by Datuk Professor Sundra Rajoo[1]
Costs are often the silent battleground of international arbitration. For parties who have invested years in a dispute, the tribunal’s final word on who pays and how much, can be as consequential as the merits award itself. In this first part of a five-part series, Datuk Professor Sundra Rajoo, Founding President of the Asian Institute of Alternate Dispute Resolution, examines what the term “costs” actually means in international arbitration law. Drawing on UNCITRAL Model Law, India’s Section 31A, the English Arbitration Act, and the frameworks of Singapore, Hong Kong, and Australia, this post lays the definitional foundation for the entire series.
Introduction: What Constitutes “Costs” In Arbitration
The concept of “costs” in arbitration constitutes a multifaceted framework that has achieved substantial harmonisation across leading common-law jurisdictions, notwithstanding meaningful differences in statutory formulation and institutional application.
The definitional scope of recoverable costs has evolved significantly over the past two decades, reflecting the increasing sophistication and commercialisation of international dispute resolution mechanisms.
Understanding what constitutes “costs” is foundational to evaluating the principles governing their allocation and the discretionary authority tribunals exercise when apportioning these expenses between disputing parties.
Under the UNCITRAL Model Law on International Commercial Arbitration, which has been adopted and adapted by numerous jurisdictions including Singapore, Hong Kong, Australia, and Canada, the term “costs” encompasses a deliberately capacious definition.[2]
This definition, refined through decades of practice, includes: the fees and expenses of arbitrators; the costs of expert advice and assistance required by the tribunal; the reasonable travel and other expenses of witnesses; the administrative fees and expenses of arbitral institutions; and the legal and other costs incurred by the parties in relation to the arbitration, measured by a standard of reasonableness determined by the tribunal itself.
Article 40.2 of the UNCITRAL Rules[3] provides that the “costs of arbitration” include:
“(a) The fees of the arbitral tribunal to be stated separately as to each arbitrator and to be fixed by the tribunal itself in accordance with article 41;
(b) The reasonable travel and other expenses incurred by the arbitrators;
(c) The reasonable costs of expert advice and of other assistance required by the arbitral tribunal;
(d) The reasonable travel and other expenses of witnesses to the extent such expenses are approved by the arbitral tribunal;
(e) The legal and other costs incurred by the parties in relation to the arbitration to the extent that the arbitral tribunal determines that the amount of such costs is reasonable;
(f) Any fees and expenses of the appointing authority as well as the fees and expenses of the Secretary-General of the PCA. 3.
In relation to interpretation, correction or completion of any award under articles 37 to 39, the arbitral tribunal may charge the costs referred to in paragraphs 2 (b) to (f), but no additional fees
The significance of this inclusive approach lies in its recognition that modern arbitration—particularly complex, multi-party, and transnational disputes—encompasses far more than the traditional categories contemplated by earlier legislative frameworks.
Tribunals now regularly confront novel cost categories: litigation funding fees, technology assisted document review expenses, virtual hearing costs, expert witness preparation, and the deployment of artificial intelligence in document analysis and legal research.
The allocation of costs and fees occupies a central yet frequently contentious place within international arbitral awards. Beyond the substantive resolution of disputes, parties often regard the tribunal’s decision on costs as the final measure of procedural fairness and commercial justice.
Arbitration, as a privately funded dispute resolution mechanism, inevitably requires parties to shoulder significant financial burdens, including tribunal remuneration, institutional charges, legal representation, expert assistance, and ancillary procedural expenses. The question is not whether such costs arise, but rather how they are distributed once the dispute has been adjudicated.
Unlike court litigation, arbitration lacks universally uniformity governing cost allocation. Instead, arbitral tribunals operate within a broad discretionary framework shaped by the parties’ agreement, the procedural law of the seat, institutional rules, and evolving international practice.
This flexibility, while valuable, also produces unpredictability. As a result, cost determinations frequently become a secondary battleground, especially in high-value or procedurally complex arbitrations.
Across jurisdictions, the issues of reasonableness and proportionality of costs prevail and must be contended with overtly, in order to ensure fairness in the arbitral process. Legal costs extend beyond a mere correlation between the quantum of the dispute and the costs ultimately awarded.
A comprehensive assessment of legal costs necessitates a thorough examination of all attendant circumstances of the legal proceedings.
While the monetary value of the dispute undeniably constitutes a significant consideration, particularly in evaluating the reasonableness of the legal mandates undertaken, it is also imperative to account for every other relevant factor that transpired throughout the litigation.
The ‘loser pays’ principle, tempered by a careful consideration of the parties’ conduct, aims to ensure fairness, discourage frivolous litigation, and ultimately indemnify the successful party.
