The allocation of reasonable fees and expenses in arbitration
The costs of the arbitration can be divided into two main categories:
(i) the ‘arbitration fees’ (or ‘procedural costs’), which include the arbitrators’ fees and expenses and the administrative charges of any arbitral institution, as well as charges for any other assistance required by the arbitral tribunal; and
(ii) the ‘party expenses’, which include legal costs and other expenses incurred by a party for the arbitration, including the fees and expenses of outside counsel, party-appointed experts, witnesses, translators, etc.
Therefore, it may happen that treatment of costs and expenses in arbitration become, at times, problematic; not least because of the legal costs involved in pursuing disputes through arbitration.
Arbitral tribunals should deal with the issue of fixing and allocating costs as part of their awards and pursuant to the provisions of the Qatari Arbitration Law (Article 31.4) and the Arbitral Institution which governs the procedures (ICC or LCIA or QICCA or DIFC, etc.).
Therefore, Article 31.4 states: “The arbitral award shall state the costs and fees of the Arbitration and the Party who shall pay such fees and the procedures of payment, unless the Parties agree otherwise.”
Costs and expenses are defined as being “the legal and other expenses of the parties, the fees and expenses of the arbitral tribunal, and any other expenses related to the arbitration.”
The costs of the arbitration are typically:
(a) the arbitral tribunal’s fees,
(b) the fees of the appointing authority (if applicable),
(c) the arbitral tribunal’s travel and accommodation expenses,
(d) administration costs, room hire (if not covered by the parties directly); and
(e) the costs of any tribunal appointed experts, including their travel and accommodation costs.
Furthermore, the parties’ costs are those incurred in the arbitration, such as:
(i) legal and attorney fees and disbursements,
(ii) translation of documents costs
(iii) expert witnesses appointed by the parties; and
(iv) fact witnesses, and their respective costs in attending and giving evidence.
From a practical point of view, many arbitrators accept to apply the rules (Costs follow the event). This means that the unsuccessful party should cover the arbitral tribunal’s costs and expenses and the other party’s costs and expenses. However, it is not necessary to the debtor of the award after having paid the costs and expenses of the arbitral tribunal, to reimburse the successful party all its costs and expenses of the arbitration. The Arbitral Tribunal may decide otherwise. For example, the Tribunal may decide that the unsuccessful party should make a contribution of, say, 2/3 of the expenses. Where the costs alleged by the first party are disputed by the other party, the arbitral tribunal’s consideration should be on a line by line basis, testing the reasonableness of each cost. The tribunal must then have regard to any indemnity for such costs included in any agreement between the parties, and interim orders given as to costs during the arbitral process and the overall proportionality of the costs having regard to the dispute.
Nevertheless, success in arbitration is typically not a zero-sum analysis. Each party is likely to have won on some issues and lost on others, and some issues may hold greater significance to the dispute than others. This is ultimately a matter of discretion for the arbitral tribunal.
While a Claimant may have lost on several issues, but have recovered a substantial sum will usually be considered to have been successful, the degree of success may warrant a reduced costs award. The threshold for making such a reduced award may be where the successful party has raised issues which have caused a significant increase in costs or delays in the proceeding.
Where the arbitral tribunal is to fix and allocate costs and expenses in terms of clause (31.4 Qatari Arbitration Law), subject to any agreement between the parties and any interim orders as to costs, it does so in the final award; after issues of liability have been determined in the partial award. The first duty of the arbitral tribunal is to fix the costs, and then to consider the allocation of them. The discretion to award costs must be exercised judicially and in accordance with established principles.
Finally, there are a number of circumstances which the arbitral tribunal may take into account when allocating costs:
(1) Interim costs awards – when considering applications for interim orders, it may be appropriate to also make an order as to the costs relating to that order, based on the conduct of the parties or other considerations.
(2) The degree of success of the parties – where a determination on liability effectively favours neither party’s position, it may be appropriate for costs to “lie as they fall”, or to allow a proportionate contribution.
(3) Conduct of the parties – particularly in making inflated claims, submissions without merit, or simply applying for orders, or failing to comply with timetabling or similar orders, which have the effect of increasing the cost to the other party with no particular benefit to the offending party or to the arbitration process.
(4) Any other factor which the arbitral tribunal deems relevant – for example where despite the success of one party, the other party’s position is not without merit and was not unreasonably pursued.
We conclude by saying that it is consistent with the core principle of party autonomy that the parties agree on how costs are to be apportioned, and they should be encouraged to do so, whether in the arbitration agreement, at the time the dispute is referred to arbitration, or in the Case Management Conference (CMC).
In case of non-agreement between the parties and as per the discretionary power exercised by the tribunal to fix those costs between the Parties, the tribunal must have regard to whether or not the costs claimed are reasonable and proportionate having regard to the dispute, and it must be satisfied those costs were actually incurred.
