Violencia dentro de la comunidad

In determining costs in international arbitration, tribunals have two principal approaches to follow, namely the English rule of ‘costs follow the event’ (or ‘loser pays’) and the traditional American rule that calls for disputing parties to share arbitral costs equally, with each party bearing its own legal fees. As one of the pivotal matters, there are divergences in treatment of arbitral costs under a variety of ICSID and non-ICSID arbitration rules.²⁹⁵ Under the ICSID Arbitration Rules, though ICSID tribunals can assess costs and proportionate allocation at any stage of the proceedings, final awards must contain any decision regarding costs.²⁹⁶ The ICSID Convention confers on arbitral tribunals general discretion to assess the expenses incurred by disputing parties in connection with the arbitral proceedings, and decide how and by whom the expenses shall be paid.²⁹⁷ However, the Convention, the Arbitration Rules and the Administrative and Financial Regulations are silent as to how to allocate arbitral costs between disputing parties. The ICC, SCC and LCIA somehow have similar approaches, merely providing tribunals with limited guidance on allocating costs.²⁹⁸

Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay (ICSID Case No ARB/10/7) was partially funded by the Campaign for Tobacco-Free Kids and the Bloomberg Foundation (see Philippe Pinsolle, ‘Comment on Third-Party Funding and Nationality Issues in Investment Arbitration’ in Karl P. Sauvant (ed), Yearbook on International Investment Law & Policy 2010-2011 (OUP, 2012) 641).

By comparison, more specific guidance on the apportionment of

295 In both ICSID and non-ICSID arbitration if disputing parties predetermine or agree on the allocation of costs and fees at any stage of proceedings, these agreements are customarily upheld by tribunals. Such agreement, as elucidated previously, is rare in practice.

296 R 47(1)(j) of the ICSID Arbitration Rules.

297 Art 61(2) of the ICSID Convention.

298 These rules ordinarily provide that arbitral tribunals may take into account such circumstances as they consider relevant, including the parties’ relative success and failure in the award and the extent to which each party has conducted the arbitration in an expeditious and cost-effective manner. See art 37(4), (5) of the ICC Arbitration Rules, arts 43(4), (5) & 44 of the SCC Arbitration Rules, art 28.3 of the LCIA Arbitration Rule (2014). However, party funding should not impact tribunals’ decision on security for costs unless third-party funding, as proved by respondents, is being used abusively (see William Kirtley and Koralie

Wietrzykowski, ‘Should an Arbitral Tribunal Order Security for Costs When an Impecunious Claimant Is Relying upon Third-Party Funding?’ (2013) 30(1) J Intl Arb 17).

97 costs of legal representation and assistance of the successful party is contained in the UNCITRAL Arbitration Rules (1976) under which tribunals are entitled, with guided discretion on how to apportion arbitral costs, to adopt a ‘loser pays’ approach while taking into account the circumstances of the case.²⁹⁹ The 2013 version of the Rules explicitly stipulates that the costs of the arbitration shall, in principle, be borne by the unsuccessful party, and tribunals can apportion costs as they determine that apportionment is reasonable, taking into account the circumstances of the case.³⁰⁰ Though the Rules provide tribunals with substantial flexibility in apportioning costs, it is also evident that the formulation of the Rules underscores an unequivocal preference for application of the ‘loser pays’

approach.³⁰¹

As to the apportionment of arbitral costs in investor-State arbitration, two issues are worthy of further detailed analysis. The first normative question is whether clarity of the allocation of arbitral costs is more desirable. It is conspicuous that diverse approaches to cost allocation create different incentives to initiate arbitral proceedings. As the starting point for apportionment of arbitral costs in UNCITRAL arbitration is the adage that ‘costs follow the event’, such a clear approach to denoting how tribunals can and should exercise their discretion would unambiguously diminish the unpredictability of tribunals’ awards on costs, thereby reducing disputing parties’ risks and increasing the efficiency of the arbitral proceedings. The broad discretion conferred on ICSID tribunals, however, would be less advantageous for potential disputing parties to assess their risks, and has a further detrimental effect on the utility and viability of the dispute resolution method, considering that the practice of ICSID tribunals in apportioning costs has been claimed ‘neither clear nor uniform’³⁰² and has been condemned by scholars who have urged the ICISD to adopt a uniform approach to awarding costs and fees by amending its Rules so as to provide for a permissive presumption for allocating costs and fees.³⁰³

299 Art 38(e) of the UNCITRAL Arbitration Rules (1976).

300 Art 42(1) of the UNCITRAL Arbitration Rules (2013).

301 David D. Caron and Lee M. Caplan, The UNCITRAL Arbitration Rules: A Commentary (2^nd Edn, OUP, 2013) 866.

302 Christoph H. Schreuer, et al, The ICSID Convention: A Commentary, 1229. A more detailed and empirical study on allocation of arbitral costs in ICSID arbitration sees Thomas H. Webster, ‘Efficiency in Investment Arbitration: Recent Decisions on Preliminary and Costs Issues’ (2009) 25(4) Arb Intl 469.

