Originally from Handbook on International Commercial Arbitration - Second Edition

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A tribunal will derive its powers on costs from the applicable national law and the procedural rules. Cases decided under national laws as applied by the courts may have little or no relevance. Nevertheless, the Tribunal must not take into account factors that should not be taken into account, fail to take into account factors that should have been taken into account, nor reach a decision based on an error of law or reach a costs decision which was one which no reasonable Tribunal could have reached. With that in mind the following commentary may assist.

The general rule is that the “loser” or unsuccessful party will be ordered to pay the “winner’s” or successful party’s costs. This general rule is enshrined in arbitration laws—e.g., §61(2) Arbitration Act 1996 which states “. . . the tribunal shall award costs on the general principle that costs should follow the event . . . ”; UNCITRAL Article 42(1) which states: “ . . . the costs of the arbitration shall in principle be borne by the unsuccessful party . . . ,” or; LCIA Rules Article 28.4 which states: “ The Arbitral Tribunal shall make its decisions on both arbitration and legal costs on the general principle that costs should reflect the parties relative success and failure . . . .” These are, of course, all subject to party autonomy and the parties are perfectly at liberty to agree otherwise subject to the prevailing national law, for example, §60 English Arbitration Act 1996 (where applicable). §60 provides that any agreement that a party will pay all or any part of the costs in any event is valid only if made after the dispute has arisen. This has a lot to commend it—disputes may take any form and to pre-agree a result on costs may be appropriate for the perceived likely dispute but may not fit the unexpected dispute.

In some arbitrations, the substantive result will be a clear “winner” and “loser,” a clearly successful party, and a clearly unsuccessful party, or an event that the costs should follow. If the issue is whether A should pay B, a stated sum of money or the effect of certain words in a contract—an “all-or-nothing” case—the result in terms of “winner” and “loser” is relatively easily expressed.

Clearly, at another extreme, there will be arbitrations with multiple issues and many contested issues of fact and law where each of the parties can each take comfort in some success. The task of assessing what costs order does justice to the substantive Award is then more complex.