Decisions on Costs in International Arbitration – ICC Arbitration and ADR Commission Report
A report on the allocation of costs by arbitrators and how to encourage efficient and costs-effective procedural conduct. The considerations contained in this Report are intended to inform users of arbitration how tribunals may allocate costs in accordance with the parties’ agreement and/or any applicable rules or law.
The ICC Commission on Arbitration and ADR (the ‘Commission’) seeks to continue providing users of international arbitration with the means to ensure that proceedings are conducted in an effective and cost-efficient manner.
Party costs (including lawyers’ fees and expenses, expenses related to witness and expert evidence, and other costs incurred by the parties for the arbitration) make up the bulk (83% on average) of the overall costs of the proceedings. Arbitrators’ fees and case administration account for a much smaller proportion of the overall costs, as shown below.
Significant work has already been done by the Commission to help keep party costs under control. It includes the 2014 guide, Effective Management of Arbitration: A Guide for In-House Counsel and Other Party Representatives, the 2012 report Techniques for Controlling Time and Costs in Arbitration, 2 and a revision of the ICC Arbitration Rules leading to the latest version of 2012 (the ‘2012 ICC Rules’).
The 2012 ICC Rules introduced two new additions to encourage greater control of time and costs by arbitrators. Article 37(5) provides that: In making decisions as to costs, the arbitral tribunal may take into account such circumstances as it considers relevant, including the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner. Appendix IV of the ICC Rules further provides examples of case management techniques that can be used by the arbitral tribunal and the parties to control time and costs. One of the objectives of these techniques is to ensure that time and costs are proportionate to what is at stake in the dispute.
It became apparent in the preparation of this Report that arbitrators’ approaches to the allocation of costs are often influenced and informed by practice in the courts and/or under the laws of the countries of origin of the parties and the arbitrators or of the place of arbitration. That practice reveals two basic approaches: either the loser pays the successful party’s costs (sometimes called ‘costs follow the event’); or each party pays its own costs regardless of the outcome. These approaches are understood and applied differently in different countries (see Appendix B).
In international commercial arbitration, various trends are emerging in relation to cost allocation practices and expectations. However, little has been written about them and it is unclear which are the prevailing approaches and practices. This Report seeks: (a) to identify the various approaches applied by arbitral tribunals by analysing decisions on costs in ICC awards rendered under the 2012 ICC Rules and the preceding version of the ICC Arbitration Rules (the ‘1998 ICC Rules’) and in awards from eight other major arbitral institutions; and (b) to identify underlying national differences.
The ultimate objective of this Report is to consider how the allocation of costs between the parties can be used effectively to control time and costs and to assist in creating fair, wellmanaged proceedings matching users’ expectations. The Report is not intended to be prescriptive, nor does it endorse any particular practice or approach. Given that party autonomy and flexibility are central to international arbitration, there is no single, universal approach to the allocation of costs.
With this objective in mind, the Commission established a Task Force on Decisions as to Costs, which took the following initiatives:
(i) The Task Force members met five times to develop a framework for its work and this Report.
(ii) Representatives from countries in which the ICC has a National Committee or Group responded to a survey on approaches to costs under national laws (see Appendix B)
(iii) The Secretaries to the ICC Commission studied ICC awards to identify how arbitrators have dealt with the allocation of costs (see Appendix A)
(iv) The China International Economic and Trade Arbitration Commission (CIETAC), the Hong Kong International Arbitration Centre (HKIAC), the German Institution of Arbitration (Deutsche Institution für Schiedsgerichtsbarkeit e.V., DIS), the International Centre for Dispute Resolution (ICDR), the London Court of International Arbitration (LCIA), the Permanent Court of Arbitration (PCA), the Stockholm Chamber of Commerce (SCC) and the Singapore International Arbitration Centre (SIAC) were invited to submit analyses of awards showing how arbitrators have dealt with the allocation of costs under their respective rules (see Appendix A)
(v) On the basis of an analysis of the practices of arbitral tribunals and national courts, the Task Force identified factors that a tribunal may in its discretion take into account when making decisions on costs at any stage of the proceedings and when fixing and allocating costs in the final award.
(vi) The Task Force identified and described in this Report how the exercise of the power to allocate costs can be used to improve efficiency in arbitration.
This Report is divided into five main parts:
(i) a summary of general approaches to awarding costs, based on the Task Force’s (a) analysis of commercial arbitration awards (the results of which are set out in Appendix A) and (b) a survey of national practices (in litigation and arbitration), including in relation to third-party funding, cost-capping and cost disparities (or inequalities) between parties (the results of which are set out in Appendix B) (Section III);
(ii) a discussion of how the power to allocate costs may be used for the purpose of effective case management (Section IV);
(iii) a discussion of considerations taken into account by arbitrators when allocating costs (Section IV);
(iv) specific challenges raised by funding arrangements and settlement negotiations (Sections V and VI);
(v) concluding observations (Section VIII).