RJ & Anor v HB

This was a claim under s.68 of the Arbitration Act 1996 that succeeded. Pursuant to my substantive judgment, the Award (as defined in the judgment) was set aside in part, as sought by the claimants: [2018] EWHC 2833 (Comm). I was not persuaded there was a case to answer for the removal of the Arbitrator, and would have concluded that a claim under s.24 of the 1996 Act would have been required for that purpose: ibid.

This further judgment deals with the costs of the claim, following argument when the main judgment was handed down. It raises points that may be of interest other than just to the instant parties. As with the main judgment, therefore, this judgment is handed down in public, but with the parties anonymised since the matter arises out of their confidential arbitration and the hearing in private of the s.68 claim.

I start where I might ordinarily end, in a costs judgment, with the amounts involved. The s.68 claim was not very complex, factually or legally. The substantive hearing occupied 1½ days. The hearing bundle was contained within 5 lever arch files, plus bundles of authorities.

The total costs are a staggering £1.2 million, split very close to 50:50. In defending that total, Mr Quirk for the claimants emphasised the importance of the claim to the parties, the sums at stake in the underlying arbitration, the fact that s.68 claims rarely succeed and are often hard fought, and the fact that indeed (as I shall come on to, below) the defendant contested every aspect of the claim. Even allowing fully for those fair points, I regard the level of costs incurred as quite extraordinary. It seems to me explicable only by a willingness, as it happens on both sides, to incur cost effectively without limit, and certainly without any regard for what might be a reasonably sufficient and proportionate work effort for advising upon, preparing and presenting the case.

In the circumstances, I declined to attempt a summary assessment of the costs claimed. The costs to be recovered under the order I make below are to be the subject of detailed assessment on the standard basis (if not agreed), but with a payment on account to be made now.

As regards the amount to be paid on account, I do not pretend to have the expertise, or breadth or depth of experience, of a costs judge, and I do not tie the hands of any costs judge conducting a detailed assessment in the case, but:

I was asked by each side to order costs in their favour. On the claimants’ side, it was said that the claim succeeded, that the degree to which their request for the removal of the Arbitrator added to the costs of the claim was very limited, so I should either award them their costs in full or make only a very modest deduction (say, 5-10%). On the defendant’s side, it was said that:

A substantial factor underlying a number of the defendant’s submissions was that by his solicitor’s first statement responding to the s.68 claim the defendant offered, on specified terms, to agree to a remission to the Arbitrator. That statement was served, so that offer was made, after Addendum 1 had been issued by the Arbitrator, the claimants had served their solicitor’s second witness statement, updating and amending their claim in the light of that Addendum, and the Annex to the Claim Form had been amended likewise.

The general rule that at the conclusion of a claim the unsuccessful party is ordered to pay the costs of the successful party is now enshrined in CPR 44.2(2)(a). The court may make a different order (CPR 44.2(2)(b)), but the court should depart from the general rule, i.e. make a different order, “only where the needs of justice and the circumstances of the particular case require, and a measure of caution is required”, per Norris J, London Borough of TowerHamlets v London Borough of Bromley [2015] EWHC 2271 (Ch) at [9].

The first question, therefore, is: who won? An identification of either the claimants or the defendant as the successful party sets the scene for CPR 44.2(2)(b). The question will then be how far, if at all, to move from a full costs award in that party’s favour.

The Basic Position

In the present case, the claimants obtained the partial setting aside of the Award, having established that it was affected by procedural irregularity causing substantial injustice and that it was inappropriate to remit. Since the defendant contested every element (procedural irregularity, substantial injustice and inappropriateness of remission), it is both startling and unrealistic for the defendant to contend, as he did, that he was the successful party.

The defendant’s argument, manfully pressed by Mr Kimmins QC, was that “In the present case, there was, in substance, only one issue in dispute between the parties: whether the [Arbitrator] or a fresh tribunal should hear and determine the issues that the parties had agreed should be sent back …”. But there was no agreement. The suggestion that there was echoed a basic error of analysis in the defendant’s skeleton argument for the substantive hearing. There, it was submitted that if the court rejected the claimants’ claims under s.67 and s.68, which were said to be “without foundation”, then “the question of what relief to grant becomes straightforward”, namely that the court should “adopt [the defendant’s] proposal for the remission of certain issues to the [Arbitrator]”. On the stated premise, indeed the relief to be granted would have been straightforward; but it would have been the dismissal of the claimants’ claims.

