In any dispute, either resolved locally or by alternative dispute resolution methods, there are three basic ways of building up a defence for a claim statement: (i) denying the main claim, (ii) answering with a counterclaim, (iii) requesting set-off.1 Denying the main claim by its nature is the most common way of defence and it is entirely ensuant to the main claim of the claimant. For this article this type of defence will not be analysed considering the results of this type of defence rarely affect the arbitral costs.

The concepts, set off and counterclaim have been long discussed in the history of legal disputes. It can be seen that example cases date back to 19th century. This long lasting discussion has not been concluded with a clear-cut result on differences between the two. Especially with the aid of modern and diverse procedure the lines are blurred even more. Although in application there is many pass overs between set off and counterclaims, there are some theoretical differences between them.

Counterclaim in Arbitration

A counterclaim is generally seen as a claim brought by a respondent against the claimant that is more of an offence rather than a defence. It is independent from the main claim; to clarify a counterclaim can stand autonomously if a claim is withdrawn or invalid. Thus in some doctrines it is seen as a reverse claim rather than a defence. Because of its independent nature, counterclaims shall also have its own independent evidence of consent. This can either be in the arbitration agreement itself or through the chosen law of arbitration, lex arbitri, which allows counterclaims to be presented as defence.2

There are mainly two models of procedural application. One view denotes that counterclaims may be brought as a defence and this category does not seek a connection between the main claim and counterclaim for a counterclaim to be admissible. An example of this arises in Article 3(10) of the Swiss Rules of International Arbitration “Any counterclaim or set-off defence shall in principle be raised with the Answer to the Notice of Arbitration. Article 3(3) is applicable to the counterclaim or set-off defence”. A similar approach is adopted by Article 2(f) of the UNCITRAL Model Law of 1985 “where a provision of this Law, other than in articles 25(a) and 32(2) (a), refers to a claim, it also applies to a counter-claim, and where it refers to a defence, it also applies to a defence to such counter-claim.”

2Pryles & Waincymer; Multiple Claims in Arbitrations between the Same Parties1Pavić, Vladimir; Counterclaim and Set-Off in International Commercial Arbitration, 2006

Other view takes a different approach and emphasizes on the same arbitration agreement or the relationship. Examples for this view can be seen in Article 3(2) of the International Dispute Resolution Procedures (Including Mediation and Arbitration Rules) of the American Arbitration Association “At the time a respondent submits its statement of defence, a respondent may make counterclaims or assert setoffs as to any claim covered by the agreement to arbitrate, as to which the claimant shall within 30 days submit a written statement of defence to the respondent and any other parties and to the administrator”.

In International Chamber of Commerce’s (ICC) Rules of Arbitration the adopted view is not as clear as above mentioned examples but an indirect reference is found in Article 36(7) which clarifies the inclusion of counterclaim amounts in the advance on costs.3 This indicates that the court assumes counterclaims are admissible but the relation to the main claim shall be decided by the arbitral tribunal as mentioned in Article 36(3). In addition, Article 46 of the International Centre For Settlement Of Investment Disputes (ICSID) Convention states: “Except as the parties otherwise agree, the Tribunal shall, if requested by a party, determine any incidental or additional claims or counter-claims arising directly out of the subject-matter of the dispute provided that they are within the scope of the consent of the parties and are otherwise within the jurisdiction of the Centre.”

There does not appear to be a discussion with respect to the need for a separate consent on admissibility of a counterclaim. The difference lies on the methods of determining the consent of parties for arbitration. This will either involve interpretation of the arbitration agreement or the lex arbitri.

Set Off Claim in Arbitration

Domestic systems describe set off claims in differing ways. In case law set off is often defined as a legal defence against a claim in whole or in part and it is based on an entirely different claim from that of the claimant. It is viewed as a subset of counterclaims.4 In civil law set off cannot stand by itself as a separate claim, if the court decides the claimant’s claim does not exist, then there is no examination of the set off claim unlike counterclaims which still needs to be decided separately by the court.5 Moreover, in the case that the set off claim exceeds the claimant’s claim, the exceeding portion of the claim will not be addressed.

