How are the costs of arbitration proceedings estimated and allocated?
International Arbitration (2nd Edition)
Under section 44, AA, an arbitral tribunal is bound by any prior agreement between parties as to costs.
Absent such an agreement, the arbitral tribunal has complete discretion on the allocation and taxation of costs and expenses (section 44(1), AA). As a general rule, costs will follow the event. As such, the unsuccessful party generally bears the costs of the arbitration save where the parties wish to depart from this rule (section 44(5), AA). In determining and allocating costs and expenses, the tribunal may pay regard to any Calderbank offer that was made (section 44(2), AA). However, any Calderbank offer should not be communicated to the tribunal before a final determination of all aspects of the dispute other than the taxation and allocation of costs and expenses (section 44(3), AA).
Where the tribunal fails to specify the amount of costs and expenses in its costs award, any party may, within 30 days of its request to the arbitral tribunal, apply to the High Court for its taxation (section 44(1) (b), AA). Should the tribunal fail to render a costs award, each party shall be responsible for its own expenses and for an equal share of the arbitral tribunal’s fees and expenses and any costs relating or incidental to the arbitration (section 44(1)(c), AA).
Normally, “costs and expenses” would include:
- Fees and expenses of the arbitrators.
- Legal costs of the lawyers representing the parties.
- Fees of expert witnesses.
- Expenses incurred by the relevant arbitral institution.
- Rental of the venue of the arbitration.
- Fees and expenses of transcript service providers.
- Expenses incurred by the parties in relation to factual and expert witnesses.
Under Article 37(1) of the Rules of International Commercial Arbitration of the Santiago Arbitration and Mediation Center (CAM Santiago) the costs of arbitration proceedings shall be allocated to the losing party as a general rule, unless the arbitral tribunal deems necessary to prorate them between the parties given the specific circumstances of the case. The arbitral tribunal shall determine the costs and expenses of the arbitration in its final award (Article 36(2)).
Under CAM Santiago Rules of International Commercial Arbitration, costs may include the fees of the arbitral tribunal, traveling expenses incurred by the arbitral tribunal, fees and expenses of the expert appointed by the tribunal, fees and expenses of the witnesses approved by the arbitral tribunal, expenses that were reasonable incurred by the winning party and claimed in the arbitration procedure and finally the fees for CAM Santiago’s administrative services.
The International Commercial Arbitration Law No 19.971 does not contain specific regulation on this matter.
According to article 17 of LAV, the costs of arbitration proceedings must be regulated by the parties in the arbitration agreement or must be agreed before the acceptance of all the appointed arbitrators. If there is no such agreement, the tribunal will fix the amount of their fees and when the payment must be made.
According to the rules of arbitration of the Commercial Arbitration Centre of the Portuguese Chamber of Commerce and Industry, it is also the arbitral tribunal’s responsibility, unless the parties otherwise agree, to decide how the arbitration costs (comprising the arbitrator’s fees, expenses and administrative costs) must be allocated. In this case, the arbitrators’ fees and the administrative costs are established bearing in mind the value of the arbitration and the tables annexed to the rules.
According to Luxembourg procedural law and in the absence of a party agreement, costs are awarded at the arbitral tribunal’s discretion considering the circumstances of the case and, in particular, the outcome of the proceedings. In practice, however, a party can request that the unsuccessful party bears the costs of the arbitration (ie, the fees and expenses of the arbitrators and costs of the administering authority).
Swiss law does not stipulate how the costs of arbitration proceedings are estimated and allocated. In general, one can expect the arbitral tribunal to follow the costs follows the event-rules, because said rule is also followed by the state courts in Switzerland.
In Swiss Rules institutional arbitration, according to art. 38 Swiss Rules the arbitral tribunal shall determine the costs of the arbitration proceeding, as well as its apportionment in its award. In principle, also in Swiss Rules arbitration the costs are borne by the unsuccessful party. However, the arbitral tribunal may apportion the costs taking into account the circumstances of the case.
Pursuant to section 1057 (1) ZPO, the parties may agree on the estimation and allocation of costs. Absent a party agreement, the tribunal shall estimate and allocate the costs, according to its discretion.
Regarding the allocation of costs, the tribunal needs to take into account all the circumstances of the case as well as the outcome (section 1057 (2) ZPO). This is in line with the general concept of costs-follow-the-event, which applies in German state court civil proceedings.
