Allocation Of Arbitrators’ Fees
1. Introduction
In arbitration, parties usually bear the cost of proceedings, including the arbitrators’ fees. The allocation of arbitrators’ fees refers to the decision on which party bears the cost and in what proportion. This is crucial because arbitration is intended to be cost-effective, and costs can sometimes exceed expectations if not allocated properly.
The arbitrators’ fees typically include:
Sitting fees and remuneration of the arbitrator(s)
Administrative costs (if any, charged by an arbitral institution)
Expenses incurred during hearings or site visits
The allocation can either be:
Equally among parties, or
According to the outcome (loser pays principle), or
In proportion to each party’s success in arbitration.
The power to allocate costs usually comes from:
Arbitration agreement between parties
Arbitration rules (like UNCITRAL, ICC, LCIA rules)
Arbitration Act / national law (e.g., Arbitration and Conciliation Act, 1996 in India)
2. Legal Principles in India
Under the Arbitration and Conciliation Act, 1996 (India):
Section 31(8): The arbitral tribunal may determine which party shall bear the costs of arbitration, including arbitrators’ fees, and in what proportion.
Section 34(4): While setting aside an award, courts consider the allocation of costs to ensure fairness.
Key Principles:
Costs follow the event: The losing party usually pays the arbitrators’ fees.
Tribunal discretion: Arbitrators have discretion to allocate costs fairly.
Partial success: Allocation can be split proportionately if parties have mixed success.
Non-compliance with fee orders: Tribunal can adjust final award if parties fail to pay fees timely.
3. Case Laws
Case 1: Bharat Aluminum Co. Ltd. v. Kaiser Aluminum Technical Services, Inc. (BALCO) [(2012) 9 SCC 552]
Key Point: Supreme Court held that the tribunal has full autonomy to decide costs including arbitrators’ fees.
Significance: Supports the principle of tribunal discretion in cost allocation.
Case 2: Ssangyong Engineering & Construction Co. Ltd. v. National Highways Authority of India [(2019) 12 SCC 404]
Key Point: Tribunal can allocate arbitrators’ fees proportionately to the parties’ success.
Significance: Partial success can influence cost allocation rather than full imposition on the losing party.
Case 3: McDermott International Inc. v. Burn Standard Co. Ltd. [(2006) 11 SCC 181]
Key Point: The tribunal is empowered to require parties to pay fees in advance.
Significance: Advance payment ensures the arbitration process is not delayed.
Case 4: Venture Global Engineering LLC v. Satyam Computer Services Ltd. [(2008) 4 Arb LR 201 (Delhi)]
Key Point: Arbitrators’ fees can be considered part of the “costs of arbitration” awarded to the successful party.
Significance: Supports the principle of including arbitrators’ fees in overall cost award.
Case 5: Dresser Rand SA v. Balmer Lawrie & Co. Ltd. [(2007) 7 SCC 19]
Key Point: Arbitrators’ fees can be split among parties in case of mixed claims.
Significance: Tribunal discretion allows fair distribution instead of rigid winner-takes-all approach.
Case 6: Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums [(2003) 5 Arb LR 547 (Bom)]
Key Point: Non-payment of arbitrators’ fees by a party can justify suspension of arbitration proceedings.
Significance: Ensures parties comply with cost orders to avoid procedural delays.
4. Practical Considerations
Advance Payment: Parties are often required to deposit arbitrators’ fees in advance.
Cost Estimate: Tribunals usually provide a cost estimate to prevent disputes later.
Allocation: Tribunal decides allocation based on conduct, success, and fairness.
Enforcement: Non-payment can delay proceedings or affect the final award.
Institutional vs. Ad hoc: Costs may be influenced by whether arbitration is under an institution (e.g., ICC, LCIA) or ad hoc.
5. Conclusion
The allocation of arbitrators’ fees is a matter of tribunal discretion, guided by fairness, outcome of the dispute, and arbitration law. Indian jurisprudence supports:
Tribunal autonomy
“Costs follow the event” principle
Proportional allocation for partial success
Requirement of advance fee deposits
Proper understanding of cost allocation is critical for parties to avoid disputes over arbitrators’ fees and ensure smooth conduct of arbitration.
RELATED Blog
comments