Arbitrators’ Discretion in Awarding Costs: Are There Any Limits?

A TRW Law Firm deep dive with London & Dubai perspectives—built for in-house counsel, deal teams, and arbitration users who want predictability

Why this matters: In most international arbitrations, the cost order is the last—and sometimes the most consequential—line of the award. It can transform a paper win into a net loss, or salvage a partial defeat. Yet the rules that govern costs are famously elastic: institutions grant tribunals wide latitude, seats differ, and the parties’ own conduct often tips the scale. This guide distils best practice from diverse seats and rules and translates it into actionable tactics you can deploy from day one.
Who we are: TRW’s teams in Dhaka, London and Dubai build cost strategies into the case architecture from the first draft of Procedural Order No. 1 to the last page of the award. Explore our related services: International Arbitration & Dispute Resolution, Investment Disputes & ICSID, and Corporate & Commercial Contracts.

1) The lay of the land: costs in international arbitration are a policy choice masked as discretion

Unlike merits issues, costs are rarely dictated by hard law. Most modern rules empower tribunals to award arbitration costs (institutional and tribunal fees, hearing logistics) and decide party costs (legal fees, experts, witnesses, document management, translation, travel) with broad discretion, subject to any agreement of the parties and mandatory law at the seat. In practice, that discretion plays out along three axes:

1. Allocation model:

• “Costs follow the event” (the net winner recovers a substantial share) — dominant in international practice and familiar to English and many civil-law lawyers.
• “Each party bears its own” — more common in certain domestic systems, but still seen when tribunals aim to preserve access to justice or when both sides behaved poorly.

1. Calibration method:

• Binary winner-takes-most (common-law instinct).
• Issue-by-issue apportionment (civil-law instinct), adjusting to relative success.
• Behaviour-based adjustments for efficiency, cooperation, proportionality, and bad faith.

1. Reasonableness filter:

• Even under loser-pays, tribunals scrutinise rates, staffing, hours, duplication, and necessity.
• They compare spend to stakes and complexity, and they police excess.

Implication for users: If you want predictability, don’t wait for closing submissions. Engineer the cost outcome before the first case management conference and keep nurturing it throughout the case.

2) The legal framework that actually constrains discretion (when it does)

2.1 Party autonomy sits at the top

What the parties agree to—in the arbitration clause, a later protocol, or a consent order—binds. You can contract for:

• Loser pays as a default;
• Proportional allocation by issue;
• Exclusion or capping of success fees;
• A cap or budget exchange regimen;
• Recovery of in-house counsel time and pre-arbitration costs.

Drafting and negotiation tips live here: Corporate & Commercial Contracts.

2.2 Institutional rules open the door—and set a tone

Contemporary rules (ICC, LCIA, SIAC, UNCITRAL) generally:

• Empower tribunals to award costs of arbitration and reasonable legal and other costs;
• Invite tribunals to weigh outcome, conduct, efficiency, and reasonableness;
• Permit interim costs (e.g., on procedural skirmishes) and costs upon withdrawal.

While phrasing differs, the direction of travel is uniform: wide discretion, guided by fairness.

2.3 Lex arbitri and mandatory law can impose hard stops

Typical “hard stops” include:

• Public policy limits (e.g., no punitive multipliers where considered penal);
• VAT/GST treatment under local tax law;
• Restrictions on contingency or uplift recovery;
• Requirements to reason the costs order;
• Seat-specific rules on interest and calculation periods.

2.4 Enforcement reality checks

A beautifully reasoned cost order that offends the enforcing court’s public policy or local tax rules can stall collection. Plan for recognition where the counterparty’s assets live. More on path-to-cash: International Arbitration & Dispute Resolution.

3) The five principles that reliably shape cost awards

Principle 1 — Outcome matters, but it’s not everything

Most tribunals start with who won overall. That yields a presumption in favour of the prevailing party recovering a significant share of reasonable costs. Yet the presumption bends when:

• The winner lost big issues or inflated the claim;
• The loser conceded early or offered a reasonable settlement the winner beat only marginally;
• Both sides over-litigated.

Principle 2 — Reasonableness is a value, not a formula

Tribunals test reasonableness against:

• Rates vs market (London, Dubai, Paris, Singapore benchmarks);
• Team mix (partner leverage, duplication across offices);
• Hours vs complexity (did the spend track the issues?);
• Necessity (five experts for one quantum point?);
• Proportionality (spending USD 300,000 to chase USD 30,000 invites trimming).

Tip: Convert your ledger into a story of necessity: tie hours and roles to issues lists and case milestones.

