Costs and arbitral proceedings

One of my interests for many years, has been arbitration and more latterly arbitration costs. As well as advisory work, my work in this field encompasses drafting written submissions to arbitral tribunals and very occasionally advising upon and arguing upon points of law in the Commercial Court: cases such as Essar Oilfields Services Limited v Norscot Rig Management PVT Limited [2016] EWHC 2361 (Comm) which established that the cost of litigation funding, could be a recoverable item of costs in an arbitral award, notwithstanding that the cost of financing litigation is generally irrecoverable under the law of England and Wales, save for a few number of exceptions. The case did not proceed to the Court of Appeal, as the judge refused permission to appeal, and in such cases, the Court of Appeal has no jurisdiction to grant permission to appeal.

In recent years the Arbitration Act 1996, which is now nearly 30 years old, has been ripe for review. The process has been long in the coming but has moved relatively swiftly as a topic of law reform: the initial Consultation Paper can be found here:  Review of the Arbitration Act 1996 A consultation paper.It was published in September 2022.

The consultation paper, as with all Law Commission papers, provides a useful “way in” to a subject for an uninformed reader: a precis of the historical development of the relevant legal provisions and a summary of the current state of the law. It also explains why arbitration is so important to UK plc:

1.1 Arbitration is a major area of activity. For example, the Chartered Institute of Arbitrators, headquartered in London, has more than 17,000 members across 149 countries. Industry estimates suggest that international arbitration has grown by about 26% between 2016 and 2020, with London the most popular seat. Domestic arbitration continues to grow, for example in areas like family law.

1.2 Some arbitral institutions report their caseload figures.3 Others do not, but have provided us with rough figures on a confidential basis. Overall, we estimate that there are at least 5000 domestic and international arbitrations in England and Wales every year, potentially worth at least £2.5 billion to the economy. The actual figures may be much higher.

1.3 In England and Wales, arbitration is regulated by the Arbitration Act 1996. January 2022 saw the 25th anniversary of the Act coming into force. This presents a good opportunity to revisit the Act, particularly as other jurisdictions have enacted more recent reforms. Our review seeks to ensure that the Act remains state of the art, both for domestic arbitrations, and in support of London as the world’s first choice for international commercial arbitration.

This was followed by a second consultation paper which can be found here: Review of the Arbitration Act 1996 Second consultation paper which considered a fresh topic, the proper law of the arbitration and looked in a little more depth at jurisdictional challenges, and discrimination. 

But what struck me about both papers was that they had very little to say about costs: the focus of reforms was on other perhaps more substantive topics. It may be that this is because there is not seen to be a need for fundamental reform on questions of costs.

It may be that as sometimes happens, concentration is placed on other topics seen as more substantive than the issue of costs, but the recoverability of the cost of litigation funding (or not) is a topic that is worth a consultation paper in its own right.

The recently published Law Commission Report, with its draft Bill setting out a thoughtful review of arbitration law and procedure together with proposals for reform.  A copy of those documents can be found here: Review of the Arbitration Act 1996 Final Report and Bill The Law Commission.

Very little is said in the review on costs, though the Report has this to say:

5.65 We recommend that an arbitrator should not incur costs liability in respect of an application for their removal under section 24 of the Arbitration Act 1996 unless the arbitrator has acted in bad faith.


9.156 We recommend that the Arbitration Act 1996 be amended to provide explicitly that an arbitral tribunal is able to make an award of costs in consequence of a ruling by the tribunal or by the court that the tribunal has no substantive jurisdiction.

These proposals are unlikely to prove controversial, and are likely to become law.

Since the Law Commission proposals, the government has moved to legislate with a bill now proceeding through Parliament the progress of which can be followed here:

I do wonder though whether in consequence some of the larger questions on costs in arbitral proceedings will remain “parked” for a further 25 years, before the 1996 Act is revisited again.



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