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NewYorkLaw: AwardsOfAttorneysFees InternationalArbitration ArbitrationReport MealeysInternational May2005issueof reprintedfromthe Acommentaryarticle ParisandLondon
NewYorkLaw: AwardsOfAttorney’sFees InInternationalArbitration
by MichaelW.Bühler JonesDay Paris HelenConybeareWilliams JonesDay ParisandLondon
Acommentaryarticle reprintedfromthe May2005issueof Mealey’sInternational ArbitrationReport
MEALEY’S
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[Editor’s Note: Michael W. Bühler is a partner and head
ce of Jones Day, as well as coordinator of Jones Day’s international dispute resolu- tion practice in Europe. Helen Conybeare Williams is Counsel in Jones Day’s international dispute resolution practice in the London and Paris offi
ey both con- centrate on international commercial arbitration. Copy- right 2005 by the authors. Replies to this commentary are welcome.] In many international business transactions, con- tracting parties choose New York law as the governing law of their contract. Ti is is often true even where none of the contracting parties are from the United States, let alone from New York State. In many such contracts, parties also agree to submit any disputes between them to international arbitration. Parties and counsel should be aware that, in the context of international arbitration under New York law, the reference to international arbitration rules and the choice of an international situs of the arbitration may lead to a diff erent result than under the New York law rule that each party bears its own attorney’s fees. Ti e New York courts and arbitral tribunals acting under the ICC Rules have confi rmed that, notwith- standing the New York law prohibition on awards of attorney’s fees, where there is a choice of law clause selecting New York law, even with a New York situs, attorney’s fees may be awarded in an ICC arbitration.
‘New York Rule’: No Award Of Attorney’s Fees
Ti e New York Civil Procedure Rules dealing with arbitration expressly provide that attorney’s fees are not to be included in the costs to be allocated by the arbitrator (CPLR, Section 7513): “Unless otherwise provided in the agreement to arbitrate, the arbitra- tors’ expenses and fees, together with other expenses, not including attorney’s fees, incurred in the conduct
award.” However, it is well settled New York law that when- ever parties to an arbitration have agreed to fees, in- cluding attorney’s fees, in any award, such fees can be awarded against a party. Under New York law, “par- ties may by contract agree to permit recovery of attor- ney’s fees as part of plaintiff ’s expenses in prosecuting suit.” Alland v. Consumers Credit Corp., Alland v. Consumers Credit Corp., 476 F.2d 951, 955 (2d Cir. 1973); see Ford Motor Credit Co.
antee that provides for attorney’s fees is enforceable under New York law”); Walker v. Security Trust Co. Walker v. Security Trust Co.
there is a “prior agreement” to pay fees between the plaintiff and defendant).
Impact Of Reference To Arbitration Rules Under New York Law
Ti e parties may refer in their arbitration agreement to specifi c arbitration rules. Some of these rules may provide for the award of parties’ attorney’s fees, such as the ICC Rules.1 Article 31(1) of the ICC Rules provides that the “costs of the arbitration” that may be fi xed in an award shall include “reason- able legal and other costs incurred by the parties for the arbitration.”
New York Law: Awards Of Attorney’s Fees In International Arbitration
By Michael W. Bühler And Helen Conybeare Williams
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As a general matter, under New York law, the reference to specifi c rules of arbitration procedure incorporates such rules, by reference, as part of the parties’ arbitra- tion agreement. See Faberge, Inc. v. Felsway Corp. Faberge, Inc. v. Felsway Corp., 539 N.Y.S.2d 944, 946 (1st Dep’t 1989) (AAA rules incorporated by reference into agreement); Luciano
Dep’t 1988) (NASD rules incorporated by reference); see also Haviland v. Goldman, Sachs & Co. Haviland v. Goldman, Sachs & Co., 947 F.2d 601, 604 (2d Cir. 1991) (American Stock Exchange rules incorporated by reference). Ti e incorporation
reference, into the agreement of the parties, suffi ces to
might otherwise create to an award of attorney’s fees. See Clarendon Marketing, Inc. v. CT Chemicals Clarendon Marketing, Inc. v. CT Chemicals (USA), Inc. (USA), Inc., No. 93 Civ. 0285, 1993 WL 300041, at *6, n.6 (S.D.N.Y. Aug. 4, 1993) (parties incorporated authority to award attorneys’ fees into arbitration agreement by agreement to rules, Maritime Arbitra- tion Rules of the Society of Maritime Arbitrators, Inc., authorizing such award, where New York law applied and New York was the place of arbitration; CPLR 7513 therefore inapplicable). Nor does CPLR 7513 require that an attorney’s fees provision must be written in an arbitration clause (versus the arbitration rules incorporated by refer- ence in the arbitration clause). See Shaw Group, Shaw Group,
ne Int’l Corp.
ne Int’l Corp., 2003 WL 22077332 at * (S.D.N.Y. Sept. 8, 2003) (applying ICC rules, incorporated by reference into the arbitration clause, to confi rm award of attorney’s fees, where New York law applied and New York was the place of arbitra- tion). Ti e Triplefi ne Triplefi ne decision was recently affi rmed by the Second Circuit (the federal appeals court in New York). See Stone & Webster, Inc. v. Triplefi ne Stone & Webster, Inc. v. Triplefi ne Int’l Corp. Int’l Corp., 2004 WL 2940799 (2d Cir. Dec. 20, 2004). Ti e court specifi cally rejected the argument that CPLR 7513 somehow precluded the award, not- ing that “New York allows a waiver of section 7513, and the use of ICC rules provides such a waiver.” Id. at *2. Further, the court rejected contrary precedent (based on American Arbitration Association rules) noting that the contrary case “relied on the rules of the [AAA], which did not specifi cally grant attorneys’ fees, while the instant case is subject to the ICC rules, which allow for them.” Id. See also in Compagnie Compagnie des Bauxites de Guinee v. Hammermills, Inc., des Bauxites de Guinee v. Hammermills, Inc., 1992 WL 122712 at *5 (D.D.C. May 29, 1992) (rejecting claimed lack of notice regarding potential for recovery
Ti us, it is suffi cient, under New York law, that the parties have referred to international arbitration rules providing for an award that includes attorney’s fees to displace the general rule, even where New York is the situs of the arbitration. Indeed, many such ICC ar- bitration cases have led to the awarding of important amounts in legal fees in favor of the winning party.