Principle 3 — Conduct counts (a lot)

Tribunals increasingly reward efficiency and penalise gamesmanship:

• Late ambushes, serial extensions, obstruction in document production, needless jurisdictional punts, or frivolous applications can swing costs against even a nominal winner.
• Cooperation, focused disclosure, timely narrowing of issues, and realistic timetables pay dividends.

Principle 4 — Transparency about funding and risk matters

Disclosure of third-party funding is now common to enable conflicts checks and fair case management. On recovery:

• Funded legal costs are recoverable if they are the party’s obligation;
• Funder premiums/uplifts are usually not (absent special circumstances or party agreement);
• ATE premiums and similar may be non-recoverable unless rules/seat say otherwise.

Principle 5 — Reasons are the guardrail

A cost order needs reasons: how outcome, conduct, reasonableness, and proportionality were weighed; how numbers were derived; how tax and interest were handled. Reasons make cost awards defensible on set-aside and enforcement.

4) What “loser pays” really means today (and how to use it)

“Loser pays” is not a blank cheque. Expect calibrations:

• Net winner recovers 50–100% of reasonable legal costs depending on conduct and relative success;
• Issue apportionment trims recovery if the winner lost discrete major issues;
• Offers to settle may affect costs from a certain date.

Playbook to maximise recovery:

1. Budget credibly and update; record variance reasons.
2. Keep time narratives linked to issues; suppress “administrative” noise.
3. Use a lean core team; explain any specialist spikes.
4. Document efficiencies (e.g., agreed bundles, focused production).
5. Preserve proof of offers and “beat the offer” logic.

Defensive playbook to limit exposure:

• Table early, reasonable settlement proposals;
• Keep your own spend proportionate;
• Highlight opponent’s over-lawyering and duplication;
• Seek staged costs orders on frivolous skirmishes to build a record.

5) The American Rule instincts in international practice—and when tribunals use them

Tribunals sometimes default to each side bears own costs where:

• The case raised novel legal questions;
• Both parties litigated honourably and efficiently;
• The outcome was a mixed bag with no clear winner;
• The contract or later protocol says so.

Reality check: Even “American Rule” instincts usually morph into split allocations rather than pure zero-recovery. If you want to preserve access to justice in a tough, uncertain case, negotiate a costs position early with the other side (or in PO1), rather than hoping for generosity at the end.

6) What counts as a “cost” (and what usually doesn’t)

Typically recoverable (if reasonable and necessary):

• External counsel fees;
• Tribunal/institutional fees;
• Expert and consultant fees;
• Hearing logistics, transcription, interpretation;
• Document review/hosting, e-discovery vendors;
• Reasonable witness travel and accommodation;
• Pre-arbitration costs (sometimes) where clearly tied to the dispute and contract.

Often contentious or excluded:

• Funder success fees or uplifts;
• ATE premiums (seat-dependent);
• In-house counsel time (recoverable in some seats with proof);
• PR or media spend;
• Duplicative vendor costs where one would do.

Tax/VAT/GST:

• Address who bears VAT on legal fees; claim VAT on top of fee recovery where you incur it and can’t fully credit it back; show the tribunal jurisdictional VAT logic.
• Calculate interest on the net or gross amount as appropriate under governing law/seat.

7) Interim costs orders: the quiet lever that shapes behaviour

Tribunals can and should use interim costs tools to deter tactics that waste time and money:

• Costs in the application on losing discovery or procedural motions;
• Security for costs where a claimant appears impecunious or asset-light;
• Wasted costs for non-compliance with procedural orders;
• Adverse costs on withdrawn claims or abandoned jurisdictional challenges.

Why this matters: A handful of smart interim costs orders early in the case can halve the noise for the next 12 months.

8) Third-party funding, success fees, and security for costs—how they really interact

• Disclosure: Expect tribunals to require disclosure of the fact of funding and the identity of the funder for conflicts checks; terms are usually kept confidential unless directly relevant.
• Recoverability: Legal fees paid with funding are party costs and recoverable (subject to reasonableness). Funder uplifts are ordinarily not.
• Security for costs: Funding alone is not proof of impecuniosity, but when combined with thin balance sheets and asset-offshoring, it can justify security.
• Adverse costs cover: Tribunals sometimes condition funding-related procedural indulgences (extensions, late amendments) on obtaining adverse costs cover.

9) The London and Dubai lenses: what users should expect—and demand

9.1 London (England & Wales)

• Instinct: sophisticated loser pays, grounded in reasonableness.
• Good practice: early costs management in complex cases; reasoned costs awards with worked calculations; sensitivity to offers and Part 36-style logic in spirit.
• Tactics: seek issue-wise apportionment where appropriate; document efficiency moves; use freezing or interim cost orders strategically in parallel court interface when available.

