Recent Developments in Arbitration - PowerPoint Presentation

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Recent Developments in Arbitration

Kamal Shah,

Partner and Head of Africa and India Groups, Stephenson Harwood LLPTunde Fagbohunlu, SAN, Head of Dispute Resolution, Aluko & Oyebode

Law Digest Conference, 3 November 2016 Slide2

Introduction

Speakers

Kamal Shah, Partner and Head of Africa and India Groups, Stephenson Harwood LLP (London)Tunde Fagbohunlu, SAN, Head of Dispute Resolution, Aluko & Oyebode

Roderick Cordara

, QC, SC, Essex Court Chambers

TopicsTax in international arbitration – international & Nigerian Third party funding – international & Nigerian Impact of Brexit on arbitration in England Cost comparisons of arbitral institutions

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I. Tax in arbitration

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Roderick cordara QC, SC

ARBITRATION

THE growing CHALLENGE OF TAX DISPUTES

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Can tax disputes be arbitrated at all?

Taxation is a public law matterIt involves the State using sovereign powerStates can

be parties to arbitration agreements – directly or via Investor State treaties

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Commercial & investor statearbitrations

In commercial arbitrations, dispute arises from a contract

A State may be a party, or one of its State Industry Entities (‘SIE’) Or no State/SIE involvement, just corporate partiesIn Investor State cases, the State is sued in arbitration by a non-State claimant for breach of treaty or customary international law (breach of contract can feature as a sub-issue)The two types of arbitration are juridically distinct

Tax issues come up in both types of arbitrationSlide7

Tax issues in commercial arbitration

Commercial contracts often have tax related clausesFor example: price formula includes a tax element

price adjustments if tax assumptions wrongtax indemnity – e.g. if tax rules changestax refunds – who gets them?

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Tax issues in commercial arbitration

Is an arbitration clause wide enough to cover a tax issue?Is tax liability a question of law or fact (including evidence of foreign tax law)?Is there a public policy objection to the tax issue being arbitrated? E.g. Uganda/Tullow

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Tax issues in commercial arbitration

A classic case: Sumitomo v ONGC [2010] INSC 560http://www.liiofindia.org/in/cases/cen/INSC/2010/560.html

- Japanese off-shore project brought into Indian tax net as 12 mile limit extended to 200 miles.- Head/contractor had to indemnify extra tax liability to India on part of nominated sub-contractor.- Sought indemnity from Indian State oil co.

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NEW YORK CONVENTION

But are tax disputes really justiciable in a commercial arbitration?

Enforcement issues too under the NYC Art 5: justiciability and public policyArt 5(2). Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:

(a) The

subject matter of the difference is not capable of settlement by arbitration under the law of that country

; or(b) The recognition or enforcement of the award would be contrary to the public policy of that countrySlide11

Investor state arbitrations

Investor State arbitrations are a huge growth area.ICSID: ‘International Convention for the Settlement of Investment Disputes’Record numbers of references this year.

Many tax-related issues arise – under treaties eg which provide for such things as tax stability clausesSlide12

Investor state arbitrations

Such arbitrations are juridically different from traditional commercial arbitrationsThey combine commercial law, public administrative law, and international law

They arise from Bilateral Investment Treaties (‘BIT’) – which can either give substantive rights, and/or give access to the applicable dispute resolution channel: ICSID, Additional Facility, UNCITRAL, etcNigeria has signed 19 BITs (11 in force)Slide13

INTERNATIAL CONVENTION ON THE SETTLEMENT OF INVESTOR DISPUTES

The main channel for Investor-State disputes is ICSID – a self-contained arbitration system, with no appeal to national courts

It has a limited internal ‘appeal’ or ‘review’ optionUnlike commercial arbitrations, these cases always have the State as a partyUnlike a tax case in Courts, it is not the taxpayer on trial, but the tax gatherer – accused of gathering tax in breach of treaties, etc.Slide14

