English Fee Shifting Techniques Applied in US Arbitrations Commercial agreements containing arbitration clauses often include fee shifting provisions, purporting to enable the prevailing party to a dispute to recover its costs and attorney fees from the losing party. Further, the governing rules of US arbitration bodies generally permit an arbitrator to allocate costs and attorneys fees so far as permitted under the arbitration agreement, relevant state law or requested by the parties to the arbitration. The purpose of this note is to address the question of how parties to arbitrations can best (and most costeffectively) secure the recovery of attorney fees where this is in prospect. English cost shifting strategies, applied as a matter of course in every aspect of UK litigation and international arbitration, may also assist in the recovery of attorney fees in US arbitrations. I will focus on three aspects of the arbitration process: the beginning, the end and behind the scene. By the beginning I mean the first hearing with the arbitrator(s), at which essential procedural issues are addressed. By the end of the arbitration, I refer to the award, and the incorporation of the award of attorney fees in the final result. Behind the scene of the arbitration is the issue of offers of settlement, and the extent to which carefully crafted offers can assist in securing recovery of attorney fees, even for the losing side in the proceedings. The Beginning of the Arbitration Where recovery of fees is in prospect, consideration should be given to raising all salient issues relating to recovery with the arbitrator at the first management conference or hearing. The issue of attorney fees can be clarified and the procedure streamlined if (1) The legal basis for the recovery of attorney fees is raised (and directions be obtained for resolving any dispute on the issue between the parties) 1 ; (2) The arbitrator(s) provides a procedure for determining!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1 Bear in mind that under rule 47(d)(ii) of the AAA commercial rules, attorney fees can be awarded if all parties have requested such an award, and this may be done at the management hearing, even if not in the demand and answer.! 1!
a. Who is the prevailing party (even if this is purportedly defined in the arbitration agreement) and b. The quantum of the award of costs and attorney fees, including the provision of evidence (albeit with preservation of attorney-client confidentiality) and the resolution of any dispute as to quantum. In English litigation, the tribunal allocates costs generally between the parties as part of any order in the proceedings, and there is a separate (and somewhat elaborate) system for those costs to be assessed. But English practitioners can seek to streamline the assessment procedure by obtaining directions from the judge (who after all had the conduct of the relevant hearing) on matters to be taken into account or disregarded on assessment. Similarly, questions may be raised at the management hearing (and submissions urged upon the arbitrator, even if no definitive answer is obtained) whether (for instance) the conduct of the parties in the arbitration will be a relevant factor, what form of evidence of attorney fees will be required, at what stage it should be provided, and crucially (in view of the issue of settlement offers, to be discussed below) whether the arbitrator will make a separate award of attorney fees after the determination on the merits of the dispute, to include consideration where appropriate offers to settle. It is essential not to leave the matter of attorney fees to the end of the arbitration. You may face an argument that the arbitrator is functus officio once the award is rendered, the arbitrator might (wrongly) decline to award attorney fees, or simply fail to do so, whereupon the prevailing party will not be entitled to seek attorney fees as part of proceedings to confirm the award. The failure or refusal to award attorney fees is also not a ground for appealing the award. The End of the Arbitration If the procedure for the adjudication of issues relating to the recovery of attorney fees has been established at the outset of the arbitration, then the parties will be able to amass their evidence and other material necessary to enable the arbitrator to award attorney fees as the arbitration proceeds. Parties may be invited to include evidence and submissions on attorney! 2!
fees in their post-trial briefs. This is awkward and expensive, especially in multi-party arbitrations, in view of the fact that arguments may have to encompass the whole range of possible awards. In arguing why another party should not recover attorney fees even if successful, in whole of in part, a party may simply be supplying opposing arguments to an award in its favor. In English proceedings, the court usually hears arguments as to costs after judgment on the merits is given. It is often prudent to adopt this technique in arbitrations, and ask the arbitrator to hear submissions (written or oral) on the question of recovery of attorney fees, after the award is given on the merits. One party or the other can then raise matters surrounding (or preceding) the arbitration that would have been irrelevant or inappropriate before the merits of the case have been decided, but which clearly relate to the justice and fairness of the award of attorney fees. It is also often necessary for only one party (the prevailing party) to adduce evidence of its attorney fees, and the opposing party/parties can challenge the substance and quantum of the claim. If the award of attorney fees is to be determined after the award on the merits, it will of course be essential to provide expressly for the record be kept open after the initial award on the merits. Where the arbitration agreement and/or arbitration rules provide a deadline for an award, it is normally possible, if necessary, to vary the rules by agreement to allow time for the adjudication of attorney fees. Finally, one of the principal reasons for seeking a separate, ancillary determination of the award of attorney fees after the determination of the merits, is to take strategic advantage of any offers of settlement. Behind the Arbitration Scene In most fee shifting jurisdictions, which include UK, Australia, Canada, Hong Kong, New Zealand, Singapore, South Africa, most of the other Commonwealth countries and the Republic of Ireland, the general rule is that costs (including attorney fees) follow the event and the prevailing party is prima facie entitled to recover its costs from the unsuccessful! 3!
