IN THE SUPREME COURT OF BELIZE, A.D IN THE MATTER of Section 11, 12, 13 of the Arbitration Act, Chapter 125 of the Laws of Belize AND

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1 IN THE SUPREME COURT OF BELIZE, A.D CLAIM NO. 169 of 2011 CLAIM NO. 293 of 2011 IN THE MATTER of Section 11, 12, 13 of the Arbitration Act, Chapter 125 of the Laws of Belize AND IN THE MATTER of an Award given on 1 st March, 2011 by the Arbitrators in an Arbitration arising out of and in relation to certain Onshore Drilling Contracts entered into on 1 st May, 2008 between the parties for Rigs 5 (later 11), 7 and 8 MARANCO LIMITED CLAIMANT AND BELIZE NATURAL ENERGY LIMITED DEFENDANT Hearings th July 10 th August Mr. Eamon Courtenay SC for the claimant. Mr. Andrew Marshalleck SC and Mrs. Barrow Badillo for the defendant. LEGALL J. JUDGMENT 1

2 1. These are two applications which were heard together. One is to enforce an award of costs made by arbitrators on 1 st March, 2011; and the other application by the defendant is to set aside or to remit the said award of costs to the arbitrators for reconsideration. The arbitrators had made a previous award, including an award as to costs, dated 25 th August, On an application by the claimant to enforce this previous award, the court on 22 nd November, 2010 enforced the substantive award of US$1, , and remitted under section 11 of the Arbitration Act, the award as to costs made on 25 th August, 2010 for reconsideration by the arbitrators, which was done by the arbitrators who modified their previous award of costs and awarded on 1 st March, 2011 costs to the claimant in the sum of US$211, The application of the claimant is to enforce this second award as to costs, while the defendant s application is to be remit or set aside the said award as to costs by the arbitrators. 2. The substantive amount of the award, US$1, , was paid by the defendant. The unpaid costs, according to the arbitrators, were arrived at in the table as follows: Attorney s 30% of US$1,207,800 US$362, %.. 45, Attorney s office expense Arbitrator s (selected claimant) fee, initial award 10, Arbitrators operating fee. 2, Arbitrator s (selected by claimant) fee, remission 1, Subtotal 422, One half rate x 50% Amount of Cost awarded US$211,

3 It is to be observed that the arbitrators awarded half or 50% of the subtotal in the table. The parties agree that the only item in the table as to costs in dispute, is the attorney s fees. 3. The defendant submits that the award of costs ought to be remitted once again to the arbitrators for reconsideration because the arbitrators misconducted themselves in making the second award as to costs. The arbitrators, it was submitted, did not hear the defendant on the question of costs before making the second award of costs. This submission could be dispensed with right away on the basis that the defendant made written submissions to the arbitrators on costs dated 21 st January, 2011, paragraph 2 of which made submissions on the issue of costs. The practice of written submissions to the arbitrators on the issue of costs is not new: see in President of India v. Jadranska Slobodna Plovidba Lloyd s Report 274. The arbitrators made their award on costs having considered the written submissions of both parties. 4. The defendant, on this submission, relied on Gbanbgola and others v. Smith & Sherriff Ltd AER 730 which lays down, in my view correctly, the general principle that a tribunal does not act fairly and impartially if it does not give a party an opportunity of dealing with arguments which have not been advanced by either party : see page 739, per Lloyd J. In that case, the arbitrator, in giving his reasons, relied on matters which the parties had not raised. In this matter before me, the parties raised the issue of costs, made written 3

