Introduction

When an international commercial dispute arises, the cost of resolving it may be as important to the parties as the merits of the claims themselves. Indeed, the cost of resolving a dispute may suffice, in some circumstances, to discourage a claim's prosecution in a formal proceeding or to thwart its proper defense.

Arbitration is widely considered to be an economical alternative to litigation in the courts. However, as the process has progressively become more contentious, arbitration has increasingly fallen prey to the criticism that it is too expensive.1 Among the different forms of arbitration available, moreover, ICC arbitration is sometimes perceived-I believe quite wrongly-as being the most expensive of all.

Although there is no doubt that an ICC arbitration (like other forms of arbitration) can be expensive, I have come to recognize, particularly since assuming my present position a little over one year ago, that there are many misconceptions with respect to the cost of ICC arbitration relative to other dispute resolution mechanisms and with respect to the costs of arbitration generally. Thus, notwithstanding the need, in an arbitration, to pay the fees and expenses of the arbitral tribunal and possibly also those of an arbitral institution, it is often overlooked that the direct costs of the arbitration process may bring with them a number of hidden savings-savings, for example, in the form of time gained and appeals avoided.2 Moreover, arbitration generally offers sufficient flexibility to the parties to conduct the proceedings in a manner that is commensurate with the sum at issue. It is unfortunately the case that parties and their lawyers sometimes do not take sufficient advantage of this or otherwise do not pay adequate attention to the financial consequences of actions taken by them during the course of the arbitration, not only in respect of lawyers' fees and expenses, but also the fees and expenses of the arbitrators (and possibly those of the arbitral institution).3

So too, it is all too often forgotten that the fees paid to an arbitral institution such as the ICC's International Court of Arbitration (hereafter the "ICC Court" or the "Court") are for a service intended to help the parties avoid difficulties in the organization and conduct of the arbitration or an award's eventual enforcement that could otherwise expose them to far greater expense than the cost of using an institution.4 Indeed, criticisms of the cost of ICC arbitration too frequently fail to take any account of the unique services rendered by the ICC Court (such as the scrutiny of arbitral awards), the manner in which arbitrators' fees are fixed (relative to the available alternatives) or the possible savings that may be derived from such services.

In my experience, in any event, both in private law practice prior to joining the Court and since then, I have not seen any evidence that ICC arbitration is an inherently more expensive process than alternative arbitration mechanisms. Indeed, the authors of the most comprehensive text on ICC arbitration (Craig, Park and Paulsson, International Chamber of <page nr="9" /> Commerce Arbitration, 2d ed. (ICC Publishing 1990)) have observed that (see p. 38):

The most expensive international arbitration that the authors have encountered in practice was not an ICC case, but an ad hoc proceeding...5

This having been said, an appreciation of the costs of ICC arbitration relative to those of its alternatives obviously requires a clear understanding of the manner in which such costs are determined and paid.

As the ICC Court has just completed an extensive review of its Schedule of Conciliation and Arbitration Costs (Appendix III to the ICC Rules), and certain adjustments have been made, effective January 1, 1993 (which are described elsewhere in this issue of the Bulletin, see page 25), this is an opportune moment to examine the ICC's practices in respect of costs. Most of the balance of this article will therefore be devoted to a discussion of this subject. In addition, as the arbitrators in ICC cases are required to decide (see Article 20 of the ICC Rules) how the costs of the arbitration are to be borne by the parties-and the manner in which that power is exercised may affect quite substantially the ultimate cost of the arbitration for the parties-the ICC's recent experience in this regard will also be reviewed.6

It should be remembered in this connection that the cost of an arbitration will normally comprise a number of different elements, including, in particular, the parties' own internal management time and disbursements, the fees and disbursements of outside advisers (lawyers and possibly also technical or other experts), the fees and expenses of the arbitrators (and possibly experts appointed by them) and the charges of the administering institution, if any. Of those costs, the parties' own expenses combined with the fees and disbursements of their lawyers and possible other advisers will usually constitute the largest part of the total expenses incurred and will generally exceed (sometimes quite substantially) the cost of the arbitrators and the arbitral institution. Moreover, the amount payable to the institution will generally be much lower than the amount payable to the arbitrators.7 It is important to bear the relative significance of these different cost factors in mind when considering the cost of ICC arbitration in relation to the alternatives.

I. The arbitrator's fees and expenses

The fees of ICC arbitrators are fixed by the ICC Court in accordance with Article 20 of the ICC Rules and the Schedule of Conciliation and Arbitration Costs set forth in Appendix III to the Rules (the "Costs Schedule").8 The Costs Schedule includes a scale of arbitrator's fees providing for different levels of remuneration depending upon the "sum in dispute".9 Each bracket of the scale, which is sharply regressive, contains both a "minimum" and a "maximum" fee,10 and, in fixing the arbitrator's fees, the ICC Court has discretion to apply any figure between the "minimum" and the "maximum". In addition, the Court may derogate from the scale [Page10:] and apply a fee below the "minimum" or higher than the "maximum" in exceptional circumstances (Article 20.3 of the ICC Rules and Article 2 of the Costs Schedule). Such derogations are intended to be rare, however, and parties and arbitrators should therefore normally assume that the fee to be fixed at the end of the arbitration will fall within the scale. If, during the course of the arbitration, it appears to the Court that it may become necessary to derogate from the fee scale, the parties will generally be informed in advance.

The ICC is one of only a few international arbitration institutions to fix arbitrators' fees in accordance with a published fee scale. In contrast, the fees of arbitrators acting, for example, under the rules of the London Court of International Arbitration, the Stockholm Chamber of Commerce and the American Arbitration Association are generally established on the basis of an hourly or daily billing rate negotiated or fixed by the institution for the case in question.11 Thus, the amount ultimately payable to the arbitrators acting under the rules of those institutions will depend heavily (or possibly even entirely) on the amount of time that the arbitrators have devoted to a case, no matter how efficiently or inefficiently. This is not the case, however, in ICC arbitration. In ICC arbitration, the fixing of arbitrators' fees begins with the application of the arbitrator fee scale.

Because the ICC's scale has been established with reference to the "sum in dispute" in the arbitration, the ICC is often said to fix arbitrators' fees on an ad valorem basis (in contrast to time-based methods of remuneration).12 The sum in dispute is only one of the factors, however, that the ICC Court considers when fixing the fees of arbitrators. Indeed, this is inherent in the fee scale itself as there is room for the application of considerable discretion in deciding upon a fee between the minimum and maximum amounts provided for therein, and, in addition, the Court may derogate from the scale when this is warranted. In this connection, Article 18 of the Court's Internal Rules (Appendix II to the ICC Rules) provides that, in setting the arbitrators' fees, the Court shall take into consideration "the time spent, the rapidity of the proceedings and the complexity of the dispute". This is intended to ensure that the Court is in a position to reward diligent and expeditious work on the part of an arbitrator, to take account of undue delay and to provide arbitrators with remuneration that is otherwise reasonable in the circumstances of the particular case.

At the same time, however, the scale provides both the parties and the arbitrators with a general idea, from the very outset of the arbitration, of the normal limitations (minimum and maximum) on the arbitrators' remuneration.13 In this respect, the scale provides a financial framework for the arbitration, which is intended to be broadly compatible with the amount at stake and which, it is submitted, should encourage the efficient conduct of the case as the arbitrators are on notice that, absent a showing that the circumstances warrant exceptional treatment, the Court will not award compensation in excess of that provided for in the scale.14 The fee scale, thus, has the virtue of encouraging the [Page11:] imposition of as much discipline on the arbitration proceedings as may be reasonable in the circumstances.15 Indeed, the parties and the arbitrators can use the information provided in the scale in deciding how best to structure and conduct the arbitral proceedings. Thus, for example, the parties should expect that if their conduct is particularly contentious, e.g., in respect of matters of procedure, or if numerous exchanges of lengthy submissions are made, or hearing time is extended, the Court will be more likely to fix the arbitrators' fees towards the maximum end of the scale (or possibly even decide to derogate from the scale under Article 20.3 of the Rules). The parties are also on notice that, if they unduly inflate the amount of their claims, the amount of the arbitrators' fees may increase as a consequence. The system, thus, discourages the submission of frivolous claims and counterclaims in addition to creating an incentive for efficiency.

