How much does ISDS dispute cost? Firstly, we have to be clear which costs are being referred to.
ISDS costs typically consist of three elements: the arbitrators’ fee, the administrative fee of the arbitral institution administering the case (not in every case) and the cost of legal representation. In some cases, there can also be additional costs relating to legal experts and an administrative secretary.
Arbitral institutions, such as the SCC, usually have rules on arbitrators’ fees and the administrative fee. The SCC sets these fees based on the amount in dispute.
Legal fees of counsel who represent the party depends on the complexity of the case and time spent. It may not necessarily reflect the amount in dispute, but rather whether facts and other matters in dispute have been complex or not. In this context it deserves pointing out that the first generation of international investment agreement typically contained relatively broad and vague provisions, which may in itself create complexity in the adjudication of the claims.
A study by the OECD concludes that legal counsel fees and experts are the largest cost component in ISDS, estimated to average 82% of the total cost of a case. Arbitrator fees average about 16% of costs. Administration costs of arbitral institutions are relatively low, generally amounting to about 2% of costs.
The above numbers are interesting for the assessment of an appeal mechanism in ISDS. If the purpose of an appeal is to have the case reheard on its merits, effectively have a re-trial of the case, there is strong reason to believe that the cost of legal fees will double, as the case moves through the procedure for appeal.
Now, who pays? The SCC Rules provides that the tribunal may apportion the administrative fee and the arbitrators’ fee between parties, depending to the outcome of the case. The Rules further mention that the tribunal may order a party to pay reasonable legal representation of another party. Under UNCITRAL Arbitration Rules, the costs of the arbitration shall in principle be borne by the unsuccessful party, even though the tribunal may allocate the cost between parties should it finds it reasonable.
In Glamis Gold v. USA, the tribunal dismissed all claims by the investor and ordered the investor to pay two-third of the arbitration costs. In Methanex v. USA, the tribunal also dismissed all claims by the investor and went further by ordering the investor to pay all the costs of the arbitration.
This practice has further been incorporated into recent free trade agreement. The TPP specifically provides that tribunal may award the state reasonable costs and attorney’s fees if it determines the investor’s claims to be frivolous.