Costs in PCA Dispute Settlement

Arbitration is, at heart, a form of dispute resolution driven by the parties themselves. Its principal aspect is flexibility, and many of the advantages of arbitration stem from the parties’ ability to utilize that flexibility to tailor proceedings to the needs of their particular dispute.

The party-driven nature of arbitration also means that, generally, the costs of the proceedings are borne by the parties themselves. Costs, however, are also a matter that can and should be tailored to the circumstances of a particular case. Where appropriate, arbitration can take an expedited, low-cost form, with limited procedure, that may not be possible within an established judicial infrastructure. Conversely, where more intensive proceedings are required, party funding may enable  a schedule and procedures, such as experts and in-person site visits, that would be beyond the resources of a judicial entity operating within the constraints of a fixed budget. In either circumstance, States and other parties in PCA proceedings are understandably, and quite correctly, concerned about efficiency and that the costs of proceedings do not become excessive.

Multiple studies of international commercial arbitration and investor-State dispute settlement indicate that the fees and expenses of the tribunal and the costs of an administering institution generally amount to only 10 to 15 percent of the total costs of arbitration. The parties’ own costs (counsel fees and expenses, and the costs associated with witness and expert evidence) constitute the substantial majority, at 85 to 90 percent of total costs. Accordingly, although parties in arbitration must bear the costs of the tribunal, there is scope for efficient proceedings to reduce the parties’ own costs by an even larger amount.

Efficient Proceedings

Efficiency is principally a matter of tailoring the proceedings to address the issues that are actually dispositive to the resolution of the parties’ dispute, while avoiding unnecessary diversions. The selection of arbitrators with strong case management skills, able to direct the parties appropriately while still allowing each side to present its case, can contribute significantly to procedural efficiency. Condensed proceedings, with limited written submissions, restrictions on document production, and decisions rendered within a few weeks of the end of a hearing can dramatically reduce overall costs. In two review panel procedures pursuant to the Convention on the Conservation and Management of High Seas Fishery Resources in the South Pacific Ocean, the PCA convened multi-State proceedings that were concluded in each instance within three months, at minimal cost. Open communication between parties and the tribunal and clear expectations and priorities are essential to ensure that proceedings are conducted in a way that meets the circumstances and needs of a particular dispute.

There are also a number of steps that parties to an arbitration may take to reduce the costs associated with the tribunal itself. As an initial matter, the involvement of the PCA in the administration of the proceedings is itself a cost-saving measure. The primary purpose of PCA administration is to reduce the costs that would otherwise be incurred by the tribunal carrying out administrative tasks. The involvement of the PCA also gives parties access to hearing facilities, available free of charge, at the Peace Palace and other venues around the world pursuant to the PCA’s host country and cooperation agreements. While  it is possible to conduct a major international arbitration on a purely ad hoc basis, without the involvement of an institution,  it will rarely be cost-effective to do so.

Where appropriate, parties may seek to agree with prospective arbitrators, in advance of appointment, on the application of a flat fee or an hourly rate considered appropriate by the parties. In cases with a public interest and significant costs constraints, the PCA has successfully worked with parties to identify arbitrators willing to act at a discount to their usual fee or even on a pro bono basis (i.e., at no cost). Parties may also consider reducing the number of arbitrators or agreeing to the appointment of a sole arbitrator. In the Duzgit Integrity Arbitration, for instance, Malta and São Tomé and Príncipe significantly reduced the costs of the tribunal in comparison to other law of the sea proceedings by agreeing to the appointment of a three-member body, rather than the five arbitrators envisaged by Annex VII of the UN Convention on the Law of the Sea.

PCA Arbitration Rules

The vast majority of arbitrators are scrupulously diligent with respect to fees. Parties, however, necessarily have limited insight into the internal work of a tribunal and may be reluctant to raise questions while the tribunal holds the power of decision over them. As a safeguard, parties may consider incorporating cost control measures in their treaty or contract, or agreeing them between the parties once the proceedings have commenced. Cost control is a significant element of the 2012 PCA Arbitration Rules, which incorporate procedures for the binding review of the method used for the determination  of arbitrator fees, control by the International Bureau over the amount of deposit requests, and the automatic review of total arbitrator fees by the PCA Secretary-General at the end of the proceedings (thereby avoiding any hesitation that a party might feel to request such a review). Parties in proceedings under other instruments or rules can gain protection against the possibility of excess costs by agreeing to adopt these procedures.

Financial Assistance Fund

Finally, the PCA has the ability to directly offset the costs of arbitration in proceedings involving one or more developing States through its Financial Assistance Fund for the Settlement of International Disputes. Recognizing that the costs of proceedings may deter States from having recourse to international arbitration or other forms of dispute resolution, the PCA Administrative Council authorized the creation of a fund to offset the costs of any party to a PCA proceeding which is listed on the “DAC List of Aid Recipients” prepared by the Organization for Economic Cooperation and Development.

The Financial Assistance Fund is overseen by an independent Board and supported by voluntary contributions from the PCA’s Contracting Parties and other public and private entities. To date, the Fund has made grants on 12 occasions, notably including the Abyei Arbitration between the Government of Sudan and the Sudan People’s Liberation Movement/Army and the Duzgit Integrity Arbitration. The PCA encourages contributions to the Financial Assistance Fund.