The determination of which party bears cost in arbitration, is usually dependent on the agreement of the parties and the arbitral tribunal at the inception of the arbitration vide the arbitral panel procedural order. Where the procedural order makes provisions as to how cost is to be apportioned, then cost is determined on such bases. However, where the procedural order is silent as to how cost is to be apportioned, the applicable law as to the determination of cost is based upon the law governing the arbitration proceedings.
Applicable Law on cost in Domestic Arbitration in Nigeria
The foremost law on arbitration in Nigeria is the Arbitration and Conciliation Act (ACA). Although, the ACA is silent on cost in relation to Domestic Arbitration, the Arbitration rules encapsulated by virtue of Schedule 1 to the ACA however makes provisions for cost which covers both domestic and international arbitration.
By virtue of article 38 of the Arbitration rules;
- The arbitral tribunal shall fix costs of arbitration in its award and the term “costs” includes only-
- The fees of the arbitral tribunal to be stated separately as to each arbitrator and to be fixed by the tribunal itself;
- The travel and other expenses incurred by the arbitrators;
- The cost of expert advice and of other assistance required by the arbitral tribunal;
- The travel and other expenses of witnesses to the extent that such expenses are approved by the arbitral tribunal;
- The costs for legal representation and assistance of the successful party if such costs were claimed during the arbitral proceedings, and only to the extent that the arbitral tribunal determines that the amount of such costs is reasonable.
The award of cost and as so rightly held by our courts is that cost is not usually imposed as a punishment but as a compensation for out of pocket expenses in whose favour it may inure. In African Continental Bank Ltd. & Anor. v. Ajugwo (2011) LPELR-3637(CA) the court appeal affirmed this position when it stated as follows:
“It is worthy of note that costs are not imposed as a punishment on the party who pays them, neither are they awarded as a bonus to the benefiting party. The party entitled should only be indemnified for his out of pocket expenses and be compensated for the true and fair expenses for the litigation.”
The General Rule on Cost
As a general rule, cost follows event and by virtue of interpretation, cost is to be borne by the unsuccessful party. The award of cost, of course, is at the discretion of the court, however, such discretion must be exercised judicially and judiciously. In Haco ltd v. Brown (1973) 4 S.C. (REPRINT) 103; the Supreme Court Per Irikefe, AG. J.S.C laid emphasis to this general rule thus:
“We are satisfied that there is abundant authority in support of the proposition that a successful party in an action, unless he misconducts himself, is entitled to costs as of right.”
The Arbitration rules also recognizes this general rule which is captured by virtue of article 40 of the Arbitration rules as follows;
- Except as provided in paragraph 2, the cost of arbitration shall in principle be borne by unsuccessful party. However, the arbitral tribunal may apportion each of such cost between the parties if it determines that apportionment is reasonable taking into account the circumstances of the case.
- With respect to the cost of legal representation and assistance referred to in Article 38, paragraph (e), the arbitral tribunal, taking into account the circumstances of the case, shall be free to determine which party shall bear such costs or may apportion such costs between the parties if it determines that apportionment is reasonable.
Exception to the General rule
The above provision clearly gives cognizance to the successful party in the arbitration, however, sub-paragraph (2) of Article 40 recognizes an exception where the tribunal may determine that cost may be borne by any party in the arbitration depending on the circumstances of the case. This instance covers cost of legal representation.
Although, the Arbitration rules does not provide for any express exception where cost may be borne by the unsuccessful party, judicial authorities have however given credence to such exceptions. The attitude of the parties in the course of the arbitral proceedings plays a significant role in whether the arbitrator or panel will invoke its discretion in departing from the general principle. Thus, where there is unreasonable delay or employing delaying tactics to frustrate the arbitral process, the arbitrators and the other party(s) in dispute, the arbitrator may not apply the cost follows the event principle. In the case of Westland Helicopters Ltd. v. Arab Organisation for Industrialization, the arbitral tribunal awarded £18million against the losing party for its delay which caused the proceedings to last 13 years. Also, in the case of Elgindata where the arbitral tribunal asserted that:
“It is now clear that a too robust application of the cost follows the event principle encourages parties to increase the costs of the litigation or arbitration, since it discourages parties from being selective as to the points they take. Because if you recover all your costs as long as you win, you are encouraged to leave no stone unturned in your efforts to win.”
The above assertion was modified by Lord Woolf M.R. in Phonographic Performance Ltd v. Rediffusion Music Ltd. He was of the view that:
“…to the effect that where the successful party raises issues or make allegations which have failed, he may not only be deprived of some or all of his costs but may be ordered to pay the whole or a part of the costs of the unsuccessful.”
Consequently, where the successful party has issues that tend to prolong the timespan of the arbitration which was indeed not successfully contested, the arbitral tribunal can award cost against the successful party for such delay.
Furthermore, in situations whereby the successful party was unsuccessful in a major issue that led to an increase in the cost of the arbitration, the arbitral tribunal can depart from the principle that cost follows the event. Another notable departure from the cost follow event rule is the case of Calderbanks v. Calderbanks; where the respondent made a settlement offer which would have readily saved time and the cost of the arbitration, howbeit, rejected by the claimant who was the successful party on unreasonable grounds, the court at the end of the proceeding awarded cost in favour of the respondent.
Ultimately, arbitration being a dispute resolution mechanism activated by parties’ agreement, where it is mutually agreed in writing that the costs of the arbitration should be allocated on a certain method, the arbitrator can depart from the general rule on cost and honor the agreement between the parties.
Although the ACA is silent of the applicable regime on cost in domestic arbitration, the arbitration rules encapsulated by virtue of schedule 1 to the ACA circumvents for this lacuna and provides an itemized rider of what will amount to cost in arbitration.
The general jurisprudential rule on cost is that cost follows event and the successful party is entitled to its cost. While the substantive law does not provide for express departure from this general rule, judicial authorities have lent caps in recognizing instances where cost may be awarded against the successful party. It is however recommended that parties at the inception of the arbitration proceeding agree on how cost is to be apportioned as this would forestall any disagreement that may arise if the discretion is left to the arbitrator or panel.
* Deinma is an Associate of Perchstone and Graeys (Solicitors, Advocates, Arbitrators). He holds an L.L.M. in International Commercial Law from the University of Aberdeen, Scotland. He is Associate member of the Chartered Institute of Arbitrators UK (ACIarb) and a member of the Institute of Chartered Mediators and Conciliators (ChMc).
 Cap A18 Laws of the Federation of Nigeria 2004
 Idornigie P. O., Commercial Arbitration Law and Practice in Nigeira, Panaf Press, 2015.
 See Caamassie v. Tell Camm. Ltd. (2003) 1 NWLR (Pt. 802) pg. 551.
 See the case of NNPC v. Clifco Nig. Ltd. (2011) LPELR-2022(SC). U.B.N. v. Nwaokolo (1995) 6 NWLR (Pt.400) 127.
 See Dutch Party v. Turkish Party 125 Clunet 1047 (1998).
 Bello Adesina Temitayo, “Cost Follows the Event in Arbitration: Its Paradigm and Relevance”, Journal of Research and Development Vol. 2, No.1, 2014.
 80 ILR 622 (1987-10-23). There are currently no case laws recognizing exceptions to this cost follows event principle however, foreign authorities form persuasive opinion which the practices of arbitration recognize.
 (1993) 1 All E.R. 232.
 (1999) 2 All E.R. 299 at 313.315.
 See Forster v. Farquhar (1893) 1 QB 564.
 (1975) ADR.L.R. 06/05 cited in ibid (n 5).
 ibid (n 6).