When an arbitration agreement provides for arbitration with the Arbitration Institute of the Stockholm Chamber of Commerce (“the SCC”), the parties should bear in mind that they will be required to pay several costs over the course of the proceedings. In the following paragraphs, we will discuss the regime of the advance on costs in SCC arbitration, i.e., “the estimated amount of the Costs of Arbitration”,[2] that the parties will be requested to pay in order to set in motion the arbitration proceedings.
According to Article 49 of the SCC Arbitration Rules, the costs of the SCC arbitration comprise:
- The fees of the arbitral tribunal,
- The administrative fees, and
- The expenses of the arbitral tribunal and the SCC.
These costs concern “all parties involved in the arbitration since they are incurred to finance the fees and expenses of the arbitrators and the SCC.”[1]
To these costs should be added those incurred by the parties, e.g., the costs and expenses for their legal representation. Such costs, however, follow a different logic and, as they do not enter into the calculation of the advance on costs, will not be discussed here.
Advance Payments in SCC Arbitration
Two types of advance payments are required in SCC Arbitration: the registration fee and the advance on costs. Although these advance payments shall be distinguished, the registration fee shall ultimately “be credited to the Advance on Costs to be paid by the Claimant pursuant to Article 51 of the Arbitration Rules.”[3]
That said, according to Article 7(1) of the SCC Arbitration Rules, the registration fee shall be made “[u]pon the filing of the Request for Arbitration”. If the claimant does not pay the registration fee upon filing of its Request for Arbitration, in conformity with Article 7(2) of the SCC Arbitration Rules, the SCC Secretariat generally grants additional time to do so. Failing to effectuate the payment within such additional deadline, however, “the Secretariat shall dismiss the Request for Arbitration”.
Pursuant to Article 1 of Appendix IV of the SCC Arbitration Rules, the registration fee as of 2020 amounts to EUR 3,000.00 and is non-refundable.[4] This amount is without VAT. As indicated on the SCC’s website, with VAT included this amount comes to EUR 3,750.00.
It is important to note that the party that initiates the arbitration is always required to pay the registration fee despite any contractual provision between the parties that only one of them shall bear the costs of arbitration. As stated in the Guide to the SCC Arbitration Rules, “any such agreement does not affect the obligation on the part of the party initiating the arbitration to pay the Registration Fee.”[5] However, this does not mean that such provision has no legal effect. The Guide to the SCC Arbitration Rules notes that, in cases where a cost allocation provision stipulates that only the respondent shall bear the arbitration related costs, the respondent “will be requested to pay the entire Advance on Costs [see below]. Once the Advance on Costs has been received by the SCC, the Registration Fee will be refunded to the Claimant.”[6]
Calculation of Advance on Costs in SCC Arbitration
Initial Advance on Costs in SCC Arbitration
The advance on costs are determined by the SCC Board,[7] although the latter can delegate the task to the Secretariat.[8]
As mentioned above, the advance on costs correspond to the estimated amount of the costs of arbitration,[9] including the fees of the arbitral tribunal, the administrative fees and the expenses of the arbitral tribunal and the SCC.[10] However, other factors can be taken into account in the determination of the advance on costs, namely “the amount in dispute, the complexity of the dispute -complex legal question, or extensive evidence); the type of dispute; the number of parties; if the parties present counterclaims or set-offs; if any jurisdictional objection is raised; if multiple languages need to be used in the procedure; the number of arbitrators.”[11]
For example, according to Articles 2 and 3 of Appendix IV of the SCC Arbitration Rules, the amount in dispute is a crucial factor to consider for the calculation of the fees of arbitrators and the administrative fee. The amount in dispute is defined as “the aggregate value of all claims, counterclaims and set-offs.”[12] For this reason, Articles 6(iii) and 9(iii) of the SCC Arbitration Rules require that the parties provide “an estimate of the monetary value” of the claims and counterclaims respectively in the Request for Arbitration and the Answer to the Request for Arbitration. It is to be noted that such estimate is also required for any declaratory relief.[13]
To obtain an estimate of the overall breakdown on the advance on costs of SCC arbitration, the parties may also use the SCC’s online costs calculator, after indicating relevant information concerning their case. However, for large arbitrations, when the amount in dispute exceeds EUR 100,000,000.00, the advance on costs is determined on a case-by-case basis.[14]
The timing of the communication of the SCC’s decision on the advance on costs to parties may vary. For example:
- If there is no objection to the SCC’s jurisdiction, the decision is usually communicated to the parties when the Answer to the Request for Arbitration “is forwarded to the Claimant.”[15]
- If, however, the respondent raises an objection to the SCC’s jurisdiction in its Answer to the Request for Arbitration, the decision “is not communicated to the parties until a prima facie decision affirming jurisdiction has been made pursuant to Article 12(i)”[16] of the SCC Arbitration Rules. It is to be noted that the SCC’s jurisdiction relates only to SCC’s power to “administer the case”.[17] It should not be confused with the jurisdiction of the Arbitral Tribunal. Therefore, failing to object to the SCC’s jurisdiction does not prevent the parties to raise any objections to the jurisdiction of the arbitral tribunal.
Additional Advance on Costs in SCC Arbitration
The initial advance on costs as communicated to the parties at the beginning of the proceedings is subject to variation. According to Article 51(4) of the SCC Arbitration Rules, there are two circumstances in which additional advances on costs can be ordered:
- At the request of the Arbitral Tribunal; or
- If otherwise deemed necessary.