4 submissions thereon to the arbitrators, and the arbitrators made their decision based on the written, but not oral, submissions on costs. 5. The defendant submits further that the arbitrators have to apply the same principles of costs as are applied in the Supreme Court. The principles of costs to be applied in the Supreme Court are contained in Part 64 of the Supreme Court (Civil Procedure) Rules 2005 (the Rules). The defendant relies on Part 64 of the Rules to quantify costs payable to the claimant, which according to the defendant, would be BZ$128,025.04, substantially lower than the costs awarded by the arbitrators 6. The defendant relies on the Queens Bench decision of Matheson Co. Ltd. v. A. Tabak and Sons Lloyd s Report 270 in support of the submission, that Supreme Court principles of costs, as contained in the Rules, are applicable to the arbitration. It is true that Megaw J said in that case that the principles on which the arbitrator has got to act are identical with the principles on which a judge in a court has got to act in awarding costs. As I read and understood the judgment, his Lordship did not refer to principles of costs enacted in any Rules of Court. As a matter of fact, not only absent from the judgment is any reference to civil procedure rules of court, which undoubtedly were operative at the time, but his Lordship has shown that there is a difference between the arbitrator s decision on costs and a court s decision, in that whereas the court can be asked for reasons for an order for costs, an arbitrator cannot be required by the court to state reasons why he made an order for costs. Though modern Public 4

5 Law principles may query this view of Megaw J on the giving of reasons by arbitrators for costs, on the ground that the giving of reasons is an essential element of administrative justice, I do not think that the judge ruled that the principles of costs contained in civil procedure rules of the Supreme Court are applicable or binding on an arbitrator. But section 15 of the Arbitration Act Chapter 125 (the Act) is relevant and it states: Any order made under this Part of this Act may be made on such terms as to costs as the authority making the order thinks just. I do not accept that section 15 of the Act binds an arbitrator to award costs as a judge of the Supreme Court would under Part 64 of the Rules. 7. The defendant further submits that costs follow the event; and since the defendant was in part successful on the claim before the arbitrators, the defendant should have been awarded costs, in the same way that claimant was awarded costs on being successful on part of the claim. To understand this submission, I should briefly give the facts of the case before the arbitration. The defendant was interested in drilling oil wells in Belize, and sent out in December 2007, invitations to tender for the contracts to drill the oil wells. Contracts were entered into between the parties, which stated that the commencement date was 1 st May, 2008, and the contracts were to last for 12 months thereafter. The defendant, under the contracts, agreed 5

6 to pay the claimant sums of money in US dollars, as stated in the contracts for carrying out the drilling operations which involved the use of equipment including drilling rigs. According to the contracts, payments for the drilling operations included demobilization fees, and daily rates for carrying out the drilling operations. The demobilization fees were fees stated in the contracts for the exportation of the claimant s oil rigging equipment out of Belize at the expiration of the contracts, as well as the return of relevant personnel, to the Untied Kingdom or to other point of origin. A dispute arose under the contracts between the parties concerning the amount of demobilization fees, the daily rates and damages payable to the claimant for alleged breaches of the contracts. The claimant alleged at the arbitration proceedings that it was entitled to payment under the contract as follows: i. Contract for Rig 5 (a) Daily rate of US$17,125 for 33 days; (b) Demobilization fee of US$550,000 plus GST; (c) Unspecified damages for BNE s failure to have drill pipe and drill collars repaired; ii. Contract for Rig 7 & 8 (a) Daily rate of US$22,500 for 21 days; (b) Demobilization fee of US$900,00 plus GST (Rig 7); (c) Demobilization fee of US$250,000 plus GST (Rig 8); (d) Damages at the rate of US $22,500 per day plus GST for 6

7 iii. BNE s breach of the contractual terms and refusal to pay demobilization fee (Rig 7); (e) Damages at the rate of US$4,000 per day plus GST for BNE s breach of the contractual terms and refusal to pay demobilization fee (Rig 8); Other (a) Further or other relief as the Arbitrators may see fit; (b) Interest as may be just; (c) Costs incurred by MARANCO in preparation for and conduct of this Arbitration. The total amount claimed by the claimant, according to the defendant was about US$11, This amount claimed was denied by the defendant. 8. As can be seen from the claim of the claimant, it consists, according to the arbitrators, of three main heads: 1. claim for unpaid daily rates. 2. claim in respect of unpaid demobilization fees. 3. claim in respect of damages arising from the defendant s delay to pay demobilization fees. 9. With respect to 1 above, the arbitrators found in favour of the claimant. With respect to (2) above the arbitrators were unable to agree and referred the matter to the umpire for determination. With 7

