Costs are among the most important considerations for parties in international arbitration proceedings.[1] Therefore, it is crucial for them to know in advance the categories of recoverable costs at the end of the arbitral process. These costs can generally be recovered from the losing party.
In this respect, Article 38 of the Arbitration Rules of the International Chamber of Commerce that entered into force on 1 January 2021 (the “ICC Rules”), provides some guidance to the parties. While some categories of costs are straightforward, others have been the subject of greater debate. Therefore, reference must also made to arbitral practice.
Article 38(1) of the ICC Rules provides that “[t]he costs of the arbitration shall include the fees and expenses of the arbitrators and the ICC administrative expenses fixed by the Court, in accordance with the scales in force at the time of the commencement of the arbitration, as well as the fees and expenses of any experts appointed by the arbitral tribunal and the reasonable legal and other costs incurred by the parties for the arbitration.”[2] The following paragraph stipulates that “[t]he Court may fix the fees of the arbitrators at a figure higher or lower than that which would result from the application of the relevant scale should this be deemed necessary due to the exceptional circumstances of the case.”[3]
As such, this provision includes four categories of recoverable costs: (i) arbitrators’ fees and expenses, (ii) the ICC’s administrative expenses, (iii) tribunal-appointed experts’ fees and expenses and (iv) the parties’ “reasonable legal and other costs”.
The costs are generally fixed by the arbitrators in the final award, where the tribunal decides which party bears them “or in what proportion” they must be borne between the parties.[4]
Nevertheless, it is generally accepted that there is no exhaustive definition of arbitration costs, granting arbitrators broad discretion.[5] The arbitrators’ approach to cost allocation and the recoverability of certain costs is, therefore, often influenced by their own legal background and experience.[6]
According to the Report of the ICC Commission on Arbitration and ADR on Decisions on Costs in International Arbitration from 2015, party costs (including lawyers’ fees and expenses, expenses related to witness and expert evidence, and other arbitration-related costs incurred by the parties) represent the largest part of overall costs, amounting to 83% of costs. Arbitrators’ fees and expenses, along with the ICC’s case administration costs, account for a significantly smaller share, as illustrated in the diagram below:[7]
Similar results were previously provided in the ICC International Court of Arbitration statistics, based on cases that resulted in a final award between 2003 and 2004.[8]
Arbitrators’ Fees and ICC Administrative Expenses Fixed by the Court
The arbitrators’ fees and the ICC administrative expenses are fixed exclusively by the ICC Court.[9] Details of how the Court determines them are to be found in Article 2 of Appendix III – Arbitration Costs and Fees of the ICC Rules.
The Court applies the “scales” which are central to the ICC’s cost system and constitute a difference compared to other institutions.[10] In the ICC system, these published scales are fixed according to the sum in dispute and are provided in Article 3 of Appendix III – Arbitration Costs and Fees of the ICC Rules.
In determining the arbitrator’s fees, the Court considers:[11]
- the diligence and efficiency of the arbitrator;
- the time spent;
- the rapidity of the proceedings;
- the complexity of the dispute; and
- the timeliness of the submission of the draft award.
Only in “exceptional circumstances”, as mentioned in Article 38(2) of the ICC Rules, will the Court depart from its scales.[12] The same applies in relation to ICC administrative fees.[13] Moreover, under this system, separate fee arrangements between the parties and the arbitrator are prohibited under the Rules.[14]
According to leading authors, this system presents at least two advantages: (i) assessment from the very outset of the arbitration of “the minimum and maximum” of the arbitrators’ remuneration and administrative fees and (ii) creation of a “financial framework for the arbitration that is broadly compatible with the amount at stake” with the particularity that if the parties artificially inflate the amount of their claims, this may have an impact on the amount of the arbitrators’ fees.[15] As such, the system is perceived as discouraging the submission of “frivolous claims and counterclaims in addition to creating an incentive for efficiency.”[16] This way, the system is balanced: the arbitrators’ remuneration is “commensurate with the financial stakes of each case”, thereby promoting cost-effective proceedings.[17]
Fees and Expenses of Experts Appointed by the Tribunal
In case the tribunal has appointed experts for the needs of the proceedings, which is rare, these will be recoverable costs for the parties as expressly indicated in Article 38(1) of the ICC Rules.
These costs include the fees and expenses of the experts and consultants, “but also the costs associated to their testimony, costs of travel, accommodation and other ancillary costs.”[18] The costs of these experts are determined by the arbitrators, rather than the Court.[19] They are the subject of a separate advance on costs fixed by the tribunal.[20]
Costs of experts retained by the parties are not excluded from the costs allocated to the parties. They are simply included in the parties’ costs[21] discussed immediately below and, as such, are also recoverable costs.
