Costs of arbitration / Amounts claimed for legal costs must be reasonable / Fees and expenses of law firms not accepted if explanation of the work performed and its relevance to the case is not given / In-house legal costs may form part of a party's normal legal costs even where outside counsel has been retained / However substantiation of costs incurred in-house is required with respect to the nature of costs, the personnel involved and the work performed / Apportionment of costs

'Each party claims that the cost of the arbitration be awarded against the other. In addition, the Claimants seek an award specifically on the costs of proceedings on the issue of jurisdiction with respect to Claimant 2.

The costs and fees of the Arbitral Tribunal and the administrative costs of the International Court of Arbitration have been fixed by this Court in the amount of US$ . . .

The Parties have specified as follows their claims for normal legal costs under Article 20(2) of the ICC Arbitration Rules:

The Claimants, in addition to their payments to the ICC which shall be considered separately, seek compensation for the following external costs:

a) fees and expenses of their lead counsel US$ 862,150

b) fees and expenses of co-counsel in Mexico City US$ 17,713

c) fees and expenses of expert witnesses US$ 76,465

d) miscellaneous expenses US$ 41,097

Total US$ 997,425

The Defendant, while objecting to any award of fees or disbursements to either of the Claimants, informed the Arbitral Tribunal that it had no objection to the detail of fees or disbursements by the Claimants.

The Arbitral Tribunal therefore accepts the amount specified as the Claimants' normal legal costs.

The Defendant seeks compensation for the following external costs:

a) fees and expenses of their lead counsel US$ 617,367

b) fees and expenses of co-counsel in Mexico City:

- Counsel X US$ 39,326

- Counsel Y US$ 2,562

c) fees and expenses of other counsel

- K in Paris US$ 24,585

- R in Perth US$ 0,245

d) fees and expenses for various expert and other services in a total of US$ 197,575

Total US$ 881,660

The Claimants raise the following objections to the following heads of this claim:

The claims concerning Defendant's lead counsel: The Claimants do not challenge that the claimed amount was expended but, for their evaluation of the claim's reasonableness, they require a breakdown of fees and expenses, a breakdown of the type of expenses and an identification of the relevant time periods. The Arbitral Tribunal accepts that the details required by the Claimants would have been useful. However, in view of the amount of work required from both Parties' counsel and bearing in mind the substantially higher amount spent by the Claimants on their own lead counsel, the Arbitral Tribunal considers the amount claimed by the Defendant as reasonable.

The claims concerning Counsel in Paris and Perth: The Claimants point out that there was no indication that either of the two law firms participated in the arbitration. The Defendant replied by merely stating that "these firms were consulted in the ordinary course of the preparation of Defendant's case for presentation to the Tribunal". The Arbitral Tribunal has seen in this case no reference to work by law firms in France and Australia. In the absence of any explanations by the Defendant on the nature of the work performed and its relevance to the case, the Arbitral Tribunal is unable to accept this head of the claim as part of the Defendant's normal legal costs.

The Defendant's normal legal costs therefore are fixed at US$ 856,831.

The Defendant also claims US$ 109,907 for in-house legal services and disbursements. No explanation is provided concerning the manner in which this head of the claim has been calculated. The Claimants object to this head of the claim since, in their view, such costs are not part of "normal legal costs" as understood by Article 20 of the ICC Arbitration Rules. In case such costs were admitted in principle, they claim US$ 97,747 on these grounds. In support, they submit a table showing totals of hours per month and apply a rate of US$ 54.20 to these hours.

In the Arbitral Tribunal's view in-house legal costs may well form part of a party's normal legal cost 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 in principle 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.

Concerning the costs of proceedings on jurisdiction, the Arbitral Tribunal notes that, in view of the manner in which the Arbitration Clause was drafted, the challenge to jurisdiction over Claimant 2 was not altogether unfounded. The challenge was withdrawn by the Defendant at an early stage of the proceedings in its Opening Memorial.

Therefore, the Arbitral Tribunal decides not to consider separately the costs on the issue of jurisdiction.

Concerning responsibility for the costs of this arbitration, the Arbitral Tribunal notes that, on the central issue of this dispute, viz Claimant's justification for stopping work, the case was decided in favour of the Defendant. It also notes that only a small fraction of the Claimant's claims were awarded.

On the other hand, the Defendant's Counterclaim also had to be reduced substantially. However, the considerations leading to this reduction, compared to those relating to the central issue in this dispute, required relatively less time and effort of the Parties and the Tribunal and therefore played only a secondary role as a source of costs of the arbitration.

On the basis of these considerations, the Arbitral Tribunal decides that the Claimants must bear 75% and the Defendant 25% of the arbitration costs.

Consequently, the amounts due with respect to the cost of this arbitration are as follows:

Concerning the costs and fees of the Arbitral Tribunal and the administrative costs, both Parties have made advance payments in the amount of US$ 156,000 each. The Claimants must reimburse to the Defendant 50% of its advance payments, i.e. US$ 78,000.

With respect to the Parties legal costs

a) the Claimants owe to the Defendant 75% of US$ 856,831, i.e. US$ 642,623

b) the Defendant owes to the Claimants 25% of US$ 997,424, i.e. US$ 249,356

on balance the Claimants must pay to the Defendant US$ 393,267'