By: Olawumi Odeyinka- Apantaku
Introduction:
Parties are of the view that the high cost of Arbitration is seen as one of its drawbacks. Parties in both international and commercial arbitrations sometimes receive rude surprises when it comes to claims for costs of Arbitration. As noted by most Arbitrators, no matter how trenchant the dispute between parties, their interests always seem to converge at the point in the preliminary meeting where the Costs of Arbitration are discussed. From feedbacks, many seemingly intractable disputes have become susceptible to settlement at the moment when the issue of arbitration cost is raised.
The comparatively high cost of Arbitration can potentially frustrate deserving parties who enter into arbitration agreements without considering the costs involved. A financially challenged party can be discouraged to resolve his dispute when he knows that his right to Arbitration on a dispute can be forestalled by his inability to fund the proceeding. Also, where a struggling claimant can pay its share of the Arbitration Costs, the speedy dispensation of the dispute can be hindered by a respondent who refuses to pay its share of the costs.
Cost of Proceedings in Arbitration Matter
Today, with the involvement of ADR/ Arbitration as a mechanism in resolving disputes between parties and its wide acceptance of alternative methods to litigation, so is it to the cost of this method of resolving disputes being spared and unattended to. It is noted that the Cost of Arbitration is not uncommon to run into the millions of Naira, sometimes even exceeding the amount in controversy, especially where a counter-claim is involved. This cost is also calculated separately on the claims and counter-claims. As a result, parties now recognize the essential part of the case is meeting up with the costs of the proceeding itself.
In most cases, tribunals have resolved claims for arbitration costs by applying the applicable substantive or procedural law, the arbitral rules governing the dispute, or principles of fairness and reasonableness. In practice, the costs of the proceedings include the fees and expenses of the Arbitral Tribunal and the administrative fees of the administering authority. This is in line with Section 49 (1), (2) and (3) of the Arbitration and Conciliation Act, Cap A18, Laws of Federation, Nigeria, 2004.
Also, by practice, some arbitral institutions require that parties to the proceedings now make payment in the form of an advance on costs before the Tribunal can proceed with the hearing. The advance on costs of proceeding is a deposit paid by the parties to cover fees and expenses of the Tribunal. This is also called the Cost of Arbitration, and it covers the institution’s administrative expenses. While the payment of an advance is often perceived as one of the simpler steps in Arbitration, in practice, it can give rise to a significant setback of the proceeding. This also can have the effect of bringing an arbitration to a standstill.
By Virtue of Section 50(1) of the ACA, advance deposit of the Cost of Arbitration may be requested by the Tribunal. This advance deposit is paid on equal share of the cost between each party.
Surprisingly, the respondents tend to treat the payment of the advance deposit of Cost of Arbitration as the claimant’s financial obligation if the claimant wishes to obtain an award. Going by this, it is possible to encounter a respondent who is unwilling to pay its share of the advance deposit. This is a strategy usually used to delay the Arbitral proceeding. The usual remedy for such party failing to pay its portion of the advance is for the Tribunal to direct the other party to make the required payment. The Award shall make provision for reimbursement of such cost bure by the other party. See Section 50 (3) of the ACA.
Conclusion
In conclusion, to avoid a party defaulting in paying his advance deposit of cost, it is noted that the foundation of the Arbitration proceedings is dealt with. By this, the writer is of the view that, before parties agree to insert an Arbitration Clause in their agreement, due diligent must be taken by considering the most suitable Arbitration Institution Scale of Fee that is flexible. Also, it is essential to streamline the number of Arbitrators to be appointed to adjudicate a dispute. For example, it will be ill-advised to insert an arbitration clause before a panel of three arbitrators into a contractual agreement in which the claims are less than a Million Naira.
Once parties take a balanced and realistic view of the pros and cons of the Costs of Arbitration and ensure that they have the right horse for the right cause, the relatively higher cost should become a non-issue. The efficiency and flexibility inherent in Arbitration will, more often than not, justify the added cost.
As a whole, it may fall to the parties, rather than to the Tribunal, to be passionate in ensuring the expeditious resolution of disagreements as regards the advance payment of the cost of proceeding, where this is achievable.
References:
- Nick Oury, Jean Hamilton-Smith, ‘The Advance on Costs in Construction Arbitration: Strategy Where There is Refusal to Pay a Deposit’. <http://arbitrationblog.kluwerarbitration.com/2021/03/07/the-advance-on-costs-in-construction-arbitration-strategy-where-there-is-refusal-to-pay-a-deposit>
- John Yukio Gotanda, ‘Awarding Costs and Attorneys’ Fees in International Commercial Arbitrations. Michigan Journal, 1999 Volume 21, Issue 1.
- Michael W. Buhler, ‘Cost of Arbitration: Some Further Consideration’ Global Refection on International, Commercial and Dispute Resolution, ICC Publishing. Publication 693 <ww.iccbooks.com>
- Babatunde Ajibade, ‘Much Ado About the Cost of Arbitration’ <https://www.mondaq.com/nigeria/trials-appeals-compensation/1031990/much-ado-about-the-cost-of-arbitration>
