Investment arbitrations are expensive. In a case that goes through a jurisdictional, merits and damages phase, each of the disputing parties spends an amount equivalent to several million US dollars. Costs and expenses fall into one of the three categories: (i) arbitrators’ fees and applicable secretariat expenses (often referred to as “arbitration costs”); (ii) attorneys’, or legal fees (which typically account for the biggest share of the total costs of the case), and (iii) additional costs for the involvement of experts and witnesses, and hearing-related expenses for court reporters and interpreters, where necessary.
The most common practice as an arbitration progresses is for the disputing parties to contribute equally to the costs of the proceedings. Typical initial advance payments in NAFTA Chapter 11 proceedings have been in the range of US$ 40,000 to US$ 75,000
170 LG&E v. Argentina, Award, 25 July 2007, para. 87.
per party.171 This equal allocation is without prejudice to the final allocation of costs by the tribunal.172
1. Arbitrator fees
Remuneration of arbitrators can amount to a sizeable part of the overall arbitration costs. In the ICSID system, arbitrators’ fees are set according to the schedule — currently US$3,000 per day per arbitrator — in addition to subsistence allowances and reimbursement of travel expenses (although the parties may agree to different arbitrators’ fees, with the Secretary-General’s permission).
Under the UNCITRAL Rules, arbitrators generally set their own fees. They are to be “reasonable”, taking into account the monetary amount in dispute, the complexity of the subject-matter, and the amount of time spent by the arbitrators. The fees charged by arbitrators in proceedings governed by the UNCITRAL Rules tend to be higher than those in the ICSID schedule.
IIAs are typically silent on the matter of arbitrators’
remuneration, although some recent treaties have addressed the issue. For example, the Colombia-Japan BIT (2011) states:
“The disputing parties may agree on the fees to be paid to the arbitrators. If the disputing parties do not reach an agreement on the fees to be paid to the arbitrators before the establishment of the Tribunal, the fees and expenses established from time to time in the ICSID and effective at the time of the establishment of the Tribunal shall apply.”
(Article 30.6).
171 Kinnear, Bjorklund and Hannaford, 2009, p. 1135.
172 ICSID Convention Articles 59–61; ICISD Administrative and Financial Regulations 14(3) and 16.
This provision prompts the disputing parties to consult on the fees to be paid to arbitrators in advance of the establishment of the tribunal. If the disputing parties reach an agreement, arbitrators must accept the offered fees or decline appointment. Even if the parties fail to take advantage of this opportunity, the IIA caps arbitrator fees at the level set in the ISCID schedule.
2. Cost allocation: arbitral rules and practice
There is no uniform rule with respect to the final allocation of costs by the tribunal. Some arbitral rules contain presumptions about the allocation of costs. For example, Article 42(1) of the UNCITRAL Rules (2010) provides that:
“The costs of the arbitration shall in principle be borne by the unsuccessful party or parties. However, the arbitral tribunal may apportion each of such costs between the parties if it determines that apportionment is reasonable, taking into account the circumstances of the case.”
The costs-follow-the-event presumption in the UNCITRAL Rules applies both to the prevailing party’s arbitration costs and attorney’s fees. In contrast, the 1976 UNCITRAL Rules distinguished between costs and fees, and did not establish the presumption that attorneys’ fees should be shifted to the losing party. The ICSID Arbitration Rules contain no presumption about the allocation of costs.
However, a presumption is only a presumption. Its existence notwithstanding, arbitral tribunals retain a great deal of discretion to decide the appropriate allocation of costs and have, on occasion, exercised this discretion to distribute the costs in accordance with the relative success of the parties’ arguments (see examples in box 1 below).
Tribunals have taken at least seven different approaches to costs: (1) costs follow the event — victor takes all; loser pays all costs of the arbitration and all attorneys’ fees; (2) costs follow the event “pro rata” — loser pays all costs and prevailing party’s attorneys’ fees proportional to the outcome; (3) costs follow the event “modified” — loser pays all costs but does not pay prevailing party’s attorneys’ fees; (4) costs shared equally, including attorneys’
fees and irrespective of differences in their amount; (5) costs shared equally, but attorneys’ fees borne by the party retaining the attorneys; (6) the “American Rule” — each party bears its own costs and attorneys’ fees; (7) the “American Rule” exception — if there is manifest fraud, corruption, or the like, the culpable party would bear some or all of the costs of arbitration and/or some or all of the opposing side’s attorneys’ fees.173
Empirical evidence suggests that most investment tribunals have ordered parties to share equally in the costs of the proceedings and to bear their own legal fees;174 although in some cases the losing party has been ordered to pay all, or some, of the costs incurred by the winning party (see examples in box 2).
Box 1. Examples of costs in ISDS cases
In Ioannis Kardassopoulos and Ron Fuchs v. The Republic of Georgia (ICSID Case Nos. ARB/05/18 and ARB/07/15), the tribunal ordered the respondent to pay the claimants’ costs of the arbitration proceedings in the total sum of US$ 7.9 million, which included legal fees, expert fees, administrative fees and the fees of the tribunal. Obviously, the respondent State also had to bear its own legal fees (approx. US$ 4.8 million) and other costs (approx.
US$ 1.5 million).
In Plama Consortium v. Bulgaria (ICSID Case No.
173 Kreindler, 2010.
174 See Franck, 2011, pp. 843–844.
ARB/03/24), the claimant's legal costs amounted to US$4.6 million, while the respondent’s legal costs were US$13.2 million. The tribunal ordered the claimant to pay all arbitration costs and half of the respondent’s legal fees.
In Pey Casado v. Chile (ICSID Case No. ARB/98/2), the claimant’s legal fees totaled approximately US$11 million, while the respondent’s legal fees amounted to US$4.3 million. The respondent was ordered to pay 75 per cent of the arbitration costs and $2 million of the claimant’s legal fees.
In ADC v. Hungary (ICSID Case No. ARB/03/16), the tribunal ordered the respondent State, which had been found to have breached its BIT obligations, to pay the full costs of the arbitration totaling US$7.6 million. This included the investor’s legal fees.
In Siag and Vecchi v. Egypt (ICSID Case No. ARB/05/15), the tribunal found that the claimants were entitled to receive from Egypt the amount of US $6 million to cover their legal fees, expert costs and other expenses.
3. Cost allocation: IIA provisions
Few investment treaties address arbitration costs or attorneys’
fees. The allocation of costs and fees is thus left to tribunals to decide on a case-by-case basis, subject to any directives contained in the applicable arbitral rules. Some recent IIAs have added provisions regarding the allocation of fees and costs in the context of frivolous claims allegations (see section II.H above). Thus, the Belgium/Luxembourg-Colombia BIT (2009) provides in Article XII:
“14.1 When deciding about the objection of the respondent, the Tribunal may rule on the costs and fees of
attorneys incurred during the proceedings, considering whether or not the objection prevailed.
14.2. [...] In the event of a frivolous claim the Tribunal shall award costs against the claimant.” (Emphasis added).
The 2004 U.S. Model BIT, in Article 28(6), takes a similar approach, but leaves discretion to the tribunal:
“When it decides a respondent’s objection under paragraph 4 or 5, the tribunal may, if warranted, award to the prevailing disputing party reasonable costs and attorney’s fees incurred in submitting or opposing the objection. In determining whether such an award is warranted, the tribunal shall consider whether either the claimant’s claim or the respondent’s objection was frivolous and shall provide the disputing parties a reasonable opportunity to comment.”