Agrimex Ltd. v Tradigrain SA & Ors

There is before the Court an application to consider and adjust the fees charged by the Board of Appeal of the Second Defendants (GAFTA) under s.28(2) and (3) of the Arbitration Act 1996 on the grounds that they were excessive and disproportionate. The application arose in the following circumstances.

In December 1998 a dispute arose over demurrage in connection with a sale to the Defendants (the buyers) by the Claimants (the sellers); the demurrage had been incurred when a cargo of grain was loaded on the Vancouver at Ilychevsk in the Ukraine. The claim by the buyers was for $53,762.50. The dispute was referred to arbitration under the rules of GAFTA. At the first tier arbitration the sellers succeeded. An appeal was brought by the buyers before the Appeal Board of GAFTA. By an award dated 11^th September 2002, the Appeal Board held that the buyers’ claim succeeded and that the sellers should pay the buyers the sum of $53,762.50 together with interest and the costs of the sellers. They also awarded that the sellers should pay the costs of the Appeal Board which amounted to £19,364.25.

The costs of the Appeal Board comprised:

The sellers were concerned at the size of the costs of the Appeal Board and in particular at the size of the legal fees of over £9,000. After enquiry, it transpired that the legal fees were the costs of a solicitor employed to attend the hearing and draft the award. In the hearing before the Court the sole issue related to the size of the fee of over £9,000 charged for drafting the award.

As the point raised by the sellers raised an issue relating to the duties of arbitrators in drafting awards and the proportionality of the fees charged, I afforded to GAFTA an opportunity to submit further evidence and reserved the point for my decision.

GAFTA provides a well known and respected scheme for arbitration in London of international disputes in the grain trade. The Regulations published by GAFTA set out, as the object of arbitration, the terms of s.1 (a) of the Act – “the fair resolution of disputes by an impartial tribunal, without unnecessary delay or expense”.

The procedure in a normal case is for an award to be made by a single arbitrator or panel of arbitrators usually on documents; then there is a right of appeal to the Appeal Board which normally comprises of five qualified arbitrators. About 20% of cases go on appeal. An appeal usually is dealt with by way of oral hearing, with representatives for each party putting in written submissions and then appearing before the Board. At the Board of Appeal lawyers do not usually represent the parties.

Those appointed as arbitrators by GAFTA are required to undergo training, unless they are legally qualified; most are commercial people, as parties prefer to have their disputes decided by those who have knowledge of the trade. At the material time there were about 70 qualified arbitrators; the majority were based in the UK with the others coming from about 15 different nations, reflecting the international standing of GAFTA.

The training at GAFTA relates to the understanding of contractual terms, the arbitration rules, the Arbitration Act 1996 and arbitral procedure. The training is conducted by those knowledgeable in the trade and in the law; examinations are set by London Guildhall University. There is also a continuing professional development programme; a person cannot sit as an arbitrator unless he participates in that programme.

The relevant GAFTA Arbitration Rules provided that arbitrators have power to assess the fees and expenses incurred by the tribunal. The Council of GAFTA are empowered to determine the charges to be made for its costs incurred in arbitration and the fees charged for the arbitrators; the table of fees for the Appeal Board current at the time of the arbitration with which this application is concerned set out the rate per member of the Board of Appeal as £35 per hour, except for hearings at which representatives were present when the fee was £60 per hour. The table also specified under the heading of Appeal Board Members Fees:

“Award drafting £35 per hour”

The evidence from GAFTA was that the total fee for a first tier arbitration was between £2,500 and £5,000 and for an appeal was between £5,000 and £10,000.

It is important to emphasise that the Claimant sellers made no complaint about the procedures of GAFTA or the fees charged by GAFTA for its services or the fees of the arbitrators; their complaint was directed at the charge of over £9000 by a solicitor for the drafting of the award.

Although there was a parallel dispute between the buyers and the sellers involving substantially greater sums of money, the arbitration with which this application is concerned involved a fairly simple dispute where the sum in issue was just over $50,000. It is not necessary for me to recite the facts, but as is not uncommon in such trade disputes, there were the common and straightforward issues relating to the terms of the contract, as to whether there had been an oral variation, as to what had passed between the parties in respect of the nomination and the arrival of the lifting vessel, as to whether contractual notice was given and on one or two matters relating to laytime. This was not a case of any complexity, particularly for those experienced in the grain trade, as the disputes were of the type that commonly arise.

