By Victor Smith
The most common question asked by clients is “will I win the case?” The second most common question is “how much will it cost”.
Before considering what is the cost of an arbitration it is important to understand what the costs of an arbitration may include and most importantly whether or not the winning party will recover the costs it has incurred for the arbitration?
Generally the costs of an arbitration are categorized as follows:
o Administration fees.
o Arbitrator’s fees and expenses.
o Legal fees.
o Ancillary costs.
In addition to the above costs the winning party may incur enforcement costs if the losing party fails to voluntarily comply with the award and may also incur additional legal costs if the losing party challenges the award in the courts. A party will also incur internal costs for its staff etc. to deal with the arbitration. These costs are not normally considered as “costs of the arbitration” but should be taken into consideration by a party that is considering whether or not to commence an arbitration.
The administration fees are the fees charged by an arbitral institution to administer the arbitration. The arbitrator’s fees are the fees paid to the arbitrators for their services and their expenses are costs the arbitrators incur for the arbitration which normally consist of travel, accommodation, visa and postage expenses. Legal fees are the lawyer’s fees and expenses incurred by the parties for the arbitration. Ancillary costs may include the cost of hiring the venue for the hearing, translation costs, transcription costs, travel and accommodation for witnesses and expert witness fees.
The level of administration fees and arbitrator’s fees depend on which arbitral institution is chosen to administer the arbitration and the number of arbitrators chosen for the arbitration. The arbitrator’s expenses depend on where the arbitrator is located and where the venue for the arbitration will be. Many arbitral institutions that charge their administration fees and arbitrator’s fees based on the quantum in dispute provide cost calculators on their websites to estimate these costs. If we assume the arbitration will be conducted under the arbitration rules of the International Chamber of Commerce (ICC), that there will be one arbitrator and the quantum in dispute is US$ 1 million we can estimate the ICC’s administration fees and the arbitrator’s fees from the ICC website at www.iccwbo.org This indicates that the ICC’s administration fees would be US$ 57,515 and that the average level of the arbitrator’s fees would be US$ 113,274 (these are indicative fees and may be amended by the ICC). If we assume the arbitrator is located in Bangkok and the venue for the arbitration is Bangkok the arbitrator’s expenses should be minimal.
Normally both parties are required to pay 50% of an advance on the costs of the arbitration for the administration fees and the arbitrator’s fees when the arbitration is commenced. However, should one of the parties fail to pay this advance on costs the other party will normally be required to pay the full advance on cost before the arbitration can be commenced.
It is difficult to accurately estimate the legal fees that may be incurred by the parties as this depends on several factors including the complexity of the arbitration, the level of fees charged by the law firm and the number of person allocated to the case by the law firm. Additionally the location of the law firm and the venue for the arbitration would affect the expenses incurred by the law firm. Although it is difficult to estimate the legal fees that may be incurred it should be borne in mind that these costs can be significant. Surveys by the ICC and the Singapore International Arbitration Center indicate that the legal fees incurred by parties for an arbitration can represent 85% of the total costs of the arbitration.
Ancillary costs are dependent on several factor including whether or not a hearing is required, whether a transcription of the hearing is required, whether any translation is required, the number of witnesses (including any expert witnesses) that will be called and the location of the witnesses and the where the venue for the arbitration will be. Normally these costs will not be significant when compared to the overall cost of the arbitration but should be taken into consideration by the parties.
The winning party may be awarded the costs it has incurred under the principle “costs follow the event” and the losing party will have to pay the costs of the arbitration incurred by the winning party. Where the winning party has only won part of its case the arbitrators may award the winning party the costs of the arbitration it has incurred on a pro-rata basis. For this reason a party should not introduce claims in the arbitration that it is not confident of winning as this may affect the level of the costs of the arbitration it may recover.
It should not be assumed that the winning party will recover all of the costs of the arbitration it has incurred. In some cases it is difficult to prove these costs and in some jurisdictions there are restrictions on what costs the arbitrators can include in their award.
In summary it is difficult to accurately estimate the total cost of an arbitration which can be significant. The decision to commence arbitration proceedings should not be taken without seeking professional legal advice and taking into consideration what the costs of the arbitration might be and whether or not these costs can be recovered by the winning party. At Hughes Krupica we have the expertise to provide advice on how the costs of an arbitration can be minimized and to what extent its clients may be able to recover the costs of the arbitration.