Arbitrators´ Fees: nemo iudex in causa sua and receptum arbitri

On 10 November 2010, the Swiss Federal Supreme Court (“Swiss Supreme Court”) declared in a judgment that the operative part of an arbitral award obliging the parties to pay the arbitrators´ fees does not constitute an actual award but is merely a non-binding invoicing. While the Swiss Supreme Court’s analysis of the receptum arbitri may suggest that the remuneration of arbitrators is completely excluded from the jurisdiction of the arbitral tribunal, some distinctions are to be made depending on the legal system under which the arbitration proceedings are conducted.

The cases 4A_391/2010 and 4A_399/2010 (consolidated) underlying the Swiss Supreme Court’s judgment, related to an arbitration in which two claimants had filed a notice of arbitration under the Swiss Rules against 11 respondents who all challenged the competence of the arbitral tribunal to decide on the dispute. In order to further conduct the proceedings, limited at that time to the jurisdictional issue, the arbitral tribunal issued correspondence and several procedural orders, among other things instructing the parties to pay the advance on costs it had fixed. Since none of the parties complied with this request, the arbitral tribunal ultimately issued an “interim award” in which it declared the proceedings stayed in accordance with Article 41(4) Swiss Rules and ordered the payment of its fees fixed at CHF 175,588.32 (ca. EUR 133,780).

The primary question discussed by the Swiss Supreme Court in the challenge proceedings was whether this “interim award” at all constituted an award against which an action for annulment was admissible under articles 190-192 of the Swiss Private International Law Act. The Swiss Supreme Court denied this, ruling that the challenged decision constituted a procedural order and lacked the characteristics of an award. The main reason for this qualification was that the decision did not constitute an actual decision on costs but merely related to the payment of cost advances, albeit at an amount corresponding to the time spent by the arbitrators on the case until that time.

However, the Swiss Supreme Court went further and ruled that, even if the decision would relate to the final payment of the arbitral tribunal’s fees, the arbitrators could not have ruled on this issue, mainly for two reasons. First, any claims out of the legal relationship between the arbitrators on the one side, and the parties on the other side, do not fall within the ambit of the parties’ arbitration agreement. And second, such a decision would lead to the violation of the principle that nobody can be judge of its own case. An arbitral tribunal’s decision on costs could therefore only relate to their allocation between the parties. As a result, any dispute between the parties and the arbitrators concerning the payment of their fees fell within the jurisdiction of the state courts. According to the Swiss Supreme Court, a decision on the arbitrators’ own fees could only be construed as a simple invoice, lacking the characteristics of an award.

The reasoning of the Swiss Supreme Court seems to be in line with the majority of international legal doctrine, although this issue is not undisputed as the Supreme Court itself pointed out in its decision. In any event, the judgment cannot be deemed to prevent arbitrators from ruling on the allocation of costs between the parties. The main question arising out of the decision is whether it is admissible for an arbitral tribunal to fix the amount of costs (as foreseen by the Swiss Rules, or the UNCITRAL Rules – although the latter provide for review by the appointing authority) or whether this amount must be fixed by a “neutral” third party.

Under some arbitration rules, such as the ICC and the Vienna Rules, the arbitrators´ fees are not established by the arbitral tribunal but by the administrating arbitral institution, which itself has no commercial interest in the amount of the arbitrators’ fees. This constellation has been the subject of a decision by the Austrian Supreme Court, which confirmed the validity and binding effect of the determination of the arbitrators´ fees, in accordance with the Vienna Rules, by the Secretary General of the Vienna International Arbitral Center. In its decision of 26 June 1991 (case no. 3 Ob 70/91), the Austrian Supreme Court ruled that the allocation of costs in the final award, based on the amount fixed by the arbitral institution, was admissible as the payment of such an advance on costs by the parties and was to be considered as a necessary expense to enforce a party’s legal rights, thus constituting part of that party’s legal costs. Based on the Austrian Supreme Court’s reasoning, it is possible that the ruling would have been different in case the amount of fees had been fixed by the arbitral tribunal itself.

In Germany, the Higher Regional Court of Dresden went further in its decision of 28 October 2003 (11 Sch 09/03), ruling that an arbitral tribunal did not violate ordre public by rendering an award on the amount and the allocation of the arbitration costs, including the arbitrators´ fees, provided that the parties had jointly authorized the arbitral tribunal to do so. In cases where the costs of the arbitration have been advanced, the Higher Regional Court concluded that such an authorization was implicit.

In summary, while the determination of the arbitrators´ fees by an arbitral institution should not raise major concerns, the power of the arbitrator to do the same encounters resistance. The nemo iudex in causa sua principle is a matter of natural justice and of ordre public in many jurisdictions. This should not come as a surprise to arbitrators. However, arbitration rules contain control mechanisms in order to ensure that arbitrators´ fees are fixed in a reasonable manner, thereby alleviating the concerns underlying these principles. Arbitrators may have to walk a thin red line here. A preventive approach could be to make the performance of any of the arbitrators’ services subject to the payment of the advance on costs. If the advance is paid by the parties, a tribunal’s decision on the cost allocation is more likely to withstand judicial control. This way, the arbitrators do not run the risk of having to resort to state court proceedings in order to ensure their financial compensation, to which they are generally entitled under the receptum arbitri.