A prior post in the Blog’s Bermuda Form Arbitration Series discussed several strategic considerations for the discovery and briefing stages of Bermuda Form arbitrations. This post focuses on the final stages of arbitration: The final hearing, and awards of interest and costs.
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The Final Hearing
The presentation of evidence in the “final hearing” of a London arbitration differs substantially from traditional trial practice in the United States. A party’s direct or affirmative evidence is presented in writing in witness statements. Witnesses are presented live only for cross-examination. A party should offer all its witnesses for cross-examination; if a party does not do so, it risks that the arbitrators will not give a witness’s direct evidence much weight. This rule does not apply if the parties agree that a witness need not be presented for cross-examination.
This system puts a premium on comprehensive, yet concise and well-organized, witness statements. Again, the plaintiff or petitioner typically has the opportunity to present both opening statements and rebuttal statements following the opponents’ statements. The parties can agree to a different order of presentation, or the panel may allow for additional presentations or points to be made, however.
Effective witness statements require substantial input from the witness her- or himself and, preferably, are written in the witness’s own “voice.” Lawyers also should prepare witnesses for cross-examination but need not prepare direct testimony as in an American civil jury trial.
In some cases, the parties may wish to consider video-conferencing for witnesses from the United States whose cross-examination is expected to be short. Video-conferencing saves money and, today, is a realistic alternative to live testimony because the technology has advanced by leaps and bounds.
Some time after the final hearing, the arbitration tribunal will issue an award. The typical Bermuda Form policy refers to an award being made within 90 days; however, that time period may be extended formally (with notice to the parties), or informally. Arbitrators may require payment of outstanding arbitrator fees before the award is issued.
Often, the principal sum covered by a Bermuda Form policy will be many million dollars, and thus awards of interest can amount to substantial sums. Under the English Arbitration Act, a tribunal may award simple or compound pre-judgment and post-judgment interest from such dates, and at such rates, as it considers meet the justice of the case. In Bermuda Form arbitrations, a common approach is to award interest at either the United States prime rate or the Bank of England base rate plus 1 percent, with the decision as to whether to award simple or compound interest left to the discretion of the tribunal
Prevailing parties in Bermuda Form arbitrations often argue for application of the 9 percent rate mandated by New York CPLR § 5004, as that rate is substantially higher than the United States prime rates of recent years. While the English Arbitration Act would allow a tribunal the discretion to award the CPLR’s 9 percent rate, some policyholders have argued that the Bermuda Form’s New York governing law provision gives them a substantive right to that rate regardless of the tribunal’s discretion. This interest dispute—and the question of whether the New York CPLR indeed creates a substantive right to interest at 9 percent—has been the subject of much litigation and controversy.3 Given that, some Bermuda Form tribunals may adopt an approach applying the CPLR’s 9 percent interest rate without classifying whether that rate is procedural or substantive, thus sidestepping this thorny and unsettled legal issue.
With regard to costs, versions of the Bermuda Form prior to the 004 Form contained a provision that each party should bear its own costs of an arbitration. Since then, the usual Bermuda Form has included a provision that any order for costs shall be in the sole discretion of the tribunal. Accordingly, there are essentially two categories of costs which will need to be allocated: (i) the arbitrators’ fees and expenses; and (ii) the legal or other costs of the parties.
For arbitrators’ fees, a common practice is for each party to pay for the fees and expenses of its appointee, with the costs of the third arbitrator divided between both parties. Alternatively, some arbitrators request that parties deposit a sum of money for arbitrator fees and expenses into an account controlled by the third arbitrator. In practice, arbitrator fees are rarely a subject of dispute. If issues do arise, the English Arbitration Act makes the parties jointly and severally liable for the arbitrators’ reasonable fees and expenses.4
As to legal costs, the general principle in English court practice is that the “prevailing” party will be ordered to pay the “losing” party’s legal costs, and hence this principle is the starting point for an English arbitration tribunal. Often, the prevailing party will not succeed on every single issue in dispute, and thus the tribunal may consider it appropriate to make allowances (such as a percentage reduction) for costs incurred on issues on which the prevailing party has failed.5 In all events, the general rule is that all costs should be reasonably incurred, and the burden of proving reasonableness is on the receiving party.6