I) The Special Committee's quality control QC
5. How shall the arbitration costs be determined?
The principal issue here is whether the costs shall be fixed depending on the sum in dispute or depending on the actual time efforts spent by the arbitrators and the institution.
Again, both systems were represented within the old rules of the Chambers. The Geneva Rules, in principle, provided for arbitrators' fees based on time spent - much like the LCIA Rules. By contrast, the other Chamber rules, including the Zurich Rules, provided for arbitrators' fees calculated according to the sum in dispute-the system applied by the I CC.
The drafters of the Swiss Rules opted for the ad valorem system-both for the calculation of the arbitrators' fees, as well as of the institutional charges. The principal reason was that it appears to make good economic sense to link the amount of costs to the economic risk at stake. Moreover, the Swiss arbitration community is quite familiar with that system because it is the one also applied by the national courts in determining court costs. The second reason for preferring the ad valorem system was that it provides for a certain predictability -although, of course, within fairly large ranges. My personal experience as party counsel is that clients appreciate it if, at the beginning of an arbitration, you can give them at least an indication of the median costs within the applicable range, something that is hardly possible if costs are charged based on time spent.
The applicable ad valorem scale is set out in the Schedule of Costs, Appendix B of the Swiss Rules (CHF).
Chambers'
Amount in dispute (in Swiss Fee of Sole Fee of three- Chambers' Admin.
Francs) Arbitrator member A.T. Reg. Fee
Costs min. max. min. max.
up to 300,000 4% 12% 10% 30%
-300,001 -600,000 2% 8% 5% 20% - 4,500
600,001 - 1,000,000 1.5% 6% 3.75% 15%
-1,000,001 -2,000,000 0.6% 3.6% 1.5% 9%
-4,000 +
2,000,001- 10,000,000 0.38% 1.5% 0.95% 3.75% 6,000
0.2%
10,000,001-20,000,000 0.3% 0.6% 0.75% 1.5% 0.1%
20,000,001 -50,000,000 0.1% 0.2% 0.25% 0.5% 0.05%
·-~
50,000,001-100,000,000 0.06% 0.18% 0.15% 0.45% 0.01% 8,000 100,000,001 - 250,000,000 0.02% 0.1% 0.05% 0.25% 50,000
0.025
over 250,000,000 0.01% 0.06% 0.15% 50,000
%
When establishing the scale, the drafters took guidance from the old Zurich scale, but they also considered the recommendations of a Zurich working group for the revision of that scale. lt was thought that the old Zurich scale was too generous in cases with large sums in dispute, and therefore, not competitive. These concerns had to be taken into consideration.
As a result, the Appendix B scale of the Swiss Rules is now comparable to those of other institutions over the full range of economic values in dispute. Compared specifically to the ICC scale, the Swiss scale provides for slightly higher maximum amounts for arbitrators' fees. However, the Chambers took the view that it was also in their best interest for arbitrators to be paid well. In addition, they recognized the additional financial administration functions entrusted to the arbitrators, which also justifies slightly higher fee ranges. On the other hand, the Chambers agreed to somewhat lower totals of the institutional charges, as compared, for example, to those of the ICC - a result that is in line with the lesser level of their administrative responsibilities.
Within the ranges indicated by the Appendix B scale, the eventual amount of the arbitrators' fees should be fixed taking into account the complexity of the subject matter, the time spent by the arbitrators and any other relevant circumstances of the case. This is provided in Article 39 of the Swiss Rules. lt is also made clear in Article 39 that, in the event of discontinuation of the arbitral proceedings, for example, in case of settlement, the arbitration costs (arbitrators' fees and institutional charges) may be, and. probably should be in most cases, less than the minimum amounts resulting from Appendix B.
On the other hand, the arbitrators' fees and institutional charges may, in exceptional cases, exceed the amounts set out in the scale; but this really is only in exceptional circumstances, and only with express prior approval of the Chambers. The final authority to fix fees above the ranges set out in Appendix B thus lies with the Chambers and not with the arbitrators.
Since the Chambers can have
no
interest at all in having their reputation ruined by excessive fee incidents, the approval requirement will serve as an effective safety against abuse.For illustration purposes, the table below sets out the arbitration costs (arbitrators' fees and institutional charges) in Euro for sums in dispute between Euro one and 50 million:
Registration Sole arbitrator or three-member Admin.
Amount in dispute
Fee A.T. Charge
min. max
1 Mio. 3,000 18,000 68,000
5 Mio. 4,000 84,833 337,500 10,000
10 Mio. 5,333 125,667 450,000 16,666
20 Mio. 5,333 167,333 533,333 23,333
50 Mio. 5,333 225,667 675,000 31,667
Exchange rate applied: 1 EUR
=
1.50 CHFFor the reader's information, there is a calculator on the Swiss Chambers' arbitration website (<www.swissarbitration.ch/costs.html)> for the calculation of the arbitration costs. it is, however, in Swiss Francs only.
6. Allocation of fee among the arbitrators
Not the least interesting topic for arbitrators is the allocation of the fees among them. The old Zurich Rules provided for a unanimous decision of the Arbitral Tribunal in this respect. If there was none, there was the usual allocation of 40% for the chairman and 30% for each eo-arbitrator "if they cooperated in drafting the Final Reasoned Award'. In all other cases, the distribution was 50% for the chairman and 25% for each eo-arbitrator.
