The Costs of Arbitration

One of the most common questions claimants have prior to starting arbitration proceedings are the costs of arbitration, whether they can be estimated in advance, and how they can be reduced. The costs of arbitration, in addition to an arbitration’s duration, are an important if not determinative factor in a claimant’s decision whether to start arbitration proceedings in the first place. This is especially true for cases with a low amount in dispute, where claimants need to determine from the outset whether it is worthwhile commencing arbitration proceedings at all.

Costs are also one of the often-cited benefits of arbitration, as, at least in theory, arbitration is said to have lower costs when compared to litigation. One of the reasons for this is its inherent flexibility to tailor the dispute to the parties’ own needs, which, if used wisely, may lead to cost reduction, as well as the lack of appeals. This is, unfortunately, not always the case, as arbitration can be more costly than domestic litigation. If, however, the parties are cooperative and aware of the factors which have an impact on the costs of arbitration from the outset, the overall costs of arbitration can be reduced significantly (see How to Minimize the Cost of International Arbitration).

Overview of the Costs of Arbitration and Party-Related Costs

The structure of arbitration costs is similar in most arbitration rules, even though the methodology for their calculation and the precise amounts may vary depending on the institution in question. Generally, most procedural rules distinguish between two categories of costs:

1. 1. Costs of the Arbitration, which include:

• • • The arbitrators’ fees and expenses; and
    • The Filing fee/Registration fee and Administrative Fees of the arbitral institution.

1. 2. Costs incurred by each Party (“Party costs”), which typically include, in decreasing size:

• • • Legal fees;
    • Expert fees (if needed);
    • Hearing costs (payment for the hearing venue or virtual proceedings, stenographers, translators, etc.);
    • Translation costs;
    • Travel and accommodation costs; and
    • Other minor costs related to the arbitration proceedings, such as the costs of producing hard copies and hearing bundles.

A useful definition of what “costs of arbitration” are typically comprised of is provided in Article 40 of the UNCITRAL Rules, even though the UNCITRAL Rules normally apply to ad hoc arbitrations and most institutions provide for their own definition of the costs of arbitration. Article 40.2 of the UNCITRAL Rules provides that the “costs of arbitration” include:

(a) The fees of the arbitral tribunal to be stated separately as to each arbitrator and to be fixed by the tribunal itself in accordance with article 41;

(b) The reasonable travel and other expenses incurred by the arbitrators;

(c) The reasonable costs of expert advice and of other assistance required by the arbitral tribunal;

(d) The reasonable travel and other expenses of witnesses to the extent such expenses are approved by the  arbitral tribunal;

(e) The legal and other costs incurred by the parties in relation to the arbitration to the extent that the arbitral tribunal determines that the amount of such costs is reasonable;

(f) Any fees and expenses of the appointing authority as well as the fees and expenses of the Secretary-General of the PCA. 3. In relation to interpretation, correction or completion of any award under articles 37 to 39, the arbitral tribunal may charge the costs referred to in paragraphs 2 (b) to (f), but no additional fees

The Advance on Costs

At the beginning of each arbitration, the arbitral institution administering the proceedings typically fixes an advance on cost (also called a “deposit”) to be paid in equal shares by the parties (although, in exceptional circumstances, a separate advance on costs can also be set).[1] The advance on costs is used to guarantee payment of the arbitrator’s fees and expenses and other administrative costs. Supplementary deposits might also be requested during the course of an arbitration (see The Timing of Payment of Arbitration Advance on Costs). How the advance on costs is distributed in the early stages of arbitration has no impact on the final allocation of costs at the end of the arbitral proceedings, however. Arbitral tribunals, generally, have broad discretion when deciding on the allocation of costs and may award the costs to the successful party, partially or in their entirety. The decision on costs depends on a number of different factors, such as the arbitral tribunal in question, the applicable law and the procedural rules governing the proceedings, so the successful party may not always recover the entirety of the costs incurred (see, generally, Recoverability of Arbitration Costs).

