14/01/2016

Recovering Costs of Foreign Litigation Brought in Breach of an Arbitration Clause: Two Bites of the Cherry?

It is well known that English law allows recovery for damages for breach of contract in case of a breach of jurisdiction or arbitration clause (see our post on Blair J’s 2015 decision: Barclays Bank v ENPAM, for example). Parties commonly claim costs of addressing the foreign proceedings as such damages. However, what recovery should there be for an innocent party if the foreign court has already declined jurisdiction and awarded the innocent party its costs of the jurisdictional proceedings? Is there any loss still to be recovered in damages in the correct forum?

This issue was considered in the recent London Arbitration 1/16 (2016) 942 LMLN 2 (published on 11 January 2016). The dispute concerned a series of lay-up contracts, whereby the Respondent laid up vessels in the Claimant’s facility in the Far East. All contracts provided for London arbitration. The Respondent failed to make requisite payments in a timely fashion. The Claimant commenced a number of claims against the Respondent in a foreign jurisdiction, and subsequently commenced London arbitration. The Respondent counterclaimed for damages for breach of the arbitration agreement.

One of the Respondent’s counterclaims was particularly significant. The foreign court had in fact dismissed the Claimant’s claim, finding that it had no jurisdiction, and granted the Respondent its costs in the local currency. The Claimant had paid the sum awarded. In the English arbitration, the Respondent sought damages representing an additional US$54,385.39 paid to its local lawyers and £20,089.50 paid to its English solicitors in respect of this foreign claim. The quantum sought was thus in addition to the costs recovery already made by the Respondent. The figures were derived by an assessment carried out by a UK costs lawyer, applying the indemnity basis.

The Tribunal allowed this counterclaim and granted the Respondent the costs sought as damages. The Tribunal considered that there had been no recognizable taxation or determination of the Respondent’s costs in the foreign proceedings, and therefore it was still open to the Respondent to claim the costs as damages. Further, the Tribunal found that the Claimant had failed to make out any argument that the Respondent’s costs claims were unreasonable or excessive.

The parameters of costs recoverability as damages are not yet fully established. In Union Discount v Zoller, the first principal case on this topic, the Court of Appeal considered that costs were recoverable as damages, inter alia, where the rules of the foreign forum only permitted recovery of costs in exceptional circumstances; and the foreign court did not make any adjudication as to costs. The Court of Appeal did not specifically hold that recovery was confined only to those circumstances. Subsequent cases have sometimes allowed recovery even when the foreign court proceedings have costs rules similar to those of the English courts . One must ask if decisions such as that in London Arbitration 1/16 raise concerns as regards comity. Is an additional costs award a contradiction or implicit criticism of a foreign court’s ruling, or it is legitimate recompense to an innocent party who has suffered a breach of contract that a foreign court may not have been able to remedy fully?