This decision on costs covers the costs of the arbitration (fees and expenses), particularly institutional fees as well as necessary costs incurred by the parties, such as lawyer’s fees, travel expenses and translation costs.
The decision on the costs can either be included in the final award or a separate cost award may be rendered after the termination of the proceedings (section 1057 (2) ZPO).
The Arbitration Act does not address this issue and the parties are free to agree on the allocation of the costs. Under the ICAC Arbitration Rules the general rule is that the losing party bears the arbitration fee, including proportional allocation of the arbitration fee in case a claim is granted in part. The expenses of the parties are born by themselves unless the arbitral tribunal finds the amount of the costs incurred by the winning party reasonable to be borne by the losing one. Imposing the legal costs on the losing party is seen as a sanction and must be specifically pleaded.
The costs of arbitration proceedings are estimated and allocated pursuant to the rules of the arbitration institution.
The general practice is that the arbitration institutions estimate the costs based on the amount in dispute and that they allocate the costs of arbitration between the parties equally. Moreover, the parties shall advance the entire amount of said costs of arbitration once the arbitration tribunal has been constituted.
If a party fails to pay its arbitration costs, the other party shall pay these costs, without prejudice to its right to seek recovery.
Estimation of Costs
How the cost of the arbitration is assessed, is dependent on the rules of the arbitral institution which governs the proceedings.
The DIAC and ADCAAC provide a costs schedule based on the value of the claim.
To this cost additional fees / costs may be added, for example those fees levied by the arbitral institution which are expressed as a fixed sum in DIAC arbitrations and a percentage of the fees to the arbitrator(s) in ADCAAC arbitrations.
The DIFC-LCIA Arbitration Centre, in contrast to the above, determines the cost of the arbitration based on the hourly rate of the appointed arbitrators, the institution’s staff and the general expenses of both.
Allocation of Costs
The parties must agree to empower the Arbitral Tribunal to award legal costs. This agreement is also normally recorded within either the Terms of Reference or within the rules of the applicable arbitral institutions.
In practice whether that power will be exercised by a given tribunal remains at its discretion and there is no definitive rule necessarily applied of costs following the event. Often tribunals are influence by the procedural law governing litigation in their home jurisdiction and may be reluctant to award substantial legal costs, even if empowered to do so and even in the event of a party being entirely successful.
The currently applicable DIAC Rules do not contain any provision for a tribunal to award legal costs. However, the new draft DIAC rules do make such provision.
The DIFC-LCIA Arbitration Rules (Article 28) empowers arbitrators to award legal costs.
Generally, the costs of arbitration proceedings are allocated based on the outcome of the case. The relative success of the parties on the principal issues is determinative. Typically, the outcome of procedural issues is also taken into account. Costs for counsel must be reasonable. In relation to the tribunal, the parties are jointly and severally liable for its costs, but these costs are also allocated as between the parties based on the outcome of the case.
Whereas the Arbitration Act is silent on the compensation of the arbitrators, the SCC Rules have an ad valorem based schedule for the arbitrators’ fees and the administrative costs for the SCC. As mentioned in question 6 above, the degree of efficiency and expeditiousness regarding the conduct of the parties can now be taken into account when allocating costs under the SCC rules.
Unless otherwise agreed by the parties, the award shall establish the costs to be borne by each party (Section 37 SAA).
The arbitral costs will include arbitrators’ fees and expenses, and, as appropriate, the fees and expenses of the parties’ defence or representatives, the cost of the service rendered by the institution conducting the arbitration and all other expenses incurred in the arbitral proceedings.
Failing an agreement between the parties, the arbitrators are entitled to decide on the distribution of costs. Costs usually “follow the event”. However, the arbitrators may also decide in the award that one of the parties shall compensate the other party for the incurred costs and expenses.
Serbian Law on Arbitration does not provide any particular rules governing allocation of costs, so arbitral tribunals have a wide discretion when it comes to deciding on allocation of costs. In practice, specific circumstances of the case and in particular, conduct of the parties, are considered when making the decision on costs.
There is no law providing for how to estimate the costs of arbitration proceedings and these are subject to the rules of arbitral institutions.
