Arbitration costs / Article 20(1) and (2) of the ICC Rules / Wide discretion of arbitrators in allocation of costs / In principle, a party is entitled to costs billed to and paid by an indemnifier / Consideration of the parties' behaviour before and during the arbitration proceeding

'Article 20(2) of the ICC Rules of Arbitration provides that the costs of the arbitration include the arbitrator's fees and the administrative costs fixed by the International Court of Arbitration in accordance with the scale annexed to the Rules, the expenses, if any, of the arbitrator, the fees and expenses of any experts, and the normal legal costs incurred by the parties.

The International Court of Arbitration has fixed its administrative costs and the arbitrator's fees and expenses at $ 18,000. No expert's fees and expenses have been claimed by any party. As for the normal legal costs incurred by the parties, Claimant has claimed $ 24,059 supported by invoices. The Defendants have claimed, it seems, a total of $ 17,908 of which $ 4,842 was billed to XX as indemnifier by [law firm A], and 13,066 was billed by [law firm B] although its actual fees and costs were apparently $ 29,866, a shortfall of $ 16,800. All of these charges are also supported by invoices.

The legal costs of the parties (taking into account [law firm B]'s unbilled fees) are comparable in magnitude, and while they may seem high in relation to the amount in dispute and to the amount ultimately awarded, neither party saw fit to dispute them, nor will I.

Article 20(1) of the ICC Rules allows the arbitrator wide discretion in allocating the costs. The award may decide which party . . . shall bear the costs in their entirety, or decide that the costs shall be allocated among the parties in different proportions. The arbitrator is given complete discretion to allocate the costs as he sees fit, and in this respect, he may look not only to the result on the merits, but also to the conduct of the parties in relation to the dispute, since they may in certain circumstances have needlessly caused the costs to increase. In most cases, however, unless his behaviour presents a mitigating factor in favour of the losing party, the winner should have full costs. It is, after all, the loser who occasioned the costs by unjustifiably bringing an arbitral claim or unjustifiably contesting it.

In the present case there is an interesting question as to whether Defendants are entitled to claim and be awarded costs, which were billed to and paid by an indemnifier. I believe that they are, at least from the point that Defendants rather than the [indemnifier], mandated counsel to represent them in the arbitration. By so doing, they incurred the primary obligation to pay such counsel's fees and expenses-one not negated by the fact that someone else, through prior arrangement, paid them on their behalf. The counterpart to this determination is that Defendants would be obliged to reimburse their indemnifier any costs they recovered from the arbitration. The above is merely a personal aside generated by a response to the technical challenge posed by the desire to achieve the equitable result of allowing some possibility for an indemnifier to recover arbitral costs which he has financed, even though the indemnifier has no standing in the arbitration.

In the result, however, I award all costs to Claimant, since Defendant's comportment both before and during the arbitration proceeding leads me to no other conclusion. As I noted above in relation to the determination of the beginning date for the calculation of interest on the award, Defendants unjustifiably denied liability for their termination of the contract, and acted accordingly, when it might have been more understandable and fruitful to enter upon discussions with Claimant with a view to compensating it for its loss on some realistic basis.

Claimant's behaviour on the other hand presents no factor to reduce the award of costs in its favour. It spent many months attempting to recover its damages through negotiation before beginning the arbitration. While it claimed more than the amount which I have concluded it is entitled to, it was justified in its central complaint of breach and the nature of the damages to which that breach gave rise. The amount by which the claim exceeded the award was demonstrative neither of bad faith nor abuse of process; nor did Claimant necessitate consideration of new or unduly complicated matters of proof by asking for more than it shall receive.'