Growth of tax-related investor-state cases

Formerly, tax matters were treated as not arbitrable –

Keugler v Poland 1930’sNow accepted that tax-related claims can be made in principle in investor-state dispute settlement [‘ISDS’]Such cases present the most complex & controversial type of ISDS challenges – both legal & political

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Tax sovereignty strongly respected

Sovereign ability of States to levy tax is strongly respected by ISDS tribunals

Tax is a core element of States’ activitiesLocal Courts & Constitution will govern taxes at domestic levelStates’ freedom to raise taxes is critical

But

sovereignty is traded when investment treaties are made – including tax raises – not always appreciated or accepted by governments

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Tax raising

ISDS tax-related issues come in many forms: New taxes – e.g. discriminatoryEnforcement of existing taxes – after tax holiday

Withdrawal of tax privileges – special dealRefusal of refunds of taxes – eg VATArbitrary enforcement – too heavy-handed

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NORMAL V ABUSIVE TAXES

General tests are difficult to applyPure expropriation (direct or indirect) is a complex and difficult claim to make re: taxAll turns on the precise wording of the treaties in question

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Treaties treat tax in many different ways

Some investment-related treaties exclude tax altogether (e.g. Belgium, Bangladesh, Luxembourg )Others do not exclude tax at all (e.g.

Germany – Somalia BIT of 1981)S Africa withdrawing from BITs generally: Protection of Investments Act 2015Many BITs tread cautiously/detailed line excluding some taxes, but not others (e.g. Energy Charter Treaty)

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What bargain has the host state made with investors?

Has tax been included (or not excluded) in the BIT? To what extent?Promise of

Fair & Equitable Treatment ‘FET’ ?Promise of Stabilisation? As at what date, and for which taxes?Promise of Most Favoured Nation ‘MFN’?Generous regime promised (but then later revoked)?

Normal

national treatment

‘NT’ promised: (but then not given)?Conduct giving rise to legitimate expectation that tax regime would not change?

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Investor strategies

Investors are now very sophisticated:

- Find favourable BIT for tax efficiency at the outset

- Restructure the group to include a company in a jurisdiction which has a favourable BIT

- Genuine claims v spurious claims to force unfair settlement from states

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Investor strategies

Mobil Corporation v. Venezuela, I (2010) - After the onset of aspects of dispute with Venezuela, Mobil restructured corporate chain to include Dutch entity and initiated arbitration based on Netherlands-Venezuela BIT - Tribunal extended BIT protection to claims arising

after the restructuring, but not to disputes that had ripened prior to the restructuring.Phoenix Action Ltd. v. Czech Republic, (2009) - Investment made for the purpose of gaining the protection of a treaty - Tribunal dismissed claim as “one of the most egregious cases of ‘treatyshopping’ that the investment arbitration community has seen in recent history

”

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Simple expropriation – a difficult claim to make

Taxes involve taking away rights (to money), without compensationSo, threshold for holding a tax to be treated as expropriatory (direct or indirect) must be set very high

See failed expropriation claims in Occidental v Ecuador, Encana v Ecuador, Feldman v Mexico, Burlington v Ecuador

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if state conduct is gross, expropriation succeeds

But in a gross case ISDS arbitrators will treat tax as expropriation (direct or indirect)E.g. Russian used its tax & judicial system to strangle the Yukos oil group and acquire it at an undervalue

Expropriation claim by investors upheld by arbitrators against Russia

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Successful strategies for investors

Investors do best when they allege breach of specific provisions in BITs, e.g.

Fair & equitable treatmentNational treatmentDiscriminationMost favoured nationThese can succeed, even where ‘pure’ expropriation fails: eg Occidental v Ecuador, Feldman v Mexico

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An example of tax and investor state: micula

Romania offered investors a special tax break regimeMicula brought investments to Romania as a resultRomania joined the EU, and had then to end the special regime since it was ‘state aid’ (impermissible State help to a company)

Micula sued Romania successfully in Investor/State arbitration for ending the special tax break regime.€ 90 million to paySlide26

Micula v romania (Cont.)

