International Arbitration: Reducing Time And Costs.

Legal News & Analysis - Asia Pacific - Dispute Resolution

15 May, 2016

 

The time and cost of international arbitration proceedings is a concern that is increasingly shared by arbitration practitioners.

 

Arbitrations are taking more time and costing more money, with the perception that they are resembling ever more closely common law litigation, with its interim applications, extensive disclosure and detailed witness examination.

 

This note addresses issues of cost ef ciency and different methods which can be employed in order to manage better the costs of an arbitration in the following ve phases:

 

  • drafting the arbitration agreement;
  • the pre-arbitration stage;
  • appointing the tribunal;
  • xing the procedure; and
  • during the arbitration itself.

 

Different costs are incurred by parties to arbitration:

 

83%: the proportion of costs in an arbitration comprising lawyers’ fees and the expenses related to witness and expert evidence.

15% of costs are arbitrators’ fees.

2% are administrative expenses of arbitral institutions.1

 

1 ICC Report on Decisions on Costs in International Arbitration December 2015 

 

21 months: the average duration of an arbitration with three arbitrators according to data published by the London Court
of International Arbitration (LCIA) in 2015.2 Other institutions report similar time frames, with the International Chamber of Commerce (ICC) reporting that its proceedings, on average, take 12 to 24 months3.

 

2  http://www.lcia.org/News/lcia-releases-costs-and-duration-data.aspx

3  This average includes single arbitrator and three arbitrator arbitrations. 

 

Drafting the arbitration agreement

 

There are certain techniques which can be adopted at the drafting stage, when incorporating an arbitration clause into a contract, which can help reduce the costs of future arbitration.

 

Tiered dispute resolution clauses – these provide an opportunity for settlement before arbitration, therefore reducing costs. Parties may specify negotiation or mediation as mandatory, or optional, steps before arbitration. There is, of course, a risk that mandatory negotiation or mediation can lead to unwanted delay.

 

Joinder and consolidation – multiple contracts and parties can increase the risk of parallel proceedings. Consider including a provision in the arbitration clauses to address consolidating related arbitrations and joining parties to existing proceedings.

 

Avoid ad hoc arbitration – while ad hoc arbitration avoids the fees of arbitral institutions, as described above these typically only account for two per cent of the overall costs of an arbitration. Institutional support and supervision may, in the long run, outweigh the savings of ad hoc proceedings.

 

Exclude challenges – if permitted, consider excluding certain types of challenges to an award in the courts, which would limit the scope for post-award proceedings. For example, in England, challenges on the basis of errors of law may be excluded.

 

Fast track for small claims – consider using fast-track arbitration with shorter deadlines for smaller value claims. Some arbitral institutions offer expedited, or fast-track, arbitration; for example, the Stockholm Chamber of Commerce, the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC). Even if these institutions are not used, a simpli ed process

 

can still be agreed in advance, although exercise caution: if the simpli ed process is not complied with, that may be the basis for a challenge to an award.

 

A MANDATORY MEDIATION PROVISION

 

The parties shall endeavour to resolve amicably by mediation under the [designated set of mediation rules] all disputes

arising out of or in connection with this agreement, including any question regarding its existence, validity or termination.

 

Any such dispute not settled pursuant to the said Rules within [45] days after appointment of the mediator or within such other period as the parties may agree in writing, shall be nally settled under the [designated set of arbitration rules] by [one or three] arbitrator[s] appointed in accordance with the said Rules. The place of arbitration shall be [city, country]. The language of arbitration shall be [...]. 4

 

4 Example mediation and arbitration clause taken from IBA Guidelines for Drafting International Arbitration Clauses 

 

Sole arbitrator – consider whether it is appropriate to appoint a sole arbitrator. Having three arbitrators rather than one is more expensive and may delay proceedings; for example, nding time in three diaries for a hearing is harder than one. However, relying on a sole arbitrator can be risky, especially with high value and complex disputes, given the limited scope to challenge awards.

 

Consider the choice of arbitral institution – the ICC charges based on the amount in dispute, compared with the LCIA which charges on an hourly basis. All ICC awards are scrutinised by the ICC court, which can lead to further delay and therefore increased costs. See the table below published by the LCIA which compares its costs against those of the ICC, SIAC and HKIAC5. 

 

Arbitral cost compared

Overall

Amount in dispute

US$1m

>US$1m

ICC vs LCIA

LCIA costs are lower

Comparable costs

LCIA costs are lower

SIAC vs LCIA

LCIA costs are lower

Comparable costs

LCIA costs are lower

HKIAC vs LCIA

Comparable costs

LCIA costs are higher

Comparable costs

 

http://www.lcia.org/News/lcia-releases-costs-and-duration-data.aspx

 

Institutional arbitration involves the selection of arbitration rules published by one of the arbitration institutions, such as the LCIA or the ICC. The institution supervises the arbitration, and assists the parties in selection of arbitrators. By contrast in ad hoc arbitration the parties do not have the support of an institution and manage the arbitration themselves. Ad hoc arbitration can be exible and cheap, but to work effectively it depends on the co-operation of the parties. 

 

Pre-arbitration stage

 

One way to reduce costs in arbitration is to clearly evaluate, at the outset, the strengths and weaknesses of a case before spending signi cant costs.