In their skeleton argument for the substantive hearing, the claimants for their part also took the line that “the key issue … is whether it is right that the existing or a new tribunal should be undertaking that examination”, i.e. a re-examination of the relief to be awarded in the arbitration. However, I regarded that as something of a forensic device, seeking to elevate the defendant’s offered remission to, in effect, a concession of serious irregularity. The claimants’ skeleton argument was lodged a day before the defendant’s, in the normal way, and to my mind reflected what was likely to have been a tactical decision to present the case as one where surely the defendant was not really disputing the basic soundness of the s.68 claim.

The true position is that the defendant did not concede anything at any stage; and his skeleton argument decidedly declined to rise to the bait, so as to limit the case to an argument about removing the Arbitrator. Whether it was tactical or not, the line taken by the claimants’ skeleton argument provided the perfect opportunity for the defendant to show that removal was the only issue, if that was the case, by accepting serious irregularity and consenting to the setting aside of the affected parts of the Award.

On the face of things, therefore, the claimants had to press their claim to judgment, to establish that the Award was affected by serious irregularity and to have it set aside (in part). That is to say, their claim under s.68 succeeded, as I said in opening this judgment. The claimants did not obtain all of the relief they sought – their claim did not succeed in full – and I consider that further below; but the claimants plainly won.

The Offer Not Made

That brings me to a different way Mr Kimmins QC put the defendant’s argument. I can and should find, he submitted, that the claimants would not have settled for the relief now granted, had that been offered. Only removal of the Arbitrator would have satisfied them. Upon that basis, the defendant should be regarded as the successful party after all, alternatively the court should treat all or substantially all of the costs as referable to the attempt to have the Arbitrator removed, which failed.

The obvious means by which the defendant might have sought to establish Mr Kimmins QC’s proposition was to ensure it was not hypothetical. If the defendant regarded the case as all about removal (even though the issue of removal only came in late, upon re-re-amendment, and rather indirectly at that, and was not properly analysed by either side, the problem over s.24 being raised by the court), the simple way to test that view was to concede serious irregularity and the setting aside of affected parts of the Award. If he were unwilling to do that openly, but wanted costs to be considered in due course on the basis that indeed removal had been the only real issue, he could and should have made an offer under CPR Part 36, or an offer ‘without prejudice save as to costs’ not within Part 36 that the court would be bound to take into account under CPR 44.2(4)(c).

Costs being ultimately in the discretion of the court, I am reluctant to say that how a claimant would have responded to an offer that was not made can never be a matter to consider. It is not easy, though, to see that such a hypothetical is a circumstance of the case, all of which are to be considered (CPR 44.2(4)). Assuming in the defendant’s favour, then, but without deciding, that it might in principle be appropriate to ask the question, on any view it would be for the defendant to persuade me of his answer to it. I am not persuaded, and therefore do not find, that the claimants would have pressed their claim in the face of a concession of serious irregularity and an acceptance that the Award should be set aside to the extent affected thereby. In fact, I think it more probable the claimants would have concluded, rightly, that agreement that there had been a serious irregularity, and a consensual setting aside of the affected parts of the Award, was a satisfactory and sufficient outcome.

In reaching those conclusions, I have not forgotten that the claimants variously seem to have equated setting aside with removal, or assumed the latter followed the former. In the hypothetical facts the defendant asks to be considered, the reality that removal was a significant further step by no means required or presumed to follow from the setting aside of an award would have been apparent. I have also borne in mind that I shall find (below) that the claim for removal of the Arbitrator was not reasonable. That it was nonetheless made, and pursued, in circumstances where the defendant contested every element of the s.68 claim is uninformative, however, as to whether, if all that was left was whether to pursue the claim for a new arbitrator, the claimants would still have pursued it.

