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Munich Higher Regional Court on reimbursement of fees for legal representation based on hourly rates in arbitration
Practical Law UK Legal Update Case Report 8-523-2208 (Approx. 4 pages)
Munich Higher Regional Court on reimbursement of fees for legal representation based on hourly rates in arbitration
by Stephan Wilske (Partner) and Claudia Krapfl (Associated Partner), Gleiss Lutz
| Published on 20 Dec 2012 • Germany |
In a decision dated 23 July 2012, but only recently published, the Higher Regional Court of Munich held that Article 31 of the ICC Arbitration Rules 1998 provides a self-contained system of rules for decisions on costs. This means that it is not necessary to refer to the provisions on costs in the domestic legal system, that is, the German Code of Civil Procedure and the German Lawyers’ Compensation Act.
Background
Section 91(1) and (2) of the German Code of Civil Procedure (Zivilprozessordnung – ZPO) provides as follows:
"(1) The unsuccessful party shall bear the costs of the legal dispute; in particular, it shall reimburse the opponent the expenses incurred by the latter to the extent that they were necessary for the purposeful prosecution or defence of its rights. The reimbursement of costs shall also include compensation for the opponent for the loss of time incurred by necessary travelling or by the necessary attending of hearings; the provisions applying to the compensation of witnesses shall be applied mutatis mutandis.
(2) The statutory fees and expenses of the successful party's attorney shall be reimbursed in all proceedings; however, travel expenses of an attorney who is not admitted before the court trying the case and also does not reside at the seat of the court trying the case shall be reimbursed only insofar as his involvement was necessary for the purposeful prosecution or defence of the case. The costs of several attorneys shall be reimbursed only to the extent that they do not exceed the costs of one attorney or to the extent that one attorney had to be substituted by another. In self-representation, an attorney shall be compensated for the fees and expenses which he would be entitled to demand as an attorney holding a power of attorney."
Article 31(1) and (3) of the Arbitration Rules of the International Chamber of Commerce of 1998 (ICC Rules) provides as follows:
"1. The costs of the arbitration shall include the fees and expenses of the arbitrators and the ICC administrative expenses fixed by the Court, in accordance with the scale in force at the time of the commencement of the arbitral proceedings, as well as the fees and expenses of any experts appointed by the Arbitral Tribunal and the reasonable legal and other costs incurred by the parties for the arbitration.
[...]
3. The final award shall fix the costs of the arbitration and decide which of the parties shall bear them or in what proportion they shall be borne by the parties."
Facts
The applicant, who was the respondent in the arbitral proceedings, requested enforcement of a domestic ICC award. The arbitral tribunal had ordered the respondent to pay only a small part of the sum claimed and had determined the costs of the arbitral proceedings to be reimbursed by the claimant, in particular the fees for legal representation of the respondent based on hourly rates.
Regarding the costs decision, the claimant argued in the enforcement proceedings that the arbitral tribunal had not applied German law, as agreed upon by the parties. According to section 91 ZPO and the German Lawyers' Compensation Act (RVG), reimbursement is limited to the statutory fees based on the amount in dispute, as regulated in the RVG. According to the claimant, Article 31 of the ICC Rules did not contain a substantial provision as to the decision on costs, making recourse to the German law provisions necessary.
Decision
The Higher Regional Court of Munich granted the application for an order of enforcement of the arbitral award in full. It held that the agreement between the parties to apply German law was limited to the applicable law on the merits. Regarding the question of reimbursement of costs, the court was very clear in holding that the ICC Rules provide a self-contained system of rules. According to Article 31(1) of the ICC Rules, reimbursable costs include the "reasonable legal and other costs incurred by the parties for the arbitration". Under Article 31(3) of the ICC Rules, the arbitral tribunal is bound to decide in its own discretion in what proportion the costs of the arbitration are to be borne by the parties.
The court held that this means that the arbitral tribunal has wide discretion to decide which costs incurred by the parties are reimbursable. It found that this discretion was broader than under German law principles, but because of the self-contained nature of Article 31 of the ICC Rules there was no reason to apply German law.
Regarding the question of which costs are to be considered reasonable, the court confirmed that, as far as it was aware, legal representation based on hourly rates is the rule in complex international proceedings.
Comment
This decision confirms two important principles regarding reimbursement of costs in international arbitration. First, the court made clear that the rules on costs decisions contained in Article 31 of the ICC Rules are self-contained, making recourse to German rules on reimbursement of costs (which limit reimbursement) unnecessary. Second, the court helpfully confirmed that legal representation on the basis of hourly rates (in contrast to the German system of statutory rates based on the amount in dispute) is the norm in international arbitration.