Romania was injuncted by the EU Commission when it tried to pay the AwardMicula sought to enforce under NYC in EU States, but was met with State Aid EU treatyMicula has gone to US Courts to enforce Award against Romanian assets there. EU Commission is intervening to prevent enforcement of Award against Romania.

This is the modern world of Investor State arbitration Slide27

Key Nigerian Cases

Esso Exploration and Production Nigeria Limited v NNPC (CA/A/507/2012) 22 July 2016Shell Nigeria Exploration and Production Co v Federal Inland Revenue Service (CA/A/208/2012) 31 August 2016 Slide28

Background

1993 – Deep Offshore Exploration and Production Sharing ContractsDramatis Personae

- Federal Government (MOPR, FIRS)- Nigerian National Petroleum Corporation (NNPC – State Oil Co)- ContractorSlide29

Contract Structure

NNPC – Holder of Licence/LeaseContractor – Opex/Capex [Economic Interest]

Categories of Oil Revenue- Royalty Oil (NNPC)- Cost Oil (Contractor)- Tax Oil (NNPC)- Profit Oil (Both parties according to pre-determined profit split) Slide30

Contract Structure

Contractor’s Rights- Prepares tax returns

- Prepares lifting allocationSlide31

Disputes

Dispute 1 - State Oil Co disputes principles for computing tax, adopts approach that results in higher tax 

Dispute 2 - State Oil Co prepares and submits to FIRS own version of tax returns Dispute 3 - State Oil Co lifts oil based on its own tax returns and ignores Contractors lifting allocation Slide32

Cases and Decisions

Esso Distinguishes between Dispute 1 and Disputes 2 and 3

 SNEPCO Makes no distinction Slide33

Key issues

- Contradiction between the 2 cases - Contradiction within Esso

- Uganda cases: (a) Tullow Oil v Uganda(b) Uganda Heritage case(c) Total v Uganda- Stabilisation Clauses Slide34

The future

Temptation for States is there: as oil & gas prices flounder, and public expectations on infrastructure, health care, etc rise, States must find ever more cashEnergy sector an obvious targetAlso global outrage at tax evasion is growing

With careful planning a fair balance between States and Investors can be foundSlide35

New weaponry for states?

Existing armoury is good, but is it antiquated? Revisit existing BITs to redraft them (NB if they are cancelled, they still have years to run off)Develop careful domestic fiscal strategies & narratives

Use human rights and economic-self determination arguments, especially in face of ‘unfair’ provisions

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conclusions

Tax is becoming ever more important, both as a component of commercial arbitrations and of investor state.As oil revenues decline, tax becomes ever more critical

As tax rates rise, and as long-arm tax jurisdictions spread (to catch international corporates like Apple, Google, etc.) the amounts at stake will grow and litigation will multiplyIt is an area to keep under close watchSlide37

II. Third party fundingSlide38

Historical position (1)

Third party funding (TPF) refers to any funding provided by a natural or legal person who is

not a party to the dispute but who enters into an agreement with a disputing party in order to finance part or all of the cost of the proceedings in return for remuneration, dependent on the outcome of the dispute. In practice, it is almost always funding for the claimant in arbitration.

Historically, common law rules largely proscribed such arrangements on public policy grounds through the doctrines of MAINTENANCE and CHAMPERTY:

Maintenance is the support of litigation by a third party with no legitimate interest in the proceedings. Champerty refers to the maintenance of an action in return for a share of the proceeds.

English law abolished champerty and maintenance as crimes and torts in 1967, whether in litigation or arbitration but some other common law jurisdictions continued to pay heed to them38Slide39

Historical position (2)

Partly because third-party funding (TPF) became very popular within a relatively short period of time, the international arbitration community is not yet sure about the nature of its impact and regulation has not yet caught up with it.

The only existing efforts to address issues relating to TPF include the 2014 IBA Guidelines on Conflicts of Interest and very few recent examples of International Investment Agreements.