Hence the treatment of set off claims is far more complicated than counterclaims. Since there is no common view as to the nature of set off or a general frame for set off within domestic legal systems, arbitral rules would be reluctant to be too descriptive and detailed. These complications together with insufficient description of set off in arbitral rules, forces arbitrators to find a justifiable methodology for the treatment of such claims.6

A case example for a set off can be given with case no 8611/HV/JK between a German Seller (Claimant) and a Spanish Buyer (Respondent) in which the German Seller requests the payment for its goods amounting DM 161,558.82 and Spanish Seller while accepting the receipt of Goods uses a set-off defence because there was a production default in the goods, amounting DM 54,500. As a result the Claimant received two thirds of its requested amount as the award because the set-off amount was subtracted.7

3-Pryles & Waincymer; Multiple Claims in Arbitrations between the Same Parties

4-West's Encyclopedia of American Law, edition 2., 2008, The Gale Group.

5-Pavić,Vladimir; Counterclaim and Set-Off in International Commercial Arbitration (2006)

6-Berger, Klaus Peter; ‘Setoff in International Economic Arbitration’ 1999, 15 Arbitration International 53.


Generally set off claims are admissible to arbitration provided it is related to the same contract as the main claim. In UNCITRAL system as long as the arbitral tribunal has jurisdiction over the set-off claim respondent may go forward with this type of defence.8 Also in ICC’s Rules on Arbitration it has been subtly emphasized in Article 36(7) that set offs would be included in advance to cover the costs of arbitration as a separate claim like counterclaims mentioned above because it might require arbitral tribunal to consider additional matters, therefore it can be said that set offs are admissible under ICC Rules.

Consequently it can be said that the difference between set-off and counterclaim has been a problematic issue in theory since it has come across in a dispute before the Courts of Britain in Stooke vs. Taylor case and a much used portraiture of sword versus shield9 was borne in 1880. Describing counterclaim as an offensive way of defence like a sword as oppose to set off being a more passive type of defence rather like a shield. The fact that a main claim is defended either by a counterclaim or a set off claim effects the procedural order of the arbitration process.

Amongst many results, the changes in arbitral costs are issues that all parties to arbitration have to deal with perpetually. Thus this article will proceed with addressing arbitral costs, accentuating on International Chamber of Commerce’s costing policies.


Arbitration as an alternative dispute resolution method is preferred by parties because of its speediness and its international nature. Although there are many positive sides to arbitration it can be said, compared to many countries’ local procedures, costing is not one of them. Obviously since local litigation is not consensual like arbitration, costs are lower in most jurisdictions. Despite arbitration is a tad more expensive than local litigation; the total costs can be calculated as a round figure. These costs can be changed or readjusted in some cases. One of the reasons for the readjustment is the existence of a counterclaim or a set off. For the purposes of this article we will be emphasizing on the cost system of ICC.

Cost Calculation in ICC

In ICC there are costs fixed by the court except for those to be decide by the arbitrators. The court can order payments for the fixed costs any time during the arbitral process, while doing this court considers every aspect of the proceeding. The costs fixed by the court are the administrative costs; they are calculated with the cost scales in force. Other costs include the fees and expenses of arbitrators and experts appointed by arbitrators.

All costs including arbitrator fees and administrative costs are fixed by the court at the end of the arbitral procedure and the final cost calculation is included in the award by arbitrators. Arbitral tribunal also decides which party will be paying these costs in the award.

If the arbitral procedure ends before there is a final award, the court will fix the fees and expenses of the arbitrators and ICC administrative expenses. If there is no consensus for the allocation of the costs of arbitration then this issue will be resolved by the arbitral tribunal if it is constituted at the time of the withdrawal, if not the court will constitute an arbitral tribunal for resolving the cost issues.10


9-Stooke vs. Taylor, Case No: J 55/18/16, The National Archives, Kew



Types of Costs

Arbitrators' Fees and Expenses

The fees for arbitrators are fixed according to the latest scales issued by ICC and managed by the court. Many aspects are taken into consideration including the time spent and complexity of the dispute.

The fees are multiplied by the number of arbitrators. In rare cases the court may fix the fees of the arbitrators at a figure higher or lower than that of which would result from the application of the relevant scale. In cases where the sum of dispute is not stated, the court fixes the arbitrators' fees at its discretion.

