Arbitration Costs and Fees – What to Expect.

Posted on 17/12/2016 · Posted in Arbitration

Arbitration is not only increasingly seen as a positive, collaborative and consensual approach to dispute resolution, but also a more cost effective one than formal judicial court proceedings. However, this is not always the case and the cost of arbitration will depend on various factors including the length of the process, the number and level of experience of the arbitrators involved, and even the type of hearing requested by the parties.

What do costs and fees consist of?

One of the key factors that determine the cost of arbitration is the arbitrator’s fees. Unlike a judge, an arbitrator is selected by the disputing parties as an independent and neutral third party who will listen to both cases presented and make a final judgement, also known as an award. Unlike a judge, an arbitrator is also paid by the disputing parties. An arbitrator will usually charge an hourly fee, but their costs will also depend on their experience, the length and complexity of the case, and possibly also the number of expert witnesses that may be needed to give evidence throughout the process.

There are risks and costs to action. But they are far less than the long range risks of comfortable inaction”
John F. Kennedy

Arbitration is initiated by agreement of the two disputing parties or else through court referral, and the cost of initiating arbitration also needs to be factored in, with registration fees, administrative charges, and tribunal costs all playing a part also known as procedural fees. Awarded costs or party fees typically include the arbitrator’s fees and expenses, the involvement of any expert witnesses or relevant institutions, and the costs of the parties’ expenses such as travel and venue hire. Party fees make up an average of 83% of the total arbitration costs whilst procedural fees remain much lower in comparison.

Who bears the costs of arbitration?

The disputing parties can themselves agree how costs will be borne, with the unsuccessful party paying in most cases. If the parties cannot agree then the 1996 Arbitration Act outlines a general principle that guides the tribunal. This states that the costs should follow the event except in cases where this would not be appropriate, in which case the tribunal can decide to apportion the costs between the parties based on their assessment of how each party has conducted itself e.g. whether they caused the arbitration process to be held up in any way.

Under the London Court of International Arbitration (LCIA) Rules 2014, the arbitral tribunal may take into account the parties’ conduct in the arbitration, including:

  • Any co-operation in facilitating the proceedings as to time and cost.
  • Any non-co-operation resulting in undue delay and unnecessary expense.

Chinese arbitration practice generally works in this way if a party’s bad faith behaviour causes delays in the arbitral proceedings, the tribunal will generally allocate more costs to that party. This encourages those involved to take initiative to conduct the arbitration with clarity and efficiency.

So is arbitration cheaper than litigation?

In most cases, the answer is clearly yes. Of course there are a few cases where the costs of an arbitration have sky-rocketed due to the length or complexity of the proceedings, but as a whole arbitration is becoming an ever more popular choice for dispute resolution in large part because of the cost savings versus formal litigation. Running to your chosen timetable, and outside of the court system, often translates into significant savings for disputing parties. Outlined below are some ways to ensure that the cost efficiency of arbitration compared to formal litigation is upheld.

Simple ways to reduce the costs incurred during arbitration

  • Limiting the time spent on the discovery stage – time saving techniques may be implemented here such as determining which witnesses testimonies will be most valuable beforehand and asking peripheral witnesses to testify by phone. Equally two experts may testify at the same time, taking turns in answering questions or responding to each other’s positions. This may be useful when experts have conflicting views.
  • Determining admissibility of documents prior to discovery – and agreeing on whether depositions will be permitted or no. Depositions can be very time consuming and are often discouraged by arbitrators.
  • Using one expert witness as opposed to a tribunal – obviously this will not be suited to all cases but in less complicated disputes one may decide that prioritising a low cost is more important than, as interesting as it may be, getting an expert’s input on a particular problem.
  • Setting dates – It has been advised that at the start of the proceedings a date for the final award should be decided upon if those involved want to ensure time-efficiency in the proceedings.
  • Ensuring that all deadlines are kept and paperwork handed in on time – this shows how both parties’ have a responsibility as much as the arbitrator to ensure that the arbitration is expeditious.

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Expert Evidence is a professional firm concentrating on the four main areas of dispute resolution; acting as expert witnesses in financial litigation, mediation, arbitration and adjudication. The firm has a civil, criminal and international practice and has advised in many recent cases. Areas of specialisation include banking, lending, regulation, investment, and tax.

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Disclaimer – Please confirm any of the above views with your solicitor. Expert Evidence takes no responsibility or provides any guarantee that the views above are correct for your particular case or jurisdiction.