The Chairman of the Board of Appeal was Professor Rainer Karstaedt, Professor in International Commercial Law at Luneberg, Germany; he was an arbitrator of some 20 years’ experience and had sat on the Appeal Committee of GAFTA for 15 years. The evidence before the Court was that when he was appointed Chairman of the Board of Appeal, he reviewed the papers and considered the matters in issue both legally and evidentially to be somewhat complicated. He therefore sent an e-mail to GAFTA stating that he required the appointment of a legal draftsman; the e-mail was not available, but he explained that he needed a legal draftsman:

“to ensure as far as possible that the reward reflected the opinions of the Board members, produced an appropriate and clear legal explanation for the award and provided justice to the parties.”

When Professor Karstaedt arrived in London for the hearing on 27 November 2001, it became clear that his request for a legal draftsman had gone astray and no one had been appointed. He nonetheless wished that a draftsman be appointed for the hearing that day. GAFTA telephoned solicitors that they normally retained, Middleton Potts, and an assistant solicitor in that firm, Mr Andrew Meads, was appointed as a draftsman.

When the hearing commenced on 27November 2001, Professor Karstaedt introduced the members of the Board to the parties and their representatives, and introduced Mr Meads and explained that he would be the draftsman employed to draft the award.

The hearing of the arbitration began on the 27 November 2001. The case of each party was presented by the parties’ representatives, not lawyers; there were lengthy written submissions. The hearing did not conclude that day. The sellers contended that it did not conclude because of the commitments of members of the tribunal; that was not pursued. After the provision of further written submissions, a further hearing was held on the 25 January 2002 and a yet further hearing was held on the 28 February. A relatively simple and straightforward arbitration scheduled to last one day in fact lasted three days.

On 12 July 2002 GAFTA notified the parties that the award was available upon receipt of the costs, fees and expenses of the Association and of the Board of Appeal in the sum of £19,364.25.

It was the evidence of the Claimant sellers that they were surprised at the level of fees incurred; the Claimant sellers instructed their solicitors to ask for a detailed breakdown of the fees; their letter stated that neither they nor their clients could recall levels of fees of this size whether from the ICC, GAFTA, FOSFA or LMAA tribunals. On 19 July 2002 GAFTA replied, setting out the breakdown of the fees I have set out above; their letter stated that:

“In both of these cases the Board of Appeal chose to appoint a legal advisor to assist with regard to the matters raised in these cases.”

In response the solicitors to the Claimant sellers, although accepting that the fees of GAFTA itself and the Board of Appeal were within their expectations, expressed surprise at the size of the fee of the legal adviser and pointed out that the parties had not been consulted as to whether it was appropriate that a legal adviser should be appointed; they sought Mr Meads’ terms of reference. GAFTA responded on 26 July 2002:

“With regards to the appointment of the legal assessor, Mr Karstaedt emailed the Association prior to the first hearing of these matters requesting the appointment of a legal assessor in this matter. This email was not received by the Association so Mr Meads was appointed by telephone on the day of the hearing. For good orders sake please note that a legal assessor was appointed to assist the Board on technical matters as provided for under Section 37(a)(ii) of the Arbitration Act 1996 not a legal advisor.”

After further correspondence, GAFTA clarified the position of Mr Meads on 13 August 2002. They stated that he did not attend as an adviser to give advice information or opinions, but to help to draft and prepare the award of the Board under the direction of the Board.

After payment of the fees by the Defendant buyers, the Award was published on 11 September 2002. The Claimant sellers commenced these proceedings on 9 October 2002, seeking:

The complaint made was directed at the fees charged for the drafting of the award by an assistant solicitor, Mr Meads. Mr Meads qualified as a solicitor in 1998 and was made a partner in Middleton Potts in November 2002. His evidence was that his practice was primarily in international trade and shipping and he had experience of arbitration including arbitration before GAFTA; at the time he drafted the award of the Board of Appeal he was an assistant solicitor with three years post qualification experience.

For reasons which I have explained, he was appointed on the morning of the hearing and attended at GAFTA straightaway. His evidence was that it was made clear to him that his role was to be restricted to that of a draftsman and he was not instructed to advise the Board on any legal issues. He understood his instructions to be to consider the documentation, attend the appeal hearings, write such notes as were necessary and prepare an award that reflected the findings of the Board of Appeal.

