2015 Reports

Cost allocation in ICSID arbitration: theory and (mis)application

Hodgson, Matthew

In their recent Perspective, James Nicholson and John Gaffney argued for the “costs follow the event” (CFTE) cost-allocation approach to investment arbitration, in contrast to the more traditional “pay your own way” (PYOW) approach. They countered an earlier contribution by Baiju Vasani and Anastasiya Ugale, principally on the basis that a CFTE rule would encourage meritorious claims and discourage weak ones. This contribution to the debate demonstrates that: (1) there is a third approach to cost allocation, referred to here as the “relative success” approach; (2) “relative success” is the dominant approach, but is frequently misapplied in practice; and (3) there is a need for guidance on costs in the International Centre for Settlement of Investment Disputes (ICSID) arbitration rules.