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2014 International Conference on Arbitration and Mediation

Taipei, 30-31 August 2014

Recent Developments in International Arbitration

Allocation of Costs: a Case Study

Annette Magnusson, SCC Secretary General

Celeste E. Salinas Quero, SCC Legal Counsel

I. The Arbitration Institute of the Stockholm Chamber of Commerce

The Arbitration Institute of the Stockholm Chamber of Commerce (SCC) was founded in 1917

and has handled international disputes since the 1970’s.

Most disputes at the SCC are decided under the Arbitration Rules of the Arbitration Institute of

the Stockholm Chamber of Commerce (SCC Rules). The SCC has also adopted rules for

Expedited Arbitration, and frequently acts as appointing authority under the UNCITRAL

Arbitration Rules.

Roughly 50% of the SCC caseload consists of international cases. The SCC caseload has a strong

East-West footprint, although in 2013 parties from 36 jurisdictions appeared before the SCC.

The SCC and Sweden have also developed into a preferred venue for investment treaty

arbitration. In addition, the SCC is one of two institutions listed in the Energy Charter Treaty

(“ECT”) as a forum to resolve investor-state disputes.

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II. SCC Statistics

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III. Allocation of Costs: Regulatory framework

The costs of arbitration in SCC cases are defined in Article 43 of the SCC Rules, under which

the costs consist of:

(i) the fees of the Arbitral Tribunal;

(ii) the SCC administrative fee; and

(iii) the expenses of the Arbitral Tribunal and the SCC.

Parties are jointly and severally liable to the arbitrator(s) and to the SCC for the costs of

arbitration.

Article 44 addresses costs incurred by a party, enabling the tribunal to order one party to pay any

reasonable costs incurred by another party, including costs of legal representation.

SCC arbitrators allocate (i) the costs of arbitration (i.e. arbitrators’ fees, administrative fee and

arbitrators’ expenses), (ii) the costs of legal representation, and (iii) other reasonable costs

incurred by a party, taking into account (a) the outcome of the case, and (b) other relevant

circumstances.

In short, SCC arbitrators have both the power and the obligation to decide how to allocate the

costs of arbitration between the parties, upon request by a party.

The prerequisite of “reasonableness” is included regarding costs incurred by a party (Article 44).

The costs of arbitration are decided by the SCC, whereas costs incurred by a party are beyond the

scope of any administrative control the SCC may exercise over the parties.

The SCC administrative fee and the arbitrators’ fees are calculated based on a schedule of costs

in the SCC Rules. Expenses that arbitrators may have reimbursed are subject to limits set in the

SCC Arbitrator’s guidelines.1

1 Available at www.sccinstitute.com

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IV. Allocation of costs in SCC cases 2007 - 2013

The purpose of this paper is to describe how tribunals apply the SCC Rules in practice. It

describes how arbitrators have allocated the costs of arbitration, and the costs of legal

representation as between the parties, in 140 arbitral awards between 2007 and 2013. The report

includes both domestic and international cases.

Needless to say, the manner in which the tribunal orders the parties to bear the costs of the

arbitration has a substantial impact on the costs that each of the parties will ultimately pay for the

proceedings.

Arbitrators tend to allocate costs in three principally different ways:

(1) All costs are borne by one of the parties.

(2) Costs are allocated based on the relative success of the parties.

(3) Parties share the costs of the arbitration equally, including bearing their own costs of legal

representation and other expenses.

This report is based on analysis of 140 arbitrations that finished with an award rendered under

the SCC Arbitration Rules between 2009 and 2013. These 140 cases are classified into four

categories.

Category A consists of cases in which the claimant was awarded all or almost all of its claims

(60 cases).

Category B includes cases in which claimant and respondent were awarded approximately half

of their respective claims (21 cases).

Category C refers to cases in which the claimant obtained substantially less than it claimed (41

cases).

Category D includes cases in which the dispute was terminated without a ruling on the merits (18

cases).

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A. Claimant awarded all or almost all of its claims

In 43 out of the 60 cases included in this category, the tribunal decided that the losing party

should bear the full arbitration costs, i.e. the costs of the arbitration (arbitrators’ fees,

administrative fee and expenses), and the other party’s costs of legal representation and other

reasonable expenses.

A number of tribunals took the position that a party’s failure to express its views on allocation of

costs should be understood as agreement in principle to the amount of costs claimed by the

opposing party.

In a majority of cases, arbitrators specifically referred to the standard of reasonableness

contained in Article 44 of the SCC Rules.

There were also examples where the tribunal considered that the respondent should reimburse

claimants where the expenses were considered to have been incurred due to actions by the

respondent.

In 6 out of the 60 Category A cases, the tribunal ordered the parties to share the costs of

arbitration equally. In one of these cases, the tribunal explained that “though the claimant

60

21

41

18

Summary: 140 SCC awards in international commercial arbitrations 2007-2013

Category A: C laimant wasawarded most of its claims

Category B: Claimant orrespondent was awarded almosthalf of its claimsCategory C: Claimant wasawarded substantially less than itsclaimsCategory D: Terminated withoutruling on the merits

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prevailed, much of the energy and time was devoted to a claim that was later withdrawn by the

claimant, so it shall not be compensated for the costs."2

In case 2011/073 each party was ordered to pay the costs of arbitration in equal shares. As for

costs incurred by the claimant, the respondent was ordered to pay a portion of the claimant’s

costs of legal representation. The tribunal explained that the breakdown of the claimant’s legal

costs and expenses showed that some fees were paid to solicitors who did not appear in the

arbitration. The tribunal said that it did “not consider it reasonable or appropriate to tax these

legal costs against the respondent”.