8 respect to (3) the arbitrators were of the view that before this could be addressed, a determination of (2) would have to be made by the umpire. It must be mentioned that during the arbitration proceedings, the claimant advised the arbitrators that the rigs were demobilized out of Belize on 30 th March, 2010, and that the demobilization fees were paid in full by the defendant. This head of the claim was therefore withdrawn by the claimant during the arbitration. But the claimant maintained its claim before the arbitration for damages for delay or refusal, prior to the demobilization of the rigs from Belize, to pay the demobilization fees. The arbitrators felt, as we saw above, that before this question of damages could be addressed, a decision had to be made by the umpire whether the demobilization fees were payable prior to the exportation of the rigs out of Belize. The matter was referred to the umpire who ruled as follows: That the defendant did not have an obligation under the contract, to make payment for Demobilization Fee prior to exportation of the equipment (rigs) out of Belize, and that, according to the evidence before the Arbitrators, since the demobilization of drilling equipment had not yet fully taken place, the Demobilization Fee payable by the defendant to the claimant was not yet due. 8

9 10. The effect of the umpire s ruling is that the claimant was not successful in that aspect of its claim for damages for delay or refusal to pay demobilization fees prior to demobilization of the equipment out of Belize. In effect, the defendant was successful in defending that head of the claim. Based on the well known principle that costs follow the event, meaning that a successful party should not be deprived of its costs without there being some compelling reason to do so, the defendant submits that it was successful on one head of the claim, head 3, and therefore the arbitrators in failing to specifically award costs to the defendant for that success, is guilty of misconduct; and therefore the award of costs ought to be set aside or remitted to the arbitrators for reconsideration. 11. Since costs follow the event, the question is this: Did the claimant win the arbitration and therefore the event, and entitled to the costs awarded by the arbitrators? The task of deciding who won the arbitration or the event is exceedingly easy where on the facts there is a clear and undisputed winner. But complications arise where one of the parties succeeds on one or more heads of the claim before the arbitration or tribunal, and the other party succeeds on other heads or issues. In such a situation, what is the event for purposes of costs? Should event mean success on any issues or heads of the claim; or should the event mean, in claims where each party achieves success, the overall result as to which party can be said to have won the arbitration? In order to provide an answer to the above questions, I think the logic of the learned authors of Russell on Arbitration, 23 rd Edition, at paragraph ought to be considered. Russell writes 9

10 that in most cases the tribunal will look at the overall result to determine which party can be said to have won the arbitration. In the case of Aghios Nicolaos Lloyd s Report 17 Omrod LJ said: The next question is is this plaintiff a successful plaintiff, or a partially successful plaintiff? If one comes to the conclusion that the plaintiff is a partially successful plaintiff, then consideration can properly be given, in my judgment to apportioning costs. 12. In the claim before the arbitrators, the claimant claimed more than it succeeded in being awarded. On the question of unpaid daily rates the claimant succeeded. On the question of damages for late payment of demobilization fees, the defendant succeeded in proving to the arbitration that the claimant was not entitled to such damages. Considering the fact that both the claimant and defendant succeeded to a certain extent before the arbitrators, I think I should echo the words of Omrod LJ in the Aghios Nicolaos above, the facts of which undoubtedly are different from the case before me, but which laid down in my view, a general principle which I think is relevant to this case. The judge said that where one can perfectly properly say there were two separate issues as to liability to be determined, there were two separate events, and, in a real sense, each party was partially successful, then consideration can properly be given to apportioning costs. The court in the Aghios Nicoloas therefore refused to remit an 10

