Knowing the principles is only half the battle. In practice, what actually determines whether a tribunal awards full costs, reduced costs, or none at all? In Part-4 of this series, Datuk Professor Sundra Rajoo identifies the key factors that arbitral tribunals weigh, from party conduct and settlement offers to technology adoption and third-party funding and examines the procedural dimension of when and how cost decisions are made. The part also sets out the documentation standards that cost claimants must meet, including the critical question of what happens when billing records are incomplete or vague.
Factors Determining Reasonableness of Cost Claims
Tribunals employing a reasonableness standard for evaluating cost claims typically examine a constellation of factors reflecting the necessity, propriety, and moderation of claimed expenditures.
While “costs follow the event” is the starting point, it is subject to the tribunal’s wide discretion. Arbitral rules and statutes universally empower tribunals to apportion costs as they deem reasonable, taking into account the specific circumstances of the case.
A critical factor influencing this discretion is the conduct of the parties. Unreasonable, disruptive, or uncooperative behaviour can lead to a departure from the general rule, with tribunals penalising such conduct through adverse costs orders.
Parties’ Procedural Conduct: Cooperation versus Obstruction
The conduct of parties before and during proceedings substantially influences reasonableness determinations.
Tribunals frequently examine whether a party engaged in cooperative procedural management (accepting reasonable limitations on discovery, agreeing to scheduling requests, meeting timetables) versus obstructive conduct (dilatory timetable requests, excessive document-production demands, repeated last-minute applications).[1]
Where a party engages in prolonged delay tactics, imposes excessive document-production burdens on opponents, or files numerous frivolous interlocutory applications, tribunals may reduce that party’s cost entitlement or impose adverse costs orders, even if the party ultimately prevails on the merits.42
The Iran-US Claims Tribunal in the investor-state dispute of Dadras International v. The Islamic Republic of Iran[2], found that the Respondents had caused “considerable disruption of the arbitral process” by pursuing unfounded allegations of forgery and submitting key evidence from a witness very late in the proceedings.
Although the Claimant was only partially successful, the Tribunal awarded a substantial amount for costs, noting that the Respondents’ conduct forced the Claimant to incur significant additional expense.
This illustrates that inappropriate conduct can be a decisive factor in costs allocation.
The US District Court in Let’s Go Aero, Inc. v. Forcome Co. Ltd.[3], in an action to enforce an arbitral award, exercised its discretion to award attorneys’ fees to the petitioner (Let’s Go Aero). This was owing to the court’s finding that the respondent (Forcome) had “acted vexatiously throughout this enforcement proceeding” by refusing service, failing to respond to court orders, and raising baseless arguments.
This demonstrates that party conduct, particularly dilatory or bad faith tactics, can justify a costs award even in jurisdictions that do not automatically follow the “costs follow the event” principle.
An emergency arbitrator under the HKIAC Rules in Smart King Ltd. v. Season Smart Limited[4], while granting the claimant (Smart King) the interim relief sought, reduced the recoverable legal costs by 25%.
The reduction was justified because the claimant had made a late new application and amended its requested relief late in the proceedings, which resulted in unnecessary costs for all parties.
The arbitral tribunal in Westland Helicopters Ltd v. Arab Organisation for Industralization[5] awarded £18million against the losing party for he delayed the proceedings which lasted 13 years.
Attempts to Resolve Disputes and Settlement Offers
A party’s willingness to engage in settlement discussions, mediation, or negotiation, and the reasonableness of settlement offers made, strongly influence cost awards.
Tribunals frequently award reduced costs to a party that rejected a reasonable settlement offer, resulting in protracted proceedings, despite ultimately prevailing.
The “Calderbank offer” doctrine is recognised in English law and increasingly adopted in international arbitration. It permits parties to make “without prejudice” settlement offers, which the tribunal may consider when assessing costs.
Where a successful party obtains an award lower than a previously rejected settlement offer, the tribunal may order the successful party to bear some portion of its own costs, reflecting that the party should have accepted a more favourable settlement.43
Utilisation of Technology to Reduce Costs
Increasingly, tribunals examine whether parties employed cost-saving technology and procedural innovations.
Virtual hearings, AI-assisted document review, electronic document platforms, and remote expert conferencing can substantially reduce arbitration costs.
