Users of arbitration are increasingly seeking more transparency and a better idea of the costs and time involved in arbitrating disputes. It has been difficult to make an informed choice, particularly in respect of the institutions that assess costs on an hourly basis, but the recent release by the LCIA of costs and duration data has shed some light on this. There are many practical steps that can be taken by parties to minimise delay and cost in arbitration, yet parties seem reluctant to make the most of their ability to tailor the procedure to their needs, despite the great flexibility arbitration offers. This article looks at how the LCIA fares when compared to the SIAC and what can parties and/or counsel do to limit the costs and length of arbitrations.
What has happened
The cost and time it can take to arbitrate disputes is becoming an increasing concern among users. Cost and lack of speed have been cited as arbitration’s weaker features. There have also been calls for arbitral institutions to help improve international arbitration by publishing data on the average length of their cases. These issues clearly need to be addressed to ensure that international arbitration remains an attractive and cost-effective method of dispute resolution.
What are the key points
- The LCIA charges on an hourly basis for both arbitrators’ fees and the LCIA’s costs of administering the arbitration. The maximum hourly rate for arbitrators is presently capped at £450.
- The LCIA data shows that the mean cost of an LCIA arbitration is US$ 192,000 and the median cost is US$ 99,000 (the data was based on LCIA arbitrations that progressed to a final award in the period 1 January 2013 to 15 June 2015). These costs include the fees of the LCIA and the arbitrators but not the parties’ own legal costs.
- The mean costs of a SIAC arbitration are broadly similar. Taking an average sum in dispute of US$ 8.82 million (based on the average dispute value cited in SIAC’s 2014 Annual Report) the average estimated fees are US$ 202,000. It is worth also noting that SIAC Rule 30.1 states: “Alternative methods of determining the Tribunal’s fees may be agreed by the parties prior to the constitution of the Tribunal”. Although rarely used, this rule could allow parties to agree to LCIA style hourly rates if the parties so wish. This may be something worth considering for claims over the US$ 1 million threshold.
- The LCIA data shows that the mean length of an LCIA arbitration from the date the request for arbitration was received by the LCIA until the date of the final award (including any stays) is 20 months and the median length is 16 months.
- In SIAC arbitrations (subject to the complexity of the dispute, the number of submissions and the respective schedules of the parties and the Tribunal), awards in disputes with sole member tribunals are usually rendered within 9 to 12 months, while awards in disputes with three member tribunals are usually rendered within 12 to 18 months. Under certain circumstances, parties arbitrating under the SIAC Rules may also apply to the Registrar for the proceedings to be conducted in accordance with the ‘Expedited Procedure’. Arbitrations administered according to the SIAC Expedited Procedure require awards to be rendered within 6 months from the constitution of a tribunal (subject to any extensions).
How will this affect me?
For institutions such as SIAC that operate on an ad valorem basis (i.e. the costs are based on the value of the claim), there are cost calculators available to provide an estimate of the likely fees of the institution and arbitrators. However, for institutions such as the LCIA that operate an hourly rate system, actual data is required from the institution in order to gain an insight into the likely costs. The release of costs and duration data by the LCIA should help parties gain a better understanding of the costs involved with LCIA arbitration and better inform their choice of institution.
It's important to bear in mind that the fees of the tribunal and the institution are generally only a small part of the costs involved in arbitrating and there are some practical steps parties can take to minimise costs and delay:
- Depending on the complexity of the dispute, consider whether you need a three member tribunal or whether a sole member tribunal would be more appropriate. A major contributor to cost is the delay in finding suitable hearing times by reference to three diaries.
- Don’t forget that the attractiveness of arbitration is that it is flexible: be creative when setting the procedural timetable. Having said that, ensure that it is realistic and stick to it – extensions of time usually increase costs.
- Consider how many rounds of written submissions are required. Could you file a comprehensive request for arbitration that stands as your statement of case and only allow one further round of submissions?
- Could you agree to page limits for written submissions? This is a fiercely debated topic amongst lawyers and clients alike but is something worth considering in appropriate cases.
- Could certain issues be determined at the outset, such as jurisdiction, liability or limitation issues, which may dispose of all or some of the issues in dispute in the arbitration?
- Consider whether document production is really necessary and, if it is, consider adopting the IBA Rules on the Taking of Evidence to focus the scope of the requests.
- If there is a genuine need for fact and/or expert evidence, could you limit the length and scope of this evidence to the key issues?
- Consider using an expedited procedure - the institutional and tribunal fees will be the same but a short arbitration generally ends up costing less than a long one.
- Consider whether the dispute could be determined on the documents alone without an oral hearing. If a hearing is required, limit its duration as much as possible and consider using video-conferencing for witnesses and experts.
Parties shouldn’t forget that one of arbitration’s main advantages over litigation is that it allows one to be very flexible when deciding the procedure and timetable to be followed – parties are free (more or less) to agree whatever procedures they wish.
Although the LCIA and SIAC use different methods to assess costs, the LCIA’s comparative data show that the average cost and duration of arbitration are pretty similar across the different institutions. This is probably because parties tend to adopt a standard approach to arbitration – multiple rounds of written submissions, document production, fact and expert witnesses and an oral hearing, all as a matter of course. Parties appear reluctant to move away from this approach and exercise the flexibility afforded to them to tailor the procedure to their needs.
Some institutions – like SIAC – have introduced expedited procedures that allow arbitrations to be conducted more quickly if certain criteria are satisfied. But even without such a procedure parties should remember that there’s nothing to stop them from choosing to arbitrate in such a way that will save them time and ultimately costs.