9.2 Dubai (DIFC/UAE)

• DIFC courts: common-law ethos; receptive to reasoned costs logic; fast recognition and supportive of arbitration outcomes.
• Regional practice: high scrutiny on sanctions/AML and VAT; be explicit about tax treatment in submissions.
• Tactics: lodge concise, tabulated cost schedules; pre-clear banking routes for collection; where enforcement may cross into onshore UAE, calibrate language and documentation to execution practice.

For enforcement planning and multi-hub filing strategies, see: International Arbitration & Dispute Resolution.

10) Procedural Order No. 1: bake in the rules you want applied to costs

Model PO1 “Costs & Conduct” provisions (adapt to seat/rules):

Costs Follow Success (Default). Absent party agreement otherwise, the Tribunal will apply a loser-pays presumption subject to adjustment for relative success, reasonableness, proportionality, and party conduct.

Reasonableness & Proportionality. The Tribunal may consider rates, staffing, hours, duplication, necessity, and case complexity, and may reduce any item accordingly.

Conduct & Efficiency. The Tribunal may take into account compliance with timelines, cooperative case management, focus in document production, and avoidance of frivolous applications.

Interim Costs. Costs of discrete applications shall be in the Tribunal’s discretion and may be awarded on an interim basis.

Funding Disclosure. Parties shall disclose the existence and identity of any third-party funder for conflicts purposes within 14 days of funding.

Schedules. Each party shall submit costs schedules with sufficient detail (workstream, role, hours, rate, amount) at milestones set below.

Tax & Interest. Parties shall address VAT/GST treatment and propose interest calculations (rate, compounding, period) applicable to any cost award.

Codifying this early saves surprises later and helps align expectations of mixed legal teams.

11) The documentation that wins cost orders (and avoids painful trims)

• Issue-mapped time records: entries that say “review” or “admin” invite cuts; entries tied to Issue 1 – jurisdiction or Issue 3 – quantum win credibility.
• Team discipline: avoid five senior lawyers on a routine call; explain any specialist spikes.
• Expert scopes: keep reports within mandate; note cost-saving scoping decisions.
• Bundles & disclosure: record efficiencies (agreed search terms, custodian limits, shared platforms).
• Settlement and offers: preserve offers and responses; if confidentiality rules apply, use sealed submissions at the costs phase.
• Tax memos: 1–2 page explanation of VAT/GST logic and whether you bear or credit it, with calculations that match the ledger.
• Interest workings: simple table with rate, basis, dates, and amount per day to judgment.

12) Ten recurring traps—and how to sidestep them

1. Waiting until the end to think about costs. Fix: bake it into PO1 and the case plan.
2. Over-lawyering routine tasks. Fix: clear delegation and partner leverage.
3. Opaque time narratives. Fix: train the team to issue-map entries.
4. Duplicative experts. Fix: collaborate on joint statements and limit scope creep.
5. Discovery sprawl. Fix: proportional requests, custodian caps, targeted search terms.
6. Ignoring offers. Fix: track and “beat the offer” logic; propose time-limited offers.
7. No tax/interest analysis. Fix: include VAT/GST and interest computations in your costs brief.
8. Funders’ uplifts in the ask. Fix: unless your clause allows it, don’t ask—save credibility for recoverable items.
9. Confidentiality missteps. Fix: if you need to refer to offers or funding terms, use sealed annexes.
10. Seat blind spots. Fix: align with mandatory norms on recoverability and reasons.

13) Security for costs: not a punishment—an insurance policy the tribunal can tailor

When appropriate: impecunious claimant, asset flight risk, history of non-payment of adverse costs, or deadlocked security in a cross-claim dynamic.
Forms: bank guarantee, parent guarantee, escrow, ATE with tribunal-approved terms.
Calibration: proportional to realistic adverse costs exposure, not everything the respondent ever spent.
Safeguards: stage security (e.g., to the pleading milestone), revisit upon case narrowing or partial awards.

14) Costs in treaty and state-facing disputes—special sensitivities

• Public interest arguments can mellow loser-pays instincts; tribunals still consider conduct and efficiency.
• Sovereign immunities rarely affect costs orders but can complicate collection; target commercial assets and revenues.
• Transparency rules may affect confidentiality of cost schedules; prepare public-law-compatible versions.

For state/SOE strategy, see: Investment Disputes & ICSID.

15) London & Dubai playbooks: how we run the costs phase for clients

The London playbook

• Three-layer submission: (1) Outcome & conduct narrative; (2) Reasonableness analysis mapped to issues; (3) Numbers with VAT/interest workings.
• Comparators: short note on market rates and case complexity; leverage cost-saving moves.
• Offer logic: explain how you beat meaningful settlement offers.