The expansive interpretation of recoverable costs, as seen in recent judgments, signals a move towards ensuring that a party who has been wronged and has succeeded in the arbitration is made whole, reinforcing the integrity and efficacy of the arbitral process.
The following discussion examines the competing theoretical approaches to cost allocation in international arbitration, outlines the dominant models adopted in practice, and distils practical guidance for legal practitioners navigating cost submissions and awards.
The discussion culminates in an assessment of how tribunals can balance discretion, proportionality, and fairness when allocating costs within the arbitral award.
Statutory Formulations Across Common Law Jurisdictions
India: Section 31A of the Arbitration and Conciliation Act 1996
India’s approach to defining and regulating costs underwent a transformative reform through the Arbitration and Conciliation (Amendment) Act, 2015. Section 31A(1) of the principal Act provides that “costs” include the fees and expenses of arbitrators, courts and witnesses; legal fees and expenses; administrative fees of institutions supervising arbitration; and “any other expenses incurred in connection with the arbitral or court proceedings and the arbitral award”.[4]
This formulation is notably expansive, utilising the catch-all category of “any other expenses” to accommodate the evolving nature of costs in contemporary arbitration. . Judicial decisions have affirmed the wide discretion vested in arbitral tribunals, while emphasizing the need for a judicious exercise of such discretion.
The 246th Law Commission of India’s Report, which precipitated these amendments, identified a critical deficiency in pre-amendment practice: the traditional reluctance of arbitrators and courts to award realistic, market-based costs.[5]
The amendment introduced the statutory “costs follow the event” principle in Section 31A(2), subject to the tribunal’s discretion to depart therefrom for reasons recorded in writing. Significantly, the amendment removed provisions that had previously permitted parties to contract out of prescribed fee scales, thereby asserting a public-law interest in cost certainty and proportionality.
England and Wales: Sections 59–65 of the Arbitration Act 1996
The English regime partitions costs into two analytical categories, each with distinct legal consequences. Section 59(1)(a) defines “the costs of the arbitration” as comprising the fees and expenses of arbitrators and institutional administrators.
Section 59(1)(b) separately identifies “the parties’ legal or other costs,” encompassing representation expenses, disbursements, and associated professional fees.[6]
English law further recognises a permissive category of “other costs” under section 59(1)(c), which has proven extraordinarily elastic in tribunal application. The court in Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd[7] established that litigation funding fees, incurred by a successful claimant to finance its arbitral prosecution, constitute recoverable “other costs”.[8]
This decision has catalysed subsequent recovery of funding costs across English-seated arbitrations and has influenced practice in other jurisdictions.
Section 61(2) of the Act confers upon tribunals broad authority to allocate “costs of the arbitration” between parties, absent contrary agreement. The statute prescribes a “general principle” that costs follow the event, subject to the tribunal’s discretionary departure where circumstances warrant.6 Sections 63 and 64 further regulate the assessment of party costs, requiring tribunals to act with reasonableness and proportionality.
Singapore: Bifurcated Framework under the IAA 1994 and Arbitration Act 2001
Singapore maintains a jurisdictional bifurcation between domestic and international arbitration. The International Arbitration Act 1994 (IAA) governs international commercial arbitrations and adopts the UNCITRAL Model Law framework.
Neither the IAA nor the Arbitration Act 2001 (domestic) contains an exhaustive statutory definition of “costs,” instead deferring to institutional rules and the Model Law principles.[9] Institutional practice has supplied the definitional clarity.
The SIAC Rules 2016, Rule 35, provide that “costs of the arbitration” include: the tribunal’s fees and expenses; the Emergency Arbitrator’s fees (where applicable); SIAC’s administration fees and expenses; and party representation costs, expert fees, and tribunal-appointed expert fees, subject to a determination of reasonableness.[10]
The Singapore High Court has consistently affirmed that tribunal discretion in costs determination is extensive and courts intervene only upon narrow procedural grounds.[11]
Hong Kong: Section 74 of the Arbitration Ordinance (Cap 609)
Section 74 of the Arbitration Ordinance provides that an arbitral tribunal “may include in an award direction with respect to the costs of arbitral proceedings,” and may direct “in what manner the costs are to be paid”.[12]The statute does not provide a prescriptive definition of “costs,” instead requiring that tribunals assess “reasonable costs.”