For instance, the PDRCI has its own Guidelines on Fees for the computation of fees where one can compute the arbitrator’s fees, administrative fees and fees in connection with emergency relief proceedings. The schedule of fees are based on the parties’ claims.
The costs of the ADR proceedings shall be borne by the parties equally, unless otherwise agreed upon or directed by the arbitrator or arbitral tribunal.
The arbitral tribunal has discretion as to how the costs of the arbitration process are awarded.
Awarded costs usually include:
- The expenses (or a portion of them) of any party against another party.
- The arbitral tribunal may only render an award on issues or on the subject matters brought before it for resolution. Hence, it can award damages, interest or other monetary amount so long as it is within the scope of the issues raised by the parties.
- Following the general rule in evidence, the party who asserts that he is entitled to costs has the burden of proving the same. Absent such proof of the actual costs, the arbitral tribunal is precluded from awarding costs.
As per Section 31A of the Arbitration & Conciliation Act, 1996, the Court or the Arbitral Tribunal shall have the discretion to determine:
(i) Whether costs payable by one party to another;
(ii) The amount of such costs; and
(iii) When such costs are to be paid.
‘Costs’ are explained as the:
(i) The fees and expenses of the arbitrators, Courts and witnesses
(ii) Legal fees and expenses;
(iii) Any administration fees of the institution supervising the arbitration; and
(iv) Any other expenses incurred in connection with the arbitral or Court proceedings and the arbitral award.
For the determination of the costs, the tribunal has to take into consideration four factors (a) the conduct of all the parties, (b) whether a party has succeeded in the case, (c) whether the party had made a frivolous counter-claim leading to delay in the disposal of the arbitral proceedings; and (d) whether any reasonable offer to settle the dispute is made by a party and refused by the other party.
This matter is also regulated by the arbitration centers by way of their internal regulations. The tariffs are approved by the boards of directors of the arbitration centers and published on their web page. Costs are estimated based on the claim amount and must be paid by the claimant at the beginning of the arbitration.
Tribunals have the right to award costs. In practice, however, they rarely do so. If a party makes a frivolous claim or counterclaim, a tribunal may award costs to the other party.
The cost calculation depends on the arbitration rules that are applied. Absent such rules, generally the arbitrators in ad hoc arbitrations are free to determine their own fees.
Costs are usually calculated based on the actual costs, subject to the requirement of reasonableness. An arbitral tribunal has the discretion to apportion costs between the parties. As mentioned the general practice is for each party to bear its own costs. When the costs are apportioned, commonly they are apportioned according to the relative success of each party in its claims.
The arbitral tribunal determines its own fees and settlement of expenses, and the parties are jointly and severally liable for these costs, unless otherwise agreed between the arbitral tribunal and the parties.
The arbitral tribunal shall, upon request from a party, allocate the costs of the arbitral tribunal between the parties as it sees fit. Likewise, the arbitral tribunal may, upon request from a party, order the other party to cover all or part of the costs of the requesting party if deemed appropriate.
In practice, both with regard to the arbitral tribunal’s own fees and a party’s legal costs in connection with the arbitration, the main rules of the Norwegian Civil Procedure Act are often followed. These rules state that the losing party shall cover the costs of the case, though there are several exceptions.
At the request of a party, the arbitral tribunal shall determine how the costs of arbitration proceedings (including representation costs and the costs of arbitrator’s fees) shall be allocated; i.e. which of the parties (and to what extent) shall be obliged to reimburse the costs of the other party. The arbitral tribunal has discretion in determining the allocation of costs, taking into account all circumstances of the case, including the outcome.
The ICA Law does not provide for the estimation and allocation of costs of the arbitration – it will be a matter up to the tribunal.
Cap. 4 also appears to give the power for estimation and allocation of costs to the tribunal and also states that an agreement of the parties, concluded before the relevant dispute arose, which provides that each side will bear its costs, or that one side shall bear the costs of the arbitration, is invalid. However such agreement is valid if it was reached after the dispute arose and it regards the particular dispute.
In France, parties can, as a general matter, use whatever legal fee structures they deem appropriate (such as flat fees or an hourly rate). However, French lawyers cannot be paid solely on a contingency fee basis. Success fees are permitted but can be paid only in addition to a fixed or hourly fee arrangement. It has, however, been recognized that, in the context of international arbitration, such arrangements with lawyers whose home bar rules allow for them is not contrary to international public policy in France. (Paris Court of Appeal, 10 July 1992, 1992 Rev Arb 609).
