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Who Typically Pays for Arbitration?

Published in Arbitration Costs 5 mins read

Typically, the costs of arbitration are shared between the parties involved, though the exact allocation can vary significantly depending on the specific arbitration agreement, the rules of the administering institution, and the nature of the dispute. While administrative and arbitrator fees are often split, the parties each pay their own costs to conduct their case, such as attorney fees and expert witness expenses.

Understanding Arbitration Costs

Arbitration involves various types of costs, which can generally be categorized as follows:

  • Administrative Fees: These are fees charged by the arbitration institution (e.g., American Arbitration Association - AAA, JAMS) for setting up and managing the case. These often include filing fees, case management fees, and hearing room rental fees.
  • Arbitrator Compensation: Arbitrators are paid for their time and services. This can be an hourly rate or a daily fee, and it is usually a significant portion of the arbitration's direct cost.
  • Party-Specific Costs: These are expenses incurred by each individual party to present their case. As stated by common arbitration practices, this includes costs like:
    • Legal Fees: Compensation for attorneys representing each party.
    • Expert Witness Fees: Payments to experts providing testimony or reports.
    • Discovery Costs: Expenses related to gathering evidence, such as depositions or document production.
    • Travel and Accommodation: Costs for attending hearings or meetings.

How Are Costs Allocated?

The allocation of these costs is not always straightforward and can depend on several factors:

1. The Arbitration Agreement

The primary source for determining who pays is the arbitration clause or agreement itself. Many contracts specify how arbitration costs will be divided. For example, an agreement might state that:

  • Costs will be equally shared.
  • The losing party will bear all costs.
  • Each party pays their own legal fees, but administrative/arbitrator fees are split.

2. Arbitration Rules

The rules of the chosen arbitration institution often provide default provisions for cost allocation. These rules can differ based on the type of dispute:

  • Commercial Arbitration: In general commercial disputes, administrative fees and arbitrator compensation are typically shared equally by the parties.
  • Consumer Arbitration: To ensure access to justice, consumer arbitration rules (e.g., AAA Consumer Arbitration Rules) often require the business to pay the bulk of the administrative and arbitrator fees, with the consumer generally only responsible for a minimal filing fee.
  • Employment Arbitration: Similar to consumer cases, employment arbitration rules (e.g., AAA Employment Arbitration Rules) often mandate that the employer pay most or all of the administrative and arbitrator fees, beyond a small fee paid by the employee, again to prevent cost from being a barrier to resolving disputes.

3. Arbitrator's Discretion and Award

Arbitrators often have the authority to allocate costs in their final award. This allocation might be influenced by:

  • The outcome of the case: If one party clearly prevails, the arbitrator might order the losing party to pay all or a portion of the successful party's costs, including legal fees, if permitted by the agreement or applicable law.
  • Party conduct: If a party engages in delaying tactics or frivolous arguments, the arbitrator might assess higher costs against them.
  • Specific laws: Certain statutes allow for the recovery of attorney fees and costs by the prevailing party in specific types of disputes (e.g., some intellectual property or civil rights cases).

Typical Cost Distribution Summary

The table below provides a general overview of who typically bears different types of arbitration costs:

Cost Type Typical Payer(s) Notes
Administrative Fees Shared equally by parties OR predominantly by one party (e.g., business in consumer/employment cases) Depends heavily on the arbitration institution's rules and the type of dispute.
Arbitrator Fees Shared equally by parties OR predominantly by one party (e.g., business in consumer/employment cases) Similar to administrative fees; can be allocated differently by the arbitrator based on agreement or outcome.
Legal Fees Each party pays their own As per standard practice, each party is responsible for their own legal representation costs. Can be shifted to the losing party if allowed by agreement, rules, or statute.
Expert Witness Fees Each party pays their own Each party typically bears the cost of experts they retain to support their case.
Discovery Costs Each party pays their own Costs associated with depositions, document production, etc., are usually borne by the party incurring them.

Practical Insights

  • Review Your Agreement: Always check the arbitration clause in your contract first. It is the most critical document dictating cost responsibility.
  • Understand Rule Variations: Be aware that rules from organizations like the American Arbitration Association (AAA) or JAMS have specific cost schedules and allocation policies that can significantly impact financial responsibility.
  • Cost vs. Litigation: While often perceived as less expensive than litigation, arbitration costs can still be substantial, especially in complex cases with extensive discovery, multiple arbitrators, or lengthy hearings.

In summary, while administrative and arbitrator fees are often shared, the responsibility for direct legal expenses and expert costs falls to each party for their own case. The precise division of expenses ultimately depends on the governing agreement and applicable rules.