Arbitration costs generally comprise three categories (i) the cost of the arbitral institution (when there is one), (ii) the fees and expenses of the arbitrators, and (iii) a party’s direct costs. A party’s direct costs includes its costs of legal representation, the costs of any experts, and out of pocket expenses. Arbitrations are financed by each party generally advancing half of the estimated arbitration costs. Those costs will be finally allocated between the parties in the final award.
Outside the US, the general rule in commercial and sports arbitration is that the losing party pays the winning party’s costs which includes the direct costs. This rule is also increasingly being applied in investment arbitration. This means that parties embarking upon international arbitration face the risk of having to pay not only all of the institution’s costs and the arbitrators’ fees and expenses, but, as well, the legal costs of the winning opponent .
Surveys indicate that parties’ direct costs compose the lion’s share of the total arbitration costs, in the order of about 75% to 85% of the total, with the arbitrators’ costs representing around 10 to 20% of the total and the arbitral institution usually taking no more than 5%.
The costs of the arbitral institution and the arbitrators are generally either a function of the value in dispute or of the time worked by the institution and the arbitrators. Where these costs vary with the amount in dispute, arbitral institutions will often make available a costs calculator for the parties to be able to estimate these arbitration costs.