20 January 1995, Geneva, Switzerland
Commentary: The Arbitral Decision; Fees and Costs
by Werner Melis
Chairman, International Arbitration Center,
Federal Economic Chamber, Vienna
When I received the program of this Conference, I had a silent smile. If you look at the sequence of the contributions, it follows the strict social rules that the important matters of life, namely money, come at the very end. You have had an excellent survey by Mr. Gurry about the variety of solutions which the different arbitration centers have chosen for the determination of arbitrators fees and administrative charges. This variety shows, to a certain extent, that the expectations of the parties, their lawyers and potential arbitrators vary, depending on the legal environment at the place of operation of the Center. I can fully support what Dr. Herrmann said that all the Rules and the solutions in the Rules show us a sort of local flavour. I would simply add to this some ideas about the policy which might be behind some of the solutions which have, in fact, been adopted.
One important issue has not yet been addressed. We now know how the new WIPO Arbitration Center is establishing its fees and administrative charges. One question which always comes to mind, when parties are envisaging where to go for international arbitration and which center they shall choose, is how the costs of the centers may be compared. Mr. Gurry has rightly said that a way of arriving at the solutions is not very helpful because it takes really some time to compare the different calculations, in order to see how much an arbitration would cost at a specific center, if such a comparison is possible at all. I would say one thing. The discussion about the comparative fees of the centers is to a certain extent a false and fictitious problem, because, generally speaking, the costs of arbitration of any serious arbitration center are relatively low as compared to the other legal fees, the costs of representation of the parties. In my personal experience over the years I would say that, as a rule of thumb, the costs of an arbitration tribunal composed of three members are about one-third of the costs of the legal representation of one party which are in fact claimed and refunded. And this is even on the nicer line, because I have seen much greater disparities, even up to 10.
Generally speaking, the costs of arbitration, in the narrow sense of the word, namely arbitrators fees and the administrative charges of the center, are in fact a fraction of the total legal costs. A part of that, I find, is a false argument for the parties or their lawyers, when they try to determine to which place to go, because only centers which pay internationally comparable fees to the arbitrators will have the privilege of having these arbitrators working on their cases. So, at least in the medium run, no person will accept to work for a center if not reasonably paid. Maybe he will do it once, in order to improve his pedigree, but never a second time. It is necessary for an international center to pay international fees to the arbitrators and, having had a rough look at the solutions found by the WIPO Center, I would say that they fit into this frame.
Another question is comparing the administrative charges of the centers. Here, the policy might be different, depending on the policy of the center. There are centers, sometimes within the framework of other institutions like Chambers of Commerce, where the services of arbitration are considered as a part of the overall package of services rendered by the center. In this case, the service idea might prevail, which means that the administrative charges can be relatively low and implies that, if the services are properly rendered, the associations behind the center will subsidize the center.
There are also other approaches, where the center must at least be self-sustaining and there are also centers which aim at raising money or earning money.
Having a look now at the administrative charges which are included in the schedule of the WIPO Rules, I would say that they are rather at the lower end. This means that, generally speaking, I would consider this new Center as a Center which offers international arbitration within the range of services which the organization offers, but certainly not as a means of making a lot of money out of it.
Regarding the determination of the fees of arbitrators, I think Mr. Gurry has rightly mentioned that the different approaches which can be taken are to determine the fees either on the basis of the time spent, or in relation to the sum in dispute. If it is determined in relation to the sum in dispute, it may be either a fixed sum for a specific amount in dispute or a bracket between minimum and maximum where it is possible for the Center to take other criteria into consideration, like time spent, difficulty of the case, and other things.
Mr. Gurry already mentioned that the system of paying the arbitrator on an hourly basis might be seen by the parties as a system which does not induce the arbitrators to work rapidly, because, in any case, they still get the hourly rate which they have accepted for a specific case. This system has a certain disadvantage for the parties, because there is no predictability about the costs of arbitration and then, seen from the policy of a center, it is difficult to handle cases which I would call small cases. If a center has to pay a specific sum on an hourly basis to an arbitrator, the costs of an arbitration in small cases might be a deterrent to the parties. It is my personal experience that I have never seen an arbitration, even in a very small case, which ends with an award where an arbitrator has spent less than 40 or 50 hours. This means, in fact, that the small case--and all centers have small cases--is difficult to tackle for the center.
If we take now the other system, namely the calculation of the arbitrators fees on the basis of sums in dispute, the system which has the greatest predictability, of course, is the system where the fees are fixed fees determined according to the amount in dispute. Here, again, there are advantages and disadvantages. The advantage for the parties is that they know exactly how much the arbitration will cost them. They can calculate it from the schedule. For the arbitrator, the system is a bit more difficult to assess, because they might earn relatively high fees if the case runs smoothly, but it is a sort of gamble, because they might earn miserable fees if the case turns out to be more difficult than expected.
For the policy of an arbitral center, it has a certain advantage, because in cases which I call the small cases, the arbitrator who takes the mandate knows from the very beginning that he is not earning money. He will take the mandate for other reasons, for instance to improve his pedigree. Maybe, what I see often, attorneys tell me that they will accept any case you give them because they are simply changing the hat, or they simply like it, or they even have a certain sense of responsibility, since they are a part of a system and they have also to do some service when they are, on the other hand, earning their money as attorneys before an arbitration court.
The system which has been adopted here in the WIPO Arbitration Center follows closely the ICC system as such, which allows a maximum and minimum. The advantage is, of course, that the Center has the possibility to adjust according to the needs of the case. On the other hand--Mr. Gurry has mentioned it--the Center gets certainly problems vis-a-vis the parties and the arbitrators. This is a sandwich proposition, because the parties will always claim that the case is relatively simple and it deserves only the minimum. There will be attempt by the arbitrators to argue the other way around, saying that this is a terribly difficult case and that the maximum is not enough.
We had in Vienna actually a system borrowed also from ICC in the former rules and I was personally so embarrassed, always being in the sandwich position, that we have practically abolished the system in the last version of our Rules. Now we are close to a system which establishes fixed rates for a certain amount in dispute, it being understood that I am fully aware of the problems which this might cause some times.
A last word now about the registration fee. I have the impression that this registration fee, which is not refundable, is often not understood by the parties. They do not know what it really stands for. I think that it was introduced first by ICC and was taken up then by others, because the centers have often a problem that cases are introduced, that no payments are made, that in the meantime a lot of money has been spent in preparing a file and entertaining correspondence with the party and at the very end nothing happens. The center has practically spent lots of money without any fee. I would say, also here, if I compare, that this registration fee is rather modest, because it will again hardly cover the so-called smaller cases and, unfortunately, the smaller cases are usually, as far as the center is concerned, more difficult and painful than the bigger cases. The large cases are run by experienced lawyers and it is a smoother work between the center and the lawyers on the other side, while the smaller cases are often run by the parties themselves, which have no experience at all.
To sum up, I see that we are running out of time and I would say that, having had a look at the solutions which have been adopted, they are workable and they are fully up to international standards.
Commentary - Stephen R. Bond
Discussion
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