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$1m case: $2.8m legal costs won't be cut
K.C. Vijayan Tue, Feb 19, 2008 The Straits Times
A CONSTRUCTION firm which lost an arbitration claim worth just under $1 million against an Asian government will now have to pay almost three times that amount in legal costs. The joint venture, comprising an Australian company and a South-east Asian firm, appealed to the High Court to lower the costs awarded - the first time that a party in an international arbitration has tried to do so in Singapore. But in a landmark decision, Justice Judith Prakash ruled that the courts had no authority to review this amount.

This would allow the courts to 'prevent or curb excesses' in arbitrators awarding one side very steep costs.

In an arbitration, the parties pick a neutral party to hear their case. Both agree to abide by whatever decision the arbitrator makes after the hearing. The parties in an arbitration may not be named.

Justice Prakash said the law now allows the courts to change any decision made in arbitration hearings only if it was against public policy or there was a breach in the rules of natural justice when the award was made.

In this case, which arose from a dispute over the construction firm building an infrastructure project, the costs awarded to the Asian nation came up to $2.8 million.

The construction firm's claim: just below $1 million.

In both court cases and arbitration cases, lawyers said the legal costs awarded were generally lower than the amount claimed, but in exceptional cases, the judge or arbitrator would usually have good reasons to award a higher amount.

In the present case, lawyers from Drew & Napier acting for the Asian country had argued that part of the costs came from their preparation of a counter-claim of $20 million against the firm.

The lawyers for the construction firm, led by Senior Counsel Philip Jeyaretnam, had argued that the legal costs awarded were so disproportionate that it would 'shock the conscience' and be 'wholly offensive'.

He argued that this disproportionate award went against public policy and the rules of natural justice - the two situations where the courts can intervene to reverse an arbitrator's decision.

Justice Prakash said in her written judgment that she had 'some sympathy' for the construction firm, but said neither argument held water.

The judge discussed the usual situation in court cases - where the legal costs awarded were usually lower than the amount awarded to the winning party.

This works on a principle of proportionality where the costs awarded to one party are proportionate to the amount involved in the proceedings in which the costs are being assessed and to other circumstances of the case.

Arbitration lawyers said they usually get legal costs which are lower than the amount in question but said they usually charge a higher fee than for court cases as arbitration matters usually require more work.

Senior Counsel Davinder Singh, who represented the Asian nation, billed $825,000 comprising a daily rate of $25,000 and a lump sum of $350,000. The fee for the rest of Drew & Napier's legal team came up to $1.7 million.

The arbitrator, Mr Alan Thambiayah, based his awarding of legal costs on international standards, where fees of up to US$1,000 (S$1,414) per hour were the norm.

vijayan@sph.com.sg