judgment, and the arbitrator's discretion. In this case, it is probably open for the arbitrator to take either course: to limit or not to limit.
On balance it is suggested that, provided Readysteel is able to produce accounting evidence supporting its assertions as to its limited finances, a cap should not be imposed. This is because the desirability of securing proportionality of costs is a lesser consideration than the possibility of stifling a defence.
Julian Critchlow, Fenwick Elliott
Would you grant this injunction?Learnwell University engages Buildkwik Limited to build student accommodation. Liquidated damages are fixed at £3000 per week or part thereof. The contract contains an arbitration clause. The contract provides that if Buildkwik fails to proceed regularly and diligently, Learnwell will be empowered to dismiss Buildkwik from the works. The contract becomes extensively delayed and the parties blame each other. Learnwell dismisses Buildkwik but Buildkwik refuses to leave site. Learnwell seeks an injunction from the court requiring Buildkwik to leave. Should Learnwell be granted the injunction?
This week’s conundrum was devised by Julian Critchlow. The answers to this question will be published next month.