Cost

The purpose of this guideline is to assist arbitral tribunals in dealing with the issue of fixing and allocating costs as part of their awards under Articles 31 & 33 of Schedule 1 of the Arbitration Act 1996. Clause 6 of Schedule 2 sets out the general approach in the following terms: 

6. Costs and expenses of an arbitration (1) Unless the parties agree otherwise, —

(a) The costs and expenses of an arbitration, being the legal and other expenses of the parties, the fees and expenses of the arbitral tribunal, and any other expenses related to the arbitration shall be as fixed and allocated by the arbitral tribunal in its award under article 31 of Schedule 1, or any additional award under article 33(3) of Schedule 1; or

(b) In the absence of an award or additional award fixing and allocating the costs and expenses of the arbitration, each party shall be responsible for the legal and other expenses of that party and for an equal share of the fees and expenses of the arbitral tribunal and any other expenses relating to the arbitration.

(2) Unless the parties agree otherwise, the parties shall be taken as having agreed that,—

(a) If a party makes an offer to another party to settle the dispute or part of the dispute and the offer is not accepted and the award of the arbitral tribunal is no more favourable to the other party than was the offer, the arbitral tribunal, in fixing and allocating the costs and expenses of the arbitration, may take the fact of the offer into

(3) Where an award or additional award made by an arbitral tribunal fixes or allocates the costs and expenses of the arbitration, or both, the High Court may, on the application of a party, if satisfied that the amount or the allocation of those costs and expenses is unreasonable in all the circumstances, make an order varying their amount or allocation, or both. The arbitral tribunal is entitled to appear and be heard on any application under this subclause.

(4) Where— (a) An arbitral tribunal refuses to deliver its award before the payment of its fees and expenses; and

(b) An application has been made under subclause (3),— the High Court may order the arbitral tribunal to release the award on such conditions as the Court sees fit.

(5) An application may not be made under subclause (3) after 3 months have elapsed from the date on which the party making the application received any award or additional award fixing and allocating the costs and expenses of the arbitration.

(6) There shall be no appeal from any decision of the High Court under this clause. Clause 6 establishes a four tier process for dealing with costs:

(1) agreed between the parties (clauses 6(1) & (2)),

(2) fixed by the arbitral tribunal (clause 6(1)(a)),

(3) costs lie where they fall, with the costs and expenses of the arbitral tribunal shared equally between the parties (clause 6(1)b)), and

(4) fixed by the High Court on review (clause 6(4)).

For domestic arbitrations, Schedule 2 applies unless the parties opt-out of those provisions, and for international arbitrations, the Schedule applies only if the parties opt-in (section 6). For the purposes of dealing with costs and expenses, this guideline makes no distinction between domestic and international arbitrations. The core principles underlying the application of clause 6 are: (a) preserving party autonomy in arbitration, and (b) the implication that costs follow the event, meaning that the costs of the arbitration should be borne by the unsuccessful party or parties. 1 The rationale for this principle is that the successful party should not have been 1 See Article 42(1) of the 2010 UNCITRAL Rules. forced to go through the arbitration process at all, and should not be penalised by having to pay for it. Problems tend to arise where the parties have not agreed on how costs and expenses are to be apportioned, and the arbitral tribunal is then left to make an award of costs under clause 6(1)(a).