The arbitrators' expenses (or disbursements) are also managed by the court and include expenses such as travel, accommodation, meals, courier charges and facilities for hearings.11

Administrative Expenses

Administrative expenses are the fees charged by ICC for managing a case. The US$ 3,000 payment, which accompanies the ‘Request’, is an advance on administrative expenses and it is not refundable.

Administrative expenses are fixed on the basis of the scales issued by ICC. In cases where the sum in dispute is not stated, court fixes administrative expenses at its own discretion. The court could fix the expenses lower or higher than the calculations resulted from the issued scales, but in any case this amount is never to be higher than the maximum amount on the issued scales.

Fees and Expenses for Experts

In some cases an expertise may be ordered by the arbitral tribunal. In these cases tribunal fixes and manages the fees and expenses. The costs of experts are not covered by the advance on costs fixed by the court, but the secretariat may administer the accounts as a service.

Advance on Costs and Readjustment

ICC’s advance on cost policy is designed to ensure that arbitration procedures can commence without delay as the first phase relevant fees and expenses of the arbitrators and the institution are secured. This also helps parties to estimate an expected amount for arbitral costs.

Article 36(2) of the Rules on Arbitration establishes a general authority of the court to fix advances on costs for the arbitration. Article provides that the court shall fix the advance on costs “as soon as practicable”. In practice, it is often seen that the advance is normally fixed as soon as the secretariat considers that sufficient information is available to permit the court to be able to do fix these advances.13

Advance on costs include: (i) the stationary filing fee which is adjusted from time to time, (ii) a provisional advance to cover the costs until the signing of the terms of reference and (iii) an advance to be paid by each party. It should be noted that the advance on costs do not include security costs; ICC Rules does not contain a provision for this type of cost.



12-Arroyo, Manuel; ‘Arbitration in Switzerland – The Practicioner’s Guide’, 2013, Kluwer Law International BV

13-Derains & Schwartz; A Guide to the ICC Rules of Arbitration, 2005, Kluwer Law International BV

Since the court cannot assess all the factors that are required to be taken into account subsequently in determining the advance on costs because it is a prima facie calculation, the advance is of a temporary and flexible nature. Therefore it may be necessary to adjust the amount of the advance if the sum in dispute changes during the course of arbitral proceedings.14 Hence the Article 36(5) of ICC Rules emphasizes that “the amount of any advance on costs fixed by the Court pursuant to this Article 36 may be subject to readjustment at any time during the arbitration.”

Decreased amounts in dispute does not change the advance on costs, especially after the signature of the terms of reference, increase in the dispute amount on the other hand will always cause an increase in costs, but this being said the court has traditionally avoided situations as such especially at a later stage in arbitral proceedings.15

Readjustment as a result of Counterclaim and Set Off

Article 36(7) of ICC Rules is the relevant article for readjustment in cases where there is a counterclaim or a set off. The paragraph articulates that set off claims are taken into account for the calculation of the disputed amount while calculating the advance on costs since there might be newly introduced issues to be considered by the tribunal. The court will be the determining body on the inclusion of set off and counterclaims on the calculations for the disputed amount. On this matter, the inclusion shall be decided on grounds of newly introduced subjects and the secretariat may refer to the arbitral tribunal.16

The actio legis of this Article is to discourage unreasonable claims and counterclaims with the aid of the ICC costs system. As a result, additional matters will affect the advance on costs similarly if parties raise claims or counterclaims, even if these counterclaims are disguised as set offs.17

Results of Non-Payment

In several cases, especially when there is an unexpected readjustment amount, it can be seen that parties refrain from payment. Article 36 (5) and (6) of the ICC rules are basic remedies envisaged for these situations.

According to 36(5) of ICC Rules, one party may be invited to, but is not required to, pay the entire sum, if the other party is not paying. So firstly court will invite other party to pay the full amount of the advance.

