The Arbitration Minute - September 2017

Institutional arbitration: is it possible to anticipate the allocation of the arbitration costs?

Yes. Many arbitration rules expressly provide that the arbitration costs must be borne by the losing party: see Article 52(2) of the 2015 CIETAC Rules, Article 35(2) of the 1998 DIS Rules, Article 28(4) of the 2014 LCIA Rules, Article 42(1) of the 2012 PCA Rules and Article 42(1) of the 2010 UNCITRAL Arbitration Rules.

Other sets of rules, including the ICC’s, simply allow the arbitration tribunal to allocate the arbitration costs by taking into account the circumstances of the case (Article 38(5) of the 2017 ICC Arbitration Rules). Therefore, there is no presumption under which the losing party should bear the arbitration costs. This solution is also the one chosen by other sets of rules: see Article 33(2) of the 2013 HKIAC Rules, Articles 36(2) and (3) of the 2013 CEPANI Rules, Article 34 of the 2014 ICDR Rules, Article 44 of the 2010 SCC Rules, Article 37 of the 2016 SIAC Rules and Article 74 of the 2014 OMPI Rules.

The different options regarding the arbitration costs are the following: (i) each party pays its own arbitration costs regardless of the outcome of the arbitration; or (ii) the losing party bears all the arbitration costs; or (iii) one party bears a share of the tribunal’s costs and/or a share of the other party’s costs.

The Queen Mary 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration, outlined that in 50% of the surveyed cases, the costs were entirely borne by the losing party. In 30% of the cases, one party only bore a share of the tribunal’s costs and/or of the other party’s costs and in 20% of the cases, each party bore its own costs.

This implies that practice clearly favours the losing party paying the arbitration costs in their entirety. An ICC report published in 2015 comes to the same conclusion. Despite the fact that the ICC and at least, half of the other major institutional rules contain no presumption in favour of the recovery of costs by the successful party, it appears that the majority of arbitral tribunals broadly adopt that approach as a starting point, thereafter adjusting the allocation of costs as considered appropriate. This was the approach in the majority of ICC awards examined, in 91% of HKIAC awards, in the majority of ICDR awards, in 90% of SIAC awards and in more than half of SCC awards. This was also the case in most LCIA and PCA awards (Source: ICC Commission Report - Decisions on Costs in International Arbitration, ICC Dispute Resolution Bulletin, 2015, Issue 2). It should be highlighted that some specific cultural aspects of certain countries may have an influence on this allocation (for example: national practices in state courts).

In practice, it is fair to say that the losing party often pays. To obtain more certainty, parties may wish to address the allocation of the arbitration costs in their arbitration clause, subject of course to the requirements of the applicable arbitration act. The United Kingdom’s 1996 Arbitration Act, for example, prohibits agreements whereby a party undertakes to pay the costs in any event (e.g., also if it wins the arbitration), unless they are made after the dispute arises.