Parties that refuse to adopt such technologies without justified basis may face cost reductions on the theory that their claimed costs are higher than necessary.44
Market Rates and Staffing Proportionality
A critical component of reasonableness assessment is evaluating whether the hourly rates charged by counsel are consistent with market rates for the relevant jurisdiction, dispute type, and counsel seniority.
Tribunals increasingly scrutinise billing rates, checking them against published market data and reducing rates where they exceed regional norms.[6]
Similarly, tribunals examine staffing proportionality:
(1) whether multiple senior counsel was necessary given the case’s complexity;
(2) whether junior associates were deployed efficiently or provided duplicative services;
(3) whether in-house versus external counsel roles were appropriately divided.
Duplication of effort where multiple counsel perform identical research or prepare overlapping submissions, is frequently identified as unreasonable and subject to cost reduction.[7]
Third-Party Funding Agreements and Interest Claims
The recovery of third-party funding costs remains contested, though English law has now clarified that such costs are recoverable as “other costs” under Section 59(1)(c) of the Arbitration Act 1996.[8]
However, tribunals scrutinise funding agreements and the reasonableness of funder fees, requiring that the claimant establish that funding costs were genuinely incurred and were not excessive relative to the recovery obtained.
Factors Determining Reasonability and Proportionality of Cost Claims
Reasonableness is the universal standard for recoverable costs. Section 63(5) of the English Arbitration Act 1996 allows for “a reasonable amount in respect of all costs reasonably incurred.”[9]
Similarly, the LCIA Rules empower a tribunal to decide the amount of legal costs “on such reasonable basis as it thinks appropriate.”[10] The assessment involves scrutinising various elements such as:
(1) Hourly Rates and Staffing: Tribunals will assess whether the hourly rates of legal representatives are in line with market standards for counsel of similar experience and whether the staffing of the case was appropriate and not excessive.
(2) Necessity of Work: Costs for work deemed unnecessary or for arguments that were doomed to fail may be disallowed.
(3) Evidentiary Support: A party claiming costs bears the burden of proving them. This requires providing sufficient details, such as breakdowns of time spent, hourly rates, and descriptions of work performed. Failure to do so can result in a reduction or denial of costs.
The Singapore International Commercial Court (SICC) in Senda International Capital Ltd v Kiri Industries Ltd[11] clarified that “reasonable costs” under its rules are intended to compensate a successful litigant for expenses “sensibly and reasonably incurred” in prosecuting its case.
The court starts with the actual costs incurred by the party and then assesses their reasonableness.
The Court of Appeal affirmed that the claiming party must provide a sufficient breakdown (e.g., hours, rates, work type) to enable the court to conduct a meaningful assessment. A failure to provide a breakdown for expert fees led to the court having to apply a broad-brush reduction.
The arbitrator under the AAA rules in Yellow Matter Entertainment LLC v. Scaeva Technologies Inc.[12], applied Delaware law and assessed the reasonableness of fees by considering factors from the Delaware Lawyers’ Rules of Professional Conduct, including the time and labour required, the novelty of the issues, the fees customarily charged, and the experience of the lawyers.
The tribunal found the claimed hourly rates reasonable but applied a 5% reduction to the total fees due to “block billing” and heavily redacted invoices, which made it impossible to assess the reasonableness of time spent on specific tasks.
Proportionality, increasingly emphasised in modern arbitration practice, requires that costs bear a rational relationship to dispute complexity, sums at issue, and case outcomes. While reasonableness focuses on individual cost items, proportionality looks at the global picture.
The Singapore High Court in VV and Another v VW[13]extensively discussed the principle of proportionality. The petitioner (original defendant) argued that a costs award of over $2.8 million was wholly disproportionate to the original claimant’s claim of under $1 million.
The court acknowledged that proportionality is a cornerstone of the Singapore domestic justice system, aimed at ensuring access to justice.
However, it held that this public policy concern does not extend to private international arbitrations, where party autonomy is paramount. An arbitrator is not formally bound by the principle, though it may be regarded as an aspect of reasonableness.
The court concluded that an arbitrator’s costs award, no matter how high, could not be set aside on public policy grounds for being disproportionate.