The Swiss Rules attempt to reflect the rationale behind the old Zurich Rules in providing that the chairman shall, as a rule, receive between 40 and 50% and each eo-arbitrator between 25 and 30% of the total fees "in view of the time and efforts spent by each arbitrat01".
However, Article 39 of the Swiss Rules, by contrast to the old Zurich Rules, allows a majority decision on the fee allocation. This theoretically enables the eo-arbitrators to insist on a fee distribution that may, in a specific case, not properly reflect the lion's share of the work performed by the chairman. However, this is a theoretical case only, and it can, of course, be expected that the rule of reason prevails not only in the award but also among the arbitrators!
7. Allocation of costs between the parties
This issue is covered by Article 40(1} and (2) of the Swiss Rules. They have been adopted unchanged from the UNCITRAL Arbitration Rules. Following the generally accepted rule in international arbitration, the costs shall, in principle, be borne by the unsuccessful party. The arbitrators may, however. apportion each of the cost elements between the parties if deemed reasonable.
One exception applies to the costs of the legal representation and assistance of the successful party. In this regard. the Arbitral Tribunal has unfettered discretion to award, or not to award, such costs to the successful party. This UNICTRAL rule acknowledges the tradition of some Anglo-Saxon jurisdictions, according to which each party should, in principle, bear its own costs, irrespective of the outcome of the case. However, nothing prevents the Arbitral Tribunal under Article 40 of the Swiss Rules from applying the principle more common in international arbitration, namely, that the parties' legal costs shall be allocated between them in proportion to their winning or losing the case.
The above reference to the parties' legal costs gives rise to one last remark. In an international arbitration, the lion's share of the total costs incurred usually is for the parties' legal representation and for expert advice. These costs can dwarf the arbitrators' fees and institutional charges. In this context, any comments about an arbitral institution being too
expensive or more expensive than others are of limited relevance. Of much greater significance is that the rules of an institution are designed to promote expedient and efficient proceedings, that the arbitrators apply such rules, and that the institution's administrative services are provided in a competent manner.
THE UNC1TRAL RULES AS APPLIED IN THE IRAN·US CLAIMS TRIBUNAL
Lucy Reed' Stephan1e Hilt Rosenkranz""
1. Introduction
In the Claims Settlement Declaration of the 1981 Algiers Accords, the governments of the United States and the Islamic Republic of Iran selected the relatively new UNCITRAL Arbitration Rules as the rules for the Tribunal to be established to resolve claims between those governments and their nationals. The !ran-United States Claims Tribunal ("Tribunal") has since resolved hundreds of claims for commercial contract breach and takings, as well as disputes between the two governments concerning interpretation of the Algiers Accords.
The Tribunal's use of the UNCITRAL Arbitration Rules, amended to adjust to its institutional nature ("Tribunal Rules"). and the publication of its many awards and decisions, have created an accessible jurisprudence on arbitral procedure under the UNCITRAL Arbitration Rules.
Practitioners and scholars now have an invaluable resource, respectively, in predicting and evaluating the practical application of the UNCITRAL Arbitration Rules.
Looking back, the Tribunal jurisprudence demonstrates that the flexibility inherent in the UNClTRAL Arbitration Rules allowed them to be used equally well for commercial contract disputes, intergovernmental contract claims and treaty claims.' The conventional wisdom is that this available and positive jurisprudence has been influential in the now common designation of the UNCITRAL Arbitration Rules in government and private arbitration clauses alike.
Major arbitral institutions, for example the Permanent Court of Arbitration and the International Center for Dispute Resolution of the American Arbitration Association, have modeled their rules on the UNCITRAL Arbitration Rules. The Swiss Chambers of Commerce are the latest to do so in the new Swiss Rules of International Arbitration ("Swiss Rules"), in what this conference has shown to be a thorough, thoughtful and progressive way.
Those of us who worked with the UNCITRAL Arbitration Rules in the !ran-US Claims Tribunal
~day in and day out, year in and year out~ became very comfortable with them and hence wilting to compensate for their slight flaws and inconveniences. The purpose of this modest paper is to describe certain of those flaws and weaknesses, as revealed in Tribunal practice.'
Partner in the New York office of Freshfields Bruckhaus Derringer; J.D., University of Chicago Law School.
Reed was a US Agent to the I ran-US Claims Tribunal.
Associate in the New York office of Freshfields Bruckhaus Derringer; J.D., New York University School of Law.
Remarks by L. REED in Proceedings of the AS/UNV/R Joint Conference, Current Issues in International Commercial Arbitration (including lessons from the /ran-US Claims Tribunal) (July 6, 1992), pp. 181-183, J. PAULSSON has described several necessary or desirable updates to the UNCITRAL Arbitration Rules in a memorandum to UNCITRAL Secretary General Jernej Sekolec (included with the conference materials).
Not at all surprisingly, the drafters of the new Swiss Rules made adjustments for certain of them. Perhaps practice under the new Swiss Rules will make adjustments for others.