Therefore, the argument that the case as in fact litigated was all about removal, an aspect on which the claimants failed, is not well founded and I reject it, whether by reference to the circumstances of the case as they have been or (if relevant) by reference to a consideration of how the claimants would have responded to an offer that was not made. The case as litigated was a case in which the claimants were the successful party, unless (finally) the offer the defendant did make (in fact, an open offer) alters the analysis.

The Offer Made

As to that final aspect, Mr Kimmins QC argued that there was no material difference between the relief now granted and the agreed remission offered by the defendant. Upon that basis, it was said, the defendant should be regarded as the successful party after all, as from the making of the offer. The logic of that submission is not controversial. The offer made must be taken into account (CPR 44.2(4)(c) again). It was not a Part 36 offer because it was an open offer, not because it was an offer ‘without prejudice save as to costs’ that failed to comply with the requirements of Part 36, to which different considerations might apply. The costs-reversal logic of CPR 36.17(1)(a) and 36.17(3) should therefore apply – if the outcome under the main judgment is not ‘more advantageous’ than the outcome offered by the defendant, then the defendant should be treated as the successful party entitled to his costs (unless it would be unjust to make such an order) from the expiry of a reasonable time within which to have accepted the offer.

However, the argument in this case that the outcome has not been more advantageous to the claimants than had been offered was no more realistic than the argument that the claimants were, generally, the unsuccessful party. The offer involved no acceptance that there was procedural error at all in the arbitration. Furthermore, it was only an offer “not [to] oppose the remission to the [Arbitrator] of particular issues for further argument, on certain conditions”. The witness statement in which the offer was made, from which I have just quoted, later explained the detail, but also the motivation. It was said that the claimants had “taken every possible point at every possible opportunity, however bad”, leading the defendant to wish “to minimise the risk of the Claimants creating difficulties on enforcement”. Whatever the merits of other points taken by the claimants, in or in relation to the arbitration, this dismissive attitude towards the serious and important concerns raised by the claimants’ s.68 claim, in fact well-founded concerns as I have held, was in my judgment unwarranted and unhelpful. It conveys a threat or intention on the claimants’ part to seek to use the Arbitrator’s actual conclusions and reasoning to continuing advantage, even were they arrived at unfairly (as in the event I held that they were). Were the content of the defendant’s proposal nonetheless at least as advantageous for the claimants as the outcome they secured by judgment, I would be minded to say that the claimants’ refusal to accept the offer made was so reasonable, indeed all but inevitable in those circumstances, as to render it unjust to treat the offer as a reason to depart from the general rule as to costs.

As it is, though, the content of the defendant’s proposal was plainly not as good for the claimants as the outcome they have now secured by judgment. It was, as to its detail, a proposal that there be a remission to the Arbitrator, for further argument, of his finding that a beneficial interest in Bank 2 shares had been transferred to RJ (Final Award, paras.238 & 248, and Award #3), and of certain specific, related, findings within Addendum 1, paras.28-30, 36 and 54, on condition that the claimants first pay c.£3.9m in costs awarded to the defendant under the Award on the basis that the award of costs ought not to be affected by the claimants’ challenge to the Award. Save for that rather limited remission, it was proposed, the claimants’ claims should be dismissed. The establishment, not offered, that there had been a serious irregularity, and that it was of sufficiently far-reaching significance and effect (in the context of the Award) that it was inappropriate for there to be merely remission, is very substantially better for the claimants than that proposal.

True it is, as Mr Kimmins QC emphasised, that (a) it was made clear that under the proposed remission, the Arbitrator would be invited to consider further “the relief to be awarded to the Defendant” (later expanded in a revised version of the defendant’s offer to “the relief to be awarded generally”), and (b) the Arbitrator would be entitled, upon the proposed remission and if persuaded it was right to do so, to drop Award #3 and reconsider his conclusions on specific performance and/or damages in consequence. That does not mean that setting aside the affected parts of the Award rather than remitting is not more advantageous for the claimants.