The fee scale is nevertheless not a perfect instrument. The Court regularly receives complaints from arbitrators that their fees are too low and do not take sufficient account of the number of hours devoted by them to a case.16 Occasionally (although much less frequently, in my experience), parties complain that the arbitrators' fees are too high,17

The various criticisms of the ICC's fee scale received by the Court in recent years prompted it, in 1988, to constitute an ad hoc working group of its members to study its practices in respect of arbitrators' fees.18 The working group was composed of Court members from ten different countries, both developed and developing, so as to ensure the broadest possible exchange of opinions and experiences in respect of arbitrator remuneration around the world. In addition, the working group solicited opinions regarding the ICC's arbitrator fee system from 362 parties and 319 arbitrators from 89 different countries (in proportion to the participation in ICC arbitration of parties and arbitrators from such countries).

After an extensive review, lasting nearly two years, the working group came to the conclusion that there was no legitimate basis for a dramatic overhaul of the ICC's present system of arbitrator remuneration. The working group found that:

The system as it presently stands continues to attract arbitrators of different nationalities who are either specialists in arbitration or have such diverse backgrounds as practicing lawyers, judges, professors and others ... [and] parties are generally satisfied with the present system.

It was noted, however, that the scale of arbitrators' fees, which dated from March 1980, should nevertheless be reviewed "due to inflationary increases affecting arbitrators' costs ... hourly fees and overhead". In this connection, the working group concluded that "for top arbitrators application of the 'average' scale amount as the norm is about to become dissuasive". Further study of the fee scale's possible revision was therefore recommended, and it was this subsequent study, carried out by a group composed primarily of the same Court members, that culminated in the revision of the [Page12:] scale, effective January 1, 1993, as described elsewhere in this Bulletin (see page 25). It is to be emphasized, however, that the revisions in question apply only to arbitrations commenced as from January 1, 1993 and have the effect, principally, of increasing the "maximum" figures in the ICC's arbitrator fee scale.19

During the course of its study, the Court's original working group found that, notwithstanding the view of some critics that ICC arbitrators should be compensated on a time-spent basis (as, for example, in the case of arbitrations conducted by the London Court of International Arbitration or the American Arbitration Association), the overwhelming majority of both the parties and arbitrators surveyed rejected this proposition. Indeed, of the arbitrators who responded to the Court's inquiries, only two percent felt that hours should be the exclusive criterion in fixing arbitrator remuneration, and fully thirty percent of those who expressed a view on the subject stated that they would refuse to provide a detailed breakdown of hours. Even more significant, however, was the finding that nearly two-thirds of the arbitrators responding to the survey indicated that they were satisfied with the ICC's present system of arbitrator remuneration.20

In the case of the parties, more than seventy percent of those responding claimed to be satisfied with the present ICC system, and only four percent felt that time spent should be the exclusive criterion in fixing arbitrator fees. Furthermore, approximately two-thirds stated that they attached importance, in connection with the award of fees, to the rapidity with which arbitrators conduct the proceedings. Most parties and arbitrators also agreed that the complexity of the issues raised in an arbitration is an important consideration to be taken into account.

With respect to the time spent by the arbitral tribunal, while it was agreed that this is a factor to be considered, concerns were expressed within the working group with respect to the general problem of efficiency. Some arbitrators simply accomplish more in an hour than others, and efficiency may be further affected, in an international case, depending, for example, on whether the arbitration is conducted in the arbitrator's native language or in accordance with a law with which the arbitrator is conversant.21 Moreover, given the diverse backgrounds of ICC arbitrators, it would be difficult to find acceptable and consistent hourly or daily rates. As has been observed in this connection:

There is in fact no recognized world scale of acceptable hourly rates for arbitrators. Furthermore, in many parts of the world, particularly in State-controlled economies and in much of the developing world, hourly rates are not generally recognized.22

Indeed, in many parts of the developed world as well hourly rates are not universally used.

Thus, no alternative system of arbitrator remuneration emerged from the working group's study as inherently superior to the ICC's present system, which allows for a large measure of flexibility within a framework designed to be roughly commensurate with the financial stakes of each case.

Turning now to the actual application of the ICC's fee scale, the ICC is first required to determine in each arbitration the "sum in dispute" expressed in U.S. dollars, the currency in which arbitrators' fees are always paid.23 The [Page13:] "sum in dispute" is considered by the Court to be the aggregate amount of all claims and counterclaims submitted in the arbitration. If one of the parties claims a right to a set-off with regard to either a principal claim or counterclaim, the set-off is also taken into account in the same way as a separate claim insofar as it may require the arbitrators to consider additional matters (Article 16 of the Court's Internal Rules).24 However, consistent with the practice of certain other arbitral institutions (e.g., the Zurich Chamber of Commerce), the Court will not normally take into account increases in the amount of a party's principal claim due to the accrual of interest.25 Nor will a party's claim for arbitration costs (as discussed further below) normally form part of the sum in dispute, as calculated by the Court.

Notwithstanding the apparent simplicity of the above principles, the determination of the "sum in dispute" can often be problematic. Thus, for example, the relief claimed may not be of a monetary nature, e.g., where declaratory relief or the termination of a contract are sought. Sometimes, moreover, damages may be claimed, but not quantified. In such circumstances, Article 2(d) of the Court's Costs Schedule merely provides that the Court shall fix the arbitrator's fees "at its discretion."

As a practical matter, in such circumstances, the Secretariat consults with the arbitrators and the parties in order to develop an appreciation of the complexity and magnitude of the dispute, particularly for the purpose of fixing, or adjusting, the advance on costs (see Section 111 below) during the course of the proceedings. For many years now, the Court has followed the general practice, in such cases, of fixing an initial advance of U.S.$ 30,000 to cover the estimated fees and expenses of the arbitrator and the administrative expenses of the ICC when a sole arbitrator has been designated and U.S.$ 60,000 in the case of a three-member tribunal. Such initial advances are always reviewed and often adjusted when the Terms of Reference are submitted to the Court or subsequently during the course of the proceedings. (Indeed, the Secretariat encourages the arbitral tribunal to state the amount in dispute in the Terms of Reference as precisely as possible.) In view of the recent amendment of the arbitrator's fee scale, the Court is reexamining the continued suitability of initially fixing advances at the foregoing levels of U.S.$ 30,000 and U.S.$ 60,000 when the sum in dispute is not determinable. Moreover, a greater effort may be made in the future, as from the outset of the arbitration, to adapt the advance to the particular circumstances of each case, to the extent reasonably possible.

Another problem that frequently arises is that the "sum in dispute" may fluctuate quite considerably during the course of the arbitration. In determining the arbitrators' fees, the Court will normally take account of increases in the amount claimed during the arbitration (except in respect of interest and claims for costs, as already noted). However, decreases in the amount claimed will not necessarily justify a reduction of the Court's determination of the "sum in dispute", particularly after the Terms of Reference have entered into effect and the arbitrators have begun to proceed with the arbitration.26 Of course, if the reduction in the amount of the claim has the effect of reducing significantly the work required of the arbitrators, the Court may take account of this in fixing the arbitrators' fees within the bracket of the scale corresponding to the "sum in dispute".

A further issue that is regularly confronted by the ICC Court relates to the manner in which the arbitrator's fees should be fixed when his work is terminated prior to a final award, either because of the withdrawal of the arbitration by the parties or because the arbitrator is required to be replaced, e.g., in the case of a resignation, death or a challenge. Indeed, the majority (approximately 65%) of the arbitrations submitted to the ICC are withdrawn prior to their completion, in most cases due to a settlement. Although arbitrators are replaced much less frequently, this nevertheless also [Page14:] occurs from time to time. The ICC's Costs Schedule does not specify how the arbitrator's fees are to be fixed when his services are terminated prior to a final award.

In this connection, it should first be emphasized that an arbitrator is appointed to render a final award, and his responsibilities have not been fully discharged until that time. This being said, the ICC considers that the arbitrator should be entitled to be paid for work done if the arbitration comes to an end through no fault of his own. Thus, where an arbitration is withdrawn, it is the Court's practice to fix the arbitrator's fees with regard to the stage reached in the arbitration and the amount of work that the arbitrator has been required to perform. The Court may also consider the role that the arbitrator may have played in helping the parties to settle their dispute. The arbitrator's fees will, however, normally be less than for a completed case.

