As a result of the wide discretion given to tribunals under both the ICSID and the UNCITRAL rules, there are no precise principles governing the allocation of costs incurred during investment treaty arbitrations. Consequently, the position adopted by tribunals has varied from the traditional position of equal allocation of arbitration costs, to the more recent "costs follow the event" principle, whereby the full award of costs is made against the unsuccessful party. However, the recently issued Joint Order in Canfor v USA has provided perhaps the strongest confirmation yet that a trend is developing for investment arbitration tribunals to see the "costs follow the event" principle as the primary factor in deciding on the allocation of costs.
The Joint Order concerned three Canadian entities – Canfor Corporation, Terminal Forest Products Limited and Tembec – whose individual NAFTA claims made, pursuant to the UNCITRAL rules, against the United States had been consolidated. Immediately before the preliminary hearing, Tembec unilaterally withdrew its claim, asking the Tribunal to terminate the proceedings as related to it.
When costs were later decided, Tembec argued that costs should be borne by the respective parties. The US, however, argued that Tembec should bear the US Government’s share of the procedural costs as a matter of principle, stating that "Tembec abandoned its claim on the eve of the jurisdictional hearing" and should therefore be viewed as the unsuccessful party.
In its ruling, the Tribunal elected to apply the "costs follow the event" principle, which it argued shold be the general principle of application governing allocation of costs, even in circumstances where the relevant rules do not expressly address the issue. It went further to rule that an "unsuccessful party" (as referred to in Article 40(1) of the UNCITRAL Rules) includes a party that unilaterally withdraws its claim. Parties considering withdrawing from a claim should therefore think carefully about the potential cost consquences of doing so. (Canfor Corporation v United States Of America, Tembec et al. v United States Of America and Terminal Forest Products Ltd. v United States Of America, 19 July 2007.)