 

Investigate – at the outset conduct a proper case analysis considering the facts of the dispute, the legal rights, the commercial drivers and the desired outcome.

 

Plan – it is helpful to create two documents:

 

A summary of arguments: this should be short (say, one page) and might be in diagrammatic form. Even the most complex arguments can be summarised in this way; and if they cannot, it may suggest these have not been investigated properly to begin with.

 

A project plan: this is an initial timetable for preparing the claim or defence and the subsequent steps in the arbitration, with preliminary estimates for timing, and allocation of responsibilities.

Both these documents will develop as the arbitration proceeds: it is never possible to predict at the start precisely how an arbitration will unfold. But the discipline of preparing these at an early stage, and updating them over time, will anchor the claim or defence and keep it on track. They will also help to prepare a budget for the arbitration.

 

Choose the right team – in addition to external legal counsel, consider whether it would be cost ef cient to engage any other third party service provider in relation to some of the more administrative or repetitive tasks. Ashurst has a low-cost centre in Glasgow which can help minimise costs, especially at the document production stage.

 

Consider third party funding – the availability of third party funding for arbitration is increasing, and it is worth considering whether this is bene cial and/or suitable to the dispute. Third party funders will cover the costs
of arbitration proceedings, but will require, in return, payment of a sum of money from the proceedings of an arbitration. Third party funding can be expensive, but it may be a cost-effective means of pursuing a claim when the budget for legal expenditure is tight. 

 

Appointing the tribunal

 

Choice of arbitrator can impact the costs of the arbitration.

 

Identify in advance arbitrator availability (where necessary asking how many weeks the arbitrator is already booked into hearings) and avoid appointing arbitrators who are too busy or known to overbook. If the preferred tribunal has limited availability, nal resolution may be delayed. The ICC has recently announced that it will lower arbitrators’ fees if they take too long to produce awards. This is a welcome development in promoting shorter arbitration proceedings.

 

The skill-set of the arbitrators is also important. A suitably quali ed arbitrator may add signi cant value by focusing the

tribunal on key technical issues and directing the parties accordingly. 

 

Fixing the arbitral procedure

 

One effective means for managing the costs of an arbitration is through adopting certain procedures. These include the following.

 

Early case management meeting – organise an early conference so that the dispute can be explained to the tribunal, both in writing and orally. The tribunal can then use a list of issues or terms of reference to make proactive suggestions with regard to case management. For example, there may be certain issues which can be heard at a preliminary stage such as liability or jurisdiction, before determining damages which is typically an expensive process often requiring a quantum expert.

 

Seek to agree allocation of costs in advance – a recent report by the ICC encourages parties and arbitrators to consider agreeing costs allocation principles at the outset of the proceedings, ideally at the rst case management conference.

 

These costs allocation principles may be incorporated into the terms of reference for the arbitration. The report

encourages arbitrators to consider costs issues, for example: which expenses are recoverable, whether success or contingency fees are recoverable, whether costs should be capped and whether, and how, the tribunal should be informed of settlement negotiations which may impact on allocation of costs.

 

Use recognised rules of procedure – such as the IBA Rules on the Taking of Evidence in International Arbitration. These rules, designed to be a synthesis of common law and civil law practices, set out effective procedures for exchange of evidence and document production.

 

Consider proposing a documents-only arbitration – this is where the tribunal renders its award on the basis of written material only. This would reduce time and costs, but would only be suitable if there are few contested facts and the issues are straightforward.

 

Costs sanctions – ask the tribunal, in advance, to make orders regarding future delays, such as prescribing the circumstances in which extensions of time may be sought, and costs sanctions for parties that fail to meet deadlines. Also, ask the tribunal to consider settlement offers when making a decision as to costs after they have made their award. 

 

During the arbitration

 

During the arbitration costs may be managed by the tribunal in the following ways Page limits on written submissions – this limits the length of documents. Tribunals may also require the parties to respond to speci c points identi ed by the tribunal as being material to its determination.

 

Well-structured submissions – require a list of issues, a chronology and a list of parties which will help assimilate the wealth of information and encourages proactive case management; for example, hearings conducted in the sequence of specific issues, rather than chronologically.

 

Reduced document production – encourages the tribunal to ensure a limited disclosure process, or perhaps suggest that whatever document requests are made by either party must be paid for by the requesting party.

 

Limit the scope of witness and expert evidence – there is often a large amount of background, or even irrelevant, evidence submitted. The tribunal may de ne the issues on which it requires evidence and may require experts to meet in advance of preparation of reports so that the reports can be focused on the disputed issues.

 

Set time limits – impose a nite time period within which each party must present its submissions and examine witnesses.

 

Use technology – electronic databases require upfront investment but are the fastest and most convenient way to store, collate and organise substantial numbers of documents. They also enable the sharing of documents between team members in different locations. Email, video links and telephone conferences all have their place too in a process that by its very nature is international; although be wary of the false economy of dispensing with direct, face-to-face contact in some situations. Also consider using electronic bundles with document-heavy proceedings, which enable relevant documents to be called up almost instantaneously and projected on screens and reduce copying costs. 

Ashurst Logo

For further information, please contact:

 

Gareth Hughes, Partner, Ashurst

gareth.hughes@ashurst.com