Author

Mr Gustavo Laborde

Principal - Laborde Law

Arbitrator Compensation

I. Definition

1.

An arbitrator has the right to be compensated for the arbitral services rendered in, and for the expenses incurred for, the arbitration. This right to compensation is rooted in the contract between the parties and the arbitrator: the arbitrator is appointed to adjudicate the dispute between the parties in exchange for financial compensation. This right is likewise in line with the customs and expectations in international arbitration.1

II. Where the Fees are Set

2.

The calculation of the arbitrator’s fees is stipulated in the contract between the parties and the arbitrator or in the institutional rules governing the procedure. In ad hoc arbitration, the fees will be the subject of a direct negotiation between the parties and the arbitrator(s).2 By contrast, in institutional arbitration the rules set out the method for the calculation of these fees: this method is incorporated by reference into the arbitrator’s contract.3

3.

The question has arisen as to whether the parties and the tribunal may agree to amend the fees provided for in the institutional rules. In one known instance, an OHADA award was set aside on the grounds that the parties and the tribunal had entered into a separate fee arrangement in lieu of the institutional fees.4 This remains an open question as the rules of most institutions are silent on this.

III. How to Set the Fees

4.

While there is no universally established method to calculate the arbitrator’s fees, the two most frequently used methods are the ad valorem and “time spent” methods.5

5.

Under the ad valorem method, the arbitrator’s fees are set by reference to the amount in dispute. In practice, this means that the fees will correspond to a percentage of the amount in dispute. Typically, a regressive scale will apply: the higher the amount in dispute, the lower the percentage to which the arbitrator shall be entitled.6

6.

Under the “time spent” method, the arbitrator’s fees are calculated on the basis of an hourly or a daily rate at which the arbitrator will be compensated for time spent working on the case.7 The time spent must be reasonable in view of the significance and the complexity of the case.8

7.

Arbitral institutions usually rely on one of these two methods. Whereas the ICC9, CIETAC10, the SCC11 and SIAC12 employ the ad valorem method, ICSID13, the LCIA14 and the ICDR15 apply the “time spent” method. Under the HKIAC rules, the parties may choose one of the two methods.17

IV. Expenses

8.

In addition to legal fees, arbitrators also have the right to be compensated for the expenses incurred in connection with the arbitration. These expenses ordinarily include travel, board and lodging.18 Two different methods are used. First, the reimbursement method, whereby the arbitrators are reimbursed at cost, for which they must keep notes of their expenditures. Usually the sole limitation is that these expenses must be reasonable. Second, the per diem method, whereby arbitrators are paid a fixed daily rate intended to cover hotel and other subsistence expenses.19

V. Advance on Costs

9.

A common practice in international arbitration is for the arbitrators—or an institution on their behalf—to require an advance on costs to secure their fees and expenses. Typically, each party will be asked to pay an equal proportion of the advance on costs.20 But if one party does not pay its share of the advance, the other will be invited to pay for the missing share, as the parties are jointly and severally liable for the fees and expenses of the arbitrators.21

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