- 30-Sep-2025
- public international law
In international arbitration, legal fees, which can constitute a significant portion of the costs of arbitration, are not automatically awarded to the prevailing party. Whether or not legal fees can be recovered in arbitration depends on several factors, including the specific arbitration rules, the nature of the dispute, the agreement between the parties, and the tribunal's discretion. Understanding when and how legal fees may be awarded is essential for parties involved in arbitration, as these costs can impact the overall financial burden of the process.
Unlike court litigation, where legal fees may be awarded to the prevailing party under certain conditions, in arbitration, legal fees are not automatically recoverable. Arbitration rules and the specific circumstances of the case play a significant role in whether the tribunal will award these fees.
In most cases, tribunals have discretion in deciding whether to award legal costs, and they may choose not to include them in the overall cost allocation unless there are specific provisions allowing for such recovery.
Different arbitral institutions have varying rules regarding the recovery of legal fees. Some institutions have clear guidelines that allow the tribunal to include legal fees as part of the cost allocation, while others leave it to the discretion of the tribunal.
Example: The ICC Rules provide that the tribunal may award legal fees as part of the costs of the arbitration, subject to the outcome of the case.
Example: Under the LCIA Rules, legal fees are generally not awarded unless there is an explicit provision for such recovery in the arbitration agreement or a specific contractual provision.
The tribunal may decide to award legal fees based on the outcome of the arbitration, such as whether the claimant was successful in its claims or whether the respondent's counterclaims were upheld.
Example: If the claimant succeeds on the majority of its claims and the respondent is found to have engaged in bad faith conduct, the tribunal may decide to award the claimant's legal costs as part of the final award.
Tribunals can also consider the conduct of the parties during the arbitration process. If one party has acted unreasonably, delayed the proceedings, or engaged in misconduct (e.g., unnecessary procedural delays, vexatious behavior), the tribunal may order that the offending party bear the legal costs of the other party.
Example: In a case where a party has been obstructive or has unnecessarily prolonged the proceedings, the tribunal may decide to allocate the legal fees to the offending party.
If the parties have included a clause in their arbitration agreement that allows for the recovery of legal fees, the tribunal is more likely to grant such a request. In such cases, the clause would override general cost rules in the institution's rules.
Example: A construction contract may include an express provision that allows the prevailing party to recover its legal costs from the losing party.
In many arbitrations, the loser pays principle applies, where the losing party is required to pay all or a portion of the legal fees and other arbitration costs incurred by the prevailing party. The extent of the costs awarded depends on the tribunal’s discretion and the specifics of the dispute.
Example: If one party is found to be at fault for the breach of contract and the other party is successful in its claims, the tribunal may allocate the winning party's legal fees, in addition to the arbitration costs, to the losing party.
In an investment arbitration under the ICSID Convention, the claimant (investor) won the dispute and was awarded damages. The tribunal also ordered the respondent (host state) to pay a significant portion of the claimant's legal fees, considering the state’s failure to comply with procedural timelines and its aggressive defense.
In a construction dispute under the LCIA Rules, both parties made claims and counterclaims. The tribunal found that the claimant succeeded on its claims but dismissed the respondent’s counterclaims. The tribunal decided to award the claimant its legal fees, as the respondent’s claims were found to be frivolous and without merit, prolonging the proceedings unnecessarily.
Under the UNCITRAL Arbitration Rules, the tribunal is empowered to determine how costs, including legal fees, should be allocated. While the rules do not explicitly mandate the recovery of legal fees, the tribunal can order costs based on its assessment of the case.
Under the ICC Arbitration Rules, the tribunal has broad discretion to allocate the legal fees incurred by the parties, considering the overall outcome and conduct of the parties during the proceedings. If the claimant succeeds and the tribunal finds that the respondent's actions contributed to the delay or increased costs, legal fees may be awarded.
The SIAC Rules provide that the tribunal may award legal fees as part of the total costs, though the rules emphasize that costs should be apportioned in a fair and reasonable manner based on the outcome of the arbitration.
GreenTech Ltd. (claimant) and SteelWorks Inc. (respondent) are involved in a dispute concerning the non-performance of a supply contract. The arbitration is conducted under the ICC Rules. GreenTech Ltd. prevails on its claims, and SteelWorks Inc. is found to have acted in bad faith by providing false documents and causing unnecessary delays.
The tribunal awards GreenTech Ltd. the full amount of its legal fees ($250,000) based on SteelWorks’ bad faith conduct. SteelWorks Inc. is ordered to pay 70% of the total costs (arbitration, expert fees, and GreenTech’s legal fees), amounting to $450,000.
In this case, GreenTech Ltd. not only receives the compensation for its legal expenses but also benefits from the tribunal’s decision to allocate SteelWorks' bad faith conduct as a significant factor in the costs award.
In international arbitration, legal fees can be recoverable, but this depends on various factors, including the specific rules of the arbitral institution, the conduct of the parties, the nature of the dispute, and the tribunal's assessment of the case. Legal fees are typically awarded to the prevailing party, especially if the tribunal finds that the losing party acted unreasonably or in bad faith. However, tribunals have broad discretion and may choose not to award legal fees if the circumstances do not justify such a decision. Therefore, parties should carefully consider the arbitration rules and the potential for recovering legal fees when planning their strategy for arbitration.
Answer By Law4u Team
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