Failure to pay ICC advance on costs is not fatal

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Defendants in arbitration proceedings are often reluctant to pay their share of the advance on costs ordered by the arbitral institution. The temptation not to pay and to force the claimant to choose between paying the defendant’s share or letting the arbitration grind to a halt can be a strong one, especially if the health of the claimant’s finances is in doubt. There can be risks in this course of action, but the case of BDMS Ltd v Rafael Advanced Defence Systems (February 2014) has confirmed those risks are not as great as may have been feared.

In this case, the High Court decided that: the defendant’s failure to pay the International Chamber of Commerce (ICC) advance on costs was not a repudiatory breach of its arbitration agreement with the claimant; the arbitration agreement was still operative; and the claimant could therefore not withdraw from the arbitration proceedings and bring a claim through the courts.

A dispute arose between BDMS and Rafael over sums that BDMS, as claimant, alleged were due to it from Rafael, as defendant, for ‘success fees’ under a consultancy agreement. Pursuant to that consultancy agreement, all disputes arising out of the agreement were to be referred to the decision of a single arbitrator in accordance with ICC rules. The claimant started the arbitration process…

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