Filing Fee and Administrative Fees

In order to commence institutional arbitration proceedings, claimants must pay a non-refundable filing fee (under certain procedural rules also called a “registration fee”). Typically, arbitration proceedings are not officially commenced and/or cannot proceed before and unless the filing fee has been paid.[2]

In addition to the filing fee, most arbitral institutions charge an administrative fee, which, in most cases, either depends on the amount in dispute (aggregating the value of claims and counterclaims), or may be charged at a fixed annual rate. The LCIA is an exception as it charges administrative fees based on hourly rates for the time spent by its staff or the LCIA Court on the respective case. The UNCITRAL Rules, which provide a framework for ad hoc arbitrations, are another exception. As the UNCITRAL does not administer arbitrations there is accordingly no filing fee or administrative fee, although the parties to an UNCITRAL ad hoc arbitration may choose to have an institution administer their proceedings (such as the PCA, for instance), in which case administrative fees to the respective institutions have to be paid in equal shares by the parties.

An overview of the main arbitral institutions, the filing fees and administrative fees is provided in the table below:

Arbitrators’ Fees  

In addition to administrative fees, advances on costs are also used to cover the fees and costs of the arbitral tribunal and tribunal secretary (if appointed). While certain arbitral institutions determine arbitrators’ fees based on the amount in dispute, this is not always the case and various methodologies are used by different institutions to determine the total fees of arbitrators.

2021 ICC Rules

• • Determined by the ICC based on the amount in dispute;
  • The ICC provides for a Scale of Administrative Expenses, providing for minimum and maximum fees, which may be varied in exceptional circumstances;
  • Typically, the presiding arbitrator of the tribunal will receive a slightly higher fee than the co-arbitrators to compensate him or her for the additional responsibilities of that appointment;
  • The ICC’s scale of fees is mandatory and any alternative arrangement between the parties and the arbitrators is not permitted under the ICC Rules.

2020 LCIA Rules

• • The arbitrators set their own rates in negotiation with the LCIA Registrar which are based on an hourly rate, capped at no more than GBP 500/hour (higher in exceptional circumstances);
  • The arbitral tribunal shall agree in writing upon fee rates conforming to the LCIA Schedule of Costs prior to its appointment by the LCIA Court;
  • The rates will be advised by the Registrar to the parties at the time of the appointment of the arbitral tribunal but may be reviewed if the duration or a change in the circumstances of the arbitration requires so;
  • The arbitral tribunal is also entitled to such expenses as are reasonably incurred in connection with the arbitration, and as are reasonable in amount, provided that claims for expenses are supported by invoices or receipts.

2017 SCC Rules (Schedule of Costs applicable as of 1 January 2020)

• • Arbitrator fees are based on the amount in dispute and are determined by the SCC Board, according to the arbitrator’s fee schedule (Appendix III of the SCC Arbitration Rules), which goes from amounts in dispute of between EUR 25,000 and EUR 100,000,000;
  • When the amount in dispute exceeds EUR 100,000,000, the SCC Board determines fees based on a case-by-case analysis;
  • The SCC Rules explicitly provide that the presiding arbitrator may be compensated at a higher rate (SCC Rules, Appendix IV, Article 2(2));
  • The SCC considers whether arbitrators’ expenses are reasonable;
  • The SCC’s Guidelines for Arbitrators include detailed advice on the expenses that may be claimed. Namely, the SCC permits arbitrators to claim a EUR 500 per diem to cover the costs of overnight accommodation, meals, and intracity taxi fares;
  • Arbitrators are required to pay their own costs in the first instance and seek reimbursement after the award has been rendered.

ICSID Rules

• • Arbitrators are entitled to receive a fee for each hour of work performed in connection with the proceedings including each hour spent in hearings, sessions and meetings; in addition, they are entitled to receive reimbursement for any direct expenses reasonably incurred. Each member is entitled to receive:
  • USD 500/hour of work performed in connection with the proceeding, including each hour spent participating in hearings, sessions and meetings;
  • USD 900 as a per diem for each day spent away from their city of residence while traveling in connection with a proceeding when overnight lodging is required, to cover all personal expenses, including lodging, tax on lodging, service charges, meals, gratuities, in-city transportation, laundry, personal communications and internet;
  • USD 250 for each hour of travel, and a per diem allowance of USD 200 for travel to and from a hearing on a day when lodging is not required. For work performed during travel, members may charge the hourly rate for work (USD 500) in lieu of the hourly rate for travel. For day trips not requiring overnight lodging, members are also entitled to a per diem of USD 200 reimbursement for the costs of air and ground transportation to and from the city where the hearing, session or meeting is held and, when not traveling, reimbursement of expenses reasonably incurred for the sole purpose of the proceeding;
  • The entitlements are further explained in the Memorandum on the Fees and Expenses and the Schedule of Fees. The fees and per diem may not exceed the amounts in the Memorandum on Fees and Expenses, save in exceptional circumstances.