There are no specific provisions under French law for the arbitrators’ fees. They are usually fixed in agreement with the arbitrators or by the arbitral institution.
There are also no specific rules on the manner in which the tribunal should calculate costs and fees, which typically include the fees and expenses of the arbitrators and the parties’ reasonable legal and other costs, such as travel expenses for hearings. Costs and fees can also include the administrative expenses of the arbitral institution and/or the fees and expenses of any experts appointed by the tribunal.
Moreover, there are no specific provisions regulating the allocation of costs between or among the parties (in particular, the unsuccessful party is not under a legal obligation to pay the successful party’s costs and fees). Subject to any agreement of the parties, the arbitral tribunal has wide discretion to determine the allocation of costs between or among the parties.
There is no specific rule for arbitration proceedings concerning the costs—i.e., arbitrator’s fees, institutional administrative expenses (if any), and counsel’s fees.
Usually, arbitral tribunals in domestic arbitrations tend to follow the so-called “costs follow the event” rule—i.e., the losing party should bear the costs of the arbitration proceedings. However, the arbitral tribunal may allocate and/or apportion the costs between the parties differently, by providing appropriate reasoning.
There is no legislation on the award of interest in arbitrations and as such the arbitrators will adopt the practice that they consider to be fair to both parties. Usually, the costs are fixed by the arbitral tribunal in its award. These costs include the (a) fees of the arbitrators, (b) travel and other expenses incurred by the arbitrators, (c) cost of expert advice and other assistance required by the arbitral tribunal, (d) travel and other expenses of witnesses to the extent that such expenses are approved by the arbitral tribunal and (e) reasonable costs for legal representation and assistance.
The costs of arbitration are in principle borne by the unsuccessful party as the unsuccessful party will be required to indemnify the successful party. The tribunal may, however, apportion such costs between the parties if it determines that apportionment is reasonable, taking into account the circumstances of the case. No additional fees may be charged by an arbitral tribunal for the interpretation, correction or completion of the award.
Generally, the loser pays principle applies. However, an arbitral tribunal is free to take also factors other than the outcome into account when allocating costs.
As regards the amount of costs, in principle, all reasonable costs for appropriate enforcement of or defence against claims are reimbursable. This includes the costs payable to the tribunal, any institution, expenses, legal fees (not limited to the statutory fees relevant in state litigation) and may also extend to compensation for time spend in-house (e.g. by members of the legal department).
The FAA is silent on the award of costs and fees. State laws vary by jurisdiction. Where the law provides no guidance, the parties’ agreement and the applicable arbitral rules will govern any costs and fees award. The AAA (Rule 47(b)), CPR (Rule 19), and JAMS (Rule 24(a)) all empower arbitrators to allocate costs and expenses between the parties, subject to any express provision in the parties’ agreement.
In domestic arbitral proceedings the final allocation of costs is made in the final award pursuant to article 882 para. 3 CrCCP. In international commercial arbitral proceedings having their seat in Greece the allocation of costs may also be made with a separate award following the issuance of the final award pursuant to article 32 para. 4 L. 2735/1999.
In domestic arbitration the fees and expenses of the arbitral tribunal are regulated in articles 882 and 822A GrCCP. They are calculated as a percentage of the amount in controversy given the subject matter of the dispute based on a specific scale. In the event that such a valuation is objectively not feasible the fees shall be determined by the Arbitral Tribunal ex aequo et bono. The allocation of costs is governed by the provisions of articles 176 et seq. GrCCP which are applicable also to Court proceedings (application by analogy). The principal rule is that “costs follow the event”, meaning that the unsuccessful party is ordered to pay the costs of the successful party (articles 176, 178 GrCCP). That being said, it is not rare for arbitral tribunals to set off the costs between the parties on the premise that the dispute at hand involved the resolution of especially complex legal questions (article 179 GrCCP).