The Dubai/DIFC playbook

• Tabular schedule with role, hours, rate, subtotal, plus VAT logic under UAE/DIFC frameworks.
• AML & banking ready: ensure the eventual cost payment can clear (licences, bank letters).
• Conduit planning: if execution may move to onshore UAE, craft translation and formalities now.

16) Model language for contracts and ToR that clarifies costs (and reduces surprises)

Costs Default Rule. The Parties agree that, subject to the Tribunal’s discretion and mandatory law of the seat, costs shall follow the event, adjusted for relative success and party conduct.

Recoverable Items. Recoverable Party Costs include reasonable external legal fees, experts, witness costs, translations, transcripts, hearing logistics, and e-discovery vendors. Funder uplifts and PR costs are not recoverable unless agreed in writing.

In-House Time. Reasonable in-house counsel time is recoverable where particularised and evidenced.

Interest & Tax. Cost awards shall include interest from the due date at [X% over SONIA / relevant benchmark], compounded [monthly/quarterly], and address VAT/GST consistently with applicable tax law.

Offers to Settle. The Tribunal may take account of written settlement offers when determining costs, with submissions on offers to be filed in a sealed annex.

Use this framing in your next deal paper: Corporate & Commercial Contracts.

17) A step-by-step timeline for managing costs from Day 1 to Final Award

Day 1–30: Setup

• Align on PO1 costs provisions, funding disclosure, schedules cadence.
• Build your issues map and time-entry taxonomy.
• Create a live budget with variance tracking.

Month 2–6: Build the record

• Keep disclosure proportional and memorialise cooperation.
• Seek interim costs orders on clear-cut skirmishes.
• Revisit budget; record efficiency gains.

Month 7–12: Hearing run-up

• Audit witness/expert cost drivers; cut duplication.
• Consider without-prejudice settlement offers (credibly priced).

Post-hearing: Costs brief

• File a concise narrative + worked spreadsheet + VAT/interest note + sealed annex for offers.
• Ask for reasons on allocation, reasonableness, tax, and interest.

Final award: Collection

• Be ready with recognition paperwork in asset hubs; pre-clear banking and licences if needed.

18) Frequently Asked Questions (straight answers)

Q: We won—but the tribunal slashed our costs by half. Is that normal?
A: It can be. If you over-resourced routine tasks, ran multiple speculative points, or spent disproportionately to the stakes, tribunals trim. Next case: issue-map time, avoid duplication, document efficiencies.

Q: Can we recover in-house counsel time?
A: Sometimes. Seats differ. Provide detailed logs, roles, and show why using in-house was efficient compared to outside counsel.

Q: Are uplift/success fees recoverable?
A: Typically no, unless the parties agreed or a rule/seat expressly permits. Ask for legal fees actually incurred.

Q: Does third-party funding hurt our costs recovery chances?
A: Not per se. Funded cases recover reasonable legal spend. But be prepared for security for costs if your asset position looks weak.

Q: Should we split costs by issue or push loser-pays?
A: Depends on your case profile. Where you are the clear net winner, push loser-pays with behaviour credits. In mixed outcomes, propose issue-based apportionment with maths.

19) The TRW advantage: from clause to closing—and cash in bank

• Clause engineering: We hard-wire cost logic into contracts and Terms of Reference.
• Case management: We script PO1 to reward cooperation and deter games.
• Budgets & narratives: We align time entries to issues and milestones so you win the reasonableness battle.
• Interim levers: We pursue interim costs and security where justified.
• Final brief: We deliver a bulletproof costs package—narrative, numbers, tax, interest, offers—built to survive enforcement.
• Enforcement choreography: London and DIFC pathways, with bank-ready documentation and licences where needed.

Explore our broader arbitration toolbox:

• International Arbitration & Dispute Resolution
• Investment Disputes & ICSID
• Corporate & Commercial Contracts

20) The bottom line: discretion with direction

Arbitrators do enjoy wide discretion in awarding costs—but it’s not a black box. Direction comes from party agreement, institutional rules, seat law, and evolving expectations around efficiency, fairness, and proportionality. If you want predictability, design for it. Write it into your clause and PO1. Manage your team and vendors to tell a costs story of necessity. Use interim costs to police the process. And when you win, present a reasoned, tax-aware, interest-grounded ask that a tribunal can grant with confidence—and a court can enforce without hesitation.

That’s how you turn “discretion” into something very close to certainty.

Talk to TRW

Tahmidur Remura Wahid (TRW) Law Firm
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