The sole arbitrator in Cargo Levant Schiffahrtsgesellschaft mbh v. PSL Limited[14],aLondon-seated ad hoc arbitration, explicitly noted that while the English Civil Procedure Rules do not formally apply, they provide useful guidance.
He further affirmed that proportionality “is a factor to be taken into account when considering whether costs were reasonably incurred” thereby treating it as an element of the overall reasonableness assessment.
Dispute Complexity and Technical Subject Matter
Tribunals explicitly consider whether claimed costs reflect the legitimate technical complexity of the dispute.
A patent infringement arbitration involving expert evidence from multiple technical disciplines, requiring detailed claim-construction analysis and technical literature review, may justifiably involve substantially higher costs than a straightforward breach-of-warranty claim.[15]
Legal and Expert Costs Proportional to Staffing
Tribunals examine the proportionality of claimed legal and expert costs relative to the number of issues litigated, the number of witnesses examined, and the quantity of documentary evidence produced.
Where a claimant fields five counsel for 10 days of hearing on a contract with 500 pages of discoverable documents, proportionality questions are raised regarding whether such staffing was necessary versus economically rational.[16].
Technology Deployment and Cost-Control Measures
Proportionality assessment increasingly rewards parties that implement technology-based cost-control measures: capped budgets, phased billing, limited document-production protocols, AI-assisted document triage, and procedural proposals reducing overall expenditure.
Tribunals recognise that these measures represent good-faith efforts to manage costs and frequently reflect such efforts in reduced cost awards to unsuccessful opponents.[17]
Differences in Investor-State Dispute Settlement
The nature of the parties can influence costs awards. In purely commercial disputes between private entities, the primary goal is often full compensation for the successful party.
However, in disputes involving states or state entities, such as those before the Iran-US Claims Tribunal (IUSCT), a more cautious approach may be evident.
The IUSCT inSylvania Technical Systems, Inc. v. The Government of the Islamic Republic of Iran[18], awarded the successful claimant only $50,000 in costs, despite claimed legal fees of approximately $265,000.
The Tribunal noted that in US courts, each party often bears its own legal costs, and also considered the unique context of the Algiers Declarations’ Security Account, which provided an unusual level of security for payment of the award.
This suggests that tribunals in such mixed disputes may be hesitant to award full costs as a matter of course.
The claim in Near East Technological Services U.S.A., Inc. v. Islamic Republic of Iran Air Force[19], was dismissed for the lack of jurisdiction.
The Tribunal awarded the respondent state entity $5,000 in costs, noting that the claimant’s “lack of coherence” in presenting its case had made the respondent’s task more difficult. This reinforces that even in jurisdictional dismissals, costs can be awarded to reflect procedural failings.
These cases indicate that while the same general principles apply, tribunals in investor-state or state-contract disputes may exercise their discretion more conservatively, potentially awarding lower amounts for costs than might be expected in a comparable commercial arbitration between private parties, unless aggravated by poor conduct from one side.
The allocation of costs in international arbitration is a discretionary exercise guided by established principles, with “costs follow the event” as the predominant starting point.
The overarching standards of reasonableness and proportionality serve as crucial checks on the quantum of recoverable costs, though their application varies.
A clear trend across jurisdictions is the increasing weight given to party conduct; dilatory tactics, unreasonable arguments, and procedural non-compliance are consistently penalised through costs awards.
While tribunals in purely commercial arbitrations are moving towards ensuring a successful party is fully indemnified for sensibly incurred expenses, a more restrained approach may be observed in disputes involving state entities.
Ultimately, the power to award costs remains one of the most important tools available to a tribunal to ensure the fairness and efficiency of the arbitral process, delivering a final and just resolution to the parties’ dispute.
Timing of Cost Determination: Interim Orders and Final Assessment
Costs determination does not occur exclusively at the final award stage.
Sophisticated practice increasingly involves interim cost orders addressing procedural non-compliance, security-for-costs applications, and costs consequences of unsuccessful preliminary objections.
