ICSID arbitration can be a powerful tool to obtain compensation for losses caused to foreign investors by States. But arbitration can be expensive, and investors frequently ask one practical question: if I win, will I recover my legal costs?
The short answer is: often yes, but not automatically.
Unlike many domestic court systems, the ICSID framework does not impose a mandatory “loser pays” rule. Instead, tribunals enjoy broad discretion to determine how arbitration costs should be allocated. In recent years, however, ICSID practice has increasingly favoured awarding costs to the successful party, particularly following the introduction of the 2022 ICSID Arbitration Rules.
For claimant investors, the prospects of recovering costs generally depend on three principal considerations: the degree of success achieved, the parties’ conduct during the proceedings, and whether the costs incurred were reasonable.
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The principle of tribunal discretion
According to Article 61(2) of the ICSID Convention, the tribunal has the power to decide how and by whom the expenses (including legal fees, tribunal fees, and administrative charges) shall be paid. This decision forms a binding part of the final award.
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The trend towards “Costs follow the event”
Historically, many ICSID tribunals adopted a “Pay Your Own Way” approach, under which each party bore its own legal costs while sharing the costs of the tribunal and the Centre.
More recent decisions, however, demonstrate a growing tendency towards the “Costs Follow the Event” principle, under which the unsuccessful party is ordered to reimburse some or all of the successful party’s costs. While this is by no means automatic, it has become increasingly common where one party has substantially prevailed.
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Factors for cost allocation (Rule 52)
The 2022 Arbitration Rules (Rule 52) specifically require the tribunal to consider several “relevant circumstances” when deciding who pays. These factors have significantly reduced the unpredictability of cost awards:
- The outcome: The “success” or “failure” of a party on its claims or defences is the primary consideration.
- Party conduct: Tribunals may consider whether a party acted efficiently and in good faith throughout the proceedings, or instead engaged in unnecessary procedural disputes, delays or non-compliance with procedural orders.
- Reasonableness and complexity: Even a successful party may recover only those legal fees and expenses that the tribunal considers reasonable and proportionate. Particularly complex factual or legal issues may justify higher costs.
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Mandatory“loser pays” exceptions
One situation in which the 2022 Rules adopt a stronger presumption is where claims are dismissed for manifest lack of legal merit under Rule 41. In such cases, Rule 52(2) provides that the tribunal shall award the prevailing party its reasonable costs unless special circumstances justify a different outcome. The rule is intended to discourage the pursuit of clearly unmeritorious claims or objections.
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Security for costs (Rule 53)
The 2022 Rules also introduced a formal mechanism for security for costs. If a respondent (usually a State) can show that a claimant (investor) might be unable or unwilling to pay a future cost award, the tribunal can order the claimant to provide a guarantee or deposit. In deciding such requests, tribunals consider all relevant circumstances, including the claimant’s ability and willingness to comply with a potential costs award. While the existence of third-party funding may be relevant, it does not by itself justify an order for security for costs.
Conclusion
Although there is still no automatic “loser pays” rule in ICSID arbitration, the trend in recent years has been towards awarding costs to the successful party. Investors who prevail on the merits, conduct the proceedings efficiently and reasonably, and incur proportionate legal costs now stand a significantly better chance of recovering a substantial portion of their arbitration expenses.
