Advance Payments for Claims and Counterclaims in International Arbitration
Advance Payments for Claims and Counterclaims in International Arbitration
In arbitration, the parties are responsible for paying the costs of the arbitral process (arbitrators' fees, administrative costs of the institution, etc.). To ensure these costs are covered, arbitral institutions or tribunals often require parties to make advance payments or deposits against the anticipated costs.
When a counterclaim is introduced, it effectively initiates a new "case" within the existing proceeding, with its own set of potential costs. Therefore, the tribunal or institution will almost always require an additional advance payment to cover the costs related to arbitrating the counterclaim.
This blog provides a comparative overview of the advance payment provisions under the rules of the ICC, LCIA, HKIAC, SIAC, CIETAC, and the UNCITRAL Arbitration Rules.
A. Key Provisions in Major Institutional Rules:
ICC Rules (Article 37): The ICC Court fixes a provisional advance to be paid by the Claimant to cover the costs of the arbitration until the Terms of Reference or a case management conference under expedited rules. After that, it fixes one or more advances on costs, covering both the claim and any counterclaim. The advance is typically split equally between the Claimant and Respondent, but the ICC Court may fix separate advances on costs for the claims and the counterclaims if the counterclaim is significantly larger.
LCIA Rules (Article 24): The LCIA Court decides the amount, proportion, and timing of one or more payments at its discretion to secure the estimated total Arbitration Costs as defined in Article 28.1. A counterclaim will lead to a reassessment and usually an increase in the total advance required. If a party fails to pay for its own claim, counterclaim, or cross-claim, the LCIA Court or the tribunal may treat that specific claim as withdrawn.
HKIAC Rules (Article 41): The HKIAC will, as a default, ask both the Claimant and Respondent to pay an equal share of the total advance (Initial Deposit Art. 41.1) to cover the main arbitration costs (arbitrator fees and expenses, HKIAC's fees, etc.). HKIAC can request additional payments during the arbitration if the initial deposit is insufficient (Supplementary Deposits Art. 41.3). In cases involving counterclaims, or where it is otherwise "appropriate," HKIAC can request separate deposits for the claim and the counterclaim. This means the claimant pays for the claim, and the respondent pays for the counterclaim. This "de-couples" the claims, preventing one party from holding the other's claim hostage through non-payment.
SIAC Rules (Rule 35): The Registrar fixes the deposits payable towards the estimated costs of the arbitration calculated in accordance with the amount in dispute under the Schedule of Fees, payable by both parties in equal shares. The Registrar may fix separate deposits for a claim, counterclaim, or cross-claim. If a party fails to pay the deposits as directed, the Registrar may direct the Tribunal and the SIAC Secretariat to suspend the conduct and administration of the arbitration in whole or in part; and/or set a time limit on the expiry of which the relevant claim, counterclaim, or cross-claim shall be considered as withdrawn on a without prejudice basis.
CIETAC Rules (Articles 12 and 16): Unlike other major institutions where parties are jointly liable for a single, consolidated advance, CIETAC treats claims and counterclaims as financially independent. The Claimant pays the arbitration fee for the main claim when submitting the Request for Arbitration (Article 12(1)(3)). If the Respondent files a counterclaim, it must pay a separate arbitration fee in advance for that counterclaim within a specified time period (Article 16(3)), failing which the Respondent shall be deemed not to have filed any counterclaim.
UNCITRAL Rules (Article 43): The arbitral tribunal, on its establishment, may request the parties to deposit an equal amount as an advance for the costs referred to in article 40, paragraphs 2 (a) to (c). During the course of the arbitral proceedings the arbitral tribunal may request supplementary deposits from the parties. When a respondent submits a counterclaim, it increases the scope and complexity of the case. It is therefore logical and within the tribunal's discretion under Article 43(2) to consider this when determining if a supplementary deposit is needed to cover the additional work and time the counterclaim will entail.
B. Key Takeaways for Parties
ICC, HKIAC, SIAC Rules explicitly provide for the power to order a separate advance for a counterclaim, effectively requiring the respondent to fund its own claim.
LCIA and UNCITRAL Rules give the LCIA or tribunal the implied discretion to order separate advance for a counterclaim.
CIETAC Rules stands out for its explicit rule that the Claimant pays the arbitration fee for the main claim when submitting the Request for Arbitration and if the Respondent files a counterclaim, it must pay a separate arbitration fee in advance for that counterclaim, failing which the Respondent shall be deemed not to have filed any counterclaim. This is a strict, automatic consequence.
CIETAC Rules Article 85 allows to charge additional reasonable costs (e.g., arbitrator's special remuneration, travel) and may require a deposit for these. Failure to pay a deposit for a nominated arbitrator's costs can lead to the nomination being deemed invalid.
The "Pay-to-Play" Principle: The underlying principle is consistent: a party wishing to pursue a claim (or counterclaim) must be prepared to fund it. Failure to do so risks the claim/counterclaim being sidelined or dismissed.
Conclusion
Understanding the specific advance payment provisions of your chosen arbitration rules is crucial for effective case planning and risk management, as it directly impacts case strategy, budgeting, and potential settlement negotiation dynamics.