2016 SIAC Rules

• • Arbitrator fees are based on the amount in dispute, unless the parties have determined an alternative method in line with Rule 34.1 of the SIAC Rules;
  • A schedule of rates is available on the SIAC website, with maximum caps (see SIAC Arbitration Costs);
  • Arbitrators are entitled to reimbursement from the parties for both “out-of-pocket expenses” and “other allowances”, which are a per diem of SGD 400 for each arbitrator, or SGD 1,000 for travel outside his or her place of residence, to cover the costs of hotels, meals, laundry, local transportation, communications, and tips (see Practice Note for Administered Cases, Articles 16-19 (January, 2014).

2018 HKIAC Rules

• • Arbitrator fees are either based on a maximum hourly rate of HKD 6,500 or based on the amount in dispute, which allows for greater flexibility in controlling the costs of arbitration;
  • Under both methods of fee calculation, the arbitral tribunal will be reimbursed for its “reasonable expenses,” which are separate from its fees;
  • If an arbitrator is required to travel outside of the usual place of residence or business, he/she is entitled to per diem to cover these costs (see Practice Notes on Costs of Arbitration).

2021 ICDR Rules

• • Arbitrator fees are based on hourly or daily rates;
  • Hourly rates are stated by the arbitrators prior to their selection;
  • The ICDR will establish the rates as soon as practicable after the commencement of the arbitration;
  • ICDR Billing Guidelines for Arbitrators include detailed provisions on expenses and disbursements.

2010 UNCITRAL Rules

• • Arbitrator fees are negotiated with the arbitrators;
  • The UNCITRAL Rules merely provide that arbitrator fees should be reasonable, and that the rates to be paid should be determined at the time of appointment or shortly thereafter (Article 41 (1) and 41(3));
  • The UNCITRAL Rules also provide that the reasonable travel and other expenses incurred by the arbitral tribunal and the reasonable costs of any expert advice or other assistance required by the tribunal are allowed as part of the costs of the arbitration.

Parties can accordingly be provided with a rough estimate of the costs of arbitration (excluding party costs), including arbitrators fees and administrative fees, and claimants can have a general idea of how much they will need to spend on arbitration, prior to deciding whether to commence arbitration proceedings in the first place. Certain arbitral institutions also provide for cost calculators, allowing the parties to calculate the costs of arbitration in advance:

• • ICC Cost Calculator
  • SCC Cost Calculator
  • SIAC Cost Calculator
  • HKIAC Fee Calculator
  • ICDR Online Fee Calculator

Legal Fees, Expert Fees and Other Party Costs

The fees and costs of the arbitrators and arbitral institutions are, unfortunately, only a small portion of the overall arbitration costs, as the largest portion, by far, are legal fees and other party-related costs, including the cost of experts. The precise breakdown of these costs depends on each particular case, but typically includes:

• • Legal fees and related expenses and disbursements (which vary wildly depending on the legal counsel selected);
  • Expert fees;
  • Translators;
  • Hearing costs (including renting hearing rooms, paying stenographers, travel costs, service providers assisting with online/virtual hearing and the demonstration of exhibits; witnesses costs for lodging, etc.);
  • Other costs, such, as, for instance, printing costs or costs of in-house counsel, which may sometimes be recoverable (see Recovery of In-House Costs in UNCITRAL Arbitration).

