Under the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (the “Arrangement”), a party “to arbitral proceedings in Hong Kong” is entitled to seek interim measures, such as property, evidence and conduct preservations, in the relevant Mainland courts. Consequential costs will inevitably be incurred by the party for such an application in the Mainland court proceedings, which are separate but ancillary to the Hong Kong arbitration proceedings. A practical question would then arise: are these consequential costs recoverable in the Hong Kong arbitral proceedings?
Types of costs in arbitration
In general, two types of costs may arise in an arbitration: (a) costs of the arbitration and (b) costs of the reference. Costs of the arbitration commonly include (i) the tribunal’s fees and expenses, (ii) the administrative fees and expenses of the institution, and (iii) the reasonable cost of expert advice and other assistance required by the tribunal. Costs of the reference, on the other hand, are the parties’ costs of preparing and submitting their cases to arbitration. Such costs would also include the costs of interlocutory application where the arbitral tribunal has made no separate order as to the costs of such applications (Evmar Shipping Corpn v Japan Line Ltd (The “Evmar”)  2 Lloyd’s Rep 581).
In international arbitration, costs incurred for developing and presenting the case before the arbitral tribunal may be recoverable. Costs incurred for ancillary judicial proceedings are, however, generally considered as lacking a sufficiently close nexus to the arbitration and, hence, do not form part of the costs of the arbitration.
Power of the tribunal to award costs in Hong Kong
Costs of obtaining interim measures under the Arrangement
In Hong Kong, an arbitral tribunal’s powers to award costs are contained in s. 74 of the Arbitration Ordinance (Cap. 609) (the “AO”), with relevant provisions set out below:
- Section 74(1): an arbitral tribunal may include in an award directions with respect to the costs of arbitral proceedings (including the fees and expenses of the tribunal).
- Section 74(5): subject to s. 75, the tribunal must (a) assess the amount of costs to be awarded or ordered to be paid under this section (other than the fees and expenses of the tribunal); and (b) award or order those costs (including the fees and expenses of the tribunal).
- Section 74(7): the tribunal must only allow costs which are reasonable in all the circumstances and may allow costs incurred in the preparation of the arbitral proceedings prior to the commencement of the arbitration.
The AO is silent on whether the costs incurred in court proceedings for seeking interim measures are recoverable as part of the costs of the arbitral proceedings. Based on the foregoing provisions and the practice of international arbitration, it seems that the costs of the arbitration proceedings under the AO only encompass the costs incurred in the arbitration proceedings, but not those incurred in ancillary court proceedings for obtaining interim measures. Hence, in practice, the arbitral tribunal would not award costs of obtaining interim measure before the court. The proper approach is for the parties to apply to the court for costs order of the interim measure made by the court in aid of arbitration. The Hong Kong courts are willing to make costs orders of the application for interim measures in aid of arbitration. In some occasions, the Hong Kong courts will assess costs summarily.
However, the approach of the Mainland courts in awarding costs of interlocutory application is quite different from the approach adopted by the Hong Kong courts. Unlike the common law, there is no concept of “costs follow the event” under the Chinese law. Typically, the Mainland judges would award costs to the respondent if the claimant has commenced an action for malicious purpose. Given that the Mainland judges do not have the opportunity to consider all documents between the parties in the interlocutory application for interim measure, the Mainland judges therefore would not make costs order for the application of interim measure in aid of arbitration under the Arrangement, except for the application fee.
In light of the above, it is significantly uncertain whether the parties can successfully obtain their costs of application for the interim measures before Mainland courts under the Arrangement after the Hong Kong tribunal publishes an award. Indeed, such costs application is very likely to be rejected by the Hong Kong trubinal.
Costs of arbitration under the UK Arbitration Act
Different to the AO, the UK Arbitration Act 1996 (the “1996 Act”) explicitly sets out the scope of the costs of the arbitration. According to s. 59 of the 1996 Act, the “costs of the arbitration” include (a) the arbitrators' fees and expenses, (b) the fees and expenses of any arbitral institution concerned and (c) the legal or other costs of the parties, and (d) the costs of or incidental to any proceedings to determine the amount of the recoverable costs of the arbitration.
Under English law, the reference to “other costs” typically encompasses the costs incurred prior to the commencement of the arbitration proceedings, costs of obtaining evidence, fees and expenses of witnesses, travel and accommodation costs, expert’s fees and necessarily costs incidental to the arbitration, such as costs of arranging hearings.
However, the English court had commented that the class of “other costs” is not closed. To determine whether the costs fall within the meaning of “other costs”, as HHJ Waksman QC said at paragraph 58 of the judgment of Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd  EWHC 2361 (Comm), the question is “Do the costs relate to the arbitration and are they for the purposes of it?” If the costs are not incurred to bring or defend the claim, they will fall outside the meaning of “other costs” and do not relate to the arbitration.
In Essar Oilfield Services Ltd, the judge held that “other costs” specified in s. 59(1)(c) must be costs which are related to the arbitration proceedings, including the costs of third party funding. The lack of a specific reference to third party funding or any specific category of “other costs” was immaterial. At paragraph 69, HHJ Waksman QC said: “As a matter of justice, it would seem very odd and certainly unfortunate if the arbitrator was not entitled under s59(1)(c) to include the costs of obtaining third party funding as part of "other costs" where they were so directly and immediately caused by the losing party.”
In contrast, in London Arbitration 5/04 (2004) 635 LMLN 4, a case concerning time charterparty dispute, the arbitral tribunal found that although there were authorities where the courts allowed costs of obtaining security, those decisions were based on the court rules which empowered the courts to award costs with a much wider scope than it was the case for arbitrators. In the tribunal’s view, it was clear from the relevant sections of the 1996 Act that the tribunal could only award the costs of the arbitration. Since the costs incurred in seeking security were not costs of the arbitration, therefore, they could not be awarded in the arbitration.
Should the costs relating to the interim measure obtained under the Arrangement be recoverable as costs in an arbitral award?
One of the main purposes of the Arrangement is to facilitate the parties to arbitration proceedings in Hong Kong to seek interim measures from Mainland courts in aid of arbitration, so that the arbitration proceedings can be carried out effectively. There is no doubt that the application made under the Arrangement is relevant to the arbitration proceedings.
Unfortunately, under the present Arrangement and the AO, it seems that there is no mechanism for the applicant to obtain costs order for the application for interim measures made in Mainland courts.
Applying the English approach in interpreting “other costs”, it is arguable that the costs of obtaining interim measures before the Mainland courts under the Arrangement is closely connected and relevant to the Hong Kong arbitration. That said, such costs should be considered as part of the costs of the Hong Kong arbitration proceedings and the Hong Kong tribunal should be allowed to make a costs award relating to this application.
Thus, it is suggested that expansion or amendment to the Arrangement should be made to allow the tribunal to assess costs of applying interim measures in Mainland China in the award.