- 17-Sep-2025
- Marriage and Divorce Laws
The cost-follow-the-event principle is a fundamental rule in many arbitration systems that determines how costs (including tribunal fees, administrative fees, and legal fees) should be allocated between the parties based on the outcome of the arbitration. Under this principle, the losing party typically bears the costs of the arbitration, while the winning party may have its costs paid by the losing party. This approach is designed to promote fairness and ensure that the party who succeeds in the dispute is not unfairly burdened with the expenses incurred in resolving the dispute.
However, the application of this principle is not always automatic. Arbitral tribunals have discretion in deciding the allocation of costs, and there can be variations in how this principle is applied depending on the rules of the arbitration institution or the specific circumstances of the case.
The cost-follow-the-event principle is based on the idea that the party that succeeds in the arbitration should not be penalized by having to pay the costs associated with the arbitration. Instead, the losing party should generally be ordered to pay the costs of both sides, including:
This principle is applied differently depending on the rules of the arbitration institution or the agreement between the parties. For example:
The underlying aim of the cost-follow-the-event principle is to provide fairness in the arbitration process. If a party has been forced to go to arbitration because of another party's breach of contract or unjustified claim, that party should not bear the financial burden of the arbitration if it wins. This principle serves as an incentive to resolve disputes and discourages parties from unnecessarily prolonging the proceedings.
Although the cost-follow-the-event principle is widely applied, tribunals have discretion and may deviate from it in certain situations:
If both parties are partially successful, the tribunal may split the costs between the parties in proportion to their relative success. For example, if one party wins 60% of the claims and loses 40%, the tribunal might order that each party bears its own legal fees but that the losing party pays a portion of the tribunal's costs.
The tribunal may consider the conduct of the parties during the proceedings when deciding how to allocate costs. For example:
If a party withdraws from the arbitration or settles the dispute before the final award is made, the tribunal might allocate the costs in a manner that reflects the parties' conduct or the terms of the settlement. For instance, if a party withdrew from the proceedings without just cause, it might be required to pay the costs incurred by the other party.
If the arbitration agreement between the parties specifies how costs should be allocated (for example, specifying that each party should bear its own costs), the tribunal will usually follow those provisions, even if they differ from the cost-follow-the-event principle.
Some institutions or tribunals may differentiate between tribunal fees (paid to the arbitrators) and legal costs (incurred by the parties for their legal representation). A tribunal might order the losing party to pay tribunal fees but decide that each party bears its own legal fees, especially if the losing party was not at fault for the legal fees incurred.
In common law jurisdictions like the United States or the United Kingdom, the cost-follow-the-event principle is widely followed in arbitration, but the courts or tribunals have discretion to order cost allocation based on equity or justice.
In civil law jurisdictions, cost allocation rules may be more formalized. For example, in France or Germany, the losing party generally pays for all the costs, including both the tribunal’s and the parties’ costs, but the parties can agree on a different arrangement.
International arbitral bodies like the ICC, LCIA, and SIAC provide flexible cost allocation rules, but they generally follow the cost-follow-the-event principle. The tribunals, however, enjoy the discretion to allocate costs based on specific factors such as the conduct of the parties, settlement offers, or the outcome of specific claims.
Company A and Company B are in a dispute over a $1 million contract. Company A claims breach of contract, while Company B denies liability.
If Company A wins 100% of its claims, Company B would generally be ordered to pay all the costs, including the costs of the tribunal, administrative fees, and Company A’s legal fees.
If both parties are partially successful, the tribunal might order each party to bear a portion of the costs in proportion to the outcome (for example, Company A could bear 40% of the costs and Company B could bear 60%).
Company C and Company D are involved in a dispute, but during the proceedings, Company C engages in tactics to delay the arbitration, resulting in higher costs.
Even if Company D loses the case, the tribunal may order Company C to bear a larger share of the costs due to its misconduct.
The cost-follow-the-event principle is a key rule in arbitration that ensures the losing party typically bears the costs of the arbitration, reflecting the outcome of the case. However, tribunals have discretion to adjust the allocation of costs based on factors like partial success, the conduct of the parties, and the complexity of the case. While this principle is commonly followed across different arbitration systems, tribunals may deviate from it when necessary to achieve fairness or as stipulated in the arbitration agreement. Ultimately, the principle ensures that the party who succeeds is not unfairly burdened by the costs of resolving the dispute.
Answer By Law4u Team
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