How are the costs of arbitration proceedings estimated and allocated?
International Arbitration (3rd edition)
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.
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.
The way the cost of arbitration proceedings are estimated and allocated, is a matter of the tribunal since there are no laws that regulate such issue.
The Arbitration Act does not itself set rules regarding the costs of arbitration proceedings. Nevertheless, according to Section 13 (2) of the Arbitration Act, permanent arbitration courts may issue their own rules, including the regulation of costs of arbitration proceedings. In cases where there are no special rules issued, the Civil Procedure Code may be applied accordingly.
Generally it is possible to say, that the principle “loser pays” applies - the party that was not successful in the proceedings has to compensate the other party.
As per the provisions of the CPC, the final costs for the arbitral procedure and the arbitrators’ fees will be payed according to the agreement of the parties and when the parties did not agree upon the costs, the party who lost the case must cover them. The allocation of the costs is made proportionally to the admission or rejection of the claim or defence.
The amount of costs shall be determined by the arbitral tribunal.
In case the dispute is to be arbitrated by the arbitral institution, the costs shall be independently established according to the scale of the respective institution.
In practice, specific circumstances of the case and in particular, conduct of the parties, are taken into consideration when making the decision on costs.
Arbitration fees are generally calculated based on the amount in dispute and the applicant shall prepay the arbitration fee when filing the case. According to Article 54 of the Arbitration Law, the tribunal shall specify the allocation of the costs in its award. Generally the losing party should undertake the arbitration fees as well as other costs reasonably incurred by the winning party (such as the attorney’s fee).
a. The arbitral tribunal decides the costs of the arbitration and how they are allocated between the parties. The parties shall be jointly and severally liable for the total costs of the arbitration regardless of how the costs have been allocated in the award and whether or not the amount exceeds the financial deposit lodged.
The award shall state whether or not a party shall compensate the other party for reasonable costs, including legal costs, incurred by that other party in relation to the arbitration.
In its decision on the costs, the Arbitral Tribunal shall take into account the outcome of the case and other relevant circumstances, including any agreement between the parties and the extent to which each party has contributed to the arbitration in an efficient and cost-conscious manner.
Polish law does not provide rules on cost allocation or recovery. In practice, the costs follow the event rule is typically applied both in institutional and ad hoc arbitration.
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.
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 Arbitral Tribunal remains at its discretion and there is no definitive rule necessarily applied of “costs following the event”.
Often tribunals are influenced 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 if a party has been entirely successful.
The currently applicable DIAC Rules do not contain any provision for an Arbitral Tribunal to award legal costs.
The DIFC-LCIA Arbitration Rules (Article 28) empowers arbitrators to award legal costs.
The ADGM Regulations (Regulation 50(5)) provide that the costs of an arbitration should be set out within the arbitral award.
Should the Arbitral Tribunal fail to do so, a party has 30 days from receiving the arbitral award to apply to the Arbitral Tribunal for a ‘further order on costs’.
The term “costs” under the ADGM Regulations (Regulation 50(5)(f)) includes:
‘the costs for legal representation and assistance of the successful party if such costs were claimed during the arbitration, and only to the extent that the arbitral tribunal determines that the amount of such costs, or a part of them, is reasonable.
Legal costs may, therefore, be claimed by the successful party to an arbitration, subject to the Arbitral Tribunal’s assessment as to whether such costs are reasonable.
The Law of Arbitration gives the parties the right to specify arbitrators’ costs. Article 24 provides:
1) Upon appointment of an arbitrator, a separate contract shall be concluded with the arbitrator specifying fees.
2) In the absence of such agreement, the competent court shall decide the matter pursuant to a non-appealable decision. If the arbitrators are appointed by the competent court, said court shall determine their fees.
The SCCA Arbitration Rules specify the costs of arbitration. Article 34(1) provides that the tribunal shall fix the costs of arbitration in its award. The tribunal may allocate such costs among the parties if it determines that allocation is reasonable, taking into account the circumstances of the case including the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner.
Such costs may include fees and expenses of the arbitrators, costs of assistance required by the Tribunal, including its experts, fees and expenses of the Administrator, reasonable legal and other costs incurred by the parties, any costs incurred in connection with a notice for interim or emergency relief pursuant to Articles 6 or 23, and any costs associated with information exchange.
Article 3(1) of the Appendix Arbitration Costs and Fees to the SCCA Arbitration Rules provides that the final fee shall be determined based on the sum in dispute in accordance with the SCCA guidelines.
The FAA does not address costs, and state laws vary. Costs are governed according to the parties’ agreement and the arbitration rules that apply to a dispute.
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 deems appropriate (s.63(3)).
Unless the parties have agreed otherwise, they are entitled to recover legal costs (encompassing the reasonable costs of legal representation, the fees of the arbitrators and — where applicable — the administrative costs charged by the institution). Both Austrian law and the Vienna Rules foresee that the arbitral tribunal must render a decision on costs upon termination of the proceedings. The general practice with regard to allocating costs between the parties is to take into account all circumstances of the case, with a particular focus on the outcome of the proceedings.
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.
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.
The ICA provides that an arbitral award must state all costs and expenses of the case and their allocation between the parties. In practice, in the absence of the parties’ agreement to the contrary, costs tend to follow the event, although tribunals retain broad discretion in this matter.
The Arbitration Act 2010 permits the parties to make such provision for the costs of the arbitration as they see fit and the nomination of an arbitral institution would be deemed to be an agreement to abide by whatever rules on costs may be contained in that institution’s rules. In the absence of agreement on costs then the arbitral tribunal shall determine, by award, those costs as it sees fit. The tribunal must set out the grounds on which it makes any award of costs and must specify the items of recoverable costs, fees or expenses and the amount of each and by and to whom they shall be paid. In this context ‘costs’ includes costs as between the parties and the fees and expenses of the arbitral tribunal.
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.
Pursuant to section 1057 (1) ZPO, the arbitral tribunal decides how to estimate and allocate the cost of the proceedings. While the parties may provide a separate agreement, a decision by the Arbitral Tribunal is the general rule.
In its decision, the arbitral tribunal takes into account all facts and circumstances of the case as well as the Arbitration's outcome, section 1057 (2) ZPO. Similar to proceedings in German state court, the arbitral tribunal's decision follows the concept of "cost-follow-the-event". Nonetheless, the arbitral tribunal may deviate from such concept where it deems necessary.
The decision of the arbitral tribunal covers the costs of the arbitration, which include in particular institutional fees (of the arbitration institution as well as the arbitrator) and the reasonable lawyers' fees. In terms of "reasonableness" the award of costs is not limited to a statutory fee schedule as in district court proceedings. Instead, the arbitral tribunal may decide in its discretion to what extend costs and fees were necessary, and thus reasonable, for a party's proper conduct of the proceedings.
The arbitral tribunal's decision on costs may be included in the final award or can be issued as a separate award on cost following the conclusion of the arbitration proceedings, section 1057 (2) ZPO.
At the request of a party, the arbitral tribunal shall determine how the costs of arbitration proceedings (including representation costs and 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.
Under Article 37(1) of the Rules of International Commercial Arbitration of 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 ICAL does not contain specific regulation on this matter.