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How are costs determined in arbitration proceedings in India?

How are costs determined in arbitration proceedings in India?

11-Jul-2024

Arbitration

Answer By law4u team

In arbitration proceedings in India, costs are determined based on several factors, including the complexity of the case, the duration of proceedings, the number of hearings, and the fees of the arbitrators and legal representatives involved. Here’s a detailed overview of how costs are typically determined in arbitration proceedings in India: Determining Costs in Arbitration Arbitrator’s Fees: Hourly Rates or Lump Sum: Arbitrators usually charge fees either on an hourly basis or a lump sum for the entire arbitration process. The fees are determined based on the seniority, expertise, and reputation of the arbitrator. Cost Schedule: Many institutions and individual arbitrators have a schedule of costs that outline the fees for different stages of arbitration, including preliminary meetings, hearings, and issuing the award. Administrative Costs: Institutional Arbitration: If the arbitration is administered by an arbitral institution like the ICC (International Chamber of Commerce) or SIAC (Singapore International Arbitration Centre), administrative fees charged by the institution are considered. Registry Fees: Courts or arbitral institutions may charge registry fees for filing and processing arbitration documents. Legal and Expert Fees: Legal Representation: Each party bears the cost of their own legal representation, including fees for lawyers, paralegals, and legal advisors. Expert Witnesses: Costs related to expert witnesses, if any, who provide testimony or opinions on specific matters in the arbitration. Other Expenses: Venue Costs: Charges for renting arbitration venues or meeting rooms, if applicable. Travel and Accommodation: Expenses related to travel and accommodation for arbitrators, witnesses, and parties attending hearings. Tax and Other Levies: GST (Goods and Services Tax): Applicable taxes such as GST may be included in the total costs. Court Fees: If any court involvement is necessary for enforcement or any other reasons, court fees may apply. Principles Guiding Costs Determination Reasonableness and Proportionality: Costs should be reasonable and proportionate to the dispute’s complexity, the amount in dispute, and the efforts expended by the parties and arbitrators. Arbitrators typically aim to minimize costs while ensuring a fair and efficient arbitration process. Costs Allocation: General Rule: In the absence of specific agreements between parties, costs are usually allocated by the arbitral tribunal in the final award. Costs Follow the Event: The party that prevails on substantial issues may be awarded costs by the tribunal, including arbitration fees and legal expenses. Costs Management: Parties are encouraged to manage costs effectively by engaging in efficient arbitration proceedings, avoiding unnecessary delays, and cooperating with each other and the arbitrators. Conclusion In conclusion, costs in arbitration proceedings in India are determined based on various factors, including arbitrator fees, administrative costs, legal and expert fees, and other expenses incurred during the arbitration process. Parties should discuss and agree on cost implications at the outset of arbitration or refer to institutional rules that provide guidelines on cost allocation. Effective management of costs ensures transparency and fairness in the arbitration process, contributing to the overall efficiency and satisfaction of all parties involved.

Answer By Anik

Dear client, The costs in arbitration proceedings are governed by the section 31A of the Arbitration and Conciliation Act, 1996. Costs includes arbitrator’s fees, administrative expenses, legal fees and any other expenses incurred during the arbitration process. Types of costs in arbitration process: • Tribunal fees and expenses • Legal fees of parties • Cost related to expert witnesses • Institutional fees (if applicable) • Travel and accommodation expenses of arbitrators and witnesses Principles of costs following the event: • The losing party is generally ordered to pay the costs unless the tribunal decides otherwise. This principle ensures that a party who initiates an unsuccessful claim does not burden the successful party with expenses. Allocation of costs • Arbitrators have the discretion to allocate costs based on factors like that conduct of parties, frivolous claims, and unnecessary prolongation of proceedings this is based on the facts of the different case. • If a party engages in unnecessary delays or procedural misconduct, the tribunal may penalize them with higher costs. Advance on costs: • In institutional arbitration, parties may be required to deposit an advance on costs to cover initial expenses, failure to deposit may result in suspension or termination of proceedings. Security for costs: • In some cases, arbitrators may order party to provide security for costs to ensure the other party does not suffer financial loss due to prolonged proceedings. Taxation of costs: • The tribunal’s cost determination is usually final unless and until challenged in court. However, courts can review cost awards if they are found to be excessive or unreasonable. I hope this answer helps, in case of future queries please feel free to contact us. Thank you

Answer By Ayantika Mondal

Dear Client, India The arbitration proceedings in India are governed mostly by Section 31A of the Arbitration and Conciliation Act, 1996 (as amended in 2015) governing the determination and allocation of costs under arbitration proceedings. This clause gives the Arbitral Tribunal or the Court a lot of discretion in controlling and giving costs to a loser that will propel India to the internationally adopted practice of the loser pays. The determination and allocation of costs are done as follows: Elements of What is Included (Costs) Section 31A defines the term costs widely to cover reasonable costs associated with: Arbitrator Fees: Cost of the arbitrators and witnesses. Legal Fees: Any legal fees and costs incurred by the parties (lawyers fees, counsel fees). Administrative Fees: Any administration fees incurred by the arbitral institution (where applicable). Other Expenses Any other expenses incurred relating to the arbitral or Court proceedings and award of the arbitral (rent of hearing rooms, transcription, translation, fees of experts, travel). The costs awarded should be reasonable and not the actual amount spent by the party. The Tribunal will have to use the test of reasonableness to the expenses being claimed. Arbitrator Fees Determination: This regularly constitutes the biggest single element of the cost and is greatly contingent upon the character of the arbitration: A. Domestic Arbitration by Ad-Hoc. The fees in an ad-hoc arbitration (not administered by an institution) have to be charged in one of three ways: Party Agreement: The parties and the arbitrator mutually settle on the fees at the commencement of the process. Fourth Schedule: In cases where the fares are required to be model-based as specified by the parties themselves or by the court or other authority that is appointing an arbiter, it is ascertained using the Fourth Schedule of the Arbitration and conciliation act, 1996. This Schedule offers a scale, ad valorem (value-based) system, which depends upon the sum in dispute, with a fixed limit (at present, 30 lakhs to a panel and 25% to a sole arbitrator). High Court Rules: The High Court in question can contain rules that state a scale of fees. B. Institutional Arbitration In the event that the arbitration is by an institution ( MCIA, DIAC, IAMC), the fees charged are based on the fee schedule as prescribed in the rules of that particular institution. Such schedules are also normally ad valorem thus making the costs predictable. Under the discretion of the Arbitral Tribunal, the assigned costs are subject to be distributed by the Tribunal, based on two broad rules stipulated in the Section 31A: I. The General Rule: "Loser Pays" The general rule is that the losing party will be ordered to pay reasonable costs of a winning party. This is the so-called costs follow the event rule. II. Discretionary Departure The Tribunal is therefore free to leave the lose-takes-all regime and instead issue another order (split-the-bills, or each over their own costs), but upon articulated reasons to be in writing. III. Types of Cost Orders The Tribunal may order to pay: • A percentage of the costs of the other party. • An amount mentioned in regard to the other party costs. • Expenses to the end of a given date. • Expenses that pertain to a specific portion of the proceedings only. The Indian arbitration costs are calculated on a reasonable cost assessment (fees, legal, administrative, etc.) and distributed by the Arbitral Tribunal with the fruit of the poisonous tree most often by the use of the loser pays principle, although the situation, especially the behaviour of the parties, can justify a different, reasonable order. I hope this answer helps; if you have any further questions please don't hesitate to contact us. Thank you