Clifford Chance

Refusal to pay share of costs deposit does not entitle other party to litigate

21 October 2014

Towards the beginning of arbitration proceedings, parties are often ordered to pay a deposit on account of the expected costs of the arbitration. The requirement to pay this deposit or 'advance on costs' to the institution administering the arbitration is found in most institutional rules, including those of the International Chamber of Commerce (ICC).

The amount of the advance on costs is based on an estimate of the arbitrators' fees and the costs charged by the arbitral institution for administering the arbitration. Depending on how such costs are calculated, the advance can be substantial. The ICC calculates the advance on costs based on the monetary value of the claims and refunds any amounts not disbursed at the end of the proceedings.

The arbitration will generally proceed only if the parties pay the advance on costs. The ICC Rules provide that if one party (usually the respondent) fails to pay its share, the other party may do so on its behalf. Claimants frequently agree to substitute for a respondent in paying its share in the hope that the arbitral tribunal will ultimately make an award in their favour and order the respondent to reimburse their payment of the advance on costs in full.

 

The recent decision in BDMS Limited v Rafael Advanced Defence Systems illustrates what can happen if a respondent fails to pay its share of the advance on costs and the claimant refuses to pay the balance of the advance on the respondent's behalf.

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