The filing of a Request for Arbitration in an ICSID arbitration implies an obligation for the parties to pay several costs needed for the arbitral proceedings.
In addition to the legal fees for the parties’ legal representation, and additional party costs such as the cost of experts, and the payment of a non-refundable lodging fee of USD 25,000.00, each party will be required to pay advances on costs to the Centre that include the anticipated fees and expenses of the arbitral tribunal as well as the fees of the ICSID itself.
The parties will be periodically requested to make advance payments. The parties will be requested to pay the Centre an annual fee of USD 42,000 for its administration services, including a case team and financial management. The use of ICSID’s hearing facilities is included in this administrative charge. The first advance on costs for the arbitral tribunal is requested soon after it is constituted and is typically between USD 100,000.00 and USD 150,000.00 per party. There will be further advances on costs requested as the case proceeds. Services provided by interpreters, court reporters and other service providers are also paid from the parties’ advances on costs. The advance on costs itself is held in an interest-bearing account that is administered by the Centre.
Using the terms of the RSM v. Saint Lucia arbitral tribunal, the allocation of the advance on costs is “an interim administrative mechanism designed to secure and pay ongoing expenses of the proceedings themselves.”[1]
According to Administrative and Financial Regulation 14(3)(a)(i), the advance of costs is estimated upon the consultation of the president of the arbitral tribunal, taking into consideration the costs and expenses to be incurred within the next three to six months:
(3) In order to enable the Centre to make the payments provided for in paragraph (2), as well as to incur other direct expenses in connection with a proceeding (other than expenses covered by Regulation 15):
(a) the parties shall make advance payments to the Centre as follows:
(i) initially as soon as a Commission or Tribunal has been constituted, the Secretary-General shall, after consultation with the President of the body in question and, as far as possible, the parties, estimate the expenses that will be incurred by the Centre during the next three to six months and request the parties to make an advance payment of this amount.
Pursuant to Administrative and Financial Regulation 14(3)(a)(ii), should the initial advance on costs turn out to be insufficient to cover the entire arbitral proceedings, as is typically the case, it can be subsequently adjusted or revised by the Secretary-General, after consultation with the president of the arbitral tribunal:
(ii) if at any time the Secretary-General determines, after consultation with the President of the body in question and as far as possible the parties, that the advances made by the parties will not cover a revised estimate of expenses for the period or any subsequent period, he shall request the parties to make supplementary advance payments.
In practice, as the advance on costs only covers three to six months of arbitral proceedings, additional advances on costs will be requested during the proceedings.
Payment of the Advance on Costs in ICSID Arbitration
Principle of Payment in Equal Shares
In principle, the parties are required to proceed to payment of the advance on costs following the fifty-fifty division, i.e., in equal shares. This principle is enshrined in Administrative and Financial Regulation 14(3)(d) which provides that “each party shall pay one half of each advance or supplemental charge, without prejudice to the final decision on the payment of the costs of an arbitration proceeding to be made by the Tribunal pursuant to Article 61(2) of the Convention. […]”
Reallocation of the Advance on Costs by the Arbitral Tribunal
The ICSID system provides for an exception, contained in ICSID Arbitration Rule 28, to the fifty-fifty division principle in the form of a power of an arbitral tribunal to reallocate the advance on costs in an unequal manner, unless otherwise agreed by the parties:
(1) Without prejudice to the final decision on the payment of the cost of the proceeding, the Tribunal may, unless otherwise agreed by the parties, decide:
(a) at any stage of the proceeding, the portion which each party shall pay, pursuant to Administrative and Financial Regulation 14, of the fees and expenses of the Tribunal and the charges for the use of the facilities of the Centre;
(b) with respect to any part of the proceeding, that the related costs (as determined by the Secretary-General) shall be borne entirely or in a particular share by one of the parties.
In its Procedural Order No. 3, the BSG v. Guinea arbitral tribunal ruled that a request for reallocation of the advance on costs was admissible even if made at the subsequent stages of the arbitral proceedings regardless of the fact that the applicant “knew since the start of the arbitration about the circumstances which it […] invokes.”[2]
However, ICSID Arbitration Rule 28 and Administrative and Financial Regulation 14 are both silent about the circumstances in which such reallocation can occur. In the RSM v. Saint Lucia case, the arbitral tribunal considered that it “must necessarily use its discretion and judgment in determining the [re]allocation.”[3] In exercising such discretionary power, the arbitral tribunal concluded that, in order to deviate from the fifty-fifty apportionment, or “the one half ratio”,[4] required under Administrative and Financial Regulation 14(3)(d), there must be a record “showing good cause for the variance.”[5] In this case, the good cause was demonstrated by various factors, namely “(1) that Claimant’s record concerning payment of these administrative expenses in two prior ICSID proceedings gives rise to substantial doubt about either its willingness or ability (or both) to pay any award of such expenses and (2) that, far from allaying these doubts, the circumstances of this proceeding thus far compound them.”[6]
Subsequent arbitral tribunals have referred to this “good cause” test while assessing the reallocation of the advance on costs in their cases. The BSG v. Guinea arbitral tribunal confirmed that such a test is subject to assessment of the particular circumstances of a given case and “must rest on strong grounds and can only prevail in exceptional circumstances.”[7] It concluded that such circumstances existed in that case since Guinea “is one of the poorest countries in the world and its budget is under major pressure as a result of the Ebola crisis.”[8] Therefore, it ruled that BSG shall bear 75% of the advance on costs, whereas Guinea only 25%.[9]
Default in Payment of the Advance on Costs in ICSID Arbitration
Even though the Parties generally pay their share of the advance on costs, on rare occasions, the reluctance to pay its share of the advance on costs is part of Respondent’s carefully crafted strategy to test whether Claimant has the financial capacity to go through the entire arbitral proceedings.