11 apportioned award on costs to the arbitrator, having considered the above principle. 13. It is clear from the award made by the arbitrators in this case before me, that both the claimant and the defendant were partially successful. Since the claimant and defendant were partially successful consideration by the arbitration on the question of apportioning costs properly arose. It was therefore open to the arbitrators to make an award containing an apportionment of costs. In President of India above where owners of a vessel entered into a contract to let their vessel to charters, and subsequently various disputes arose between the parties, the disputes were referred to arbitration. The arbitration was complicated by a number of claims and cross claims by the parties. The decision of the arbitrators had in the end resulted in a small balance in favour of the owners. The arbitrators in their final award as to costs, ordered that the charters to bear their own costs and pay about two thirds of the owner costs. 14. The charters were dissatisfied with the award as to costs, and appealed to the court for the award to be remitted to the arbitrators for reconsideration on the ground of misconduct. The court held that the arbitrators expressly applied the principle that costs should follow the event, and although there were a number of ways in which the arbitrators might have chosen to exercise their discretion on costs, it cannot be said that the apportionment of costs upon which they decided was not open to them. The reasons disclose no error of law see Hobhouse J at page

12 15. Apportionment of costs was also vividly applied in Channel Island Ferries Limited v. Cenagro Navigation Limited Lloyd s Rep 161 where the parties entered into a charterers contract for the letting of a passenger ferry by the owners to the charterers. There was a clause in the contract which stated that the ferry was to be returned to the owners in the same or as good structure, state, condition as that in which it was delivered to the charterers, fair wear and tear excluded. When the ferry was redelivered it was found to be damaged, contrary to the above clause. The matter went to arbitration where the claim by the owners was divided into five heads, and some of them subdivided into a number of discrete claims and issues. The arbitrator found that the owners won on some claims and failed on others, but that the charterers were in breach of the contract and awarded damages to the owners. In the arbitrator s order for costs, he ordered the charterers to pay their own costs and half of the owner s cost. The owners challenged the award of costs on the ground that the arbitrator erred in not awarding the owners all their costs of the arbitration. In dismissing the owners challenge to the award of costs, the court reasoned that where a claimant took substantial time pursuing discrete issues of fact on which he was unsuccessful this could constitute a legitimate reason for not awarding him all his costs. 16. The fact that the arbitrator had in mind the large amount of discrete items of claims, some of which succeeded and some of which failed, did not persuade the court that the arbitrator erred in principle in apportioning the costs as he did. The owners seem to have argued that there was no justification for not awarding them all of their costs 12

13 because they recovered from the arbitration significantly less than they claimed. Phillips J generally agreed with this argument, and added, that to deprive him of his costs on the ground that he has been only partially successful would be to err in principle : see Phillip in Channel Island above at p 169. But the learned judge proceeded to make exceptions to that general principle, including situations where a claimant takes substantial time pursuing discrete issues of fact on which he is unsuccessful, this can constitute a legitimate reason for not awarding all his costs. The court held that the owners failed in showing that the arbitrator erred or misconducted himself when he apportioned costs in the matter. 17. The arbitrators in this matter before me gave written reasons for making the substantive award and for making the awards as to costs. An arbitrator has a duty to ensure that reasons given by him for awarding or not awarding costs are enough to justify his decision. In most cases it would be enough if the award simply reflects the principle that costs should follow the event, and therefore no further reasons or explanation need be given: see President of India above at page 279. In this matter before me, the arbitrators in their reasons for awarding costs, not only stated the general principle that costs follow the event but they gave further reasons as follows: The arbitrators accept the claimant s submission on the general rule that cost will follow the event. In evaluating the event the arbitrators concluded that even though there was not a clear winner on all 13

