I. Regarding advances on costs in general

As a general rule, in the case of both institutional and ad hoc arbitrations, payments of advances to cover the costs of arbitration are required at the outset of the procedure. These advances are required for the purpose of securing in advance the financial resources necessary for carrying out the arbitration procedure. Hence the price for arbitration services is paid in advance. The arbitrators do not commence the proceedings until the advance has been paid. The advance usually comprises the arbitrators' future fees, their travelling and other expenses, and also certain direct costs of the arbitration procedure. In the case of institutional arbitrations, it also includes an advance to cover their commitment and administrative expenses. Whereas the above description states the general rule, two basic methods are applied with regard to the obligation to pay such advances. Under the first method, the claimant has to pay the whole of the advance, while the defendant only has to pay an advance to cover any counterclaim, if he refers such a claim to arbitration; under the second method, the parties in dispute have to pay the advance jointly, most often by paying it in equal shares. In this article we intend to describe the ICC International Court of Arbitration's Rules and practice in relation to advances to cover the costs of arbitration.

II. The ICC system with regard to advances

The system relating to advances to cover arbitration costs is defined by the ICC Rules of Conciliation and Arbitration, Arts. 9 and 10 of the Rules, Arts. 14, 15 and 16 of Appendix II to the Rules (Internal Rules of the Court) and Articles 2, 3, 4 and 5 of Appendix III (Schedule of Conciliation and Arbitration Costs). To ensure comprehensive knowledge of the ICC system with regard to advances, it is necessary to be fully conversant not only with the said corresponding provisions of the Rules and the Appendices, but also with how they are applied in practice, as well as certain problems that can arise in practice in relation to advances.

III. Basic rules relating to advances

The ICC system relating to advances is characterised by the following basic rules:

(a) all questions relating to advances fall within the jurisdiction of the Court and the Court's Secretariat;

(b) the Court determines the amount of the advance and may increase or decrease it in the course of the procedure;

(c) the claimant and defendant pay the advance in equal shares; in the event of counterclaims the Court may fix two separate advances on costs, one to cover the principal claim and the other in respect of the counterclaim;

(d) if one of the parties fails to pay the advance attributed to it, the other party may make this payment;

(e) the advance is made in two instalments: the first before the file is transmitted to the arbitrator, and the second after the Terms of Reference have been drawn up and before the commencement of the hearings on the merits in dispute;

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(f) if the advances have not been paid, the arbitration proceedings may not go ahead;

(g) the decision regarding the costs of the arbitration determines the final attribution and disposal of the advance on costs.

IV. Jurisdiction of the Court

As a result of the Rules, the Court alone has jurisdiction to decide all questions relating to the advance on costs and the payment thereof. At the Court, the necessary decisions regarding the advance are made by: the legal counsel in charge of the file, the Secretary General of the Court, the Committee of the Court and the Court in plenary session. It is not generally the practice for the arbitrator and the arbitral tribunal to determine the advance on costs. However, in one recent case, the arbitrator ruled in a preliminary award that he had jurisdiction to decide on the claimant's request for the defendant to pay it half of the costs (the claimant had paid half of the total costs and had provided a bank guarantee to cover the second half). The claimant's said request was rejected, but the arbitrator had agreed to decide on the question. It seems of interest to draw attention to certain features of this decision. The arbitrator took the view that the provisions of Article 9(2) of the Rules "create a binding contractual obligation imposing on each of the parties' payment of half of the advance" and that if one party fully honours its commitments with regard to the advance, "the said contractual creditor has a right to obtain compulsory enforcement of the other party's obligation", such that "when one of the parties asserts a right that it is accorded under the Arbitration Rules before the arbitrator.." and "if the Court, devoid of decision-making power, refuses to settle this dispute, the arbitrator, on the other hand, ought not to rule that he has no jurisdiction, since he it was that the parties chose as 'judge' for settling all or any disputes between them whether relating to substantive issues or procedure". This decision deserves mention, although it is an exception to the practice applied until then. In this article it is impossible to cover all the legal problems that may ensue should this type of practice be followed. Nonetheless it must be observed that the stands taken in the decision were based on the purely contractual concept of arbitration and on the notion that all the provisions of the Rules form an integral part of the contractual relationship between the two parties. However, there is an alternative view to the effect that the provisions of the Rules relating to advances on costs correspond to general conditions for the provision of the Court's arbitration services and that these define relationships between the Court and the parties - that is with each party separately - rather than reciprocal relationships between the parties. In accordance with its Rules, the Court requires the parties to pay the advance on costs, and if the advance is not paid in full, there can be no arbitration procedure, and no decision.