When fees are required to be established for an arbitrator who resigns or who otherwise has to be replaced, however, the Court's approach is somewhat different. In such cases, the Court normally considers the "concrete" steps that have been completed in the arbitration and that will not have to be repeated (e.g., the completion of Terms of Reference or the issuance of a partial award). However, the Court does not, in such circumstances, normally feel obliged to take account of time that may have been devoted by the arbitrator to uncompleted tasks insofar as the arbitrator appointed to replace him may be required to repeat the same work. Indeed, the Court does not consider, as a general rule, that the parties should be required to pay twice for the same work to be carried out by an arbitrator.27 This is particularly the case when an arbitrator resigns or has to be replaced following a challenge or otherwise due to misconduct. Indeed, in some such situations, the Court may consider that it is appropriate to reduce the amount of the compensation that the arbitrator might otherwise have been awarded.

Considerations of this kind have guided the Court's practices in according advances to arbitrators during the course of the arbitration. Advances will therefore normally only be granted upon the completion of "concrete", non-repeatable steps in the arbitration and not on the basis of uncompleted work in progress. Indeed, the Court is particularly concerned to avoid advancing to an arbitrator any more than it might be appropriate to award him if, for any reason, he suddenly required to be replaced. This policy, moreover, serves the further purpose of providing an incentive for arbitrators to render their final award in the arbitration as rapidly as practicable.

The ICC's general unwillingness to make advance payments to arbitrators for uncompleted work in progress has occasionally been subject to criticism on the ground that arbitrators, as a consequence, are required to bear "the entire burden of financing remuneration for ongoing work".28 However, the ICC's critics on this subject generally overlook the institution's reasonable wish to protect the parties to the arbitration against the risk that an arbitrator may have to be replaced before the arbitration has been completed and his work redone, and the ICC, as noted above, does not consider that the parties should be placed in the position of having to pay twice for [Page15:] the same work. 29 It is also noteworthy, in this connection, that most parties responding to the survey of the Court's working group on arbitrators' fees voiced a preference for the Court's maintenance of its policies in respect of advances to arbitrators, not only because they wish to limit the risk of paying twice for the same work, but also because they tend to believe that arbitrators will bring a matter to a more rapid conclusion when the bulk of their fees are payable only when their work has been completed.

The Court's policy with respect to the reimbursement of an arbitrator's expenses is understandably quite different, however. Such expenses, which are not covered by the fee scale, may include such items as travel costs, the rental of hearing rooms and the preparation of hearing transcripts. It is the ICC's policy to reimburse the arbitrators for such expenses as they are incurred. Personal expenses are reimbursed in accordance with guidelines laid down by the Secretariat, the most recent version of which, dated January 1, 1993, is reproduced at page 29 of this Bulletin. Travel and certain other personal expenses of the arbitrator incurred with respect to ICC arbitration business may be reimbursed either on a per diem basis or upon the presentation of relevant invoices or receipts scrutinized, prior to payment, by the Secretariat.

The expenses of the arbitral tribunal in an international case can be very substantial, particularly when extended hearings are held outside an arbitrator's place of residence. This is a factor of which the parties should not lose sight when the arbitral tribunal is being constituted and when dates for hearings or other meetings are being set. Notwithstanding this, the ICC regularly encounters cases where parties appear to designate arbitrators without regard to the consequences in terms of cost or seek to conduct the proceedings in a manner that may greatly increase the arbitrator's expenses (e.g., by virtue of extended site visits to distant locations, lengthy hearings or frequent interlocutory meetings to deal with matters of procedure). These are, of course, matters that are generally within the parties' control.

Similarly, the number of arbitrators designated (one or three) will have a substantial impact on the cost of the arbitration. Particularly where the amounts in dispute are relatively small, the Secretariat seeks to ensure that the parties are aware of the relative financial consequences of proceeding with three as opposed to one arbitrator. This is also a factor of which the Court takes account when it is called upon to decide whether one or three arbitrators should be appointed for a particular case.

II. The ICC's administrative charge

In addition to the fees and expenses of the arbitrator, parties to ICC arbitrations must pay the ICC for its organization and administration of the arbitration.

The ICC's administrative charge is calculated on the basis of a scale contained in the Costs Schedule together with the scale of arbitrator's fees. Unlike the arbitrator fee scale, however, which includes "minimum" and "maximum" amounts, the scale of administrative charges provides that the amount payable to the ICC shall be fixed solely on the basis of the aggregate amount claimed in the arbitration. The total amount payable, however, is capped at U.S.$ 50,500 for cases pending on December 31, 1992 and at U.S.$ 65,500 for cases received since that date (see the ICC's announcement concerning the amendment of the Costs Schedule as of January 1, 1993 at page 25 of this Bulletin).

The ICC's administrative charge covers not only the services rendered by the ICC Court but all disbursements of the Court in connection with a particular case (e.g., for postage, international courier services, telephone, telefaxes, photocopies).30 Moreover, no matter how complicated the administration of the case may become, the administrative charge will generally remain unchanged so long as the amount in contention does not change.31 The ICC's scale [Page16:] thus has the virtue of permitting the parties to assess in advance the likely amount of the ICC's administrative charge, unlike other systems under which the amount of such charges may fluctuate quite considerably.32 Of course, in the event that an arbitration is withdrawn prior to a final award, the amount of the administrative charge, like the arbitrator's fees, will normally be reduced based on an assessment of the stage reached in the arbitration and the work carried out by the Court. However, it should be borne in mind, in this connection, that the administrative work of the Court and its Secretariat may be very heavy in the early stages of the arbitration as the Court is required to decide whether and how to set the proceedings in motion. Notwithstanding this (as discussed further in Section III below), all that the ICC requires to be paid prior to the transmission of the file to the arbitral tribunal is the amount of U.S.$ 2,000 (which is to be paid by the claimant together with the submission of its Request for Arbitration). Given the large number of cases that are settled at an early stage of the arbitration, this is, in fact, the only sum ever paid by the parties in a very substantial percentage of ICC cases.33

A number of years ago (in 1986), it was suggested to the ICC by an ad hoc group of "users" constituted by the ICC that the Court should modify its practice of assessing administrative charges based on the amount in dispute in the arbitration and, instead, should invoice parties for the time spent and disbursements incurred by the ICC in connection with each arbitral proceeding in the fashion of many service companies.

After carefully considering the matter, however, the ICC determined that it would be better to retain its long-standing method of assessing administrative charges, which is, in fact, consistent with the traditional approach of most other arbitral institutions (a significant exception being the London Court of International Arbitration, which assesses administrative charges on the basis of the time spent by its staff and expenses incurred).34 At the time, the ICC was particularly concerned that it would be extremely burdensome and costly for it to elaborate and implement a system of accounting for all time spent on individual files and that the increased cost of this would ultimately have to be borne by the parties through increased administrative charges. Indeed, a very large number of persons within the ICC are required to devote time to the typical ICC arbitration during its lifetime. Apart from the involvement of the team (composed of a counsel, assistant and secretary) assigned to the case within the Secretariat, various aspects of the matter will be reviewed and discussed by every one of the Secretariat's counsels (at weekly staff meetings), the Secretary General and the General Counsel, and will also be examined by the Court at one or more of its plenary or committee sessions.35

Under the ICC's present system, it is to be noted that parties are not charged for the time (which may be very substantial) devoted to their case by Court members. Apart from certain minor expenses of the Court, the ICC's administrative charges are used to defray the costs of the Court's Secretariat (and they presently do so only partially). Furthermore, while it is true that the ICC renders a service, it is unlike most service companies in that it is not-and should not be-accountable to the parties for the time that it may feel it is required to devote to a particular matter. The ICC has the integrity of the Rules to defend, and its obligations in this regard may transcend the requirements of any particular case. The present system, although by no means perfect, at least permits a measure of predictability and ensures that the burden of the administrative charges in a particular matter will not be disproportionate to the amount at stake in the arbitration. [Page17:] The ICC's administrative charges nevertheless do have the reputation of being high in comparison with those of other arbitral institutions. While this cannot be denied (at least in respect of cases that are brought to completion),36 it is also the case that the ICC provides a much higher level of service than other arbitral institutions. Indeed, the ICC provides the most highly supervised form of institutional arbitration available. Thus, for example, the ICC is the only one of the major arbitral institutions to scrutinize arbitral awards, an important feature of the ICC arbitral system that is designed to enhance the likelihood that the award rendered will be enforceable and carried out voluntarily by the parties. Other arbitral institutions also do not necessarily (i) take responsibility for the notification to the defendant of the request for arbitration, (ii) make decisions as to the prima facie existence of an agreement to arbitrate, (iii) scrutinize Terms of Reference, (iv) fix the fees of arbitrators, or (v) bring pressure to bear on the arbitral tribunal to conduct the arbitration as expeditiously as possible. Nor do they necessarily possess a Secretariat composed of lawyers with broad experience of international arbitration practice, diverse legal backgrounds and multiple linguistic abilities.