There are currently no provisions in any national arbitration laws or arbitration rules addressing TPF in international arbitration.

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Third Party Funding – Prospects in Nigeria?

Rule 42 (a) of the Rules of Professional Conduct provides that “

A lawyer should never purchase or otherwise acquire, directly or indirectly, any interest in the subject matter of the litigation which he is conducting, but nothing herein shall prohibit a just and reasonable contingent fee contract.”

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Third Party Funding – Prospects in Nigeria?

"Maintenance may, I think, nowadays be defined as improperly stirring up litigation and strife by giving aid to one party to bring or defend a claim without just cause or excuse.

Champerty is derived from campi partitio (division of the field). It occurs when the person maintaining another stipulates for a share of the proceeds. The reason why the common law condemns champerty is because of the abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses."

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Third Party Funding – Prospects in Nigeria?

“At Common Law, Champerty is a form of maintenance an occurs when the person maintaining another stipulates for a share of the proceeds of the action or suit or other contentious proceedings where property is in dispute. An agreement by a solicitor to provide funds for litigation or without charge to conduct litigation in consideration of a share of the proceeds is champertous. The solicitor cannot recover from his client his own costs or even his out of pocket expenses.”

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Third Party Funding – Prospects in Nigeria?

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Recent Developments in Hong Kong and Singapore

Hong Kong

The question of whether champerty and maintenance principles apply to TPF of arbitration was left open by the Hong Kong Court of Final Appeal in Unruh v Seeberger [2007] HKCU 246

Following a consultation in 2015-16, the Hong Kong Law Commission recommended on 12 October 2016 changes to legislation to permit TPF of arbitration and associated proceedings in the territory

Third Party Funders will be required to adhere to a yet to be promulgated code of practice.

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Recent Developments in Hong Kong and Singapore

Singapore

TPF agreements were often held to be unenforceable, see e.g. The Law Society of Singapore v Kurubalan s/o Manickam Rengaraju 

[2013] SGHC 135; 

Otech Pakistan Pvt Ltd v Clough Engineering Ltd

 [2007] 1 SLR 989But, there is movement in a direction similar to Hong Kong: the Ministry of Law promulgated a bill in 2016 to abolish maintenance and champerty and allow third-party funding in certain categories of legal proceeding, including international arbitration, along with proposed regulations. The instruments envisage subsidiary legislation imposing conditions on funders and amendments to professional conduct rules governing lawyers in Singapore. Both the proposed bill and regulations were designated 2016, signalling they may be passed by the end of the year. 45Slide46

Recent TPF issues (2): Disclosure of Third Party funders?

There is no general requirement to disclose the existence of TPF, and there is as of yet no international consensus about whether such details should be disclosed, and if so, whether all the details of the funding arrangements can be disclosed or only certain aspects.

The IBA Rules on Conflicts of Interest (revised 2014) require the parties to disclose the existence of a TPF where there is a conflict with the arbitrator, though this does not extend to the terms of the funding agreements. The IBA Guidelines remain, however, only soft law. Standard 7(a) provides:

"A party shall inform an arbitrator, the Arbitral Tribunal, the other parties and the arbitration institution or other appointing authority (if any) of 

any relationship, direct or indirect, between the arbitrator and the party…, or between the arbitrator and any person or entity with a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration. The party shall do so on its own initiative at the earliest opportunity" (emphasis added).46Slide47

Recent TPF issues (2): Disclosure of Third Party funders? (2)

Some investment arbitration tribunals, however have ordered parties to confirm whether they have entered into a TPF:

Muhammet Cap and another v Turkmenistan (ICSID Case No ARB/12/6), (Procedural Order No. 3, June 12 2015): An ICSID tribunal ordered the claimants to confirm whether they had entered into a third party funding arrangement to finance their claims, and if so, to disclose the terms of the arrangement. This is believed to be the first time such an order has been made in ICSID arbitration. Of relevance was the respondent's argument that disclosure needed to be made to make sure there was no conflict of interest for any of the arbitrators, and that Turkmenistan was considering an application for security for costs. In addition, the tribunal took into account that the claimants had not denied that they had a third party funder.