This usually occurs when the parties increase the amount in dispute or present new, more complex, legal or factual arguments requiring more work, time and effort as initially expected.
Payment of Advance on Costs in SCC Arbitration
The parties are usually given two weeks in order to effectuate payment, but this time limit can be extended at the request of either of them or at the initiative of the SCC itself.[18]
The parties are deemed to contribute to the advance on costs in equal shares, unless separate advances on costs are determined, as stated in Article 51(3) of the SCC Arbitration Rules. The separate advances on costs may be granted upon a request of either party. The underlying idea behind the separate advances on costs is “to prevent Respondents from inflating their counterclaims in order to discourage Claimants from paying the (inflated) advances that would result from both side’s claims, which, in turn, could result in the Claimant’s case being dismissed for failure to pay the Advance on Costs pursuant to Article 12(ii)”.[19]
The payment of the advance on costs is of great importance since it is one of the condition precedents for the referral of the case to the arbitral tribunal (Article 22 of the SCC Arbitration Rules), which “marks the first time that any member of the Arbitral Tribunal will have access to the documents associated with the case.”[20]
Default in Payment of Advance on Costs in SCC Arbitration
Pursuant to Article 12 of the SCC Arbitration Rules, the consequence of a failure to pay the advance on costs is clear: dismissal of the case, in whole or in part. This is confirmed by Article 51(5) of the SCC Arbitration Rules. The decision of the SCC Board to dismiss a case on this ground is made “without prejudice and a party may therefore commence a new arbitration if it so wishes.”[21] Of course, if a case is dismissed due to non-payment, there may be serious consequences, for instance if a claim becomes time-barred.
The dismissal of the whole case occurs, however, only when all parties are in default and, thus, neither of them has paid its respective share.
If only one party is in default (most commonly the respondent), according to Article 51(5) of the SCC Arbitration Rules, the Secretariat will invite the non-defaulting party to pay the defaulting party’s share of the advance on costs. Upon such invitation, the non-defaulting party may either effectuate such payment by substitution (failure of which will result in the dismissal of the case), or, in case of counterclaims, request a separate advances on costs. Consequently, should the respondent refuse to pay the separate advance on costs for its counterclaims, only the counterclaims will be dismissed.
[1] J. Ragnwaldh and F. Andersson, et al., A Guide to the SCC Arbitration Rules, Kluwer Law International (2019), p. 148.
[2] SCC Arbitration Rules, Article 51(2).
[3] SCC Arbitration Rules, Appendix IV, Article 1(2).
[4] SCC Arbitration Rules, Appendix IV, Article 1 (Registration Fee).
[5] J. Ragnwaldh and F. Andersson, et al., A Guide to the SCC Arbitration Rules, Kluwer Law International (2019), p. 22.
[6] J. Ragnwaldh and F. Andersson, et al., A Guide to the SCC Arbitration Rules, Kluwer Law International (2019), p. 22.
[7] SCC Arbitration Rules, Article 51(1).
[8] SCC Arbitration Rules, Appendix I, Article 7.
[9] SCC Arbitration Rules, Article 51(2).
[10] SCC Arbitration Rules, Article 49(1).
[11] C. Salinas, Briefly on Advance on Costs under the SCC Rules, publication by the SCC dated 1 July 2013.
[12] SCC Arbitration Rules, Appendix IV, Article 3(2).
[13] J. Ragnwaldh and F. Andersson, et al., A Guide to the SCC Arbitration Rules, Kluwer Law International (2019), p. 158.
[14] C. Salinas, Briefly on Advance on Costs under the SCC Rules, publication by the SCC dated 1 July 2013.
[15] J. Ragnwaldh and F. Andersson, et al., A Guide to the SCC Arbitration Rules, Kluwer Law International (2019), p. 34.
[16] J. Ragnwaldh and F. Andersson, et al., A Guide to the SCC Arbitration Rules, Kluwer Law International (2019), p. 34. See also R. Schütze, Institutional Arbitration: A commentary, Verlag C. H. Beck (2013), p. 852: “The SCC undertakes only a summarized investigation on its jurisdiction over the dispute. The SCC’s assessment in this regard is of prima facie character and no jurisdictional hearings take place. The decision on jurisdiction lies with the SCC Board. Only if it is obvious that the SCC does not possess the competence the request for arbitration, or a part of the case, is dismissed. It often suffices that the SCC is named in the clause and that the claimant asserts that the SCC has jurisdiction. It can be established from the SCC caseload that the threshold for allowing cases is low.”
[17] J. Ragnwaldh and F. Andersson, et al., A Guide to the SCC Arbitration Rules, Kluwer Law International (2019), p. 32.
[18] J. Ragnwaldh and F. Andersson, et al., A Guide to the SCC Arbitration Rules, Kluwer Law International (2019), p. 34.
[19] J. Ragnwaldh and F. Andersson, et al., A Guide to the SCC Arbitration Rules, Kluwer Law International (2019), p. 160.
[20] J. Ragnwaldh and F. Andersson, et al., A Guide to the SCC Arbitration Rules, Kluwer Law International (2019), p. 73.
[21] J. Ragnwaldh and F. Andersson, et al., A Guide to the SCC Arbitration Rules, Kluwer Law International (2019), p. 34.