The statutory presumption in favour of remittance, and the case-law upon it as to when it is inappropriate to remit, so that an award should instead be set aside (in whole or in part), exists precisely because setting aside and remitting are, and are well understood to be, significantly different. The difference is central to the relief granted in this case:

If I had considered that there was reasonable room for thinking, or that the Arbitrator might in fact think (reasonably or unreasonably), that I had merely required him to look again at what he had found (albeit accepting that the end result could then, in theory, be its disavowal), I would have been concerned about the fairness to the claimants of the Arbitrator retaining jurisdiction and would have needed to take much more seriously the possibility of requiring a new arbitrator. Instead, it is the confidence I can and do have in the Arbitrator that he will appreciate the significance and effect of the main judgment that enabled me relatively summarily to dismiss the idea that he ought to be replaced. I have confidence, that is to say, that the Arbitrator will understand that the court has expunged Award #3 from the case, together with the impact it had upon the claims to relief HB actually made, requiring him to start entirely afresh in relation to the issues that arise and requiring him, as part of that, to start from scratch in providing the parties a reasonable opportunity to be heard as regards Award #3, or anything like it, if that is to be one possible disposal to be considered.

Mr Kimmins QC submitted that taking the approach articulated in paragraph 23 above may make it difficult for defendants to s.68 claims to make effective offers, with a view to avoiding or minimising costs and court time. I disagree.

Firstly, as a practical reality, if a defendant promptly offers to agree relief, saying nothing one way or the other as to the merits of the s.68 claim, the claimant may well be content. In that case, an agreed remission or setting aside can be implemented (and no doubt the court would approve a consent order, if asked).

Secondly, though, if that is not attempted, or does not work, there is no special difficulty about s.68 claims as compared to other types of claim for non-monetary relief, whether in the context of arbitration or generally. The defendant must decide what he is content to concede openly and what more (if anything) he is willing to offer confidentially, be that ‘without prejudice’, ‘without prejudice save as to costs’ or under Part 36. The extent of any open concessions, and in consequence the nature and extent of the issues the defendant chooses to litigate, will define the case that comes to be fought. That definition of the case as fought will prima facie drive any consideration of who has won and lost overall so as to have the benefit of the general costs rule under CPR 44.2(2)(a). Any offers made that the court is shown only as to costs may then displace that rule to whatever extent may be appropriate applying the costs consequence rules of Part 36 or CPR 44.2(4)(c), as the case may be.

In the present case, the defendant offered (as it happens, openly) a somewhat carefully defined remission only, but that offered solution was significantly less advantageous to the claimants than the findings and relief they have now secured by judgment. The defendant’s offer not having been accepted, he contested every element of the claim.

Conclusion

For all those reasons, then, I have no doubt at all that the claimants were the successful party in this case, the defendant the unsuccessful party. The simple application of the general rule would be a full order for costs in the claimants’ favour (CPR 44.2(2)(a)). The claimants did not win on every issue, however, so I do need to consider carefully whether that warrants a departure, and if so how great a departure, from the general rule (CPR 44.2(2)(b) and CPR 44.2(4)(b)). But the claimants won and I reject all of the ways in which the defendant contended that he should be regarded as the successful party and therefore the beneficiary of the general rule.

The approach to take where a successful party has not won on every issue has been considered many times in the authorities. For my purposes, it is sufficient to say that, as did the parties before me, I agree with the summary stated by Mann J in Sycamore Bidco Ltd v Sean Breslin and another [2013] EWHC 583 (Ch) at [11]-[12].

The most obvious issue on which the claimants lost, and the part of his case on which the defendant most plainly succeeded though he was unsuccessful generally, was whether there should be a new arbitrator. There were other issues too, however. Thus:

In my assessment of the case and how it developed: the claimants first under-estimated the seriousness of the serious irregularity that had occurred, so as not to articulate as their primary case from the outset that the Final Award should be set aside to the extent affected; they then, in part because of that prior under-estimation, rather over-reacted to the Addenda. I did not accept (or need to deal at any length) with a number of the points the claimants raised about the Addenda, but with one exception I do not find the claimants to have acted unreasonably in taking those additional points (cfSycamore Bidco, supra at [12(ii)]). The exception is that I do regard a claim, not pressed by Mr Joseph QC in argument, that there had been a process of “tacit collaboration” between the defendant and the Arbitrator (to shore up an irregular award), as a claim that should not have been made. Moreover, though I would have concluded that the affected parts of the Final Award should be set aside (rather than remitted) even without the Addenda, they did reinforce that conclusion. On the other hand, and genuine though I take the claimants’ concern to have been, in my judgment it was unreasonable to propose that there was a case here for removing the Arbitrator.

