Awarding costs where no arbitral jurisdiction on the merits: the making and enforcement of negative cost awards

Abstract

Arbitral tribunals routinely award costs when they lack jurisdiction on the merits of a dispute. However, most of the identified awards—labelled here as ‘negative cost awards’—fail to adequately explain the source of the tribunals’ authority to award costs, either by omitting the reasoning altogether or by merely relying on the arbitration rules. If the arbitration agreement is found to be invalid or non-existent, it cannot empower a tribunal to award costs, and the arbitration rules ordinarily should not apply if the parties never agreed to them in a valid arbitration agreement. This notwithstanding, tribunals usually have a valid basis to award costs. This authority can be found in the arbitration agreement on the issue of costs, the competence–competence principle or, one way or another, national arbitration laws. Negative cost awards generally should be enforceable both under the New York Convention and the ICSID Convention, but the lack of an express finding of the arbitration agreement or another source of the tribunals’ authority to award costs may jeopardize the enforceability of such awards. Tribunals can avoid this problem by expressly explaining the basis of their authority to adjudicate costs in their awards.