Apart from these considerations, the ICC is the only major arbitral institution with a Court of Arbitration, i.e., a deliberative body composed of distinguished lawyers from nearly 50 countries and charged with responsibility for most of the decisions provided for in the ICC Rules. Thus, decisions concerning such matters as the appointment of arbitrators, challenges, arbitrators' fees, the prima facie existence of an arbitration agreement or the place of arbitration are not left to a single case administrator or institutional official, but benefit from the collective outlook and experience of lawyers with backgrounds as diverse as those of the participants in the ICC arbitral process. Under no other arbitral system do parties benefit from such intense scrutiny of the process by the arbitral institution.

It should also be remembered that the differences that may exist among the charges of the principal international arbitration institutions are relatively minor, when compared to the sums in dispute and the amounts payable to the arbitrators and lawyers involved in the case. Thus, for example, for a sum in dispute of U.S.$ 1,000,000, the ICC's administrative charge is U.S.$ 14,500. For a sum in dispute of U.S.$ 50,000,000, the amount is U.S.$ 50,500. These charges should be measured in terms of the services provided by the ICC, and, particularly, the much greater hidden savings that they may permit, e.g., if the arbitration is more speedily resolved as a consequence of the ICC's involvement or difficulties in the enforcement of the award are avoided.37

As Stephen Bond, the former Secretary General of the ICC Court, has noted on this subject:

The concept of 'cost' is a relative one. Being penny-wise and pound foolish is not appropriate for international arbitration cases involving significant financial and legal stakes. The ICC system is one designed to provide value for money.38

III. Advances

In all arbitrations, whether institutional or ad hoc, it is customary to require the provision, in advance, of adequate security for the payment of the fees and expenses of the arbitral tribunal as well as appropriate arrangements, in the case of institutional arbitration, for the payment of the institution's charges. This is not only in the interest of the arbitrators and the arbitral institution, but of the parties as well so as to ensure that, during the course of the arbitration, its progress will not be unduly delayed or disrupted due to the failure of a party to pay a sum due to the arbitrators or the institution. [Page18:] In ICC arbitration, the fees and expenses of the arbitrators and the institution are, thus, paid in the following manner:

(i) An initial payment of U.S.$ 2,000 is to be made by the claimant upon the filing of a Request for Arbitration (see Article 3(b) of the Costs Schedule), irrespective of the amount of the claim.39 That payment, although non-refundable, is credited in full to the claimant's share of the arbitration costs, as fixed by the Court. Upon receipt of this sum, the ICC will proceed to notify the Request for Arbitration to the defendant and begin the process of constituting the arbitral tribunal and examining such other preliminary matters as may be necessary to set the arbitration in motion. No additional payment is required from the defendant as a condition for the submission of any counterclaims or prior to the constitution of the arbitral tribunal by the ICC Court. As already noted, in many of the cases submitted to the ICC, this initial payment of U.S.$ 2,000 is the only payment that is ever made due to the early withdrawal of the arbitration (usually because of a settlement). Insofar as the filing of an ICC arbitration request has facilitated the attainment of such a settlement, the U.S.$ 2,000 payment made arguably constitutes an extraordinarily good value.

(ii) As soon as appropriate after the notification of the Request for Arbitration and the expiration of the 30-day period fixed in the Rules for the defendant's Answer, the ICC Court will fix an advance on costs "in a sum likely to cover the costs of arbitration of the claims which have been referred to it" (ICC Rules, Article 9.1). Article 2 of the Costs Schedule further specifies that the advance fixed "comprises the fee(s) of the arbitrator(s), any personal expenses of the arbitrator(s) and the administrative expenses". As a practical matter, the Court will normally refer to the scale of arbitrator's fees and administrative expenses in fixing such advances. A rough estimate of the likely expenses of the arbitral tribunal will be made, taking into account, among other things, the place of the arbitration, the arbitrator's likely travel costs, if any, and the possible hearing time that may be required. The amount of the advance is provisional and always subject to readjustment as the arbitrator's fees and the administrative expenses are not fixed until the completion or the arbitration proceedings, nor will the arbitrator's expenses be finally known until that time. Nevertheless, the Court generally endeavors, from the outset, to fix an amount sufficient to cover the costs of the entire arbitration due to the difficulties that may occur when the advance is required to be increased during the arbitration (as discussed further below).

(iii) Once the advance has been fixed by the Court, it is normally to be paid by the parties in equal shares in two instalments of 50% each.40 The first such instalment is required to be paid before the file is transmitted to the arbitral tribunal, and the balance is payable following the preparation of the Terms of Reference.41 Under Article 9.4 of the Rules, the Terms of Reference shall only become operative and the arbitrator shall only proceed in respect of those claims for which the advance on costs has been paid.

The requirement in the Rules that the advance be paid in equal shares, of course, does not prejudice the arbitrator's ultimate decision, in his award, as to the proportions in which such costs shall be borne by the parties (Article 20.1 of the Rules; see also Section IV below), Moreover, in the event that one of the parties fails to pay its share of the advance, then the other party will be required to pay the defaulting party's share in order for the arbitration to proceed. [Page19:] Conscious of the financial pressures that these requirements may place on the parties, the ICC has adopted a number of practices designed to make them less burdensome. Thus, for example, as just noted, half of the advance is not payable until after the Terms of Reference have been drawn up by the arbitrators. In addition, the ICC will permit a party that has paid its 50% share of the advance in cash to utilize a bank guarantee when it must pay all or part of the share of a defaulting party. To the extent that the circumstances of the case so allow, the ICC will also accept a bank guarantee in lieu of cash for any part of a party's share of the advance in excess of U.S.$ 300,000 (formerly U.S.$ 250,000). Further, when a counterclaim is submitted in addition to a principal claim, the Court may decide to fix separate advances on costs for the principal claim and the counterclaim, in which case each of the parties is invited to pay the amount of the advance corresponding only to its claims.42 The Court will normally do so, however, only when one of the parties is unwilling to contribute to the advance fixed by the Court for the aggregate amount of the claim and counterclaim and the other does not wish to substitute for it. In such a case, the fixing of separate advances will force each party either to pay the advance corresponding to its claim or risk forfeiting the right to prosecute it in the arbitration. As Craig, Park and Paulsson (see supra note 10 at page 245) have quite rightly observed in this regard:

The raison d'être of the Court's power to fix separate advances is to deal with cases in which the defendant has filed a substantial counterclaim but refuses to pay a share of the advance for either claim or counterclaim. In such a situation, it is obviously appropriate to save the claimant from the mischief of an uncooperative defendant.43

In the event that the corresponding advance is not paid, the Secretariat may set a time limit (subject to a party's right to request a decision by the Court), after the expiration of which the relevant claim shall be considered as withdrawn if payment has not been received (see Article 15 of the Court's Internal Rules).44

As already noted above, the amount of an advance may, and often has to, be adjusted during the course of the arbitration proceedings, after the Terms of Reference have become operative. The question may then arise as to whether the arbitration proceedings must be suspended, pending the payment of any additional amounts that may be required. The ICC seeks to prevent such situations from occurring by carefully reviewing the amount of the advance when the Terms of Reference are submitted to the Court in the light of all that is known about the case at that stage. However, it sometimes becomes apparent only. subsequently that the case is more complex, more time-intensive or otherwise more costly than earlier anticipated. In such circumstances, the Court will have no choice but to increase the amount of the advance in order to ensure that adequate funds will be available to cover the arbitration costs at the conclusion of the case. As a general rule, the Court will at all times wish to have in hand adequate security to cover such anticipated costs.45