In international commercial arbitral proceedings having their seat in Greece the allocation of costs is governed by the agreement of the parties. Absent such an agreement the allocation is made by the arbitral tribunal which, pursuant to article 32 para. 4 L. 2735/1999 shall consider the circumstances of the case, and, most importantly its outcome. Hence the rule that “costs follow the event” in the said sense is also dominant in this context. In any event, said provision allows the arbitral tribunal significant room and latitude to decide on the costs. Obviously, it prevails as lex specialis over the provisions of articles 176 et seq. GrCCP which are applied by analogy to domestic arbitration.
Both in domestic as well as in international commercial arbitral proceedings arbitration costs include obviously legal fees and expenses. The arbitral tribunal’s allocation of cost is subject to scrutiny by State Courts upon a challenge brought against the award by any interested party.
Pursuant to Section 31(A) of the Arbitration Law, an arbitrator may rule the arbitral expenses amount, including attorney's fee and the arbitrator's remuneration and expenses, and determine who will bear them, if no contrary intention appears from the arbitration agreement. Paragraph R of the first addendum to the Arbitration Law provides that in the absence of a different decision by the arbitrator, the arbitration expenses would be divided equally between the parties. The parties may stipulate this provision and provide for other arrangements.
There are several options to charge arbitrators' remuneration: charging the entire amount as a lump-sum at the end of the arbitration; charging it in installments in the course of conducting the arbitration, or setting an amount for each and every session.
As a rule, in the final arbitral award, the arbitrator fixes the general amount of expenses and orders to pay it, whether by way of equal distribution of the expenses or by way of reimbursement by the losing party to the winning party, in full or in part, everything at his discretion.
The arbitrator fixes his own remuneration, at his discretion. In an event that the parties believe that an excessive amount was prescribed, the law regulates this matter by way of conferring power to the court to reduce the excessive amount from the requested remuneration. This request may only be filed after the arbitral award was given. The court's estimate of the arbitrator's remuneration is according to the weight of dispute, its great financial value, and the burden of responsibility involved in the decision. As a rule, the court will not intervene with an arbitrator's remuneration, especially if it was agreed upon at the beginning of arbitration.
Pursuant to Section 31(B) of the Arbitration Law, a party may pay the arbitrator any amount with which the other party is in arrears and it will be entitled to recover this amount from the other party.
The 1996 Act allows the parties to agree what costs in the arbitration are recoverable (s.63(1)). If there is no contractual agreement, the tribunal may determine by award the recoverable costs of the arbitration on such basis as it thinks fit (s.63(3)).
Firstly, when filing a request for arbitration a fixed registration fee is generally required. With respect to the arbitrators’ fee, a computation of such fee is made under the CICA rules according to an algorithm stipulated in the schedules of arbitral fees and expenses depending on the value of the claim, there being rules on how to determine the value of the claim when such a claim is not financial.
The arbitral tribunal may provisionally estimate the costs of arbitration at the outset of the proceedings and request both the parties to advance or deposit the amounts in question in an amount split equally between the parties. If the defendant fails to fulfil their obligation, the plaintiff will pay the entire amount, in which case the arbitral award will establish the final amount of the arbitrators’ fees and its division between the parties.
Regarding the final allocation of costs, they are covered by the parties according to their agreement. In the absence of such an agreement, in case of a national arbitration proceeding, costs are incumbent on the party who lost the case, proportionally to the admission/rejection of the claim/defence whereas in case of an international arbitration proceeding each party shall bear the fees and expenses of its appointed arbitrator or, if the dispute is referred to a single arbitrator, they shall split the cost equally. Of course, if the parties agree to arbitrate under the purview of an arbitral institution, it will apply its own set of rules regarding the estimation and allocation of costs.
Unless otherwise agreed by the parties, the fees of the arbitrators will be decided between the parties and the arbitral tribunal by considering the amount on the arbitration proceeding, specifications of the dispute and the term of the proceeding. The parties may also refer to the established rules or institutional arbitration rules for the arbitrators’ fees.
If there is no compromise between the parties or no provision in the agreement or no referral to the institutional rules, the arbitrators’ fees will be determined according to the fee tariffs published in the Official Gazette each year (separately for the domestic and the international arbitrations). Unless otherwise agreed by the parties, the arbitral tribunal may request advance payment from the parties equally (in international arbitrations, this advance payment can only be requested from the claimant). At the end of the proceeding, the costs of arbitration are sentenced to the unfair party, unless otherwise agreed by the parties.