The High Court has recently considered the scope of an arbitrator’s power to award costs in an arbitration. The Court’s decision, McCracken v Boyer [2025] NZHC 546, confirms the principles that apply to the assessment of costs in arbitration and reiterates that arbitrators have significant discretion. 

What the case was about

This case involved an application by the applicant, Ms McCracken, to vary costs awarded to the successful party (the Boyers) under an arbitration award (Costs Award). While the Boyers also applied to enforce the Costs Award, by entering it as a judgment under art 35 of sch 1 of the Arbitration Act 1996 (Act), the majority of the Court’s decision relates to Ms McCracken’s application. 

The parties owned properties in a cross-lease structure. In March 2022, the Boyers commenced arbitration against Ms McCracken, so that the property’s flats plan and the parties’ cross-leases could be updated and registered on the property title. Ms McCracken opposed the Boyers’ claim and counterclaimed in relation to issues on a new block wall and the repair of a driveway. 

The Boyers were largely successful in the arbitration, although Ms McCracken succeeded in a few limited aspects. Accordingly, the Boyers sought an order for costs against Ms McCracken. The arbitrator granted “a reasonable contribution” to the Boyers’ costs, but not indemnity costs (that is, the full amount of the Boyers’ costs) [1] . 

Ms McCracken applied to the High Court to vary the Costs Award under cl 6 sch 2 of the Act. Among other things, she asserted that: 

• the arbitrator was required to apply the principles on costs set out in the High Court Rules 2016; and

• the arbitrator failed to assess the reasonableness of the Boyers’ actual legal costs, and could not do so since the redacted invoices lacked sufficient detail.

High Court decision

The High Court dismissed Ms McCracken’s application to vary the Costs Award, and granted the Boyers’ application to enter the Costs Award as a judgment. 

The arbitrator was not required to apply the High Court costs regime

The Supreme Court has previously recognised that arbitrators have “the same jurisdiction” to award costs as that in the High Court [2]. This, however, does not mean that arbitrators are required to award scale costs in the way that these would be awarded under the High Court Rules, but rather that, like judges, arbitrators have the power to grant “relief of that general type” in relation to costs [3]. Nothing in section 12(1)(a) of the Act implies that arbitrators must exercise their power to award costs in the same way as a judge would in the High Court. 

The principles that govern arbitrators’ powers to award costs in arbitrations are well-established. In brief, these include that: 

• an arbitrator is entitled, at their discretion, to award full costs [4];  

• access to justice considerations, which are highly important in High Court litigation, do not apply in the same way to private arbitrations [5];

• an arbitrator is not limited by the provisions on costs under the High Court Rules [6]; and 

• an arbitrator is not required to award scale costs [7].

It is notable that, in terms of industry practice, a 2006 survey of arbitrators in New Zealand indicated that costs awards of 75-85% of the actual costs were not unusual. The trend both in New Zealand and internationally is to award a successful party a substantial portion or all of their arbitration costs and reasonable legal costs [8].

Arbitrators thus have a wide discretion when awarding costs [9], and there is “nothing unprincipled” [10] about assessing the actual costs that have been incurred and then subtracting a discount in view of factors such as the party’s measure of success in the arbitration. Considerations which may be taken into account when assessing costs include [11]:

• the costs claimed must be reasonable in the first place; 

• where a party is successful it should be compensated for the loss it has incurred in obtaining its result; 

• the successful party should recover at least a reasonable contribution towards its legal and other costs, if not the whole or a very substantial part; 

• a person who files a claim in order to recover what they are already entitled to should not be required to pay the costs of pursuing that claim; 

• costs should reflect the parties’ relative success and failure in the award; and 

• the arbitral tribunal may take into account the parties’ conduct during the arbitration. 

Arbitrators can assess parties’ costs based on their own experience and knowledge

The Court in McCracken v Boyer held that the arbitrator had made her own assessment of the level of costs, and had taken into account her knowledge of the steps involved and the work she saw. The Court found that an arbitrator could make an assessment based on their own experience of costs, and found no plain error in the arbitrator having done so [12]. The arguments raised by Ms McCracken went to questions of the weight the arbitrator gave to these factors, and it was beyond the scope of an appeal on an arbitration award for the Court to make its own assessment on issues of weight, as long as the decision was “principled and within reasonable bounds” [13].

Our view

The High Court’s decision provides a welcome summary of the principles governing assessment of costs in arbitration. It also reflects the current trend in the assessment of costs, where it is ordinary for arbitrators to award a successful party all or a very substantial part of its (reasonable) legal and other costs, unless the successful party’s conduct disentitles it. This decision states clearly that arbitrators have a wide discretion when awarding costs. Usefully, it also sets out a list of the factors an arbitrator may take into account in undertaking this exercise. The underlying theme of these factors is that a party should not recover costs, or should recover a reduced level of costs, where it has contributed to the arbitration requiring additional time or delay or has otherwise failed to act commercially in relation to the arbitration. The decision also helpfully reiterates that there is a clear distinction between costs in the High Court and costs in an arbitration. Parties too often resort to the High Court Rules to set the rules of conduct in arbitration in New Zealand, where the purpose of arbitration is to provide its own process to achieve the efficiencies promoted by the Act. This principle should rightfully extend to the consideration of costs in arbitration. 

This article was co-authored by Lydia Sharpe, a Senior Solicitor in our Construction & Infrastructure team.

Footnotes:
[1] At [9]. The arbitrator’s use of the term “indemnity costs” in the Costs Award implied that the costs were being viewed in a High Court Rules framework, although the Costs Award makes clear that the High Court scale is not applicable to arbitration costs.  
[2] General Distributors Ltd v Casata Ltd [2006] NZSC 8 at [109]. 
[3] At [17]. 
[4] Ronke v Meyer HC Hamilton CP 198-91, 27 October 1992 at 12. 
[5] Bradbury v Westpac Banking Corporation [2009] NZCA 234 at [10]. 
[6] Ruapehu District Council v Asphaltic Construction Ltd HC Wellington CP 970-91, 10 February 1994 at 25; HW Broe Ltd v Jones HC Wellington CP No. 629/89, 24 September 1990 at 15; The Marble & Granite Centre Ltd v Emery HC Auckland M 1384/98, 30 September 1998 at 11; and Rosser v Global Construction Services Ltd HC Auckland CIV-2004-404-2564, 10 August 2004 at [29].  
[7] HW Broe Ltd v Jones, above n 8, at 15. 
[8] Williams and Kawharu on Arbitration (2nd ed, LexisNexis, Wellington, 2017) at [16.14]. 
[9] At [25], and see StockCo Ltd v Big Basin Ltd [2024] NZHC 2438 at [30]. 
[10] At [22]. 
[11] StockCo Ltd v Big Basin Ltd, above n 10, at [30]. 
[12] At [29]. 
[13] At [32].