In case 2010/146, the tribunal ordered that each party should bear half the costs of arbitration “in

view of the uncertainty created by the claimant and the costs incurred by the respondent”.

In case 2009/124 the tribunal decided that that both parties by their conduct had equally

influenced the time and costs required in the arbitration. The tribunal therefore ordered the

parties to bear the costs of the arbitration in equal shares.

Finally, in case 2009/015 the tribunal ordered the respondent to bear the costs of arbitration in

full but each party to bear its own costs of legal representation. The tribunal considered that

taking into account the outcome of the case and numerous procedural incidents that both parties

gave rise to, each party should bear its own legal costs.

In 11 out of the 60 cases the tribunal apportioned the costs of arbitration depending on the

parties’ relative success and apportioned the costs depending on the proportion in which the

parties succeeded in their claims.

In a number of cases, amounts awarded to a party were reduced due to actions by that party.

In case 2010/143, although the claimant prevailed in its claims, the losing party was ordered to

pay 70% of the claimant’s legal costs. The tribunal noted that extra work had been caused due to

the claimant’s failure to use the correct name in the agreement. Along the same lines was the

reasoning of the tribunal in case 2010/135. In this case, the losing party was required to pay 75%

of the winning party’s costs of legal representation. The tribunal noted that the claimant’s costs

were almost twice as high as the respondent’s, as well as higher than was considered usual. The

tribunal found two thirds of the claimant’s costs to be reasonable.

In case 2010/096 the claimant prevailed but the tribunal ordered the respondent to pay 80% of

the claimant’s claims as, according to the arbitral tribunal, much of the pleadings and

correspondence during the arbitration had concerned a claim for penalties by the claimant, which

was later dismissed by the tribunal. In case 2010/035, the tribunal noted that the claimant’s costs

2 SCC case 2011/127 (un-published)

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of representation were higher than usual, as it had changed counsel during the arbitration. The

tribunal considered that the respondent should not be held responsible for this and deducted 10%

of the claimant’s costs of legal representation.

In other cases, 3 the tribunal took the approach of apportioning the costs in the same proportion

in which the parties had succeeded in their claims.

For example, in case 2008/102, the claimant was held responsible for 20% and the respondent

for 80% of the costs of arbitration. The tribunal ruled that the respondent should pay 60% of the

claimant’s costs of legal representation as the claimant had won approximately 71% percent of

its initial claims but lost on the declaratory claim. It should therefore be compensated for 60% of

its costs and the respondent should bear its own costs, the tribunal held.

B. Claimant or Respondent awarded half (or nearly half) of their claims

In 14 out of the 21 cases the tribunal divided the costs ordering each party to pay half the costs of

arbitration with each party bearing its own expenses. In the seven cases in which the tribunal

deviated from this approach, the tribunal allocated the costs depending on the relative success of

the parties.

In case 2010/047, for example, the tribunal decided that the respondent should bear all the costs

of arbitration, although the claimant did not prevail in full. But the tribunal considered that the

original claim had become moot only after the respondent had returned the claimant’s assets, and

the tribunal awarded the claimant its full costs.

In case 2009/171 the tribunal ordered the claimant to pay 70% of the costs and the respondent

30%, as only one of the claims was granted. The tribunal explained that it found one of the

claims to have extensively added to the proceedings and played an unnecessarily large role. In

the tribunal’s view the respondent should not be compensated for part of its counsel’s fees

relating to those claims.

C. Claimant awarded substantially less than half of its claims

In many, but in not all, cases the tribunal followed the principle of “losing party pays”. In 13 out

of the 41 cases in which the claimant was less successful (awarded substantially less than half of

its claims), the losing party was ordered to bear all the costs of arbitration.

3 SCC cases 2009/131, 2009/074, 2008/102 and 2007/124 (unpublished).

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In case 2007/115 the tribunal ordered the losing party to pay all arbitration costs, but ordered the

winning party (respondent) to pay part of the loser’s costs of representation, because additional

costs had arisen from the winner’s negligence in conducting the proceedings.

D. Termination without a ruling on the merits

18 out of the 140 cases reviewed for this report were terminated without a ruling on the merits.

In 15 of these cases, the tribunal ordered the parties to bear the costs in equal shares. One of the

cases concerned costs originating from an emergency arbitration,4 where the tribunal divided the

costs between the parties equally, “with the exception that the application fee and emergency

arbitrator proceedings shall be borne by claimant."

In 2 of the remaining 4 cases, the tribunal ordered the claimant to pay the costs of arbitration as

well as to bear its own expenses.

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4 The costs of Emergency Arbitrator proceedings under the SCC Rules are paid by the party applying for the

appointment of an Emergency Arbitrator upon filing an application. The costs of the proceedings may be allocated

between the parties in the final award at the request of a party. See also Article 10 (2) Appendix II of the SCC Rules.

For further reading on SCC Emergency Arbitrator practice and procedures, see Johan Lundstedt, SCC Practice:

Emergency Arbitrator Decisions, 1 January 2010 – 31 December 2013, available at www.sccinstitute.com.