The plea that parts of the Award unrelated to Award #3 be set aside does not seem to me ever to have had any basis. It seems to me unreasonable to have advanced a claim that the entire Award be set aside. Even the slimmed down suggestion targeting just Award #2, by which RJ and L Ltd were declared in breach of contract, was surprising given that after the Partial Award, in the context of the Arbitrator’s consideration of the Final Award, the claimants confirmed that they “accept the [Arbitrator’s] findings in the Partial Award and particularly … that [the claimants] are bound by the Deed and that [RJ] is in breach …”. In that regard, I did not understand the attack on Award #2 to concern the fact that it declared both claimants, rather than just RJ, to be in breach.

That said (cf now Sycamore Bidco at [12(iii)]), any suggestion that parts of the Award be set aside beyond, in substance, those parts that have in fact been set aside was not developed at all in argument (in writing or orally). I rather suspect it was no more than an excess of forensic drafting zeal; but in any event it can have had no material impact on the costs.

Returning then to the failed points taken against the Addenda, and the claim for a new arbitrator, I am confident both will have added materially to the costs incurred on both sides. In both respects, the claimants were unreasonable in the points they took (albeit to only a limited extent as regards the Addenda – the ‘tacit collaboration’ point, itself raised I rather suspect only because a new arbitrator was being sought, so that it is tied up with that point).

The costs will have been aggravated less than might have been the case, curiously, because of the claimants’ seeming misapprehension that setting aside the Award (in whole or in part) would involve a new arbitrator. The fact the claimants sought a new arbitrator will not, therefore, have generated so much in the way of additional cost as it would have done if treated, as I held it should have been, as in truth a significant, separate and additional claim under s.24 of the 1996 Act. However, in this case I think that should fairly be reflected in the size of any discount I make to the costs order in the claimants’ favour rather than whether I make one at all.

In all the circumstances, in my judgment the appropriate costs order is that the defendant pay a proportion of the claimants’ costs (assessed on the standard basis), representing a discount that is fair to reflect the degree to which the claimants failed on points taken that added to the costs of the case, but remembering to bear in mind when standing back that the claimants were very clear winners overall (cfSycamore Bidco at [12(iv)]. That final assessment of fairness, standing back, means that, in a case where the total costs on both sides are about equal and the points on which the successful party lost generated X% of the costs on each side, there is no rule that there must be a 2X% discount to represent the successful party bearing both his own and the unsuccessful party’s costs of the points on which he lost. A clear authority for that is “Kastor Too”, Kastor Navigation v AGF MAT [2004] EWCA Civ 277, [2004] 2 Lloyd’s Rep 119 at [140]-[156], in which the 2X% logic I have just identified, with X=85, led Tomlinson J, as he was then, to order the successful claimant shipowner to pay 70% of the unsuccessful hull underwriters’ costs. The Court of Appeal allowed the shipowner’s appeal, substituting no order as to costs for the costs order below, the valid ground of appeal being that Tomlinson J failed to have proper regard to the general rule and, therefore, the need to stand back and remember it when deciding what to do about the claim on which the shipowner had failed.

