The Timing of Payment of Arbitration Advances on Costs

The payment of advances on costs in arbitration aims to ensure that an arbitral institution has sufficient funds to cover the payment of arbitrators’ fees and expenses, as well as costs incurred in the administration of arbitral proceedings. The advances on costs paid to arbitral institutions do not include party costs, such as legal fees and expert fees.

Upon the filing of a request for arbitration, arbitral institutions, such as the ICC, the LCIA, the HKIAC and the SIAC, request a first payment of a non-refundable filing or registration fee. This first payment does not reflect the full advance on costs that will be paid for the arbitration, but is credited as part of the advance on costs that will be paid for the arbitration proceedings by the claimant.

Timing of Advances on Costs in ICC Arbitrations

In arbitrations administered by the ICC, after receipt of the request for arbitration and payment of the USD 5,000 filing fee, the ICC Secretary General will request the claimant to make a second payment, called the “provisional advance on costs.”

The provisional advance on costs will be in an amount intended to cover the initial work carried out by the ICC until the Terms of Reference has been drafted (Article 37(1) of the 2021 ICC Arbitration Rules). This advance on costs primarily covers the constitution of the arbitral tribunal and the arbitral tribunal’s preliminary work. The ICC Secretary General fixes the provisional advance on costs before the request for arbitration is notified to respondent and claimant is generally asked to pay within a 30-day period.

A third payment for the full advance on costs will then be requested. The amount of the provisional advance on costs will be used to setoff claimant’s payment of the future advance on costs fixed by the ICC International Court of Arbitration (the “Court”), pursuant to Article 37(2) of the 2021 ICC Arbitration Rules:

As soon as practicable, the Court shall fix the advance on costs in an amount likely to cover the fees and expenses of the arbitrators, the ICC administrative expenses and any other expenses incurred by ICC related to the arbitration for the claims which have been referred to it by the parties, unless any claims are made under Article 7 or 8 in which case Article 37(4) shall apply. The advance on costs fixed by the Court pursuant to this Article 37(2) shall be payable in equal shares by the claimant and the respondent.

Although the ICC Arbitration Rules specify that the Court shall fix the full advance on costs “as soon as practicable”, no precise date is given. In practice, the ICC Secretariat General will invite the Court to fix the advance on costs as soon as it considers that it has sufficient information for the Court to do so, which is often a matter of months from the date a Request for Arbitration was filed.

In fixing the amount, the Court will usually take into consideration:

• the number of arbitrators required;
• the place of arbitration; and
• the amount in dispute (including principal claims and counterclaims).

Consequently, the Court will only fix the advance on costs (1) after receiving respondent’s answer to the request for arbitration, in order to know the amount in dispute (as counterclaims may be raised); or (2) after respondent has presented its comments on the constitution of the arbitral tribunal; or (3) after a 30-day period if respondent remains silent.

Parties are not required to pay the advance on costs immediately after the Court’s determination. The ICC’s practice is to wait until the case file has been transmitted to the arbitral tribunal before requesting payment of the full advance on costs (Article 16 of the 2021 ICC Arbitration Rules).

While the third payment of the advance on costs may be final, from time to time the ICC Secretariat checks with the arbitral tribunal to see if the sums already paid are sufficient to cover the arbitration costs incurred. Therefore, the amount fixed for the advance on costs by the Court may be readjusted later, for instance if the amount in dispute increases (Article 37(5) of the 2021 ICC Arbitration Rules).

Timing of Advances on Costs in LCIA Arbitrations

As in ICC arbitration, a first payment of a non-refundable registration fee must be made with the filing of a Request for Arbitration.