14 the issues, the claimant can be said to have won the arbitration when viewed from the standpoint of the overall result. The arbitrators came to the conclusion that costs should be awarded to the claimant, but after adjustments to reflect the fact that the claimant did not succeed on all its claims. 18. The arbitrators expressly applied the basic principle that cost should follow the event. Though the arbitrators did not expressly state in their reasons that they decided on an apportionment of costs, in effect, it seems to me, that is implicitly what the arbitrators did. They adjusted the costs they had in mind to award to the claimant by fifty percent deduction, as the table above shows, to reflect the fact that the claimant did not succeed on all its claims : 19. It cannot be properly said that such adjustment, was not open to the arbitrators since both parties were partially successful at the arbitration. Russell makes the point, while relying on Rotary Watches Limited v. Rotary Watches USA 2014 WL , as follows: Often when considering the event a tribunal will consider, at least in broad terms, on which of its claims a party has succeeded and will adjust the proportion of recoverable costs awarded to reflect the fact that the other party has defeated certain claims or indeed won on other claims it has brought. 14

15 20. The awarding of costs by a tribunal or arbitration involves an exercise of a judicial discretion. Before the court could remit or set aside an award as to costs or otherwise it has to be shown that the arbitration or tribunal failed in its duty to exercise its discretion judicially. Such a failure amounts to misconduct. A failure to exercise the discretion judicially is the same as a failure to exercise it at all. There must be some grounds for its exercise, for a discretion exercised on no grounds at all cannot be a judicial exercise of discretion: see HobHouse J in President of India above at p 278. The applicant has to satisfy the court that the arbitrator misdirected himself on what was involved in the judicial exercise of his discretion. The defendant has not on this ground shown me that the arbitrators erred or misdirected themselves in law in awarding costs as they did. 21. The defendant further submitted as follows: Further, the usual basis for an award of costs is on a party and party basis and not an award of costs actually incurred. When costs are ordered on the usual party and party basis only the reasonable costs of doing the particular work is recoverable so that the burden of any bad bargain on the part of a successful party for professional services is not visited upon the other party. 22. In relation to this submission section 9 of the First Schedule of the Act states as follows: 15

16 The costs of the reference and award shall be in the discretion of the arbitrators or umpire, who may direct to and by whom and in what manner those costs or any part thereof shall be paid, and may tax or settle the amount of costs to be so paid or any part thereof, and may award costs to be paid as between attorney and client. 23. This is the legal basis on which the award of costs, taking into consideration attorney fees, can be grounded. But the defendant submitted that an arbitrator could only properly award costs on an attorney and client basis if the arbitrator considers that the party ordered to pay the costs has in some way acted improperly. Since there is no such improper action by the defendant, costs should have been awarded on a party to party basis rather than on an attorney and client basis. The defendant relies in support of this submission on the authors Mustill and Boyd in their book Law and Practice of Commercial Arbitration in England. In relation to costs to be paid as between attorney and client, the authors seem to be saying that an order for costs to be taxed on the basis of attorney client, will generally only be appropriate where the arbitrator considers that the party ordered to pay the costs has in some way acted improperly : see at page This statement is not supported, in the text, by any legal authority. Moreover, I am bound by section 9 of the Act which does not state the view of the learned authors. 24. In conclusion, it has not been shown, in my view, that the arbitrators exceeded their jurisdiction or did not exercise their discretion 16

17 judicially in making their award as to costs in this matter. I cannot lawfully substitute an amount of costs for the amount of costs awarded by the arbitrators. Where the arbitrators have judicially exercised their discretion as to costs, the court will not seek to replace that decision with its own, even if the court would have exercised the discretion in a different way: see Russell on Arbitration at page I have, unfortunately, no alternative but to refuse the application to set aside or remit the matter to the arbitrators, and to grant the application of the claimant to enforce the orders as to costs made by the arbitrators in their award dated 1 st March, I therefore make the following orders: (1) The application of the defendant to set aside or remit the award of costs made by the arbitrators on 1 st March, 2011 is dismissed. (2) The application of the claimant for permission to enforce the award of costs made by the arbitrators dated 1 st March, 2011 is granted. (3) The defendant to pay costs to the claimant to be agreed or taxed. Oswell Legall JUDGE OF THE SUPREME COURT 10 th August,

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