In 

South American Silver Ltd v The Plurinational State of Bolivia

(PCA Case No 2013-15) (Procedural Order No 10, Jan 11 2016), a tribunal constituted under the UNCITRAL Rules 2010 issued a procedural order requiring the claimant to identify the name of the third party funder but not the terms of the agreement. 47Slide48

Recent TPF issues (3): Security for Costs

The balancing act here is between the claimant's interest in having access to arbitral justice against the respondent's interest in avoiding costly arbitration proceedings with no sufficient security that it would be reimbursed for its expenses in case of success.

In practice, it is often the TPF which has to pay the security in order that the claim might progress.

In general, the existence of TPF is not a decisive factor in granting security for costs, see e.g.: (a)

Euro Gas Inc. and Belmont Resources Inc. v. Slovak Republic,

 ICSID Case No. ARB/14/14; or (b) Gustav FW Hamester GmbH &Co. K.G. v. Republic of Ghana, ICSID Case No. ARB/07/24, Award, 18 Jun. 2010, where the Tribunal was concerned that 'awarding security for costs when a claimant is being funded created a risk that such order would 'stifle' the claimant's claim'48Slide49

Recent TPF issues (3): Security for Costs

RSM Production Corporation v Saint Lucia

, ICSID Case No. ARB/12/10.; it was held that 'the fact that the claimant had a bad track-record of not paying costs was enough to justify the order for security for costs…the claimant's consistent procedural history in other ICSID and non- ICSID proceedings provide compelling grounds for granting respondent's request.' This appears to have been the first order of its kind.

More recently, in

South American Silver Limited v. Bolivia

, PCA Case No. 2013- 15, Procedural Order No. 10, 11 Jan. 2016, it was held that: 'security for costs shall be granted only in case of extreme and exceptional circumstances, for example, when there is evidence of constant abuse or breach that may cause an irreparable harm if the measure is not granted,' (66, 68) echoing the the sentiments of RSM v. St. Lucia. The Tribunal went onto state that 'if the existence of TPF alone, without considering other factors, becomes determinative on granting or rejecting a request for security for costs, respondents could request and obtain the security on a systematic basis, increasing the risk of blocking potentially legitimate claims.'49Slide50

Recent TPF issues (4): Adverse Costs orders against a TPF

Some have referred to TPFs in an arbitration context as being in a 'Gambler's Nirvana' – if the claims are successful, the funders win but if a costs award is rendered against a funded party, the funders do not lose anything further themselves because they cannot be ordered to bear such costs.

The risk then is that TPFs might lend support to frivolous or exaggerated claims.

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Recent TPF issues (4): Adverse Costs orders against a TPF

Position in English law and litigation: If a claim is not successful, a TPF will generally be equally accountable to pay the defendant's costs as the claimant (see e.g.

Excalibur Ventures LLC v Texas Keystone Inc and others [2014] EWHC 3436 (Comm)).

Two factors exist to mitigate the harshness of the rule: (a) first, an 'Arkin cap' will be applied, limiting the funder's liability to the level of funding given; and (b) secondly, a funder will only be accountable for the defendant's costs that were sustained from the time of the funder's involvement.

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Recent TPF issues (4): Adverse Costs orders against a TPF

But this is not so easy in an arbitration context:

In principle, a tribunal has no personal jurisdiction over a TPF because it is not a party to the underlying dispute. While funders may be involved in the proceedings, this cannot readily be interpreted as consent to arbitrate, and therefore the tribunal has no power to make a costs order against a TPF.

There has yet to be an arbitral award ordering a third-party funder to pay adverse costs in international arbitration.

Some have brainstormed ways of getting around the problem – e.g.: (a) providing a clause in the arbitration agreement that a party must disclose that it is using a funder; (b) requiring the funded party to secure some sort of security to cover the costs should it lose the case; or (c) allowing the parties to agree in advance to the arbitrator having the authority to issue a costs order against a TPF.

