Originally from Handbook on International Commercial Arbitration

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When a claimant commences an arbitration, it causes the respondent to incur costs in defending itself. If the claimant later chooses to terminate the proceedings, the respondent is, on the face of it, entitled to its costs of defending itself through to date of the discontinuance. Its “innocence” (or at least its legal rights as it asserted them) has not been validly called into question.

The general rule governing the costs on discontinuance is that a claimant who discontinues is liable for the costs which the respondent incurred on or before the date of discontinuance.

A claimant who discontinues is, in effect, conceding that it has lost or cannot win. The basic rule has a logical foundation. It reflects the innocence of the respondent. The rule does, however, permit the respondent to apply to have costs assessed on an indemnity (or more generous) basis.

Of more importance is the potential for a claimant to avoid all or part of the costs that would otherwise follow from discontinuance. The courts have on numerous occasions relieved the claimant from the ordinary costs burden.

Examples of the exercise of this discretion to relieve the claimant of the burden to pay costs can be found in Barretts & Baird (Wholesale) Limited v. Institution of Professional Civil Servants in which an interlocutory injunction preventing a strike effectively resolved the action and the court, on discontinuance, made no order as to costs up to the conclusion of interlocutory proceedings. In Britannia Life v. Smith, similarly the court made no order. The last and perhaps definitive word on the subject came in RTZ Pension v. ARC. The court reviewed the authorities and approached matters on the basis that where discontinuance incurs in circumstances “tantamount to defeat,” the normal costs consequences should follow.