The 2015 ICC Report on Decisions on Costs found that party costs (including lawyers’ fees and expenses, expenses related to witness and expert evidence, and other costs incurred by the parties for the arbitration) make up the bulk (83% on average) of the overall costs of arbitration proceedings. Arbitrators’ fees and administrative costs account for a much smaller proportion of the overall costs. The findings of the ICC are also in line with the findings of the CIArb Costs of International Arbitration Survey 2011, which, even though it was conducted more than ten years ago, remain equally applicable even today. The CIArb Costs of International Arbitration Survey found that that 74% of total costs were spent on legal costs. The CIArb International Arbitration Survey also showed that, even though it is not possible to estimate if institutional arbitration is more expensive than ad hoc, on average 60% of common costs were spent on arbitral fees, with 40% shared on transcribers, the hearing venue, arbitral expenses and other miscellaneous amounts. The CIArb Survey also showed that, on average, claimants spend 12% more than respondents.

The high costs of arbitration are the main criticism arbitration has received over the past two decades, largely resulting from the legal fees charged, which are the largest component. The results of the 2015 Queen Mary University of London (QMUL) International Arbitration Survey show that stakeholders in international arbitration (e.g., party representatives and in-house counsel) perceive “cost” as “the worst characteristic of international arbitration”. The 2018 QMUL Arbitration Survey similarly concluded that cost continues to be seen as “arbitration’s worst feature”.

The costs of investment arbitrations are, unfortunately, even higher than the average costs of commercial arbitrations (see The Cost of Investment Arbitration: UNCITRAL, ICSID Proceedings and Third-Party Funding). The British Institute of International and Comparative Law Study (BIICL) published a report on Costs in Investor-State Arbitration in 2021, finding that for respondent States the mean costs incurred in arbitration proceedings were around USD 4.7 million, whereas the median figure was USD 2.6 million. For investors, the mean costs exceed USD 6.4 million, whereas the median figure was USD 3.8 million. The study has also shown that the costs of UNCITRAL and ICSID arbitration were approximately the same and that, interestingly, party costs have decreased somewhat over recent years, which is certainly a positive development, even though the overall costs of investment arbitration still remain very high.

In an attempt to enhance more cost control in international arbitration, in March 2018 the ICC Commission issued its second ICC Report on Controlling Time and Costs in Arbitration providing for a range of useful tips and techniques that can be used to increase the cost efficiency of international arbitration. Whether such techniques will successfully be implemented, and the overall costs of arbitration reduced, ultimately depends on arbitral tribunals and the parties themselves and their willingness to cooperate and reduce the unnecessary costs. That being said, as by far the largest costs are for legal fees, parties are well-advised to find skilled but cost-effective counsel if they are concerned about arbitration costs.

[1] See, e.g., Advance on Costs in ICC Arbitration, Advance on Costs in SCC Arbitration.

[2] 2021 ICC Rules, Article 4(4); 2020 LCIA Rules, Article 1.1(vi); 2017 SCC Rules, Article 7, 2016 SIAC Rules, Rule 3.3; 2018 HKIAC Rules, Article 4.

[3] ICC Website – Costs and Payments. 

[4] LCIA Website, Schedule of Costs LCIA Arbitration 2020.

[5] Under the SCC Rules the registration fee amounts to EUR 3,000 (VAT not included). The registration fee (VAT included) is EUR 3,750. Companies with their seat outside of Sweden do not pay VAT on SCC registration fees. Companies based in other EU countries than Sweden and not registered for VAT need to pay VAT on the registration fee since the principle of reverse charge does not apply. See SCC Website – What is the Procedure?

[6]  SCC Advance on Costs Estimate.

[7]  SIAC Schedule of Fees; see also, SIAC Arbitration Costs.

[8] HKIAC 2018 Schedule of Fees.

[9]  International Arbitration Fee Schedule, amended and effective October 1, 2017.

[10]  2021 ICC Rules, Appendix III, Article 2(4)).

[11]  Note to the Parties and Arbitral Tribunals On the Conduct of the Arbitration under the ICC Rules of Arbitration, 1 January 2021.

[12] SIAC Practice Note for Administered Cases.

[13] HKIAC Practice Note on Costs of Arbitration based on Schedule 2 and Hourly Rates and based on Schedule 3 and the Sum in Dispute.