But none of these suggestions have been applied in arbitration.52Slide53

Recent TPF Issues (5): Costs of TPF recoverable?

In 

Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm), the English Commercial Court dismissed a challenge under s.68(2)(b) Arbitration Act 1996 and held that a sole arbitrator's general power to award costs included the power to award the costs of third party funding.

This appears to be the first such reported case where the costs of third party funding have been recovered from the other side.

In the Award, the arbitrator found that Essar was liable to Norscot for some US$4m in costs awarded on an indemnity basis. The TPF had provided funding of £647,000, in exchange for an uplift of either 300% of the funding or 35% of the damages recovered, whichever was greater. Norscot was able to recover the £1.94 million (i.e. the 300% uplift) from Essar.

The arbitrator based his decision on the conduct of Essar, in holding that Essar had sought to cripple Norscot financially, and this meant the latter had no alternative but to seek TPF. 53Slide54

Recent TPF Issues (5): Costs of TPF recoverable?

In two ICSID cases, a similar conclusion was reached:

an ICSID ad hoc committee dismissed an argument that the successful party should not be awarded costs in respect of its legal fees, on the basis that those legal fees had allegedly been met by an undisclosed third party (RSM Production Corporation v Granada

 (2010, ICSID Case No ARB/05/14) at [68])

The committee concurred with an earlier ICSID tribunal which stated that it knew "

of no principle why any … third-party financing arrangement should be taken into consideration in determining the amount of recovery" of the costs incurred in the arbitration (Ioannis Kardassopoulos and Ron Fuchs v Georgia (2007, ICSID Case Nos ARB/05/18 and ARB/07/15), at [691]).54Slide55

Recent TPF Issues : Conclusions

This is a very fresh and controversial area

Many questions are unanswered:Should TPFs be enforced, or disclosed?

Should funders be made to pay if their side loses?

Should losers reimburse funders' costs?

How can arbitration cope with such a phenomenon?We can only be sure that this will run for a long time to come…55Slide56

III. Impact of Brexit on arbitration in EnglandSlide57

No immediate impact

June 2016 – simple majority voted in favour of leaving the European Union.

New course for the UK in law, politics and economics – domestically, regionally and internationally.New relationship with EU – could take years to negotiate.

In the interim – uncertainty and speculation, both in the UK and abroad.

Any immediate impact in UK? No.

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No immediate impact – Why not?

Arbitration (domestic/international) never been regulated or harmonised at the EU level. The Brussels Convention, which later evolved into the Brussels I Regulation and finally the Brussels I Recast, all exclude arbitration from their scope of application.

Enforcement remains the same – New York Convention, even within the EU.

England is and will remain very popular worldwide as a seat for arbitration (i.e. London) – Russians, Far East, Africa.

ADB research – 90% plus Foreign Party/African Party contracts under English law. England will be seat of arbitration in a significant number of those.

History – common law, fairness, efficiency, unbiased, etc.London arguably has the perfect mix of ingredients to continue its appeal as a seat of choice.58Slide59

Possible effects in due course

Case law of the EU Court of Justice has developed principles that impact on the practice of international arbitration in EU countries:

Prohibition on EU Member States from ordering anti-suit injunctions directed at proceedings pending before another EU Member Court, even where

those are brought in breach of an arbitration agreement (Allianz SpA & Others v West Tankers Inc of 2009).

Post Brexit, when it happens, anti-suit injunctions

will be available in the English courts.The duty for EU Member States courts to set aside or refuse to enforce an arbitral award that would be contrary to certain mandatory norms of EU Law.59Slide60

Possible effects in due course

Post Brexit, the English courts (like the Swiss) will not be bound to sanction an arbitration award that is contrary to EU law; EU public policy will no longer form part of English public policy for the purposes of Article V of the New York Convention.

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Changes in investor–state arbitration

It is possible this area will experience significant changes.