The costs schedules submitted by both sides with a view to any possible summary assessment did not give me much assistance in gauging the degree to which the points on which the claimants did not succeed, or more narrowly the points on which I have now held them to have been unreasonable, aggravated the costs of the case. Both sides urged me, if the order were not to be a full costs order in one direction or the other, to make an order for recovery of a stated proportion of costs rather than any order for costs of issues to be treated separately, pursuant to CPR 44.2(6)(a) and CPR 44.2(7). I therefore invited further assistance in writing, giving me an indication of how much of the costs incurred on each side related to each of the main procedural stages of the case, in turn. It seemed to me that would facilitate a fair judgment, since the case in court developed in parallel with the progression of the arbitration from Final Award, to each Addendum in turn, before there was then an agreed stay for a period, for reasons that do not now matter but which involved the adjournment of the hearing of the claim, and finally the re-listed hearing before me. An assessment undertaken by Mr Quirk for the claimants of how many paragraphs of witness statements or pages of evidence or written argument were specifically devoted to the question of removing the Arbitrator did not seem to me very useful as a means of measuring the impact of the claimants’ partial failure in the case (although the results of that assessment did rather confirm the point made in paragraph 38 above).

I summarise below the further information the parties provided in relation to their respective costs schedules. In that summary, I use round figures rather than the more exact figures the parties gave me, as round figures are fit for the present purpose. To understand the summary, I should explain the main stages of the case:

On the claimants’ side,

On the defendant’s side, it was claimed that one third of his total costs was incurred responding to the claimants’ attacks on the Addenda and the claim for removal of the Arbitrator. Thus, the further explanation of his costs provided on behalf of the defendant was not the breakdown I requested, showing how much of his £600,000 was incurred at each main stage in the case. Instead, it was said that:

I do not feel able to place any real reliance on the defendant’s estimates. The relevant question, in such estimates, should have been how much of the defendant’s Stage D1, Stage D2 and Stage H costs was referable solely to, respectively, (i) the challenges to the Addenda, and (ii) the claim to remove the Arbitrator. Taking the latter first, having conducted the hearing, bearing in mind paragraph 38 above, and recalling that the one truly separate question to which the claim for removal gave rise, namely the court’s powers under s.68 and s.24, was not identified by the defendant but raised by the court at the start of the hearing, it is just not credible that the claim to remove the Arbitrator could account for cost incurred at Stage H amounting to 13⅓% of the entire costs of the proceedings and over 50% of the Stage H costs (the defendant’s costs schedule shows costs for hearing preparation and the hearing itself, not including the hand-down hearing, of £150,000).

Within the defendant’s Stage H costs, there were separate counsel’s fees of £5,000 for a post-hearing note provided at my request almost entirely devoted to the s.24 issue, and I envisage that a substantial proportion of solicitors’ costs of £8,000 for post-hearing work prior to the hand-down hearing itself may have related to that. I do not say that the removal claim otherwise had no impact at all on the Stage H costs, but I am clear that its more general impact will have been really very modest, not (I think) completely negligible, but also difficult to quantify more precisely.

I do not think the estimates related to Stages D1 and D2 are quite so wild, although that related to Stage D1 still strikes me as very high. A not insignificant proportion of the witness statement served at Stage D1 did deal with the claimants’ attacks on Addendum 1, so they will have made some real contribution to the defendant’s costs at that stage. The witness statement served at Stage D2 dealt essentially only with the attacks on Addendum 2 and (briefly, at the end) the claim for removal. The suggestion that £29,000 of the defendant’s Stage H costs might be regarded as referable solely to the claimants’ attacks on the Addenda is, to my mind, unlikely, if not so plainly wild as the £80,000 dealt with above.

In my judgment, a fair and reasonable basis upon which to reach a final view as to the proper order for costs in this case, taking all of the above into account, is to envisage that attacking the Addenda as the claimants did and seeking the removal of the Arbitrator will have generated something like 15-20% of the costs on each side. Recalling that the claimants were not wholly unsuccessful in their points on the Addenda, and that to a substantial extent their points on the Addenda were reasonably raised even where they did not find favour with the court, and remembering the lesson of Kastor Too, my view is that to strike a fair balance in this case reflecting the claimants’ general victory, but the failure of certain parts of their case, the proper order is that they recover 80% of their costs (assessed if not agreed).

For the reasons set out above, the order as to costs in this claim is that the defendant shall pay 80% of the claimants’ costs, such costs to be subject to detailed assessment on the standard basis if not agreed. There shall be a payment by the defendant within 14 days on account of such costs in the sum of £110,000 (being 80% of £135,000, rounded slightly).