It is of interest to note here a decision of the Committee of the Court which decided to approve a request for postponement of the payment, pending a decision of the English court to which the claimant had referred the matter, as to whether the defendant's failure to pay its share of the advance meant that it had waived the arbitration agreement. It must be pointed out that in this case the claimant had not asked the English court to compel the defendant to pay its share of the advance.

V. The amount of the advance

The amount of the advance is fixed by the Court. In practice, the legal counsel in charge of the file generally fixes this amount. The latter is determined in accordance with Article 5 of the Schedule of arbitration costs, by applying the percentages specified in the Scale of charges to the value of the dispute (the amount claimed by the principal claimant plus where applicable the amount of any counterclaim). The amount of any interest claimed is usually not included in the calculation, unless it represents the main share in value of the dispute. However, if a party claims a right of set-off in respect of a principal claim or counterclaim, such set-off is taken into account in calculating the advance on arbitration costs as if it were a distinct claim, where it will entail for the arbitrators examination of additional questions. In recent practice, the amount to cover administrative costs, which is due to the Court, is shown separately from the amount to cover the arbitrator's fees, plus an approximate amount to cover the arbitrators' expenses. When the amount of the advance to cover the arbitrator's fees is determined, account is generally taken of the average amount between the minimum and maximum [Page90:] specified in the scale corresponding to the value of the dispute in question. If three arbitrators are appointed, the amount concerned is multiplied by three. Moreover, each claimant's request to commence an arbitration must be accompanied by an advance payment of US$ 2,000. This sum is subsequently credited to its portion of the administrative expenses. However, if the advances are not paid, or if the claim is withdrawn, this sum will not be recoverable.

If the principal claim or counterclaim fail to specify the amount in dispute, the advance is fixed approximately, on the basis of the complexity of the case, and the final amount of the advance will be determined when the amounts of the principal claim and counterclaim are decided in the course of the procedure. Generally, this advance is fixed at US$ 100,000 for an arbitration before three arbitrators, and at US$ 50,000 for an arbitration before a sole arbitrator.

If there is a principal claim only, the amount of the advance is fixed on the basis of the amount cited in the principal claim, and the parties are asked to pay the advance in equal shares. If both a principal claim and a counterclaim have been submitted, the amounts of both are added together and the percentage rate set out in the scale of costs to the total sum is applied. It is only where one party refuses to pay its share of the advance on costs that the Court may, eventually on its own motion, or at the request of a party, fix separate advances for the principal claim and for the counterclaim. As the schedule of costs is degressive, application of separate advances on costs will usually increase the share that each party will have to expend.

The Court may modify the amount of the advance on costs while the arbitration procedure is in progress. The most common instances where such an increase is requested are as follows: when, during the procedure, the amounts of the principal claim and/or the counterclaim increase, when the complexity of the case so demands, when this is justified by certain expenses (the arbitrators' expenses, the other expenses linked to the proceedings such as an expertise ordered by the arbitral tribunal). Exceptional expenses such as video-recording or the complete transcription of the hearings are not included in the advance and thus are to be paid separately by the parties, unless the Court has expressly taken these expenses into account when fixing the amount of the advance on costs. Witnesses' expenses are generally payable by the party who called on the witnesses, unless otherwise decided by the arbitral tribunal.

VI. Payment of advances

When a joint advance is fixed, the Secretariat asks the claimant and defendant to pay it in equal shares. If there are several claimants or defendants, they will divide up their respective shares of the advance. If one party refuses to pay its share of the advance, the other party may do so in its stead. In practice, often it is the defendant who fails to pay its share of the advance and the claimant does so in its place. It does this because the procedure cannot commence until the advance has been paid. Such payment in place of the other party may take the form of a bank guarantee, provided the guarantee in question is supplied in accordance with the ICC's conditions.