“Reasonable Legal and Other Costs Incurred by the Parties”
Under this broad category, which, nonetheless, remains largely undefined, the parties may recover a variety of costs. Hence, the tribunal enjoys the greatest discretion in fixing the parties’ costs of the arbitration.[22] The tribunal must, each time, determine whether and to what extent the costs claimed by the parties are recoverable costs.[23]
In this respect, the parties’ costs must satisfy the condition of reasonableness as expressly provided under Article 38(1) of the ICC Rules. Typically, to assess whether the costs claimed by the parties are reasonable, the tribunal may consider the following factors:
- the comparison of the costs with the amount in dispute (described as a “common-sense approach”);[24]
- the overall complexity of the matter;[25]
- the length of the proceedings (for instance, unnecessarily prolonged proceedings due to repeated requests for document production, etc.);[26]
- the reasonableness of the number, level and rates of legal counsel when evaluating whether the amount of work charged was reasonable;[27]
- the reasonableness of the level of specialisation, including the legal qualification of the party representatives and, inter alia, their level of seniority;[28]
- any disparity between the costs incurred by the parties as “[a] sharp difference between parties may reflect unreasonableness in one side’s costs claim.”[29]
As a general rule, to be admitted, parties’ costs must be “directly linked” to the preparation of the case.[30]
Parties’ recoverable costs typically include the following:[31]
- legal costs (fees and expenses of the lawyers of the parties);
- travel expenses of the parties, their witnesses and their lawyers;
- the costs of party-appointed experts;
- other common costs (hearing room rental, court reporters and translators, catering for the hearing, etc).
The above are considered recoverable costs and are generally undisputed.[32] In relation to parties’ legal costs, success fees that are sometimes claimed by counsel are often not included in the costs fixed by the tribunal as they do not represent actual expenses incurred for the defence of the case. They are often considered “a reward granted in consideration of the success obtained in the defence of the case”.[33]
Other costs are subject to greater debate, namely, in-house counsel costs as well as costs of parallel court proceedings.[34] There is no consensus in arbitral practice regarding the recoverability of parties’ “internal” costs such as in-house lawyers, management or other staff.[35] The issue appears to be the difficulty of assessing these costs rightly. Indeed, while outside counsel typically provides detailed invoices, the same is not true for in-house counsel.[36] Some tribunals will deny the recoverability of these costs, considering that “they fall within the parties’ normal operating expenses.”[37] Other tribunals have accepted their recoverability.[38]
Regarding costs claimed in ancillary court proceedings (for instance, applications to state courts for interim measures), it is generally considered that these costs are not recoverable costs in the arbitration proceedings as they can be claimed before the relevant courts.[39] Similarly, expenses incurred at an earlier stage of the proceedings, i.e., negotiation or mediation costs, are usually non-recoverable.[40] The same applies to post-arbitration costs, such as those related to enforcement proceedings, which are typically excluded.[41]
Conclusion
Arbitrators’ costs and ICC administrative costs are straightforward under the ICC Rules. This enhances predictability and allows parties to anticipate these expenses in advance. On the other hand, arbitrators enjoy wide discretion when awarding parties’ costs. This discretion is permitted by the ICC Rules. As a general rule, parties’ costs will be recovered as long as there is a “close connection” between their cause and the preparation of the proceedings.[42] Nevertheless, costs related to in-house counsel remain the subject of debate due to their specific nature.
[1] See, e.g., M. Bühler, Awarding Costs in International Commercial Arbitration: an Overview, 22(2), ASA Bull., para. IV and “Summary”.
[2] ICC Rules, Article 38(1).
[3] ICC Rules, Article 38(2).
[4] ICC Rules, Article 38(4).
[5] G. Flecke-Giammarco, The Allocation of Costs by Arbitral Tribunals in International Commercial Arbitration, in J. A. Huerta-Goldman, A. Romanetti et al., WTO Litigation, Investment Arbitration, and Commercial Arbitration (2013), §13A.02.
[6] G. Flecke-Giammarco, The Allocation of Costs by Arbitral Tribunals in International Commercial Arbitration, in J. A. Huerta-Goldman, A. Romanetti et al., WTO Litigation, Investment Arbitration, and Commercial Arbitration (2013), §13A.02.
[7] Commission on Arbitration and ADR, ICC Commission Report, Decisions on Costs in International Arbitration, 2015 Issue 2, para. 2.
[8] Techniques for Controlling Time and Costs in Arbitration, 18(1), ICC Bull., “Introduction”, p. 2 of the PDF; see also The ICC Arbitral Process – Part IV: The Costs of ICC Arbitration, 4(1), ICC Bull. 9, p. 9.
[9] E. Schwartz, Y. Derains, Guide to the ICC Rules of Arbitration (2nd edn., 2005), pp. 329-374.
[10] ICC Rules, Appendix III, Article 2(1) and 2(5); E. Schwartz, Y. Derains, Guide to the ICC Rules of Arbitration (2nd edn., 2005), pp. 329-374.
[11] ICC Rules, Appendix III, Article 2(2).
[12] ICC Rules, Appendix III, Article 2(2); Article 38(2).