303 John Y Gotanda, ‘Consistently Inconsistent: The Need for Predictability in Awarding Costs and Fees in Investment Treaty Arbitrations’ (2013) 28(2) ICSID Rev-Foreign Investment LJ 420.

98 As a uniform approach, or at least improved normative guidance, is worth pursuing since it brings predictability and efficiency in arbitral proceedings, a further question would be which approach is more appropriate for international investment arbitration. Advocates for the American rule ordinarily aver that the English rule is largely a deterrent to investor-State arbitration, making arbitration less appealing to claimants and would-be third-party funders and more risky or outright economically unviable.³⁰⁴ Accordingly, UNCITRAL tribunals in investor-State arbitration shall reject adherence to the rule of ‘costs follow the event’ under article 42(1), which is more suitable for international commercial arbitration, and further require disputing parties to bear their own arbitral costs, save in cases of frivolous or bad faith claims.³⁰⁵ Schill proposes a one-way, pro-plaintiff cost-shifting approach under which respondent States have to bear their own legal costs regardless of the outcome of the adjudication, while claimants may recover their legal costs if they prevail on the merits.³⁰⁶ The justification for one-way cost-shifting relies mainly on three arguments, namely the nature of international investment arbitration as a mechanism for the enforcement of obligations under public international law, the impact of one-way cost-shifting as an incentive to arbitrate on the predictability of and compliance with these obligations, and the protection rationale of investment treaties.³⁰⁷

Nevertheless, the tide, ever so slightly, seems to be turning to an application of the authentic English rule on arbitral costs in investor-State arbitration.³⁰⁸ The assertion that the English rule deters potential claimants in cases where the claims are small relative to the anticipated costs may be tenable, but it is inconsistent with cases in which claimants are confident about their claims because in these cases the English rule serves to incentivize meritorious claims while discouraging frivolous or weak claims.³⁰⁹

304 Baiju S. Vasani & Anastasiya Ugale, ‘Cost Allocation in Investment Arbitration: Back Toward Diversification’, Columbia FDI Perspectives, No100, 29 July 2013.

Furthermore, from a

305 David D. Caron and Lee M. Caplan, The UNCITRAL Arbitration Rules: A Commentary, 874.

306 Stephan W. Schill, ‘Arbitration Risk and Effective Compliance: Cost-Shifting in Investment Treaty Arbitration’ (2006) 7 J World Investment & Trade 653.

307 Ibid, 676-95.

308 For example, EDF (Servs.) Ltd. v. Romania, ICSID Case No ARB/05/13, Award, 8 October 2009, para 329; International Thunderbird Gaming Corp. v. United Mexican States, UNCITRAL, Arbitral Award, 26 January 2006, para 220. An empirical study had shown that the tendency had continued in the period from 2005 to 2009 where the rule of ‘costs follow the event’ was followed in 64 per cent of the awards (see

Thomas H. Webster, Efficiency in Investment Arbitration: Recent Decisions on Preliminary and Costs Issues, 494).

309 James Nicholson & John Gaffney, ‘Cost Allocation in Investment Arbitration: Forward toward Incentivization, Columbia FDI Perspectives’, No123, 9 June 2014.

99 public policy perspective, the English rule is conducive to reducing political and economic burdens on respondents States, and such burdens might be one of the consequences of applying the pro-plaintiff cost-shifting approach and the American rule. ³¹⁰ More specifically, although the object and purpose of investment treaties are principally the protection of investment, a pro-plaintiff cost-shifting approach appears to be openly and deliberately biased and unbalanced, in particular considering that much-publicized challenge of the legitimacy of investor-State arbitration is directed at the perceived pro-investor systemic bias. The American rule creates financial incentives that foster low-merit, high-value claims but discourage strong, small claims, and may further have a chilling effect on States’ legitimate use of sovereign powers.³¹¹ On the whole it has become evident that the English rule is more feasible in striking a balance between investors’ rights and States’ interests, which seems to account for the emerging trend in favour of the rule of

‘costs follow the event’ in investment arbitration. In this regard, as ICSID tribunals’ broad discretion on apportionment of arbitral costs can become problematic, it is desirable that ICSID provides enhanced clarity on the apportionment of arbitral costs, probably adopting the English rule, thereby promoting a uniform practice and cost-effective dispute resolution.

4 Consistency