Awards of Costs in International Arbitration in New York

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SUMMARY

This Report of the New York City Bar Association’s International Commercial Disputes Committee examines the allocation of arbitration costs in international arbitration with a particular focus on the allocation of arbitration costs in international arbitrations seated in New York and/or in which the governing substantive law is New York law. The Report is informed by, among other things, an extensive survey conducted by the Committee on cost allocation practices in New York-related international arbitrations

REPORT

AWARDS OF COSTS IN INTERNATIONAL ARBITRATION IN NEW YORK:
CURRENT APPROACHES AND BEST PRACTICES

INTRODUCTION

Arbitration costs incurred in prosecuting and defending claims in international arbitration—including attorneys’ and expert fees and expenses as well as arbitrator and administrator fees—can be substantial, frequently totaling millions of dollars. Those arbitration costs are ordinarily allocated among the disputing parties in the final arbitration award. How those arbitration costs are allocated can be prescribed by the parties in their arbitration agreement or regulated by the applicable arbitration rules and/or by national law. Different jurisdictions have adopted different approaches to the allocation of costs in domestic court litigation—the “American Rule” provides that each party bears its own litigation costs in U.S. litigation, and variations of the “Loser Pays” principle in many civil law and other jurisdictions provides that the losing party bears some or all of the prevailing party’s litigation costs. But most national arbitration laws and international arbitration rules, absent party agreement as to the allocation of costs, leave the allocation of arbitration costs to the discretion of the arbitrators in individual arbitrations, some prescribing a presumption that Loser Pays and others not. As a result, left to arbitrator discretion in practice, the allocation of costs in international arbitration has frequently been described as unpredictable and inconsistent.^[1]

This Report of the New York City Bar Association’s International Commercial Disputes Committee (the “Committee” or “we”) examines the allocation of arbitration costs in international arbitration with a particular focus on the allocation of arbitration costs in international arbitrations seated in New York and/or in which the governing substantive law is New York law (“New York-related international arbitrations”). The Report is informed by, among other things, an extensive survey conducted by the Committee on cost allocation practices in New York-related international arbitrations. The Report is divided into the following Parts:

Executive Summary provides a summary of the Report’s conclusions and recommendations.

Part One analyzes the different cost allocation approaches adopted in New York-related international arbitrations. This Part focuses in particular on the extent to which New York-related international arbitration tribunals have adopted either the American or the Loser Pays approach to cost allocation.

Part Two examines how arbitral tribunals adopting the Loser Pays principle in New York-related international arbitrations have applied that principle in practice and in different contexts. In particular, this Part explores how arbitration costs are allocated where the “prevailing party” has prevailed on some but not all of its claims or defenses (i.e., how the “Loser” is determined in practice); whether and how the “reasonableness” of a party’s claimed attorneys’ fees and advocacy costs is assessed in awarding costs; the extent to which the parties’ (and their counsel’s) conduct in the arbitration is taken into consideration in the allocation of arbitration costs; whether attorneys’ fees (and other advocacy costs) are allocated differently than arbitrator and administrator fees; and the extent to which specific kinds of arbitration costs—such as in-house counsel costs, success/contingency/third-party funding fees, and costs incurred in national court litigation ancillary to an arbitration—have been deemed to be “unrecoverable” or, instead, have been included in the allocation of arbitration costs.

Part Three explores the procedures that parties and/or arbitrators have used in practice to allocate arbitration costs in New York-related international arbitrations. In particular, this Part addresses when, during the course of an arbitration, parties and arbitrators address the issue of cost allocation; whether party costs submissions are made to tribunals before or after decision on the merits; the form of, and level of detail on costs required in, party costs submissions; and the timing of costs awards in connection with decisions on jurisdiction, interim relief, bifurcation and other interim decisions.

Annex A summarizes the costs decisions included in the survey of cost allocation awards in New York-related arbitrations conducted by the Committee to inform its analyses in this Report.

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