Originally from Soft Law in International Arbitration, Second Edition

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Drafting Arbitral Awards Part III -- COSTS

Introduction

1. This Guideline sets out the current best practice in international commercial arbitration for awarding costs. It provides guidance on:

i. arbitrators’ powers to decide on costs, including the use of techniques for controlling costs (Article 1);
ii. matters to take into account when allocating costs between the parties (Article 2); 
iii. determining what costs are recoverable (Article 3); and
iv. the timing and content of costs awards (Article 4).

2. In this Guideline, the terms ‘costs of the arbitration’ or ‘costs’ include two broad categories of costs:

i. procedural costs, which include the arbitrators’ fees and expenses and the administrative charges of any arbitral institution; and 
ii. party costs, which include legal costs and other expenses incurred by a party in respect of the arbitration, including the fees and expenses of outside counsel, experts and witnesses and so on.

3. This Guideline should be read in conjunction with the Guideline on

Drafting Arbitral Awards Part I — General and the Guideline on Drafting Arbitral Awards Part II — Interest.

Preamble

1. Arbitrators’ powers to make costs awards derive from the terms of the arbitration agreement including any arbitration rules and/or the law of the place of arbitration (lex arbitri). Alternatively, if there are no express powers, provided that making a costs award is not prohibited, arbitrators may conclude that they have an inherent power to do so.

Even where there are express powers, most national laws and arbitration rules provide little or no guidance as to the standards, criteria or procedures for awarding costs. This gives arbitrators a wide discretion to take into account the particular circumstances of the case when addressing these issues and, at the same time, allows them to manage the costs of the arbitration.

2. Managing the costs of arbitration is a very important element of the arbitrators’ role in the light of criticism that arbitration takes too long and is too expensive. Accordingly, new practices are being adopted to encourage more efficient conduct of the arbitration. For example, arbitrators are increasingly likely to invite the parties to discuss costs issues at the earliest opportunity rather than leaving it to be the last issue addressed at the end of the arbitration.

3. Even though at an early stage it may be difficult to have a clear picture as to the course of the arbitration and the costs that will be incurred, such a discussion can nevertheless be helpful in arbitrations involving parties and/or counsel from different jurisdictions who have different expectations as to how costs will be dealt with. Additionally, arbitrators may make interim costs awards relating to the costs incurred in connection with discrete issues as they are dealt with rather than leaving the decision on all costs issues to the final award.