[13] ICC Rules, Appendix III, Article 2(5).
[14] ICC Rules, Appendix III, Article 2(4).
[15] E. Schwartz, Y. Derains, Guide to the ICC Rules of Arbitration (2nd edn., 2005), pp. 329-374; see also The ICC Arbitral Process – Part IV: The Costs of ICC Arbitration, 4(1), ICC Bull. 9, p. 23.
[16] E. Schwartz, Y. Derains, Guide to the ICC Rules of Arbitration (2nd edn., 2005), pp. 329-374.
[17] The ICC Arbitral Process – Part IV: The Costs of ICC Arbitration, 4(1), ICC Bull. 9, p. 23.
[18] B. Hanotiau, The Parties’ Costs of Arbitration (2006), Evaluation of Damages in International Arbitration – Institute Dossier IV, p. 212, p. 214.
[19] E. Schwartz, Y. Derains, Guide to the ICC Rules of Arbitration (2nd edn., 2005), pp. 329-374.
[20] ICC Rules, Appendix III, Article 1(12).
[21] E. Schwartz, Y. Derains, Guide to the ICC Rules of Arbitration (2nd edn., 2005), pp. 329-374.
[22] B. Hanotiau, The Parties’ Costs of Arbitration (2006), Evaluation of Damages in International Arbitration – Institute Dossier IV, p. 212, p. 213.
[23] J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration (2012), para. 3-1489.
[24] Commission on Arbitration and ADR, ICC Commission Report, Decisions on Costs in International Arbitration, 2015 Issue 2, para. 63.
[25] Commission on Arbitration and ADR, ICC Commission Report, Decisions on Costs in International Arbitration, 2015 Issue 2, para 70.
[26] Commission on Arbitration and ADR, ICC Commission Report, Decisions on Costs in International Arbitration, 2015 Issue 2, para. 70.
[27] Commission on Arbitration and ADR, ICC Commission Report, Decisions on Costs in International Arbitration, 2015 Issue 2, paras. 65-66.
[28] Commission on Arbitration and ADR, ICC Commission Report, Decisions on Costs in International Arbitration, 2015 Issue 2, paras. 65-66.
[29] J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration (2012), para. 3-1493; see also M. Bühler, Awarding Costs in International Commercial Arbitration: an Overview, 22(2), ASA Bull., para. V.B.1.
[30] B. Hanotiau, The Parties’ Costs of Arbitration (2006), Evaluation of Damages in International Arbitration – Institute Dossier IV, p. 212, p. 213.
[31] J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration (2012), para. 3-1490.
[32] E. Schwartz, Y. Derains, Guide to the ICC Rules of Arbitration (2nd edn., 2005), pp. 329-374; B. Hanotiau, The Parties’ Costs of Arbitration (2006), Evaluation of Damages in International Arbitration – Institute Dossier IV, p. 212, p. 214.
[33] B. Hanotiau, The Parties’ Costs of Arbitration (2006), Evaluation of Damages in International Arbitration – Institute Dossier IV, p. 212, p. 218.
[34] J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration (2012), para. 3-1491; E. Schwartz, Y. Derains, Guide to the ICC Rules of Arbitration (2nd edn., 2005), pp. 329-374.
[35] J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration (2012), para. 3-1491.
[36] J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration (2012), para. 3-1491.
[37] J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration (2012), para. 3-1491.
[38] ICC Case No. 6345, Award (extract), 1993, 4(1) ICC Bull., pp. 44-48: “Compensation shall also be paid for the party’s work and loss of time in connection with the litigation.”; ICC Case No. 6564, Award (extract), 1993, 4(1) ICC Bull., pp. 44-48: in this case, although the tribunal accepted, as a matter of principle, that in-house counsel costs were recoverable costs, it nevertheless stressed that external counsel costs “can be clearly identified and evidenced” which is not the case for in-house counsel costs. The tribunal added that in-house costs “require some substantiation inter alia with respect to the nature of the cost, the personnel involved and type of work performed” and concluded that, in that case, neither party satisfied these requirements (as their claims were “too general to permit an assessment of the justification and reasonableness of the costs”); ICC Case No. 17185, Award (extract), 2016, 2(2) ICC Bull., 82: in this case, the claimant had claimed “costs of executive time” which were rejected. The tribunal, however, seems to have accepted, in principle, the recoverability of in-house counsel costs: “[t]he costs of executive time, especially costs of those other than in-house counsel, is an issue about which there is no unanimity of views within the arbitration community. In this case, where the costs are estimates, not based on time records and not the costs of in house counsel, it seems inappropriate to award them.” (emphases added).
[39] J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration (2012), para. 3-1491.
[40] J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration (2012), para. 3-1492.
[41] J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration (2012), para. 3-1491.
[42] M. Bühler, Awarding Costs in International Commercial Arbitration: an Overview, 22(2), ASA Bull., para. V.A.