For instance, in the Transglobal Green Energy v. Panama case, Panama refused to pay its share of the advance on costs and requested that the arbitral tribunal “issue an order shifting the responsibility for all future advance costs payments to Claimant’s [because] Claimants might not possess the financial wherewithal to commence the arbitration and continue to its conclusion – much less to satisfy any eventual award of costs against them.”[10]
When a Party fails to pay its share of the advance on costs, the Secretary-General will, generally, invite the other Party to proceed to payment by substitution, i.e., pay the remaining share.
However, it should be noted that the other party has no obligation to do so. As held in the Transglobal Green Energy v. Panama case, “when one of the parties defaults, the Secretary-General shall give an opportunity to either of them to make the payment. Here the provision is couched as an opportunity not as a mandate. The opportunity is given to both parties. There is no mandatory cost shifting mechanism from one party to another in AFR 14(3)(d).”[11]
Although payment by substitution is not mandatory, there will presumably be adverse consequences to the arbitration proceedings as, pursuant to above-mentioned ICSID Administrative and Financial Regulation No. 14 (3)(d), the Secretary-General may move that the arbitral tribunal stay the proceedings. Should such stay last for more than six months, the discontinuation of the arbitration proceedings can be pronounced.
Advance on Costs and Allocation of Costs in the Final Award
The advance on costs should not be confused with the allocation of costs by the arbitral tribunal in its final award. As indicated above, the advance on cost constitutes a specific mechanism destined to secure from the parties, on an equal basis, payment of ongoing, anticipated, expenses of the arbitration, whereas the allocation of costs follows the principle figuring in Article 61(2) of the ICSID Convention, authorizing the arbitral tribunal to decide “how and by whom those expenses, the fees and expenses of the members of the Tribunal and the charges for the use of the facilities of the Centre shall be paid.”
Generally, arbitral tribunals base the allocation of costs on the “costs follow the event” rule, permitting a successful party to the arbitration to recover its reasonable costs from the unsuccessful party. That said, nothing prevents the successful party from recovering its share of the advance on costs (or the entirety of the advance on costs if paid by substitution) in the award on costs.
For example, the arbitral tribunal in the Saint-Gobain v. Venezuela case considered that “Respondent’s refusal to pay its share of the advances on costs constitutes a breach of the ICSID procedural framework, which the Tribunal will take into account in its decision on the allocation of the arbitration costs.”[12]
In the Venoklim v. Venezuela case, the tribunal concluded that Respondent shall reimburse Claimant for a half of the advance on costs since Claimant paid by substitution the entirety of said advance.[13]
[1] RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Provisional Measures, 12 December 2013, para. 49.
[2] BSG Resources Limited v. Republic of Guinea, ICSID Case No. ARB/14/22, Procedural Order No. 3, 25 November 2015, para. 61.
[3] RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Provisional Measures, 12 December 2013, para. 48.
[4] RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Provisional Measures, 12 December 2013, para. 49.
[5] RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Provisional Measures, 12 December 2013, para. 49.
[6] RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Provisional Measures, 12 December 2013, para. 50.
[7] BSG Resources Limited v. Republic of Guinea, ICSID Case No. ARB/14/22, Procedural Order No. 3, 25 November 2015, para. 64.
[8] BSG Resources Limited v. Republic of Guinea, ICSID Case No. ARB/14/22, Procedural Order No. 3, 25 November 2015, para. 69.
[9] BSG Resources Limited v. Republic of Guinea, ICSID Case No. ARB/14/22, Procedural Order No. 3, 25 November 2015, para. 70.
[10] Transglobal Green Energy v. Panama, ICSID Case No. ARB/13/28, Decision on Respondent’s request for shifting the costs of the arbitration, 4 March 2015, para. 15.
[11] Transglobal Green Energy v. Panama, ICSID Case No. ARB/13/28, Decision on Respondent’s request for shifting the costs of the arbitration, 4 March 2015, para. 38.
[12] Saint-Gobain Performance Plastics Europe v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/13, Award, 3 November 2017, para. 59.
[13] Venoklim Holding v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/22, Award, 3 April 2015, para. 164: “Por lo anterior, el Tribunal declarará en la parte resolutiva de este Laudo que las Partes deberán sufragar por mitades los costos de este arbitraje, incluyendo los honorarios de los árbitros. Teniendo en cuenta que la Demandante ha realizado el pago de todos los anticipos solicitados por el Centro, la Demandada deberá realizar el reembolso de la mitad de los costos a la Demandante. Cada parte cubrirá los honorarios y gastos en que haya incurrido para su defensa en este proceso.”
