International arbitration offers a variety of dispute resolution benefits in cross-border transactions, but one that is frequently overlooked by U.S. parties is the practice of cost shifting, which is commonly referred to as the English Rule on costs. This article examines how the English Rule ensures that parties obtain complete relief, and how that rule assists in regulating party and counsel conduct.

Background

Unlike U.S. court litigation, in which parties generally bear their own costs (which is commonly called the American Rule), in international arbitration, arbitrators are typically required to assess costs for and against the parties after the merits of the dispute have been resolved (which is commonly called the English Rule). Those costs, which are usually awarded to the party that prevails on the merits, can include counsel fees (when the arbitration clause, arbitral rules, or controlling law/law of the seat allow it), and can constitute a substantial portion of the total amount awarded. Indeed, multimillion dollar cost awards are not uncommon in large matters, and cost awards can even exceed monetary damage awards in some instances. Consequently, costs are something to which international arbitration practitioners pay close attention throughout the life of an international arbitration.

While most American lawyers think of the English Rule as the "loser pays" rule because of the likelihood that costs will be assessed against the non-prevailing party, that view is an oversimplification, as it presumes that the prevailing party will obtain all of its costs without any consideration for what occurred along the way. In reality, the English Rule is more appropriately expressed as costs following the event, because arbitrators conduct a more meticulous and nuanced review of the manner in which the parties and their counsel conducted themselves throughout the matter in relation to individual issues and claims before making a final cost determination.