Interim Cost Orders for Procedural Breaches
Where a party fails to comply with procedural orders, exhibits dilatory conduct, or engages in abuse of process, tribunals possess authority under institutional rules and common-law principles to issue interim costs orders imposing immediate cost consequences, rather than deferring all costs issues to the final award.[20]
These interim orders serve disciplinary functions: they deter continued misbehaviour; they provide partial compensation to compliant parties for costs imposed by non-compliance; and they permit tribunals to address particularly egregious conduct without awaiting final decision.
Costs of Preliminary Objections and Jurisdictional Challenges
Tribunals frequently address costs of failed jurisdictional objections and preliminary challenges at the conclusion of the preliminary phase, rather than deferring to final award.
Where a respondent raises a serious but ultimately unsuccessful jurisdictional objection requiring extensive briefing and hearing time, the tribunal may order the respondent to bear the claimant’s costs associated with meeting the challenge.[21]
Final Determination of Costs
Section 31 of the Model Law and corresponding provisions in national laws mandate that tribunals fix costs “in the final award” or specify procedures for subsequent determination.[22]
Most practice involves integral treatment of costs in the final award, with detailed articulation of the allocation methodology and reasoning.
Read Part 5: Court Challenges, Emerging Trends & Practitioner Notes →
References
[1] ICC, “Decisions on Costs” (2015), at 29, identifying “the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner” as the most frequently cited factor in cost-
[2] See, Dadras International v. The Islamic Republic of Iran IUSCT Award No. 567-213/215-3.
[3] See, Let’s Go Aero, Inc. v. Forcome Co. Ltd Civil Action No. 23-cv-00045-RMR, Order dated 5 September 2024.
[4] See, Smart King Ltd. v. Season Smart Limited, Yueting Jia HKIAC Case No. A18176.
[5] 80 ILR 622 (1987-10-23)
[6] CIArb Guidelines, suggesting that tribunals consult published surveys of lawyer billing rates (e.g., those maintained by bar associations and international legal directories) when assessing claimed legal rates.
[7] See, VV v VW [2008] 2 SLR(R) 929, where the Singapore High Court noted that duplication among multiple counsel, whilst technically performed, might be subject to reasonableness challenge where efficiency considerations indicated lesser redundancy was necessary.
[8] See, Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm).
[9] Arbitration Act 1996 (U.K.), s. 63(5).
[10] LCIA Rules, art. 28.4.
[11] See, Senda International Capital Ltd v. Kiri Industries Ltd. [2022] SGCA(I) 10.
[12] See, Scaeva Techs. v. Yellow Matter Ent., LLC No. 2:24-cv-04303 (D. Del.), Order dated 11 December 2024.
[13] See, VV and Another v. VW [2008] SGHC1.
[14] See, Cargo Levant Schiffahrtsgesellschaft mbh v. PSL Limited (Ad-hoc arbitration), costs award dated 21 December 2012.
[15] CIArb Guidelines, noting that proportionality assessments must account for “the complexity of the case and the amount in issue,” and that “cost awards which are manifestly out of proportion to these factors should be discouraged.”
[16] SCC Rules empirical study, noting that in surveyed awards, mean legal costs were 12.85 times the mean arbitration costs, and proportionality reductions appeared in approximately 15–20% of awards reviewed.
[17] SIAC, “Costs and Duration Study” (2016), indicating that parties employing technology-based cost controls reported cost savings of 15–30% relative to traditional document-review methodologies.
[18] See, Sylvania Technical Systems, Inc. v. The Government of the Islamic Republic of Iran IUSCT Award No. 180-64-1.
[19] See, Near East Technological Services U.S.A., Inc. v. Islamic Republic of Iran Air Force IUSCT Award No. 406-845-1.
[20] SIAC Rules, 2016, Rule 38, explicitly authorising interim cost orders; ICC Rules, 2021, Art. 38(3), permitting tribunals to “make decisions as to costs at any time during the proceedings.”
[21] See, Philip Morris Asia Ltd v Australia (Award on Jurisdiction and Admissibility, Dec. 17, 2015), where the tribunal ordered the unsuccessful claimant to bear 50% of respondent’s legal costs related to defending the jurisdictional phase, despite respondent’s ultimate success.
[22] UNCITRAL Model Law, Art. 33; Arbitration Act 1996 (England), s. 61; Arbitration and Conciliation Act 1996 (India), s. 31A.