His evidence was that he was instructed by GAFTA to listen to the hearings during which he took notes and listened to the proceedings as they unfolded. He was also present when the Board deliberated on the issues at the end of the hearings on the three days over which the hearings were spread. Subsequent to the hearings, according to his evidence, he was provided with the further views of the Board members and produced a draft award. The views were communicated to him by the Board members in discussions and in correspondence subsequent to the hearings. He did not comment on any findings but simply did his best to reproduce the findings made by the Board in the draft award that he prepared. The draft award was then subject to some amendment by various members of the Board but the award was settled and finalised by 8 July 2002. He produced a breakdown of the time he had spent on the work as follows:

Andrew Meads, solicitor: £190 per hour:

Perusal of documents and drafting: 33 hours and 30 minutes

Attending hearings and deliberations: 13 hours

Meetings: 54 minutes

Letters, e-mails and faxes: 18 minutes

Telephone attendances: 2 hours and 48 minutes

Travel time: 2 hours and 6 minutes

Sub total: 52 hours 36 minutes

@ £190 = £9,994

Julie Cheshire, trainee solicitor: £70 per hour:

Proof reading: 2 hours 30 minutes

Sub total 2 hours 30 minutes

@ £70 = £175

TOTAL: £10,169

[Fees charged: £9,300 plus disbursements of £36.20]

As s.1 of the Arbitration Act makes clear, the parties are free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest. As I have set out above, GAFTA specifies the rates charged for its fees, the members of arbitral tribunals and the rates for a draftsman. However, nothing is published as to the rates charged for the employment of lawyers asked by arbitral tribunals to assist.

If there had been some published guidance on the cost of the obtaining of legal assistance by the arbitral tribunals so that the parties were aware of the likely cost, then that would have been of central importance to this application. There was none.

The evidence as to the practice at GAFTA was very helpfully and clearly provided by the Director General. It can be summarised:

I am very grateful for such a clear exposition of the position by the Director General of GAFTA; not only did it set out the background in which the decision was made to appoint a draftsman in this case, but also explained the admirable steps being taken by GAFTA to ensure that for the future the problem that has arisen in this application is unlikely to arise again. I would anticipate that such training would ensure that in a dispute such as the underlying dispute between the parties, an arbitral tribunal would consist of those sufficiently trained so that not only could they draft their own award, but also exercise that necessary degree of control over the way in which the submissions are made to them so as to ensure that the submissions made and the length of a hearing were proportionate to what was in issue.

It was submitted by counsel appearing on behalf of GAFTA that it was well established that an arbitrator may appoint a legally qualified draftsman to assist him in drafting an award. In support he referred me to two decisions; the first was a decision of Coleridge J on 5 May 1850, Threlfall v Fanshawe (1850) 19 LJQB 329; the case concerned a dispute about the entitlement of a lay arbitrator (who had been appointed by order of the Court to determine a boundary dispute between two estates) to charge for the attorney he had employed. The Judge said:

“Where parties appoint a lay arbitrator, if the reference is to be brought to a safe conclusion, it is almost of necessity he should have professional assistance in the conduct of it and in framing the award”

The second case to which I was referred was a decision of the Court of Appeal in Re Collyer-Bristow & Co [1901] 2 KB 839 where the issue was whether a bill of the solicitors employed to advise the Umpire was taxable (assessable in modern terms) and, if so, in which Division of the High Court; that provided no assistance.

The law of arbitration has undergone a profound change in the last 150 years; it was of no assistance to be referred by counsel for GAFTA to a decision made in 1850 as to what was to be expected of arbitrators 150 years ago as guidance as to what was to be expected of arbitrators today. Reliance on that decision showed little understanding of modern commercial arbitration. In contrast, the evidence of the Director General of GAFTA showed how completely different the position is today and how modern lay arbitrators have been trained so that they indeed can bring awards to an entirely satisfactory conclusion without needing to employ a lawyer to help them.

For sometime and certainly since the enactment of the Arbitration Act 1996, it has been part of the skill ordinarily to be expected of a competent arbitrator that he should produce his own reasoned award. It is common place for decision makers to explain the reasoning for their decision; it is commonly acknowledged that the quality of decisions is improved by requiring the decision maker to go through the process of expressing those reasons himself. There is no reason why in general a person who takes on the responsibility and duty of an arbitrator should not be able to discharge the function of providing a reasoned explanation for the decision he has reached; for example, awards made by arbitrators of the London Maritime Arbitrators Association who are not legally qualified set out in clear terms their reasoning in disputes that are often far more complex than the matters in this award. It is also clear from the evidence of GAFTA that they recognise that if a person is to sit as an arbitrator, he should be capable of drafting an award; that is one of the objectives of their training.

In any event, if an arbitrator employs a draftsman, the function of that draftsman is limited; it is the function of the tribunal itself to decide on the findings of fact, to evaluate and analyse the submissions of law and to arrive at their own reasons for their decisions. The arbitral tribunal must reach its own decision on these matters and must communicate those decisions in sufficient detail to the draftsman bearing in mind his function is limited to setting out what he has been told. It is not the draftsman’s function to provide or refine the analysis or legal reasoning; if he does, then the provision of s.37 comes into effect and the parties are entitled to be given a reasonable opportunity to comment on any information, opinion or advice offered.