Unlike in ICC arbitration, advances on costs in LCIA arbitrations are then addressed to the parties from time to time, throughout the course of the arbitration (Article 24.1 of the 2020 LCIA Arbitration Rules):

The LCIA Court may direct the parties, in such proportions and at such times as it thinks appropriate, to make one or more payments to the LCIA (the “Advance Payment for Costs”) in order to secure payment of the Arbitration Costs under Article 28.1. Such payments by the parties may be applied by the LCIA to pay any item of such Arbitration Costs (including the LCIA’s own fees and expenses) in accordance with the LCIA Rules

In LCIA practice, the initial payment for the advance on costs is usually due after the respondent has filed its Response to the Request for Arbitration. If there are insufficient fund to cover all expenses, the LCIA Registrar will request further advances or supplementary deposits throughout the course of the arbitration. Unlike in ICC arbitration, these advances on costs are more gradual, as it does not attempt to secure all costs of the arbitration at the outset.

As indicated in the Schedule of LCIA Arbitration Costs, advances on costs paid to the LCIA cover:

• The LCIA’s administrative charges;
• Expenses of members of the LCIA Court;
• Fees and expenses of the arbitral tribunal; and
• Fees and expenses of the arbitral tribunal’s secretary and/or expert.

Charges for hearing rooms, communications technology and other services may also be paid against invoice from any amount received as an advance on costs.

The arbitral tribunal will not proceed with the arbitration without having ascertained that the LCIA will have sufficient funds to cover the arbitration costs (Article 24.5 of the 2020 LCIA Arbitration Rules).

Unlike other institutions, namely the ICC and the SIAC, LCIA fees are calculated on an hourly scale, i.e., costs are based on the amount of time the LCIA administrative staff and the arbitrators spend on a case.

Timing of Advance on Costs in HKIAC Arbitrations

The first payment for an HKIAC arbitration is also a non-refundable registration fee paid when submitting a Notice of Arbitration.

Article 41.1 of the 2018 HKIAC Administered Arbitration Rules then requires the HKIAC to request the parties to deposit the advance on costs “as soon as practicable”:

As soon as practicable after receipt of the Notice of Arbitration, HKIAC shall, in principle, request the Claimant and the Respondent each to deposit with HKIAC an equal amount as advance for the costs of the arbitration. HKIAC shall provide a copy of such request to the arbitral tribunal.

The timing of this deposit is not immediate. It must first be determined whether the fees of the arbitral tribunal will be on an hourly or ad valorem basis. Where the respondent has filed a counterclaim, the HKIAC may request separate deposits (Article 41.2 of the 2018 HKIAC Administered Arbitration Rules).

Throughout the proceeding, the HKIAC may then require the parties to make supplementary payments. In this case, the HKIAC will consult the arbitral tribunal, which will have a say on the disbursement of the costs for the arbitration (Articles 41.3 and 41.4 of the 2018 HKIAC Administered Arbitration Rules).

Advances on costs are usually due within 30 days after receipt of a HKIAC request for payment.

If a deposit is not paid in full, the arbitral tribunal may suspend or terminate the proceedings (Article 41.4).

Timing of Advances on Costs in SIAC Arbitrations

The SIAC also requests a first payment of a non-refundable filing fee upon the filing of a notice for arbitration, which is applicable to all arbitrations administered by the SIAC, and to each claim or counterclaim (Article 3.1 of the 2016 SIAC Arbitration Rules).

In the case of SIAC arbitrations, the arbitral institution then takes into account all claims and counterclaims to fix the advance on costs payable in equal shares by the parties. According to the SIAC Practice Note for Administered Cases, this tranche of advances and deposits is normally required “shortly after the commencement of the arbitration or request for administration”, although it is not immediate.

Article 34.2 of the 2016 SIAC Arbitration Rules provides that unless the SIAC Registrar directs otherwise, 50% of such deposits shall be paid by claimant, and the remaining part paid by respondent:

The Registrar shall fix the amount of deposits payable towards the costs of the arbitration. Unless the Registrar directs otherwise, 50% of such deposits shall be payable by the Claimant and the remaining 50% of such deposits shall be payable by the Respondent. The Registrar may fix separate deposits on costs for claims and counterclaims, respectively.

Following this payment for the advance on costs, the SIAC Registrar will readjust the advance on costs in case the administrative fees and the arbitrators’ fees exceed the amount in deposit.

Below is a comparative table showing the rules regarding advances on costs for the above-mentioned institutions: