Arbitration is an alternative, and at times more suitable, option to litigation. The right or obligation to arbitrate is often included in contracts between parties, or in arbitration agreements, whereby the parties choose to arbitrate rather than litigate should disagreements arise. Provisions regarding costs, i.e. who will act as taxing arbitrator, which scale should be applied and where the matter will be taxed may or may not be discussed in such contracts or arbitration agreements. If not, the arbitration tribunal may include these provisions in the arbitration award. It is important to discuss costs in such agreements and in arbitration matters, because costs are perhaps not as clear cut in arbitrations as they are under the various tariffs of the different courts. To determine court costs, one needs only to ascertain which court has heard a matter to know what tariff or scale to apply, and the procedure is fixed. This is not always the position with an arbitration.
Your matter has been finalized by way of arbitration. What do you now do regarding costs? Section 35 of the Arbitration Act 42 of 1965 is relevant. Section 35(1) reads as follows: “Unless the arbitration agreement otherwise provides, the award of costs in connection with the reference and award shall be in the discretion of the arbitration tribunal, which shall, if it awards costs, give directions as to the scale on which such costs are to be taxed and may direct to and by whom and in what manner such costs or any part thereof shall be paid and may tax or settle the amount of such costs or any part thereof, and may award costs as between attorney and client.”
If the award does not include provisions regarding costs or does not stipulate the scale on which costs are to be taxed, s 35(2) directs that any party to the proceedings, can within 14 days of publication of the award, apply to the arbitrator or arbitration tribunal for an amendment of the award.
If the award does not contain provisions regarding the scale of costs and how the matter is to be taxed, one should look, primarily at the arbitration agreement and any further contracts, agreements and pre-trial minutes between the parties. These agreements between the parties might provide that the matter will not be taxed by the arbitration tribunal, or they might include directions on who should tax the matter. The scale of taxation might also be mentioned. It is important to note that s 35(1) states “unless the arbitration agreement otherwise provides”. This simply means that any provisions regarding costs in the arbitration agreement take precedence over decisions by the taxing arbitrator, as far as costs are concerned. The arbitration agreement cannot determine which party will pay the costs or that a party should pay their own costs – this is decided by the taxing arbitrator once an award is made. However, the manner in which the costs are taxed and the scale of costs can be pre-determined.
The arbitration agreement could determine that costs are to be taxed in a specific High Court and not by a taxing arbitrator. The usual procedure in that court will then be followed. If an award is made an order of court by agreement between the parties or due to the arbitration tribunal not taxing the costs after making an award, the court may order that the costs are to be taxed by the taxing master and direct on which scale the costs are to be taxed. Section 35(3) directs that “If the arbitration tribunal has no discretion as to costs or if the arbitration tribunal has such a discretion and has directed any party to pay costs but does not forthwith tax or settle such costs, or if the arbitrators or a majority of them cannot agree in their taxation, then, unless the agreement otherwise provides, the taxing master of the court may tax them.”
The parties may not wish to have the matter taxed through the court system due to time constraints, or because they wish to appoint the taxing arbitrator themselves. For whatever reason, an arbitration agreement can be quite detailed in this regard. Other items such as the right to review and the procedure by which the taxation can be reviewed could be included. Section 35(5) provides that “any taxation of costs by the taxing master of the court may be reviewed by the court”. But what of matters that are heard by the tribunal or before an agreed taxing arbitrator? The right to review is an important part of this process. As with any judge or magistrate, apart from having subjective opinions and biases, any authoritative figure can make an error in judgment. This also happens during taxations in front of a taxing master of the court, but one is then assured of the possibility of taking the matter on review. I have seen provisions that the decision of the taxing arbitrator is final and that there is no right to review. This might sound favorable if the taxing arbitrator decides primarily in your favour. However, if any decisions are made which are contrary to the general principles regarding costs and detrimental to your client, it would be better to have the right to review included in the agreement.
As held in Bills of Costs (Pty) Ltd v The Registrar, Cape, NO 1979(3) SA 923 (A) at 946B “Traditionally taxation has been, and still is, regarded as an integral part of the judicial process and the rights and obligations of the parties to a suit are not finally determined until the costs ordered by the Court have been taxed”. And, as Rochelle Francis-Subbiah states in Taxation of Legal Costs in South Africa– “Review of taxation is an integral part of the judicial process.”
The reasons behind taking a matter to arbitration as opposed to litigation are varied, but will probably be related to the time frames for formal litigation, while the ability to appoint an arbitrator who has knowledge and experience in a certain profession may also be a requirement. The less formal approach may be appealing to others. Whatever the reason, the parties should be cautious in their approach when considering provisions regarding costs. A lower scale of costs will only be beneficial if your client is paying the costs. Not having the right to review could be a costly option to forfeit. Perhaps one should err on the side of caution, rather than assuming that the matter will be finalized in its entirety sooner if one does away with the right to appeal and review. There is never certainty regarding an outcome and a longer route to a better outcome may be a wiser option.
As with litigation, in whatever form it may take, one cannot presume that a matter will be decided in your favour. I have already mentioned bias and mistakes on the part of the adjudicator. Further problems could include incorrect interpretation of the rules, the law or case law. Inexperience, as well as a misunderstanding of certain principles, could play a role in certain situations. Whatever the reason, one would like a backup plan, or some sort of insurance, if you disagree with rulings that have been made. I would encourage all practitioners entering into arbitration agreements, not to agree to provisions which exclude the right of appeal or review, and rather to explicitly include it.
The specific provisions to consider including in your arbitration agreement regarding costs will include how the matter is to be taxed, on which scale the matter is to be taxed, the taxing arbitrator to be appointed and where the taxation will take place. Other provisions regarding payment of the taxing arbitrator’s fees until such time as the taxing arbitrator has awarded costs, and the right to review should be considered seriously, as well as whether the award should be made an order of court and whether it will be taxed outside of the court system. The most important consideration is to be able to recover costs easily and quickly once the arbitration has been finalized.