If the advance is increased while the arbitration is in progress, it will normally be important for the parties to ensure that the increased amount is paid promptly to avoid any delay to the proceedings. The ICC may be required, where [Page20:] such payments have not been received, to direct the arbitrators to suspend their work, e.g., to postpone scheduled hearings or work on an award, although the ICC has allowed proceedings to continue in such circumstances where the ICC's administrative expenses were fully secured, the parties and arbitrators agreed to go forward and the arbitrators accepted the risk that the increase requested might never be paid. So long as any portion of the advance is outstanding, however, the Court will not normally scrutinize (or therefore notify) any arbitral award received from the tribunal (see Article 23 of the ICC Rules).46

At the conclusion of the arbitration, the ICC Court will finally fix the amount of the arbitrators' fees and the ICC's administrative costs and return to the parties any portion of the advance that may remain after payment of those sums and the arbitrators' expenses. The parties should expect that, in reimbursing any outstanding sums to the parties, the ICC will usually do so in a manner consistent with the parties' payment obligations under the Rules.47 However, in the absence of joint instructions from the parties, the ICC will not normally take account of any decisions concerning the sharing of costs that may be contained in the arbitral award or a settlement agreement between the parties as the ICC does not consider it appropriate for it to involve itself in the actual execution of such an award or agreement.

The ICC has frequently been criticized for retaining interest that may have accumulated on the cash advances received from the parties during the course of the arbitration, rather than crediting it to the costs of the arbitration. However, the ICC is not alone in failing to credit interest income to the parties. Other arbitral institutions also do not do so (although there are, to be sure, some that do, e.g., the London Court of International Arbitration). In the case of the ICC, if such interest were credited to the parties, it would be required to be off-set by increases in the ICC's administrative charges, which, as already noted, do not fully cover the expense of operating the Court's Secretariat.

Finally, apart from the advances fixed by the ICC Court, parties in ICC arbitrations occasionally seek to obtain from the arbitrators an order requiring one of the parties to provide security for the legal costs of the other to ensure that such other party will be in a position to recover such costs in the event that the arbitrators determine, in their award (see Section IV below), that it is entitled to be reimbursed therefor.48 Such an order was, in fact, recently issued by an ICC arbitral tribunal sitting in Brussels after finding that it had the authority, under the Rules (and, in particular, Article 8.5 thereof) to do so.49

IV. The award of costs

The manner in which the parties are required to bear the costs of the arbitration will obviously have a substantial impact on the ultimate cost, for each of them, of the proceedings. Although, as discussed above, each of the parties is expected to share equally in the payment of advances fixed by the ICC Court (except where separate advances may have been fixed), Article 20.1 of the ICC Rules provides that:

The arbitrator's award shall, in addition to dealing with the merits of the case, fix the costs of the arbitration and decide which of the parties shall bear the costs or in what proportions the costs shall be borne by the parties. (Emphasis added.) [Page21:]

ICC arbitrators therefore not only have the power, but the duty, to decide how the costs of the arbitration shall be borne.

The "costs of the arbitration" are defined in Article 20.2 of the Rules as including, in addition to the arbitrator's fees and expenses and the ICC's administrative charge, the fees and expenses of any experts and "the normal legal costs incurred by the parties". The Rules do not contain a definition of "normal legal costs", however, and the manner in which this term should be construed is therefore left to the appreciation of the arbitrators in each case. Ordinarily, ICC arbitrators appear reluctant to include, within the meaning of "normal legal costs", a party's own internal management time and costs.50 However, ICC arbitrators have been willing, in some cases, to include among "normal legal costs" the costs of in-house counsel in addition to outside lawyers. 51 Arbitrators have also taken differing views concerning the "experts" referred to in Article 20.2, it sometimes being found that only experts appointed by the tribunal itself are intended to be covered.

Parties' claims for the reimbursement of their arbitration costs often constitute a very substantial part of the relief requested in an ICC arbitration, yet little information is publicly available on the practices of international arbitrators in this connection.52 In principle, there are three possible ways of allocating the costs of an arbitration. One is to order that all of the costs shall be borne by one of the parties (i.e., the losing party). It is, thus, for example, the usual rule in England that the successful litigant is entitled to an award of costs (i.e., the. costs follow the event). Another approach, prevalent in Germany, Switzerland and Austria, for example, is the allocation of the costs in proportion to the outcome of the case (e.g., 75%/25% or 60%/40%), taking into account the relative success of claims and defenses. Yet a further possibility is to require that the costs be shared equally by the parties or that they bear their own costs. Arbitral tribunals may also consider that administrative costs and arbitrators' fees and expenses, on the one hand, should be treated differently from legal and other possible expenses, on the other.

In 1991, the ICC Court's Secretariat undertook a study of the final awards rendered in ICC arbitrations between March 1989 and September 1991 in order to assess the manner in which arbitrators have dealt with the allocation of arbitration costs in ICC cases.53 In summary, the Secretariat's findings were as follows:

(i) In those cases where the claimant won all or most of what it claimed (as in 48 of the awards surveyed), the arbitrators most commonly (in 39 cases) ordered the defendant to bear all or most (usually in proportion to the success of the claim) of the arbitrator's fees and expenses and the administrative expenses of the arbitration, although the arbitrators occasionally split the costs between the parties in such [Page22:] circumstances.54 In one such case, for example, the arbitral tribunal observed that, although the claimant was entirely successful in the arbitration, each party had contributed equally to the emergence of the dispute. In another case, the tribunal required the claimant to contribute to part of the arbitration costs, even though "nearly 100% successful", because the claim was submitted "relatively late".

(ii) In such cases (i.e., where the claimant was a decisive winner), the arbitrators also often, although much less frequently (in 24 cases out of 48), ordered the defendant to pay all or part of the claimant's "normal legal costs", thus demonstrating that arbitrators will not necessarily treat in the same manner the costs of the arbitration proper and the legal costs of the parties. Thus, for example, in one of the cases reviewed, the arbitral tribunal (composed of two Swiss lawyers and one American) awarded the claimant 80% of the amount claimed by it in the arbitration and, accordingly, ordered the defendant to bear 80% of the arbitration costs. With respect to the claimant's legal costs, however, the tribunal held that each party should bear its own on the basis that the:

... dispute raised difficult issues of law ... all of which justified a full-scale litigation.

When awarding "normal legal costs", moreover, tribunals have adopted a variety of approaches, sometimes awarding all of the costs claimed and in others effecting reductions, often in relation to the proportion of the claim that has succeeded.55

(iii) In those cases (9) where the claimant was awarded approximately half of the amount claimed or the claimant and defendant won approximately equal amounts, the arbitrators most frequently (in 7 cases) ordered that the arbitration costs be shared equally and (in 8 cases) that the parties bear their own legal costs. In one case, however, it was held by a British sole arbitrator that, where the claimant was awarded 56% of the value of its claim, the defendant should pay all of the arbitration costs and reimburse to the claimant approximately 50% of its legal expenses on the apparent basis that such was the amount "reasonably incurred". In another case, where a party had succeeded with respect to 60% of its claim, the defendant was ordered to bear 60% of the arbitration costs, but the claimant was not awarded any of its legal costs.

(iv) Out of 36 awards in which the claimant obtained substantially less than half of the amount claimed or less than the amount awarded to the defendant, the arbitrators most frequently either split the arbitration costs equally (in 13 cases) or had the claimant pay them all (12 cases). In every one of the latter cases, however, the arbitrators either dismissed the claimant's claims entirely or found themselves incompetent to conduct the arbitration.56 In some cases, where the claim failed entirely, the arbitrators nevertheless decided that the arbitration costs should be shared rather than borne entirely by the claimant (in one case because the defendant had "not been sufficiently forthcoming with the information necessary to find the truth" and had failed to comply with two of the tribunal's orders regarding the production of evidence and in another because the "dispute stemmed from a difficult problem of interpretation of the agreement and no party can be blamed for having decided to submit it to the decision of the Arbitral Tribunal"). In those cases where the claimant was awarded a relatively low percentage of the amounts claimed, the arbitration costs were usually ordered to be [Page23:] shared equally or on a proportional basis (relative to the degree of success of the claims), although in the particular circumstances of two cases the arbitrators felt that as the principal claims were well-founded, the bulk of the arbitration costs should be borne by the defendants.