By leaving EU means leaving the EU Common trade and investment policy.

This has considerable impact on the legal framework for investor state arbitration involving EU Member States or EU investors.

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Changes in investor – state arbitration

Two areas where there is bound to be change for the UK:

Bilateral Investment Treaties between two EU Member States became unlawful under EU law and are gradually being repealed. A direct consequence is the unavailability of investor state arbitration in intra-EU investor state disputes. Post Brexit, “intra-EU” BITs to which the UK is a party will become “extra-EU” BITs and will

no longer

be unlawful under EU law. UK investors will have access to investor-state arbitration in the EU and vice versa.

Secondly, the negotiation of free trade and investment agreements between the EU and third countries (e.g. Singapore), will no longer be made on UK’s behalf. Therefore (a) pre-existing BITs between the UK and these countries will survive and (b) the UK will have to negotiate its own deal with these countries if it does not already have agreement in place.62Slide63

What else will Brexit hold for arbitration?

Anybody’s guess…

Uncertainty and speculation for sure.Unlikely overall to be significantly detrimental for UK’s position as a major arbitral centre.

More likely to boost UK’s position in due course.

Slowly developing situation.

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IV. Costs comparisons of arbitral institutionsSlide65

Arbitration Costs compared

In an article in GAR published in 2011 we compared the costs of arbitrating at eight of the most popular commercial arbitration institutions. In 2013, we added another two. This year we will look at around the same.

The rationale underlying this is that while limiting legal costs is usually one of the first concerns of anyone involved in a legal dispute, little consideration is given to the costs of arbitration when an arbitration clause is drawn up and the administering institution selected. This may, in part, be because arbitration clauses are discussed at the very last stages of contract negotiations, earning them the well-known nickname “midnight clauses”.

Copies of the 2013 article are provided, but it will be updated shortly so please email me if you want a copy of the new article.

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Arbitration Costs compared

Two caveats need to be made:

Currencies fluctuate – not all the institutions use the US dollar, the currency which we have chosen for our comparison. All non-US dollar amounts have therefore been converted to US dollars at exchange rates indicated below the detailed tables of results (and the results have been rounded where appropriate)

The research is based on information found in the institutions’ arbitration rules, fees schedules and websites, as well as that provided by the secretariat and known common practice. We have not taken into account some anecdotal practices that go on at certain institutions, such as allowing the parties or tribunal to negotiate lower or higher fees.

The research will, we hope, be of interest to practitioners, their clients and arbitrators, and keep them aware of the important cost-related questions they need to consider when choosing arbitral institutions.

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Arbitration Costs

Subject to the specifics of each institution, arbitration fees are generally comprised of:

The registration fees, which are sometimes payable by both claimant and counter-claimant, if there is one, and may or may not be counted towards the administrative costs by the institution;

The

administrative costs

, which are the fees charged by the institution to run and manage the case, and which are often, but not always, capped. Most, but not all, institutions calculate administrative costs by reference to a formula or scale which usually follows the model in the example below; andThe arbitrators’ fees, which are the remuneration of the sole arbitrator or the arbitral tribunal. Most, but not all, institutions calculate arbitrator’s fees by reference to a formula or scale which usually follows the model in the example below.67Slide68