However, there may be rare circumstances where a tribunal feels it ought to consider the use of a draftsman for the limited purpose I have described and who is not acting under s. 37. In such circumstances it must be for the arbitral tribunal to decide whether they need such assistance but they must have regard to the general considerations, including the following:

If a tribunal decides it needs the assistance of a draftsman, then the tribunal must then consider whether they need the assistance of a lay draftsman (such as those which GAFTA employ who charge a rate of £35 per hour) or the vastly more expensive services of a lawyer. If they decide on a lawyer, they need to decide whether he needs to attend the hearing. That will usually be unnecessary as his function is as limited as I have described.

If a lay or legal draftsman is employed, then it is the duty of the tribunal to satisfy themselves that the fee he charges is fair and reasonable; the extent of the work required of the tribunal in examining the fees charged by the lawyer must depend on the size of the fees: see the decision of Staughton J in Kurkjian v Marketing Exchange No 2 [1986] 2 Lloyd’s Rep 618.

There is a further factor; I do not wish to add to the observations that the courts have made about the way in which GAFTA awards are made, particularly in the light of the work being done by GAFTA as set out in the evidence of the Director General. The judgment of Mance J in Transcatalana de Commercio SA v Incobrassa Industrial e Commercial Brazileira SA [1995] 1 Lloyd’s Rep 215 refers to many of the previous decisions of this Court. However, GAFTA may wish, as part of their admirable training programme and other reforms, to consider whether it might be easier to produce awards if they were far less formalistic than the award produced by Mr Meads in this arbitration. That, of course, is a matter entirely for them.

In the special circumstances of this case, particularly taking into account the pilot scheme that GAFTA were running, I do not consider that in the exercise of the Court’s power under s 28, it would be fair or just to say that the Board of Appeal should not have been entitled to have appointed a draftsman. In reaching that decision, I do so only in the very special circumstances of this case.

However, the fact that I consider that they were entitled to appoint a draftsman does not of course mean that the Court should not examine whether it was correct to appoint a lawyer or inquire into the fee charged by that lawyer. There are a number of considerations:

It was accepted by the Claimant sellers that a fee of £5,000 for legal drafting was reasonable; although that is in my judgment on the high side, as that has been put forward by the Claimant sellers, I will not exercise my powers to adjust the fee below that amount.

In the light of the conclusions, particularly that in paragraph 39.vi) to which I have come, I am entirely satisfied that it is entirely reasonable and indeed just that GAFTA repay the amount. Whether Middleton Potts repay that amount to GAFTA is a matter between Middleton Potts and GAFTA. I therefore exercise my powers under s.28 to reduce the fees charged by GAFTA accordingly.

It is a matter of regret that this matter could not have been resolved amicably. However, it is right to emphasise that GAFTA are plainly doing all they can to ensure that the important arbitration service they provide to the international grain trade can continue to be provided in London with accuracy of decision and economy in cost. I very much hope that to the extent that lawyers continue to become more involved in such arbitrations, they will also have full regard to the principle of proportionality both as regards cost and economy in the conduct of arbitrations and in the submissions they make. As this application (and the matter to which I refer below) amply demonstrates, much more attention must be given by lawyers engaged in such arbitrations to the principle of proportionality between on the one hand what they do and seek to charge and on the other hand to what is in issue in the arbitration.

The Defendant buyers played no real part in the hearing; their only interest was to recover the costs of the s 68 application that had been abandoned by the Claimant sellers. Although some initial confusion was caused by GAFTA, it was clear before proceedings were issued that the only real complaint that the claimants had was under s.28. There was no basis for the s.68 claim being made by the Claimants. In those circumstances, the Claimants must pay the costs of the First Defendant of the s.68 proceedings. However, the circumstances are not such that they should be awarded on an indemnity basis.

The costs claimed on summary assessment are very high - £11,862. The First Defendant has engaged in this matter: (1) a partner (£350 per hour), (2) an assistant solicitor (£185 per hour), (3) a cost draftsman (£145 per hour), (4) a trainee (£145 per hour) and (5) counsel (£1,625). The time spent by the assistant solicitor was just under 40 hours; taking his productive working day to be 8 hours, that is one week’s work. The trainee spent 5 hours at a cost of £754. The statement of costs which was 2½ pages long was charged at £595, made up as to £420 of the charges of the costs draftsman and £175 of the partner perusing and approving. The only evidence submitted by the First Defendant was a 3½ page witness statement made by the partner, though there was a vast amount of wholly unnecessary correspondence between the solicitors.

In my judgment, the size of the team employed and the time spent was wholly excessive and disproportionate to the issues involved. The Claimants had been prepared to pay, prior to the hearing, the sum of £6,500; that was in my view a generous amount in all the circumstances, but I will not go below it. I summarily assess the costs at £6,500.