Costs - overview

The Arbitration Act 1996 is referred to as AA 1996.

Costs under the Arbitration Act 1996

The parties can agree how arbitration costs should be dealt with. If there is no such agreement then the tribunal has a discretion to make a costs award; generally costs follow the event. CFAs can be entered into but an award need not make reference to the CFA.

A tribunal has the ability to make cost capping orders, although this is not widely used in practice. Other costs to bear in mind are cancellation fees and advance on costs (arbitration institutions).

For more information see Practice Note: Costs under the Arbitration Act 1996.

Costs - institutional rules

If the parties have agreed that the arbitration will be administered by an arbitral institution then the costs of the arbitration will be governed by those institutional rules. But for the LCIA, all major arbitral institutions calculate the arbitration costs (ie arbitrators' fees and administrative costs) on an ad valorem basis, ie based on the amount in dispute. The LCIA calculate costs on an hourly basis.

For more information see Practice Note: Costs - institutional rules.

Security for costs - tribunal (Arbitration Act 1996)

Whether a tribunal can order a claimant to provide security for the costs of an arbitration will depend on the powers provided to the tribunal. Such powers can be granted by AA 1996, institutional rules or by the parties under ad hoc arbitrations.

It can be difficult to obtain an order for security for costs as tribunals are often reluctant to do anything that could be perceived as making a judgment on the merits of the case. Also, tribunals will not want to preclude a party from participating in an arbitration due to cash-flow difficulties.

For more information see Practice Note: Security for costs - tribunal.

Security for costs - courts

The courts have no power to order security for costs during the arbitral proceedings; such power is vested exclusively in the tribunal.

The courts do have the power to grant security for costs on applications to challenge an award or an appeal on a point of law under sections 67, 68 and 69 of AA 1996.

For more information see Practice Note: Security for costs - courts.

Security for costs - institutional and UNCITRAL rules

Many of the institutional rules do not specifically provide for security for costs to be ordered. However, many enable a tribunal to order an interim or conservatory measure if it deems it to be appropriate. This power is generally sufficiently broad to enable a tribunal to order a party to give security for costs.

The UNCITRAL Rules deals with interim measures which may be established in the form of an interim award. The tribunal is entitled to require security for the costs of such measures. New revisions to the rules dealing with interim measures are due to be adopted in June 2010.

For more information see Practice Note: Security for costs - institutional and UNCITRAL rules.

Currency in international arbitration

One consequence of the international nature of arbitration is the variety of currencies with which parties and tribunals have to deal, often in the same proceedings, where claims may be made (and are often awarded) in a multitude of currencies. Determining the currency in which the award will be made may be one of the first issues a tribunal may have to face, and sometimes one of the most difficult, usually as a result of currency fluctuations, that can mean the difference between an award worth a relative pittance or a relative fortune.

Section 48(4) of AA 1996 provides that ‘the tribunal may order the payment of a sum of money, in any currency.’

For more information see Practice Notes: Currency in arbitration and Currency in international arbitration .

Settlement in arbitration

AA 1996 and institutional rules provide for parties to attempt settlement during the course of the arbitration. The format of settlement negotiations and whether any offer made is open or closed will depend on the circumstances of the case. Should settlement be reached, the parties may request that the tribunal produce a consent award reflecting the terms of the settlement. In order to terminate the jurisdiction of the tribunal after settlement, there needs to be an agreement to end that jurisdiction included in the settlement terms or in a separate agreement

See Practice Note: Settlement in arbitration.