party/parties. But within that framework, in England and Wales at any rate, the court is afforded a broad discretion as to the cost order it will make, based upon questions of justice and fairness and even the interests of efficient court administration. Since 1975 the English court has given effect in awarding costs to what is called a Calderbank offer (named after the decision in Calderbank V. Calderbank [1975] 2 All ER 333). This is an offer of settlement made without prejudice (that is, a sealed offer) but subject to the express reservation of the right to refer to the offer when costs fall to be determined by the court. It is usually headed without prejudice save as to costs. A Calderbank offer has a similar effect as a California CCP 998 offer but is much more flexible in its operation. The offeror of a Calderbank offer will be entitled to reveal the terms of the offer to the arbitrator when the award of attorney fees falls to be considered in any case where the offer was not accepted (even if merely ignored or subject to a counter-offer) but turns out to be (on balance) more favorable to the offeree than the award. This is why care should be taken in addressing, at the outset of the arbitration, how the arbitrator will determine the issue of who is the prevailing party, even where the recovery of attorney fees in favor of such party is mandated in the arbitration agreement. This is also why the arbitrator should deal with the issue of attorney fees after the determination of the outcome of the dispute. Where the Calderbank offer is effective (as being more favorable than the award), there is a clear basis for asking the arbitrator to award attorney fees in favor of the offeror from the date on which the offer should have been accepted. The argument is that the offer should have been accepted, and that acceptance would have spared the offeror the costs and fees incurred after the time for acceptance of the Calderbank offer. There are two overriding advantages to making a Calderbank offer (or offers) in an arbitration. Firstly, such an offer facilitates settlement. The offer puts the offeree at risk of having to pay some attorney fees if it fails properly to consider accepting the offer. Even if it succeeds in obtaining an award in the arbitration, if the award does not exceed the offer it can expose the offeree to an obligation to pay a substantial proportion of the offeror s attorney fees. This could result in a substantial award in the arbitration being largely offset or! 4!
even overtaken by an award of attorney fees incurred by the losing party after the offer was made and not accepted. Early offers present very considerable potential risks for nonacceptance, but can also present problems for offerors (discussed below). Secondly, a Calderbank offer affords a party at risk of losing an arbitration some protection on fees if the offeree rejects or does not accept the offer and the award then fails to 'beat' the offer. If carefully calculated, the offeror will be able to incur fees in resisting the claim(s) in the arbitration knowing that if the award fails to exceed the Calderbank offer, then it can rely upon the Calderbank offer to apply for an award that the offeree pay costs and fees incurred from the date when the offer ought to have been accepted. My usual advice is to pitch a Calderbank offer at the highest amount that the offeror could abide if it s accepted. The timing and drafting of Calderbank-type offers in an arbitration are important considerations. One of the most common objections by a wining party to an adverse award of fees as a result of the failure to accept (and then beat) the offer is that it was not reasonable for the offer to be accepted at the time it was made because of imperfect information relating to the merits of the dispute. If material or evidence that emerged after the date for acceptance of the offer (which for obvious reasons does not remain open indefinitely) turns out to be crucial in determining the outcome and the size of the award, the wining party will argue that it was only after the expiry of the offer that it became clear that the offer was within the realm of a reasonable result. Early offers can put immense pressure on an offeree, but an offeror should be prepared to make a further offer (or offers) if there is a risk that the offeree might be able to say that the arbitration had not reached a point at which it was reasonable to consider acceptance. Teresa Rosen Peacocke 3 Stone Buildings London and New York September 2015! 5!
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