The financial stakes in investment treaty arbitration are high. The growing complexity of investment treaty proceedings, coupled with the increasing sophistication of the parties, is pushing up average party costs, which now stand at approximately USD4.5m. Against this backdrop, the cost of bringing – or defending – an investment treaty proceeding is increasingly a substantial investment in itself, meaning the extent to which parties will be awarded costs, and crucially the probability of actually receiving payment, is an emerging concern for both investor-claimants and respondent States.

As investment treaty practice shows an increasing trend for costs to follow the event, i.e. awarding the successful party (at least a portion) of its costs, we examine the costs awards that have recently been made in relation to both claimants and respondents.

This research is a follow up to the study published in 2014 by Matthew Hodgson on the costs and duration of arbitral proceedings. We 56 cases in the public domain where costs awards have been made and analysed the:

• number of instances where (at least partial) payment was made; and

• method and nature of payments made in relation to these awards.

The report goes on to discuss whether greater availability of security for costs is the panacea to parties’ concerns.

The review has produced the following key findings:

Payment of costs awards
• 52% of successful claimants were paid in full, while 19% received no payment at all.

• 47% of successful respondents were paid in full, but a higher proportion (37%) did not receive any payment from the unsuccessful claimant.

Method of securing payment (when costs awards were paid in full or in part)
• Successful claimants are more likely to secure payment through settlement (41%), whereas for successful respondents, settlement only occurred 9% of the time.

• Using enforcement proceedings to secure payment occurred in 27% of the time for successful claimants, but only 12% for successful respondents.

Nature of the payment (when costs awards were paid in full or in part)
• Where some payment was made to successful claimants, it was usually a full payment (65%); payment was even more likely to be made in full (77%) where a claimant paid the costs of a successful respondent State.

• Out of the successful parties paid in full, 18% of claimants still had to pursue enforcement proceedings to secure this payment. Similarly, 18% of awards in favour of respondents were only satisfied after enforcement proceedings.

• When taking into account settlements as well, 71% of successful claimants were paid voluntarily, which contrasts with 46% of successful respondents.

Cases of adjustment
• In cases where the claimant wins, a costs adjustment was made 53% of the time, compared with 38% of the time in successful respondent cases.

Of the 56 cases reviewed for this research, costs awards were made in favour of the claimants in 21 cases and the respondent State in 35 cases.

A note on methodology

The authors of the study contacted counsel representing the successful party in 80 different investment treaty cases, where a cost award was made in the period to 31 December 2013. Responses were received in respect of 58 cases, although two were excluded from the study. Of the 56 cases reviewed for this research, costs awards were made in favour of the claimants in 21 cases and the respondent State in 35 cases. The research was conducted on a strictly anonymous basis and all references to specific cases in the study are based on publicly available information.

The research was first published in Global Arbitration Review, Costs awards – who pays?, Volume 10 Issue 4, September 2015.