Wealcan Enterprises Inc v Banque Algerienne Du Commerce Exterieur Sa

Contractual security for arbitration costs may cover arbitrators’ fees where the wording, read in context, covers the costs incurred in defending the arbitration. The expression “recoverable legal costs” is not automatically confined by the categories in the Arbitration Act 1996. The statutory distinction between arbitrators’ fees and the parties’ legal or other costs does not govern the meaning of differently worded guarantees. Nor do arbitration rules exclude such fees where the tribunal has not ordered security directly in its favour. A still wider undertaking covering the costs of defending a claim may include arbitrators’ fees. A presumption that guarantees should be construed narrowly, or against the guarantor, is unnecessary where the wording is clear.

Wealcan owned the vessel Millennium and had obtained security for costs in two arbitrations against CNAN. BACE issued two guarantees in sums of €20,000 and €125,000. Penlaw later issued a €25,000 letter of undertaking. The arbitration tribunal ordered CNAN to reimburse Wealcan for arbitrators’ fees paid by Wealcan, but CNAN failed to pay.

Wealcan claimed against BACE and Penlaw, contending that the guarantees covered “recoverable legal costs” and that the undertaking covered the “costs of defending” CNAN’s claims. The defendants argued that arbitrators’ fees were distinct from legal costs, relying on the Arbitration Act 1996, the LMAA Terms and restrictive principles of construction. The central issue was whether the contractual wording covered those fees.

1. Claims succeeded. BACE was liable under the guarantees and Penlaw under the letter of undertaking for the relevant arbitrators’ fees.
2. The statutory categories in section 59 of the Arbitration Act 1996 did not determine the contractual meaning of “recoverable legal costs”. Section 59 distinguishes arbitrators’ fees and expenses from the legal or other costs of the parties. However, the guarantees also covered party costs which would fall within section 59(c) as “other costs”, rather than legal costs. The parties therefore had not used “legal costs” in the statutory sense.
3. The LMAA Terms did not assist BACE. There was no evidence that they formed part of the shared factual background. In any event, their provisions concerning security given directly to the tribunal did not prevent security given to an opposing party from covering fees paid to arbitrators. The tribunal had not exercised a power to require security directly for its own fees.
4. The period for which security had originally been ordered did not limit the guarantees. The guarantees were not themselves temporally confined and responded to legal costs incurred during the arbitration, including relevant arbitrators’ fees.
5. There was no ambiguity requiring a restrictive construction or application of contra proferentem principles. The wording of the guarantees, read in context, covered costs incurred in defending the arbitration, including arbitrators’ fees.
6. The letter of undertaking was expressed in wider terms. It covered “the costs of defending the charterers’ claim”, which as a matter of ordinary language included sums payable to arbitrators for determining the merits. Its maximum liability was subject to the stated exhaustion of the BACE guarantees.