The advance is paid in two instalments, as has been said earlier. The first is paid before the file is transmitted to the arbitrator or arbitrators who have to draft the Terms of Reference. The second is paid when the Terms of Reference are submitted to the Court. If this instalment has not been paid, the next stage of the arbitration procedure cannot begin, because the Terms of Reference will not become operational and the arbitrator will only be referred with those claims in respect of which the advance has been paid to the International Chamber of Commerce. Moreover, if the advances in respect of the principal claim and the counterclaim have been determined separately, the arbitrators will consider only the claim in respect of which the advance has been paid.

When the advance or part of the advance has not been paid, the Court Secretariat may lay down a time limit, which may not be less than 30 days, within which the party that has not paid its share, must make the payment in question. If the party concerned fails to make the payment, the principal claim or counterclaim to which the said advance corresponds, shall be deemed to be withdrawn, without prejudice to the right for the party who submitted the claim in question to introduce it again at a later date, in a different arbitration.

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If one of the parties pays its portion of the advance and the other does not, the party that has paid its share may require that the payment in question be refunded to it. If the first instalment of the advance has been paid and the Terms of Reference have been submitted to the Court and if, subsequently, the second instalment is not paid, the total or partial advance paid will serve to covering the costs of arbitration, whereas, if the Court so decides, part of it may be refunded.

It is interesting to cite a number of cases and decisions of the Court relating to the payment of advances. In one case dating back to 1989, the Court refused to reduce the advance to cover costs of arbitration to an amount sufficient to enable the arbitrators to rule on their own jurisdiction. In another case in 1989, the claimant requested that given its difficult economic position, Article 20 of the 1975 edition of the Internal Rules, which provides for withdrawal of claims in respect of which an advance has not been paid, should not be applied to its principal claim; the Court did not accede to this request. In a 1994 case, at the request of the principal claimant, the Court did not apply Article 15 of the Rules and did not follow the Secretariat's earlier decision because a war was being waged in the defendant's country: the case was put in abeyance. In a case dating back to 1988, the Court decided there was no ground for withdrawing the file, given that the advance had been paid in good time but had been sent to the ICC late by the institution transferring the funds. In one 1992 case, the Court decided that the defendant had no obligation to pay the advance during the period afforded to it for signing the Terms of Reference. In another case, the claimant objected to the application of Article 15 of the Internal Rules, asking for the case to be suspended while a case was pending before the state court; the Court of Arbitration granted it an extra period of 30 days for paying the advance. In a 1990 case, the Court decided that the claimant who refused to pay its share of the advance could not object to the case being withdrawn. In a case in 1992, the Court decided that given that the claimant had failed to pay its share corresponding to an increase in the advance within the time limit laid down by the Secretariat, the claims should accordingly be deemed to have been withdrawn (however, the Court took note of the agreement of the parties that the proceedings should continue). In a case in 1983, an increase in the advance had been decided and the claimant and defendant were required to pay 60% and 40% respectively; the claimant had paid its share, whereas the defendant had refused to do so, stating that the increase concerned was due to an increase in the amount of the principal claim; the Court decided that nobody had to pay the said share of the advance and that the total advance should be reduced by the amount concerned. In a case in 1991, the Court decided that the counterclaim had been withdrawn because the defendant had failed to pay the whole of the advance fixed in respect of the counterclaim but that the advance paid by the defendant could not be refunded before the end of the procedure, in other words until the costs of arbitration had been calculated.

VII. Attribution and disposal of the advance

The Court proceeds with the attribution and disposal of the advance when it approves the arbitral award. The Court determines the fees due to the arbitrator or arbitrators, verifies the expenses of the arbitrators and of the arbitration procedure, as well as the administrative costs incurred. In most cases, the whole of the advance is used for these purposes. However, in some cases, the Court decides that part of the advance - usually a modest sum - should be refunded to the parties or one of the parties, the one that had paid the advance. Moreover, in the arbitral award, the arbitrator decides which of the parties is to bear the costs of the arbitration or how the costs are to be apportioned between them.

If the advance is paid and the principal claim or counterclaim are subsequently withdrawn, or if the parties reach an agreed settlement, following the Court's decision, the advance paid shall be used to cover the costs of arbitration, and, depending on the case, part of the advance may be refunded.