In Re (#06 June 2013)

How Much does Arbitration Cost?

Yaroslav A. Petrov, Oksana V. Varakina

It is an accepted fact that international arbitration costs are much higher than litigation costs, notwithstanding that international arbitration is much more suitable for resolution of disputes arising from international transactions. To avoid unreasonable expenses in the course of arbitration the parties should assess and consider potential costs of arbitration at the contract’s negotiation stage. For example, sometimes in sale contracts, where the price of the goods does not exceed USD 30,000-40,000, parties include arbitration clauses with a reference to the Rules of a rather expensive arbitration institute. In such case, there is a risk that costs of a potential arbitration will exceed the value of the contract itself. Consequently, it is advisable for low price contracts to choose an arbitration institution with moderate arbitration costs.

Generally, arbitration costs include: (i) a registration fee and administrative fee of the arbitral institution; (ii) arbitrators’ fees; and (iii) expenses of counsels, witness experts, etc. In this article we would like to provide the comparative analysis of arbitration costs of the institutions, which are considered to be the most popular in Ukraine. In particular, we analysed arbitration costs under the arbitration Rules of: (1) the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (ICAC in Kiev), (2) the International Commercial Arbitration Court of the Chamber of Commerce and Industry of the Russian Federation (ICAC in Moscow), (3) Vienna International Arbitration Centre (VIAC), (4) Arbitration Institute of Stockholm Chamber of Commerce (SCC), (5) International Court of Arbitration of the International Chamber of Commerce (ICC); and (6)  London Court of International Arbitration (LCIA). We limited our comparison only to administrative and arbitrators’ fees of the mentioned arbitration institutions.

Apart from LCIA all of the above listed institutions estimate arbitration costs on an ad valorem basis, i.e. based on the amount in the dispute (both the amount of the claim and any counterclaim). For purposes of arbitration costs calculation those institutions use a formula. According to the formula the arbitration costs is a sum of the fixed fee, which varies depending on the amount of monetary claims, and a fixed percentage, which also varies depending on the amount of the monetary claims.  The formula does not calculate expenses of parties’ counsels, witness experts and other disbursements.

For the purpose of the analysis we have compared arbitration costs for 3 types of monetary claims, in particular (i) the relief sought in the amount of USD 50,000 where the dispute is resolved by a sole arbitrator; (ii) the relief sought in the amount of USD 500,000 with 3 members tribunal: and (iii) the claim of USD 5,000,000 with 3 members tribunal. A summary of this comparison is presented in the table below.

ICAC in Kiev

Together with filing a statement of claim to the ICAC in Kiev a claimant pays a registration fee in the amount of USD 600. The registration fee is not refundable and is credited towards the administrative fee. The arbitration fee which includes both administrative and arbitrators’ fees is calculated by applying a formula included in the Schedule on Arbitration Fees and Costs. The minimum arbitration fee for non-property claims is USD 1,800 and the maximum fee is not capped.

It is important to note that if the dispute is heard by a sole arbitrator the amount of the arbitration fee shall be reduced by 20%.

Based on our calculation arbitration costs for the relief sought in the amount of USD 50,000 would be USD 3,360, for the relief sought in the amount of USD 500,000 — USD 15,200, and for the relief sought in the amount of USD 5,000,000 — USD 40,200.

ICAC in Moscow

The registration fee payable with the submission of the statement of claim or an application for interim measures amounts to USD 1,000 and is credited towards the administrative fee. Similarly to ICAC in Kiev, arbitration costs under the Rules of ICAC in Moscow are calculated applying a formula. Additionally, the same rule applies if the dispute is heard by a sole arbitrator — the amount of the arbitration fee is reduced by 20%.

The website of ICAC in Moscow contains a cost calculator. It is noteworthy that the cost calculator does not take into account the above mentioned discount of 20%, therefore the user should make further calculations manually.

Arbitration costs for the relief sought in the amount of USD 50,000 would be USD 5,280, for the relief sought in the amount of USD 500,000 — USD 23,600, and for the relief sought in the amount of USD 5,000,000 — USD 54,600.

VIAC

VIAC calculates arbitration costs in Euro. The registration fee in the amount of EUR 2,000 (USD 2,580) is payable upon filing of the claim and is credited towards the administrative fees. The arbitration costs are calculated in accordance with the formula stipulated in the Schedule of Arbitration Costs. The rates listed in the Schedule are those for sole arbitrators. They shall be multiplied by 2.5 when a three-person tribunal is used or by up to 3 if the case presents a particular difficulty. It is worth mentioning that the VIAC Rules do not clarify the criteria for the difficulty of the case.