Impact Of The Place Of Arbitration On Awards Of Attorney’s Fees
Furthermore, in international arbitration, it is not the case that mere reference to New York law in an agree- ment means that arbitration of any dispute under the agreement must conform to the New York law of arbitration, thereby excluding an award of attorney’s fees unless parties have so agreed or otherwise provided under statute. Importantly, the choice of a foreign fo- rum in the arbitration agreement means that the rules
New York) should control these proceedings. See Shaw Group Inc. v. Triplefi ne Int’l Corp. Group Inc. v. Triplefi ne Int’l Corp., 322 F .3d 115, 124 (2d Cir. 2003) (fact that agreement contains New York choice-of-law clauses “does not incorporate New York arbitration law into the parties’ agreement”). Indeed, precisely the opposite is true. Under the New York Convention on International Arbitration, “an agree- ment specifying the place of the arbitration creates a presumption that the procedural law of that place applies to the arbitration.” Karaha Bodas Co. v. Peru- sahaan Pertambangan Minyak Dan Gas Bumi Negara sahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F .3d 274, 291 (5th Cir. 2004) (citing numerous authorities). Ti us, in the event that the parties have selected a foreign situs of the arbitration, the procedural law at such foreign place of arbitration will determine the award of attorney’s fees (in conjunction with the relevant rules of arbitration, as applicable).
Recent ICC Award On Attorney’s Fees, Under New York Law, Place Of Arbitration Helsinki
Ti e issue of an award of attorney’s fees arose in a recent ICC arbitration, where the authors acted as counsel for claimant, with New York law as the ap- plicable law and Helsinki as the place of arbitration. It was striking that the respondent wrongly assumed that an award of attorney’s fees was precluded on the basis of the New York CPLR.
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Ti e choice of Helsinki as the forum meant that Finn- ish, not New York, rules of arbitration procedure gov- erned the proceedings. As far as costs go, the Finnish Arbitration Act of October 23, 1992 is crystal clear. Section 49 reads as follows: “Unless otherwise agreed by the parties, the arbitral tribunal may, in its award or in any
compensate, in whole or in part, the other party for his normal legal costs (. . .).”2 As the parties had also referred their dispute to be settled under the ICC Rules, which were thus part
law, they had also clearly agreed to permit an award
Ti us, the Arbitral Tribunal in that case confi rmed the Tribunal’s authority to award attorney’s fees, as follows: “The Tribunal has authority to award attorney’s fees. Article 31(3) of the ICC Rules provides that the costs of arbitration shall include, inter alia, the reasonable legal and other costs incurred by the par- ties for the arbitration and that the fi nal award shall fi x the costs of the arbitration and decide how to allocate them between the parties. Ti is would satisfy the New York law requirement that attorney’s fees shall be awarded only if agreed between the parties. However, the issue whether any statutory limitation on attorney’s fees will override Article 31 of the ICC Rules shall be determined under Finnish law, as the place designated for the arbitration. As cited by Claimant . . . the Finnish Arbitration Act explicitly authorizes an arbitral tribunal to award and allocate between the parties normal legal costs for the arbitration.” [Clarendon Marketing,
Conclusions
Parties should give careful attention at the time of entering into contractual relations as to whether a proposed arbitration agreement refl ects their expec- tations on the treatment of attorney’s fees. For the avoidance of doubt, they should make express provi- sion stipulating their agreement, either permitting or excluding an award of attorney’s fees. Non-US parties, as well as their non-US counsel, may well have diff erent expectations as to how attorney’s fees are to be treated, according to the practices of their
ing that attorney’s fees will be excluded from an award
law or New York situs, should not overlook the impact
Ti e costs of arbitration, not in the least attorney’s fees, are an important element in any party’s risk as- sessment when considering whether to enter into the arbitration process. While New York law is generally that each party bears its own attorney’s fees, litigants in an international arbitration under New York law should not assume that their risk is therefore limited to bearing their own attorney’s fees, and may ulti- mately be faced with a potentially signifi cant award
they had not anticipated let alone budgeted for. Ti e result may be a rude awakening, with potentially seri-
nancial consequences.
Endnotes 1. See Derains, Schwartz, A Guide To Ti e New ICC Rules Of Arbitration, 1998, at pp. 336-337; Craig, Park, Paulsson, International Chamber of Commerce Arbitration, 3d. ed., §21.04, at. pp. 393-396. 2. As stated by a commentator on the Act, “as a rule, the losing party is liable for his own legal expenses as well as those of the winning party” and included as recoverable costs inter alia “the costs of legal rep- inter alia inter alia resentation and assistance of the party,” Savola, Ti e Arbitral Award, p. 64. 3. ICC Case Nº12710/JNK, Final Award of August 24, 2004 (unpublished). ■
MEALEY'S INTERNATIONAL ARBITRATION REPORT edited by Edie Scott The Report is produced monthly by P.O. Box 62090, King of Prussia Pa 19406-0230, USA Telephone: (610) 768-7800 1-800-MEALEYS (1-800-632-5397) Fax: (610) 962-4991 Email: mealeyinfo@lexisnexis.com Web site: http://www.mealeys.com ISSN 1089-2397