The Court’s ruling supports the general principle that costs follow the event.

In Andrew Martin, Nicholas Greene, Coban 2017 LLP (formerly named Strutt & Parker LLP) v. Michael Harris [2019] EWHC 2735 (Ch), the English High Court held that any arbitration award as to costs stood or fell with the substantive award. Therefore, if the substantive award was overturned by the court, the costs award would cease to have effect, regardless of whether the costs have been dealt with in separate award.

Background

This case involved an arbitration award in favour of the Respondent, which had subsequently been set aside by the Court pursuant to its powers under section 69 of the Arbitration Act 1996 (the Arbitration Act). The arbitrator had issued two awards: “Final Award Part I”, which was the substantive decision, and “Final Award Part II”, which awarded the costs of the arbitration to the Respondent (the Costs Award).

The Respondent argued that the Court did not have jurisdiction to set aside or vary the Costs Award, because the Appellant did not seek to overturn the Costs Award in the Claim Form, which only referred to the substantive award.

Judgement

The Court held that it has jurisdiction to set aside or vary the award, and that the Appellants were not required to have specifically appealed the Costs Award in order for the Court to have jurisdiction:

1. Whether or not the costs award is included in the substantive award, the costs award should, in general, stand or fall with the substantive award.
2. The term “award” is not defined in the Arbitration Act. The Costs Award should be treated as part of the overall award for the purposes of the Arbitration Act. Therefore the court’s wide powers under section 69 of the Arbitration Act to confirm, vary, set aside, or remit the award extend to the Costs Award.
3. The fact that the two awards were called Final Award Part I and Final Award Part II indicates that the Arbitrator viewed them as one award, and that the parties had expected the Cost Award to be reversed if the Appellants were successful in their appeal.
4. For the courts to take a different approach — applicable depending on whether the costs award was made in the same document as the substantive award — would be illogical

The Court set aside the Costs Award, but concluded that, although the starting point is to award the cost of the arbitration to the Appellants,[1] the Respondent should be given an opportunity to make submissions as to whether or not he should pay the entirety of the costs. The Court remitted this question to the arbitrator.

Comments

The Court’s decision confirmed the general principle that costs follow the event. While the losing party will be able to make submissions as to why it should not pay for the whole cost of the arbitration, the courts will not be sympathetic to attempts to retain a favourable cost award on the basis of an alleged procedural nit. In order to limit avoidable expenses, parties may wish to agree on the allocation of costs when appropriate.

[1] Pursuant to section 61 of the Arbitration Act 1996.