(v) Finally, the parties were most frequently (in 24 cases) ordered to bear their own legal expenses in the 36 awards just mentioned. Three awards allocated normal legal costs proportionately to the outcome of the case. In five cases (in every one of which the claim was either dismissed or withdrawn), the claimant was ordered to pay all of the defendant's normal legal costs and in two others a substantial proportion. In one case, where the claimant was awarded only a small percentage of its claim, the claimant was ordered to pay two-thirds of the defendant's normal legal costs, while the defendant was ordered to pay one-third of the claimant's.

From the above, it can be seen that arbitrators have adopted a variety of approaches in allocating costs in ICC arbitrations, often depending on their own national biases, the substantive outcome of the arbitration and also the behavior of the parties, e.g., in some cases allowing for honest differences of opinion over difficult issues and in others penalizing bad faith or uncooperative behavior.

In this regard, it should always be remembered that the parties, by virtue of the choices that they make in organizing the arbitral proceedings (e.g., with respect to the place of arbitration, the number of arbitrators, their nationalities and places of residence) and in conducting the proceedings will have a substantial impact on the arbitration's ultimate cost and possibly also on the manner in which the costs are to be borne.

In conclusion, it can be said that a large number of the elements entering into the costs of an ICC arbitration are well within the parties' control. The ICC, for its part, has elaborated a schedule of costs (including its own administrative charges and the arbitrator's fees) that is intended to (i) provide the parties with as much information as possible as to the likely amount of such costs, even before the arbitration has begun, (ii) discourage the prosecution of abusive or frivolous claims, and (iii) encourage the arbitral tribunal to conduct the case as expeditiously and efficiently as is reasonably practicable in the circumstances. The ICC, at the same time, undertakes to balance the interests of both the parties and the arbitrators in fixing arbitrator remuneration at reasonable levels, commensurate with the financial stakes of each case. The task is admittedly a difficult one, but is critical to the ICC's effort to ensure that ICC arbitration is as cost-effective as possible. The payments made to the ICC for its administrative charges, meanwhile, secure the provision of this and other services that, in the long run, may help to save the parties from otherwise incurring much greater expense. Finally, it should never be forgotten that a party, if successful in the arbitration, may be entitled to the reimbursement of all or a substantial part of its arbitration costs.

1
Typical of such criticisms is the plaint of an engineer, recounted by John Uff in his article, "Cost-effective arbitration" (59 Arbitration 31 (February 1993)), that lawyers have made arbitration "a mirror of court procedure, with the consequent increase in costs."

2
For an interesting discussion of such and many other hidden savings of arbitration, see Karrer, "Arbitration Saves! Costs: Poker and Hide-and-Seek" 3 Journal of International Arbitration 35 (March 1986).

3
In this connection, see John Uff's recent article, "Cost-effective arbitration", supra note 1.

4
Thus, in an unpublished paper ("The Costs of ICC Arbitration", September 1991), Stephen Bond, the former Secretary General of the ICC International Court of Arbitration, noted that the ICC's administrative charges have been compared to "insurance" premiums.

5
See also Bond, "The Present Status of the International Court of Arbitration of the ICC: A Comment on an Appraisal", 1 The American Review of International Arbitration 108, 119 (1990), in which the following remarks of Humphrey Lloyd, Q.C., a prominent London barrister, are reported:"Experience ... shows that the costs of ad hoc arbitration can be at least as high as ICC arbitration (even including the ICC's administration fees)."Although this view may not be held universally (see, e.g., for a contrary position, Lalive, "Avantages et Inconvénients de l'Arbitrage Ad Hoc" in Etudes Offertes a Pierre Belles (Litec 1991)), it certainly concords with my own experience.

6
See also on this subject the extracts from ICC awards at pp. 31 et seq. of this Bulletin.

7
Indeed, the amount payable to the institution will ordinarily be an infinitesimal percentage, both of the amount in dispute in the arbitration and the parties' total arbitration costs.

8
Arbitrators' fees in ICC arbitration are fixed exclusively by the Court. Separate fee arrangements between the parties and the arbitrators are therefore not accepted. Indeed, this is intended to prevent the parties from being placed in the uncomfortable position of having to negotiate issues of remuneration with those who will be responsible for deciding their case or otherwise to avoid challenges to an arbitrator's independence (e.g., if ex parte fee arrangements were made).

9
It is to be noted that the figures set forth in the scale do not include any taxes on turnover (value added taxes) that may be payable by the arbitrators on their fees, and parties may therefore be requested by the arbitrators to make additional payments to them directly in respect of the same, to the extent that the arbitrators are liable to pay such taxes.

10
Article 2(e) of the Costs Schedule provides that: "When a case is submitted to more than one arbitrator, the Court, at its discretion, shall have the right to increase the fee up to a maximum of three times the fee payable to one arbitrator."In this connection, it has been observed that (see Craig, Park and Paulsson, International Chamber of Commerce Arbitration, 2d. ed. (ICC Publishing 1990), p. 353):"While the maximum payable to a three-member tribunal is three times the maximum fee of a sole arbitrator, the minimum is not specified and may thus be less than three times the minimum fee of a sole arbitrator." However, in practice, the Court considers each member of a three-member tribunal to be entitled to at least the minimum set forth in the scale, subject to the possible application of Article 20(3) of the Rules. In addition, it is the Court's general practice, unless the arbitrators otherwise agree, to award 40 percent of the total fees of a three-member tribunal to the chairman and 30 percent to each of the co-arbitrators as a consequence of the chairman's greater burden in the usual case.

11
In this connection, for example, the London Court's Schedule of Costs (effective January 1, 1992) provides, by way of guidance, that the rates for arbitrators' fees fall into the following range:Time for meetings or hearings: £600 - £2,000 per day.Other time spent on the arbitration: £150 - £375 per hour.I cannot help but observe that hourly and daily rates of this magnitude could reasonably be expected to exceed the fees payable to ICC arbitrators in the average case under the ICC fee scale. I can therefore see no basis for the assertion sometimes advanced by representatives of the London Court (see, e.g., Kerr, "Developments in Arbitration", pp. 575-576, in Uff and Lavers (eds.), Legal Obligations in Construction (CCLM King's Coll. 1992) that ICC arbitration is more expensive.

12
See, e.g., Redfern and Hunter, Law and Practice of International Commercial Arbitration, 2d ed. (Sweet & Maxwell 1991), p. 250. See also Wetter, "The Present Status of the International Court of Arbitration of the ICC: An Appraisal" 1 The American Review of International Arbitration 91, 102-103 (1990), where it is asserted that the main standard used by the ICC Court in fixing fees is the amount at issue in the arbitration, and the reply of Stephen Bond, supra note 5.

13
In this connection, one in-house counsel has remarked: "Parties are ... concerned with predicting costs. Scales such as those of the ICC meet this concern." See Robine, "What Companies Expect of International Commercial Arbitration", 9 Journal of International Arbitration, 31, 43 (June 1992).

14
Thus, Craig, Park and Paulsson (see supra note 10 at p. 356) have observed: "In average cases, it should always be kept in mind that the ICC system creates an incentive for efficiency; not being paid at a daily rate, ICC arbitrators have no 'private' reason to prolong the case. Parties, if not always their lawyers, tend to value this feature of ICC arbitration once they have had experience with other arbitration systems where proceedings tend to be never-ending."

15
In this regard, the scale is broadly consistent with one of the general objectives of commercial arbitration, as articulated by John Uff in his article, "Cost-effective arbitration" {supra note I at p. 32), i.e.: "The procedure must have regard to cost and ensure that it is not disproportionate to the importance or monetary value of the case as a whole or of individual cases."

16
Typical of such complaints is the criticism contained in Wetter, supra note 12 at p. 103, that in cases involving amounts in dispute of U.S.$ 5-10 million (or less) "the time required to resolve them in a proper fashion results in fees which, on an hourly basis, are unacceptably low." See also the similar view expressed in Werner, "Remuneration of Arbitrators by the International Chamber Commerce," 5 Journal of International Arbitration 135 (September 1988). Such criticisms are, however, to be compared with the view expressed in Robine, supra note 13, that: "It is disconcerting ... to hear more and more arbitrators criticize the ICC scale on the grounds that the fees are inadequate, whereas the parties, in general, consider them to be excessive." It is the Court's difficult, but important, task to attempt to steer a fair and reasonable course between the often divergent views of parties and arbitrators on the question of arbitrator remuneration.

