A key feature of offshore arbitration is that the administrative fees of the arbitral institution are separate from the arbitral tribunal’s remuneration. Costs of arbitration by the Hong Kong International Arbitration Centre (HKIAC) are generally three-fold, comprising registration fees, administrative fees, and the tribunal’s fees and expenses.
Administrative fees are calculated based on the amount in dispute and are capped at HKD400,000 (USD51,000). If the amount in dispute is not quantified, these fees are determined by the HKIAC, taking into account the circumstances of the case.
It is important to understand this payment process, the consequences of failing to pay, and the refund process in the event of withdrawing from arbitration.
Pursuant to article 41.1 of the 2018 HKIAC Administered Arbitration Rules, the HKIAC shall – as soon as practicable after receiving the Notice of Arbitration by the respondent – request the claimant and respondent to each deposit an equal amount, representing the full amount of administrative fees, and an advance for the arbitral tribunal’s fees and expenses.
Where more than two parties are involved, the claimant or group of claimants and the respondent or group of respondents shall each bear half of the initial deposit.
This practice ensures that the HKIAC holds sufficient funds at the initial stage of arbitration to cover its administrative fees and the tribunal’s fees and expenses, if any, even if the parties reach an early settlement.
It is necessary to charge the full amount of administrative fees as part of the initial deposits because the majority of the HKIAC’s work is done at the initial stage, namely from commencement of arbitration to constitution of the tribunal.
During the course of arbitration, the HKIAC may request the parties to make supplementary deposits. Administrative fees may be increased in the event of, for instance, consolidation of arbitrations, the joinder of additional parties, and amendments of claims and counterclaims.
Payment must be made in Hong Kong dollars and can be made by cheque drawn to the Hong Kong International Arbitration Centre, or by bank transfer. The account details are available on the HKIAC’s webpage: https://www.hkiac.org/arbitration/fees.
If a payment is made by bank transfer, the remitting party should identify its name and case number, and notify the HKIAC with proof of remittance once the payment is made. All bank charges are to be borne by the remitting party.
Pursuant to article 5.4 of the above-mentioned rules, provided that all deposits requested by the HKIAC have been paid, it shall transmit the case file to the arbitral tribunal. If one party deliberately stalls or refrains from paying the deposits, the arbitration proceedings may be delayed.
To address this issue, article 41.4 of the rules empowers the HKIAC to request either party to pay the outstanding amount on behalf of the non-paying party. If the outstanding amount remains unpaid, the arbitral tribunal may order suspension or termination of the arbitration, or continue with the arbitration on such basis and in respect of such claim or counterclaim as the arbitral tribunal considers fit.
Pursuant to article 41.5 of the rules, the arbitral tribunal may, at the request of the paying party, make an award for reimbursement of the payment.
Pursuant to article 41.6 of the rules, any unexpended balance shall be returned to the parties according to the shares they paid, or as otherwise instructed by the arbitral tribunal.
The HKIAC has published two Practice Notes on Costs of Arbitration, which provide for varying levels of discount on administrative fees based on the stage of arbitration at which settlement is reached. The following discount percentages generally apply in the event of withdrawal or termination of arbitration:
- From the receipt of the Notice of Arbitration by the HKIAC to the due date for filing the Answer to the Notice of Arbitration: up to 50%;
- From the due date for filing the answer to transmission of the case file to the arbitral tribunal: 50-80%; and
- From the transmission of the case file to the rendering of the final award: 80-100%.
These percentages again reflect the fact that a large part of the HKIAC’s work is done at the early stage of arbitration. Different percentages may apply on considering the circumstances of the case, including duration of arbitration, amount of correspondence, and the number of procedural or appointment-related decisions made by the HKIAC.
In practice, with an increasing number of settlements, the above-mentioned percentages are commonly applied. In 2020, four arbitrations administered by the HKIAC were concluded with party settlement, and 52 were concluded with a final award. In 2021, 51 arbitrations were concluded with party settlement, and 65 were concluded with a final award.
Three examples of the HKIAC’s determination of its administrative fees are listed below:
REGISTRATION, FEES AND EXPENSES
In respect of the other two cost components, the HKIAC’s registration fee is a one-time payment of HKD8,000, which is generally non-refundable.
As for the arbitral tribunal’s fees and expenses, the rules provide for a twin-track regime for calculation, giving parties a choice between being determined on the basis of the amount in dispute or the arbitrators’ hourly rates.
These fees and expenses are also paid by way of deposits, and the above-mentioned reimbursement mechanism equally applies to these deposits. In addition, the rules also contain provisions on security for costs and third-party funding.
In summary, these rules are designed to ensure transparency and flexibility in the fee structure of HKIAC arbitrations, and reflect the HKIAC’s commitment to reducing arbitration costs and providing predictability to participants.