If there are more than two parties to the proceedings, the rates for registration, administrative and arbitrators’ fees shall be increased by 10% for each additional party.

The administrative and arbitrators’ fees for the relief sought in the amount of USD 50,000 would be USD 6,870; for the relief sought in the amount of USD 500,000 — from USD 52,360 to USD 61,185 and  for the relief sought in the amount of USD 5 million — from USD 175,691 to USD 206,480.

SCC

SCC calculates arbitration costs in Euro. The registration fee in the amount of EUR 2,000 (USD 2,580) is payable upon filing of the Request for Arbitration and is credited towards the administrative fee. The formula for calculation of arbitration costs is provided for in the Schedule of Costs. The arbitrators’ fees are calculated in a range from minimum to maximum.

The administrative fee is limited to EUR 60,000 (USD 77,400).The arbitrators’ fees are not capped, but if the amount of the dispute exceeds EUR 100 million (USD 128,879,930), the arbitrators’ fees are determined by the Board of the SCC.

Arbitration costs for the relief sought in the amount of USD 50,000 varies from USD 7,605 to USD 13,605; for the relief sought in the amount of USD 500,000 — from USD 38,387 to USD 90,893; and for the relief sought in the amount of USD 5 million — from USD 111,730  to USD 288,310. None of the amounts include VAT.

ICC

The filing fee in ICC is USD 3,000 which is paid upon filing of the Request for Arbitration. The registration fee is not refundable and is credited towards the administrative fee.

The fees payable to the arbitral institution are stipulated in the Schedule of Arbitration Costs and Fees. The administrative fees are calculated on the basis of a formula. Arbitrators’ fees are not capped, while administrative costs are limited to USD 113,215 when the amount in dispute exceeds USD 500 million.

For a three-member tribunal, ICC multiplies a sole arbitrator’s remuneration by 3. The rules of the ICC provide no clearance on the allocation of the tribunal’s fees between the chairman and co-arbitrators.

The arbitration fee for the relief sought in the amount of USD 50,000 would be from USD 6,000 to USD 12,010; for the relief sought in the amount of USD 500,000 — from USD 42,495 to USD 146,135; and for the relief sought in the amount of USD 5 million — from USD 135,045 to USD 470,715.

LCIA

LCIA arbitration costs are not attached to the amount in dispute due to the LCIA’s view that a very substantial monetary claim (and/or counterclaim) does not necessarily imply a technically or legally complicated case. The arbitration costs should, therefore, be based on the amount of time actually spent by administrator and arbitrators alike.

A non-refundable registration fee is payable upon filing the Request for Arbitration and amounts to GBP 1,750 (USD 2,666). Thereafter, hourly rates are applied by LCIA and its arbitrators. LCIA sets a maximum hourly rate, at or below which the arbitrators it appoints must (other than in exceptional cases) set their fees.

The arbitrators’ fees are fixed at GBP 450 (USD 686) per hour maximum. However, the hourly rate may be higher at the recommendation of the Registrar or if the parties so agree.

The administrative charges are the following: GBP 225 (USD 343) per hour spent by the Registrar, Deputy Registrar or Counsel and GBP 100 (USD 152) or GBP 150 (USD 229) per hour for other personnel.

The parties may call for financial summaries at any time to keep track of costs. Every payment on account of arbitrators’ fees will be notified in advance and accounted for on disbursement. To conclude, while it can be difficult to assess in advance what the amount of a dispute will be, the parties should have regard to which institution the dispute should be given for consideration in order not to face a situation when the expenses for international arbitration have exceeded the amount of the claim. Therefore, not only should the reputation, rules and seat of arbitration be taken into account, but the cost efficiency as well.

Comparative chart for 5 analyzed arbitral institutions

Institution / claim

USD 50,000
(sole arbitrator)

USD 500,000
(3 arbitrators)

USD 5 million
(3 arbitrators)

ICAC in Kiev

USD 3,360
(20% discount applied)

USD 15,200

USD 45,200

ICAC in Moscow

USD 5,280
(20% discount applied)

USD 23,600

USD 54,600

VIAC

USD 6,870

from USD 52,360 to USD 61,185

from USD 175,691 to USD 206,480

SCC

from USD 7,605 to USD 13,605

from USD 38,387 to USD 90,893

From USD 111,730 to USD 288,310

ICC

from USD 6,000 to USD 12,010

from USD 42,495 to USD 146,135

from USD 135,045 to USD 470,715

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