17
In this connection, it is sometimes argued (see, e.g., Wetter, supra note 12 at p. 103) that the ICC's fee system can produce unjustified windfalls for arbitrators simply due to the sum in dispute. However, I have yet to see such a case since joining the ICC, given the very broad discretion that the Court enjoys under its lee scale. Moreover, if it appealed lo the Court that even the minimum amount under the scale would produce an unjustifiable "windfall" to the arbitrators, the Court would be at liberty to apply Article 20.3 of the Rules and award a lower amount.

18
The working group was, in fact, created shortly after a colloquium of arbitrators organized by the ICC's Institute of International Business Law and Practice in 1988 on the subject of arbitrator remuneration at which various concerns regarding the ICC fee system were voiced.

19
The "minimum" fees have only been increased by U.S.$ 1,000 so that the minimum fee payable in cases of up to U.S.$ 50,000 will be no less than the administrative charge payable to the ICC in such cases (i.e., U.S.$ 2,000).

20
Moreover, among those arbitrators who expressed dissatisfaction, no clear consensus emerged as to a preferred alternative.

21
As Craig, Park and Paulsson have commented (see supra note 10 at p. 40):"There are no easy answers, no obvious reform which the ICC 'ought' to adopt. The one most suggested is that arbitrators' fees should be based on services actually rendered, on the basis of a daily rate. The choice (in the form of a rebuttal) appears to be rather straightforward: a plodding arbitrator who allows the proceedings to go on and on with little direction, but who charges only a modest $ 1,000 a day for his 40 days of confused efforts; or a dynamic and incisive arbitrator who manages to lead the parties to defining, presenting and arguing the case rapidly, spending only a few working days but expecting an 'outrageous' remuneration of $ 20,000. The adoption of a per diem system would tend to make such dynamic arbitrators disappear, and bring out the plodders. To work properly, the system must reward efficiency-not create an incentive for arbitrators to make the game last longer."

22
Craig, Park and Paulsson (supra note 10 at p. 356).

23
During the course of its work, the Court's working group considered whether the practice of using the U.S. dollar as a universal currency for the remuneration of ICC arbitrators should be maintained and concluded that, on balance, the advantages of the present system outweighed any possible disadvantages. For the purpose of calculating the amount in dispute in U.S. dollars, the working group also recommended the continuation of the Court's usual practice of applying the exchange rate prevailing on the date of receipt by the Secretariat of the Request for Arbitration (except possibly in very exceptional circumstances).

24
Pierre Karrer (see supra note 2 at pp. 41-42) has commented that the ICC's treatment of set-offs is inconsistent with its "legal nature under civil law concepts". However, the ICC's practice in this regard is the same as that adopted by the Zurich Chamber of Commerce (see its Schedule of Arbitration Costs, Article 2.1).

25
The Schedule of Arbitration Costs of the Zurich Chamber of Commerce provides in this connection, however, that when interest claims exceed the amount of the principal sum, then they replace the latter in calculating the value in dispute.

26
Cf., in this connection, Article 23.7 of the Rules of Arbitration and Conciliation of the International Arbitral Centre of the Federal Economic Chamber of Vienna, which provides that: "Reductions in the amount in dispute shall be taken into account in the calculation of arbitrators' fees and administrative costs only if they occurred before transmission of the files to the arbitrators."

27
This is consistent with the view expressed with respect to this question by Lord Mustill and Stewart Boyd, Q.C., in their classic work, The Law and Practice of Commercial Arbitration in England, 2d ed, (Butterworths 1989), in which the following is stated (page 244):"Sometimes an arbitrator's participation in a reference may terminate prematurely on grounds for which he is responsible, although not morally to blame. For example, he may die, or become incapable of acting, or resign with the consent of the parties. In such a case the question may arise whether he is entitled to payment for the work which he has done. The arbitrator could argue that if, as we have suggested, there is a right to payment in cases where the reference stops short as the result of an act by the parties, this must entail that the remuneration is regarded as a reward for work done, not for benefit conferred; and if this is so then the position must be the same whatever the reason for the curtailment of the reference. The arbitrator has, so it would be argued, a vested right to remuneration which is not lost if his participation in the reference comes to an end. We doubt whether the logic can be carried through in this way. Somebody has to suffer in this situation, and the distribution of the loss is a matter of policy. We suggest that it should fall on the arbitrator, on the ground that the loss of the fee due to reasons concerned with himself is a risk which the arbitrator can reasonably be taken to have assumed, when he agreed to take on the reference."

28
Wetter and Priem, "Costs and their Allocation in International Commercial Arbitrations", 2 The American Review of International Arbitration 249, 317 (1991) (where it is, however, erroneously stated that the ICC follows the policy of paying fees only after the end of the proceedings; as already noted, advances are, in fact, accorded, to ICC arbitrators during the course of the proceedings, generally as concrete steps are completed), See also, in this connection, Werner supra 2 note 6 at page 136 and Lalive supra note 5 at page 316.

29
Indeed, Mustill and Boyd have commented (see supra note 27 at page 245, note 13): "But if... [the arbitrator] has in fact already (been] paid on account, at the time of the termination, we cannot see the Court straining to find a way in which the parties can recover what has been paid-for by consenting to remuneration on this basis, they can be regarded as having taken on themselves the risk of premature termination."

30
In contrast, certain other arbitral institutions invoice the parties separately for some or all such costsin addition to the amounts payable for their administrative fees.

31
Under the Costs Schedule that took effect on January 1, 1993, the Court does have the power, however, to fix the administrative charge at a higher figure than that provided for in the scale in exceptional circumstances, provided that the ceiling of U.S.$ 65,500 is not exceeded. It is anticipated that this power will be used very sparingly in cases where unusual and very burdensome demands are made on the Court. In addition, under Article 2(c) of the revised Costs Schedule, the Court may require the payment of additional sums as a condition to holding an arbitration in abeyance at the request of the parties or one of them with the acquiescence of the other(s).

32
This would be the case, for example, under the most recent fee scale of the American Arbitration Association and the Schedule of Costs of the London Court of International Arbitration.

33
Thus, for example, in 1992, 108 cases were withdrawn prior to their submission to an arbitral tribunal, i.e., approximately one third of the number of new cases received during that year (337). The number of such withdrawals was, in fact, even greater in each of the years from 1988 through 1991, and in 1991 the number of early withdrawals equalled nearly 50% of the number of new cases filed during that year.

34
A number of reforms, designed to alleviate certain of the financial burdens on the parties to ICC arbitrations, were nevertheless adopted and entered into effect on July 1, 1986. These measures are described in Section III below.

35
During the life of a typical ICC arbitration, it would therefore not be unusual for the case to receive hundreds of hours of attention in the aggregate from the various members of the Secretariat's staff and the members of the Court. In fact, I would estimate that about 50 hours in the aggregate are devoted by the Secretariat and the Court simply to the scrutiny of an average ICC arbitral award (and much more in substantial, complex cases).

36
The ICC's charges are not necessarily higher, however, in respect of the large number of cases that are settled at an early stage. Thus, for example, under the American Arbitration Association's fee scale a party filing a request for arbitration for a claim above U.S.$ 500,000 will be required to pay a non-refundable filing fee of U.S.$ 3,000 - 4,000, and a defendant filing a counterclaim of the same magnitude will be required to pay an identical sum (i.e., a possible total of up to U.S.$ 8,000), whereas all that is required to be paid to the ICC in such a case is U.S.$ 2,000 prior to the transmission of the file to the arbitral tribunal, which often never occurs due to the early settlement of the matter (see supra note 33).

37
Moreover, use of the ICC may help to avoid excessive arbitrators' fees. In the words of one experienced commentator and practitioner: "Overreaching by arbitrators on their fees is avoided by ICC arbitration, and this particular service alone may be worth its price." See Karrer supra note 2 at page 41 See also Robine supra note 13.

