20 January 1995, Geneva, Switzerland
Commentary: The Arbitral Decision: Fees and Costs
by Stephen R. Bond
White & Case, Paris
We have seen that, fortunately, Francis Gurry is an extremely intelligent man with a lot of intestinal fortitude, because there is no more thankless task in the world than deciding on arbitrators fees. You make absolutely no friends and you probably will lose some; this comes with the territory and, speaking of territory, the Swiss arbitration community is not disinterested in the subject of arbitrators fees.
Regarding the different possible systems for deciding on fees, I would agree that the merits of the ad valorem system outweigh those of an hourly rate. Werner Melis is certainly right when he says that there is no perfect system, but I believe that the advantages of the ad valorem system, such as predictability, are decisive. Also, the possible abuses of an hourly rate are greater than those of an ad valorem system. For example, I can recall that, when I was at the ICC, every once in a while a telefax that one arbitrator was sending to another would be misdirected to the ICC. The telefax would say something along the lines of "I am thinking of claiming that I worked for 150 hours, how many are you going to claim?" Of course, arbitration centers cannot verify the hours actually worked by arbitrators or their efficiency in the way that clients can verify that a lawyer has well spent the hours for which he or she seeks payments.
It has been mentioned that an arbitration center acts as a buffer between the arbitral tribunal and the parties. Without such a buffer, some arbitrators, on occasion, put the parties in a position where the arbitrators make it clear that they expect to get a certain amount per hour. In such a situation, no party, no matter how powerful, is going to argue with the arbitrators at the beginning of a case as to their remuneration. That an arbitral center acts as a buffer is extremely important in preventing such abuses. My one regret in this regard is that Article 69(b) of the Rules allows the arbitrators and the parties to agree upon a fee system other than that set out in the fee schedule. Thus, arbitrators may, on occasion, claim that the parties have "agreed" to another system for fees. However, if you ever talk to the parties after the fact, they will say that they had no choice. Such abuses are to be watched for and, in my view, arbitrators who act in such a manner should not be appointed again.
Regarding Gerold Herrmanns remark about releasing the award to the parties before the deposit has been paid, you will find that unexpected charges fairly often arise close to the end of an arbitration, such as for hearing transcripts, where tens of thousands of dollars of costs arise which were not provided for in the deposit. The award then comes in and the arbitration center does not have enough money to pay the arbitrators what they have fairly earned. Therefore, I think it is preferable not to release the award until the Center first assures that it has enough money to pay all outstanding costs as well as the fees due to the arbitrators. It is uncontestable that, once the award is released, the arbitration center no longer has the "leverage" to oblige the parties to pay additional sums for the costs of the arbitration.
The Rules (Article 71) specify that the costs are allocated in the award. The ICC Rules provide that the costs can only be allocated between the parties in the final award. However, I see certain advantages in allowing the arbitrators to allocate costs in a partial award. For example, if a party knew in advance that a frivolous objection to jurisdiction would result in an award which not only maintained jurisdiction but also assessed the costs for the award on jurisdiction against the party that raised the frivolous objection, this might help diminish such time-consuming and costly objections. It is not clear to me from the Rules whether costs can be assessed in a partial award.
Article 70(e) of the Rules provides sanctions against a party which fails to pay the required deposit within 15 days after a second notice to do so. However, parties or governments from developing countries will often require, in good faith, a substantial amount of time in order to find the money, get the proper exchange control approval and the like. An automatic rule that cuts off the claim might be too inflexible, depending on who the parties are.
Regarding Marc Blessings story about the ICC not being aware of how much work the arbitrators had done when fees were decided upon, I do not know the particular instance discussed. The example, however, brings to mind that the Rules apparently do not require that all of the documents in a case be sent to the Center. There are advantages to having all of the documents filed in an arbitration being sent to the Center, which could, then, have a basis to know the extent of work that the arbitral tribunal necessarily undertook. Having all the documents also permits the Center to act as a depositary of these documents in each case. Sometimes you will find that, even five or ten years later, a party, for various reasons, will need certain of these documents. This is one of the very useful functions that a permanent arbitration center can serve, as opposed to ad hoc arbitration. I would suggest that the Center try to gather all of the documents in each particular case.
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