Article 34 of the HKIAC Administered Arbitration Rules 2018 furnishes institutional guidance, stipulating that “costs of the arbitration” are to be determined “having regard to all relevant circumstances,” and that costs claimed “shall be reasonable in amount and reasonably incurred.”.[13]
Section 74(7) expressly permits assessment on the indemnity basis where parties so agree or circumstances warrant, representing a departure from the default “party and party” basis.[14]
Australia: Uniform Commercial Arbitration Acts and International Arbitration Act 1974
Australia has adopted the UNCITRAL Model Law through its uniform Commercial Arbitration Acts across States and Territories, and maintains a distinct International Arbitration Act 1974 (Cth) for cross-border disputes.[15]
Section 27 of the uniform Acts grants tribunals broad discretion to award “costs of the arbitration,” defined in accordance with Model Law principles.
The recent amendments to the International Arbitration Act 1974 have clarified the tribunal’s cost-fixing authority, deleting outdated reference to “taxation” and affirming that “an arbitral tribunal is not required to use any scales or other rules used by a court when making orders in relation to costs”.[16]
This formulation explicitly recognises that arbitral cost assessment operates according to distinct principles from court-based litigation, affording tribunals substantially greater discretion.
Read Part 2: Reasonableness, Proportionality & Competing Philosophies →
References
[1] BSc (HBP) (Hons) (USM), LLB (Hons) (London), CLP, Hon LLD (Leeds Beckett), Grad Dip in Architecture (TCAE), Grad Dip in Urban and Regional Planning (TSIT), MSc in Construction Law and Arbitration (With Merit) (LMU),MPhil in Law (Manchester), Diploma in International Commercial Arbitration (CIArb), FAIADR, FPAM, APPM, FCIArb, FMIArb, FSIArb, FICA, FRICS, FCABE. He is the founding President, Asian Institute of Alternate Dispute Resolution (2018 to date); Certified International Arbitrator (AIADR); Chartered Arbitrator (CIArb); Advocate & Solicitor (Non-Practising; Architect and Town Planner; Director, Asian International Arbitration Centre (2010-2018); Chairman, Asian Domain Name Dispute Resolution Centre (2018); Deputy Chairman, FIFA Adjudicatory Chamber (2018); President, Chartered Institute of Arbitrators (2016); President, Asian Pacific Regional Arbitration Group (APRAG) (2011); Founding President, Society of Construction Law Malaysia; Founding President, Malaysia Society of Adjudicators; Founding President, Sports Law Association of Malaysia; Visiting, Honorary and Adjunct Professors at Hainan School of Law, Hainan University, Guan Xi University in China, Manipal University in India and Universiti Teknologi Malaysia in Malaysia.
[2] UNCITRAL Model Law on International Commercial Arbitration (as amended 2006), Articles 31(8) and 33(1), which respectively mandate cost fixing in the final award and provide for cost allocation flexibility.
[3] UNCITRAL Model Law on International Commercial Arbitration (as amended 2006), Articles 31(8)
[4] Arbitration and Conciliation Act, 1996 (No. 26 of 1996), Section 31A(1) and Explanation thereto.
[5] The Law Commission of India, “Reform of Institutional Frameworks for Speedy Disposal of Commercial Disputes” (Report No. 246, 2014), particularly recommendations pertaining to cost certainty and tribunal incentives.
[6] Arbitration Act, 1996 (c. 23) (UK), s. 59(1)(a)–(b).
[7] [2016] EWHC 2361 (Comm)
[8] See, Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm), at [65]–[75], where the High Court endorsed the tribunal’s award of approximately £1.94 million in thirdparty funding costs on the basis that they related directly to the arbitration proceedings and represented a loss causally connected to the defendant’s conduct. 6Ibid., s. 61(1)–(2).
[9] International Arbitration Act, 1994 (Act No. 23 of 1994), Schedule (giving effect to the UNCITRAL Model Law with modifications); Arbitration Act, 2001 (Act No. 37 of 2001), ss. 40–43 (partially modelling the IAA framework).
[10] SIAC Rules, 2016, Rule 35(a)–(c).
[11] See, VV and Another v VW [2008] 2 SLR(R) 929, where the High Court upheld a costs award of S2.8 million (comprisingS2.25 million in legal fees and disbursements) despite its magnitude relative to the claimant’s disputed claim of S927,000, emphasising that arbitration permits greater liberty in cost determination than civil litigation.
[12] Arbitration Ordinance (Cap. 609), ss. 74(1)–(2).
[13] HKIAC Administered Arbitration Rules, 2018, Art. 34.
[14] Arbitration Ordinance, s. 74(7)(a)–(b).
[15] Commercial Arbitration Act, 2010 (NSW), Part 3, which gives effect to the Model Law; International Arbitration Act, 1974 (Cth), s. 27 (conferring tribunal power to award costs).
[16] International Arbitration Act, 1974 (Cth), ss. 27(1)–(2) (as amended).