Originally from The American Review of International Arbitration (ARIA)

PREVIEW

Awards of costs in international arbitration have sometimes been criticized as unpredictable and inconsistent.   At the threshold, there is the question whether, in the absence of agreement by the parties on the point, a tribunal should shift costs at all. While some sets of arbitral rules create a presumption that the costs of arbitration will be borne by the unsuccessful party,  other—and perhaps most—sets of rules commonly used in international arbitration provide the power to award costs but no guidance on whether to do so in a particular case.  

If tribunals decide to shift costs, there is also immense room for tribunals to exercise discretion in awarding costs.  For example, if one party does not prevail on all claims or defenses, will the tribunal find there to be a prevailing party in whole or in part?  Will the tribunal reduce an award on grounds that it finds the costs incurred to have been unreasonable?  Will the tribunal reduce an award on account of inappropriate conduct in the arbitration by the prevailing party?  Will the tribunal award costs of, for example, in-house counsel or costs incurred in ancillary proceedings, such as proceedings to defend the arbitration agreement in court or to enforce an arbitral subpoena?

In arbitrations seated in the United States, or decided under U.S. law, there is the additional source of uncertainty presented by the fact that the prevailing rule in the United States court litigation is that each party is to bear its own legal and other costs—the so-called “American Rule.” To what extent do tribunals in such arbitrations apply that approach in exercising whatever discretion they have?

The Committee on International Commercial Disputes of the New York City Bar Association (the “ICDC” or “Committee”) recently issued a report aimed at addressing some of this uncertainty.  The report, entitled "Awards of Costs in International Arbitration in New York:  Current Approaches and Best Practices,” (hereinafter, “the Report”) and released in June 2024, focuses on awards of costs in international arbitrations seated in New York or decided under New York substantive law.  The Report, based in part on a sample of 146 cost awards in such arbitrations published on the Jus Mundi database, makes a significant contribution to the literature on costs awards.