If, as a result of this, a party defaults on its payment obligation, the court will consult to the tribunal. In any case, the ICC sets a second deadline, which cannot be less than 15 days. If again within this deadline there is no payment, Secretary will request the other party to pay the entire advance. If the other party is either unwilling or unable to do so, the Secretary General will set a final deadline of at least 15 days to both parties. This power is exclusively Secretary General’s and may not be delegated. A party may object to this, but then this would interrupt the time limit and cause the case to be referred to court.18

14-Derains & Schwartz; A Guide to the ICC Rules of Arbitration, 2005, Kluwer Law International BV

15-Derains & Schwartz; A Guide to the ICC Rules of Arbitration, 2005, Kluwer Law International BV

16-Arroyo, Manuel; ‘Arbitration in Switzerland – The Practicioner’s Guide’, 2013, Kluwer Law International BV

17-Frank-Bernd Weigand; Practitioner's Handbook on International Commercial Arbitration, 2nd Edition, 2009, Oxford University Press

18-Arroyo, Manuel; ‘Arbitration in Switzerland – The Practicioner’s Guide’, 2013, Kluwer Law International BV

Suspension of the Tribunal’s Work

The failure by a party in respect of the first deadline will not itself have any adverse consequences. It is only after such initial request for the payment of the advance has not been complied with that the secretariat may consider directing the tribunal to suspend its work pursuant to Article 36(6) of the ICC rules.19

Normally there should not be any need for Secretary General to direct Arbitral Tribunal to suspend its work before terms of reference is signed. Most frequently, the possible need for suspension of the Arbitral Tribunal’s work will arise only if the advance of costs has not been paid after the terms of reference is signed.

In an example case between RCBC Capital Corporation (Claimant) vs. Banco de Oro Unibank, Inc. (Respondent) Respondent requested that the advance on costs should be distributed fairly considering their counterclaim amount is much lower than that of RCBC’s. ICC refused this request and invited Claimant to pay Respondent’s part giving them relevant time, and when RCBC refused to pay respondent’s part ICC directed tribunal to suspend its work and granted the parties a final time-limit of 15 days to pay the balance of the advance on costs, failing which the claims shall be considered withdrawn.20

The ICC Court has no way to compel parties to contribute to the advance on costs. The ultimate sanction that the ICC Court can impose in the case of non-payment is to apply Article 36(6) of ICC rules, so that the claims or counterclaims are withdrawn.

Withdrawal of Claıms

If either party abstains from paying the relevant advance on costs after the deadline fixed by Secretary General, then the relevant claims will be deemed withdrawn according to Article 36(6) of the ICC rules. This withdrawal is on a without prejudice basis therefore reintroduction of the same claims in another case is possible, but it must be noted that these withdrawn claims cannot be reintroduced in the same proceeding.

In this respect the question arises if set offs would also be considered withdrawn in these situations. Although set off is dominantly considered as a type of claim it is still not clear if it is a type of counterclaim or just a type of defence therefore if it would limit the respondent’s right to defend itself when considered withdrawn. In an example case between Pirelli and Licensing Projects, ICC decided that respondent deemed withdrawal from its counterclaim for non-payment of counterclaim costs on October 2009. French Court of Appeal set aside this decision on the grounds that right to access to justice and equality of parties were violated.21

Regarding the economical changes and complexity of organizations in today’s business atmosphere disputes are becoming byzantine. In the light of this progress legislative bodies would have to change their course and clarify this promiscuity so that a budget for alternative dispute resolution methods can be predictable and arbitration becomes even more attractive then it is.

19-Derains & Schwartz; A Guide to the ICC Rules of Arbitration, 2005, Kluwer Law International BV

20-RCBC Capital Corporation vs. Banco de Oro Unibank, Inc., Case No: G.R. No. 196171




As a result it can be seen that, today the lines between set off and counterclaims are very blurred. This unclear difference causes generalized legislations on the issue, which further causes varietal legal precedents. The fact that there is no consensus on the definition of these terms and the freedom of the court on readjustment leaves parties to deal with incalculable arbitral costs.

Regarding the economical changes and complexity of organizations in today’s business atmosphere disputes are becoming byzantine. In the light of this progress legislative bodies would have to change their course and clarify this promiscuity so that a budget for alternative dispute resolution methods can be predictable and arbitration becomes even more attractive then it is.