38
See Bond, The Costs of ICC Arbitration (unpublished paper, September 1991), p. 10.

39
Certain other institutions (e.g., the American Arbitration Association) impose filing fees that fluctuate depending upon the amount in dispute. Thus, the filing fee payable in an AAA arbitration increases from U.S.$ 300 for a claim of U.S.$ 25,000 to a fee of U.S.$ 4,000 for a claim above U.S.$ 5,000,000. Such a system would be complicated for an organization such as the ICC to administer, however, given, inter alia, the multiplicity of currencies in which claims are submitted to the ICC.

40
Although many arbitral institutions require that the parties share equally in the payment of advances, this is not universally the case (see, e.g., Article 34 of the International Arbitration Rules of the American Arbitration Association, which provides that the deposits initially fixed shall be paid by the "filing" party).

41
Until at least part of the advance has been received by the ICC, it is not in a position to pay the arbitrators for any work that they may carry out in connection with the arbitration or for expenses that they may incur. Although, as stated above, the file is not transmitted to the arbitral tribunal until 50% of the advance fixed by the Court has been received, it is nevertheless often the case that, prior to that time, co-arbitrators are requested by the parties to seek to agree upon a third arbitrator for an arbitration. Time and money may be required to be expended by the arbitrators for this purpose. It is therefore important that they be aware that, until such time as they are formally seized (tithe file by the ICC (which may never occur), the ICC will not be able to remunerate them or otherwise reimburse them for their expenses.

42
Because of the regressive nature of the ICC fee scales and the manner in which they have traditionally been applied by the Court in such circumstances, it will not normally be financially advantageous, however, for a party to seek separate advances on costs where the amounts of the claims and counterclaims are roughly equivalent. Thus, for example, a party's 50% share or the advance payable in respect of an aggregate sum in dispute of U.S.$ 2,000,000 would normally be lower than the amount payable in respect of a separate advance of U.S.$ 1,000,000.

43
Craig, Park and Paulsson go on to say that "the Court may ... also consider it fair to separate t he advance when there is a great disproportion in amounts between claim and counterclaim". However, it would be unusual for the Court to do so in circumstances where one of the parties opposes the fixing or separate advances and would prefer, in the event of the other party's refusal to pay its share, to pay the whole of the global advance fixed for the claim and counterclaim, which may sometimes be financially advantageous given the ICC's acceptance of bank guarantees, as discussed above, with respect to a defaulting party's shale or the advance.

44
In such circumstances, if a payment has earlier been made by the defaulting party in respect of an advance originally fixed with respect to both the claim and counterclaim (prior to the fixing of separate advances), that sum will normally be credited against the advance fixed for the claim remaining in the arbitration in respect of which each of the parties should then be considered to have an obligation to share equally as if the withdrawn claim had never been introduced in the arbitration proceeding.

45
In order to achieve this, the Secretariat, of course, requires the assistance of the arbitrators. I cannot overemphasize the importance, for the arbitrators, of keeping the Secretariat regularly informed, as far in advance as reasonably possible, if they are concerned that the amount of the advance may be insufficient to provide them with reasonable compensation for their work and to cover all of their anticipated disbursements.

46
The statement in Karrer, supra note 2 at page 44, that if the amount of the advance is increased during the course of the arbitration, the arbitration "will not be held up until additional deposits are paid in" thus does not accurately reflect the Court's current practice. Non-payment of the increased amount of an advance does not necessarily require, however, the suspension of the parties' (as opposed to the arbitrator's) work, e.g., the submission of briefs in accordance with a timetable fixed by the tribunal.

47
Thus, for example, if the total advance fixed is U.S.$ 10,000 and party A has paid U.S.$ 7,500 of which U.S.$ 2,500 has been paid in substitution for party B, who has paid only U.S.$ 2,500, and U.S.$ 2,500 remains to be reimbursed to the parties, the whole amount will be reimbursed to party A. If, however, separate advances of U.S.$ 7,500 and U.S.$ 2,500 had been fixed for party A and party B, respectively, and they had each paid the full amount of such advances, then 75% of any balance outstanding would be reimbursed to party A and 25% to party B.

48
Cf. Section 12(6) of the English Arbitration Act 1950. In the case of Bank Mellat v. Helleniki Techniki s.a. [1983] 3 All ER 428, Lord Justice Kerr of the English Court of Appeal found that it would be "inconsistent with the scheme and spirit of the ICC Rules" for the English court to grant an order for security for costs under Section 12(6) in that case, an ICC arbitration in London. It has frequently since been observed, however, that it does not necessarily follow that it would be inappropriate for the arbitrators to do so.

49
In this connection, the tribunal relied, inter alia, on the award of the arbitral tribunal in ICC case no. 6697 (Casa/Cambior) described in the Revue de !'Arbitrage (1992), pp. 135 et seq. See also the articles on interim and conservatory measures in the accompanying Supplement of the Bulletin.

50
It is to be noted though that in the French version of Article 20.2 the word "legal" does not appear; reference is made instead to the (translation) "normal costs incurred by the parties for their defense". This has led at least one ICC arbitrator in a recent award to conclude that: "... in France costs awarded to the winning parties may include not only fees and costs paid or payable to lawyers or costs incurred by the winning party's legal departments but also other expenses incurred by the winning party". Such "other" expenses are rarely awarded, however, in ICC arbitrations.51 In one recent such case, the arbitral tribunal held as follows:"In the Arbitral Tribunal's view in-house legal costs may well form part of a party's normal legal costs incurred in the conduct of a case. It is for each party to decide whether it wishes to retain outside counsel or prepare and argue the case by its own staff. There is no justification to privilege a party in terms of costs for the sole reason that it retained outside counsel.A claim for a party's internal costs is admissible also in those cases where outside counsel had been retained. A party must be free in allocating the work between its outside counsel and its own services. A party which decides to perform most of the preparatory work for the case by its own legal and technical departments should not be placed at a disadvantage compared to one which confers all work to outside counsel and experts. There is, however, an important difference between the costs for outside counsel and those incurred in-house: the former are expenditures and can be clearly identified and evidenced; in the case of the latter this is not always the case. In view of this difference it appears justified to require some substantiation inter alia with respect to the nature of the cost, the personnel involved and type of work performed. In the present case, neither party satisfied these requirements. Their claims are too general to permit an assessment of the justification and reasonableness of the costs claimed. Therefore, no allowance will be made for internal costs of the parties." Although in-house legal costs were not awarded in the above case, it was found that they could be in principle. The view recently expressed in Wetter and Priem, supra note 28 at page 315, that such costs are not recoverable in ICC arbitration is, thus, not shared by all ICC arbitrators.

52
For two recent studies of the subject, see Wetter and Priem, supra note 28, and Nurick, "Costs in International Arbitration", 7 ICSID Review - Foreign Investment Law Journal 57 (1992). See also the extracts from ICC arbitral awards at pp. 31 et seq. of this Bulletin.

53
The study was carried out by two interns of the Court, Christopher Boyd and Angelika Dölker, to whom the author wishes to express his appreciation for the findings described below.

54
For the sake of convenience, the administrative expenses and the arbitrator's fees and expenses will hereafter be referred to as the "arbitration costs" as distinguished from normal legal and other costs.

55
In an extract from a recent arbitral award published in Wetter and Priem, supra note 28 at page 292, it is stated, with respect to the expenses and lawyers' fees of the winning party, that the amount awarded, in international arbitration, is, "as a rule, substantially less than the actual expenses of the winning party". However, no such "rule" emerged from the ICC's study. It is nevertheless often the case that "normal" legal costs are found to be lower than actual legal costs. Usually, the former constitute the arbitrator's estimate of the expenditures reasonably necessary to present the case or the fees prescribed by the applicable fee schedule in countries such as Germany, Switzerland, and Austria. (See, for example, the German ZPO Anhang II.) Where there are no fixed fee schedules, the determination of which legal costs are "normal" is left to the arbitrator's discretion. One Australian arbitrator explained his method as follows: "The approach that I take to both 'normal legal fees' and 'fees and expenses of any experts' is not fettered by the constraints of the law regarding taxed costs. I assess what I regard as properly classifiable as normal, taking into account a broad range of considerations including local practice, local level of fees and the fairness and justice of the level of costs that should be borne by the unsuccessful respondent."

56
An issue that has sometimes arisen in this connection is whether arbitrators who reject a claim on the basis that there is no valid arbitration agreement between the parties have authority to make an award of costs. The prevailing view of arbitrators appears to be that they do when such costs are claimed.