Costs compared

Arbitration Centre

Acronym

China International Economic and Trade Arbitration Commission

CIETAC

The Cairo Regional Centre for International Commercial Arbitration

CRCICA

Dubai

International Arbitration Centre

DIAC

Hong Kong International Arbitration Centre

HKIAC

International Commercial

Arbitration Court at the Russian Federation Chamber of Commerce and Industry

ICAC Russia

International Chamber of Commerce

ICC

London Court of International Arbitration

LCIA

Russian

Arbitration Association

RAA

Swiss Chambers’ Arbitration Institution

SCAI

The

Arbitration Institute of the Stockholm Chamber of Commerce

SCC

Singapore

International Arbitration Centre

SIAC

Vienna

International Arbitral Centre

VIACSlide69

US$100,000

Arbitration

Centre

1 Arbitrator (average) fee + admin costs in US$

Arbitration Centre

3 Arbitrators (average

) fee + admin costs in US$

CRCICA

3,500

CIETAC

5,599

ICAC Russia

3,500

CRCICA

6,500

CIETAC

5,599

RAA

11,550

RAA

7,000

ICAC Russia

17,760

DIAC

9,387

VIAC

20,702

VIAC

10,320

DIAC

22,760

SIAC

11,983

SCC

24,033

SCAI

12,839

SCAI

24,839

SCC

13,349

SIAC

29,711

HKIAC

14,732

ICC

35,544

ICC

15,425

HKIAC

35,764

LCIA

33,113Slide70

US$1 million

Arbitration

Centre

1 Arbitrator (average) fee + admin costs in US$

Arbitration Centre

3 Arbitrators (average

) fee + admin costs in US$

CRCICA

14,000

CIETAC

28,595

ICAC Russia

24,480

CRCICA

30,000

RAA

24,900

RAA

40,500

CIETAC

28,595

ICAC Russia

48,960

DIAC

39,683

SCC

81,818

SCC

45,647

VIAC

94,160

VIAC

46,839

DIAC

97,449

SIAC

51,953

LCIA

≈102,484

SCAI

60,081

SIAC

136,272

ICC

61,094

ICC

139,851

HKIAC

62,037

SCAI

142,944

HKIAC

164,062Slide71

US$10 million

Arbitration

Centre

1 Arbitrator (average) fee + admin costs in US$

Arbitration Centre

3 Arbitrators (average

) fee + admin costs in US$

RAA

52,900

RAA

93,200

ICAC Russia

59,680

CIETAC

111,581

LCIA

≈99,002

ICAC Russia

119,360

CRCICA

103,701

SCC

219,475

DIAC

105,887

VIAC

256,495

CIETAC

111,581

CRCICA

263,103

SCC

118,937

DIAC

263,661

VIAC

120,044

SIAC

329,563

SIAC

126,321

ICC

397,366

HKIAC

149,658

HKIAC

398,070

ICC

170,798

SCAI

412,527

SCAI

180,882

LCIA

482,697Slide72

US$100 million

Arbitration

Centre

1 Arbitrator (average) fee + admin costs in US$

Arbitration Centre

3 Arbitrators (average

) fee + admin costs in US$

RAA

106,900

RAA

180,350

ICAC Russia

146,080

ICAC Russia

299,360

CRCICA

202,851

SCC

410,793

SCC

221,586

CRCICA

506,553

DIAC

221,805

DIAC

519,615

VIAC

253,547

CIETAC

542,777

SIAC

273,635

VIAC

571,700

ICC

313,799

LCIA

≈639,520

HKIAC

318,148

SIAC

706,935

SCAI

375,376

ICC

742,966

CIETAC

542,777

SCAI

846,022

HKIAC

849,154Slide73

US$1 billion

Arbitration

Centre

1 Arbitrator (average) fee + admin costs in US$

Arbitration Centre

3 Arbitrators (average

) fee + admin costs in US$

RAA

241,900

RAA

432,350

VIAC

399,106

VIAC

893,214

CRCICA

425,601

CRCICA

1,174,803

DIAC

444,758

DIAC

1,188,473

ICC

590,798

LCIA

≈1,206,080

SIAC

599,927

ICC

1,545,966

SCAI

737,849

SIAC

1,685,811

ICAC Russia

1,010,080

SCAI

1,751,075

HKIAC

1,675,096

ICAC Russia

2,099,360

CIETAC

2,400,870

CIETAC

2,400,870

HKIAC

4,920,000Slide74

Kamal Shah

Partner

T: +44 20 7809 2301M: +44 7958 272 742E: kamal.shah@shlegal.comContact

Tunde Fagbohunlu, SAN

Partner

E: Tunde.Fagbohunlu@aluko-oyebode.com