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Minimising the cost of international arbitration

by Natasha Mellersh on 05 Oct 2017
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While international arbitration is generally expected to be a faster and more cost-effective alternative to litigation, this is not always the case. Although there are many other advantages to arbitration such as confidentiality and a greater degree of client influence, it can still be lengthy and at times very expensive.

The good news is, there are several ways for parties to minimise the cost of international arbitration. These might be directly within their own control, e.g. the selection of legal counsel, while others may be managed by lawyers and arbitrators.

Of course the ideal situation would be to settle the dispute. If the dispute can be settled on fair terms, both parties will benefit by avoiding the expenses of the entire arbitration process in the first place. However, where this is not an option. Here are some useful ways to avoid overspending:

Keep it simple

Keeping arbitration clauses simple is key to reducing costs. Complex clauses can lead to unnecessary jurisdictional battles which could have been avoided through proper drafting. The lawyers or in-house counsel involved in drafting the arbitration clauses should strive to be as concise as possible. Model clauses from major international arbitration institutions can be a great help here, as they are well-written and already widely used.

Furthermore, the existing jurisprudence supporting the legal validity of such model clauses can help to clear up any ambiguity in relation to jurisdiction.

It is possible to have a sole arbitrator hear your case, rather than a panel of three - this will also keep costs down. Unless it is a complex international arbitration it wouldn't be necessary to appoint three arbitrators. Even if you have not provided for a sole arbitrator in the contract, it is still possible to revise the arbitration agreement along with the opposing party when the arbitration arises, especially as this can help both sides reduce costs.

Get on the arbitration fast track

Including fast track arbitration clauses are an option for smaller to medium sized claims. These would limit the time and procedural mechanisms available to both parties in the event of a legal dispute. Fast-track arbitration rules are designed to allow for an arbitration to proceed quickly and may even include provisions limiting the duration of a dispute. A streamlined and accelerated process will generally also allow for a reduced cost.

Where possible, it is advisable to avoid the bifurcation of an arbitration proceeding. Bifurcation is when proceedings for one particular dispute are broken down into separate cases and can take place in parallel to one another. This can speed up and improve efficiency in complex cases but can also lead to excessive costs.

Generally, the bifurcation of an international arbitration can also further complicate the arbitration process by allowing multiple proceedings for a single dispute. It is advisable to avoid bifurcation and to stress this to your legal counsel unless such an approach would yield a more cost-effective result in that particular case.

Choosing the right lawyers and arbitrators

Another, and seemingly obvious tip is to use experienced and cost-effective lawyers. Legal fees generally make up the majority of the costs in an arbitration. It's important for parties to actively seek information regarding the quality of legal services and perhaps to shop around and compare the value of the services being offered by different law firms. It may also be a good idea to agree on a maximum cap on legal fees before hiring legal representation. This helps to provide a clearer picture of the real cost of the arbitration itself.

Ensure you select cost-effective experts, as the rates charged experts can vary considerably and this does not necessarily correlate with their quality. Here, it would be useful to encourage your legal team to take the lead in conducting research, price comparisons and providing you with multiple quotations for their services. A highly-qualified quantum expert, for example, can also be very cost-effective. However, be reminded not to hire excessively - only use an expert if he/she is necessary for your case.

In regards to selecting arbitrators, much like choosing the right legal representation, it's essential to do your homework and only select experienced international arbitrators who have sufficient time to closely follow the case and can ensure that an arbitration procedure is carried out effectively. This is also important in regards to the validity of an arbitral award, as making a procedural error could risk an arbitration award to be overturned. Therefore it is important that an arbitrator not only has experience in the field but also possesses good case management skills.

Although accessing information regarding individual arbitrators remains limited, there has been a push from the dispute resolution community to improve transparency and the selection process as a whole - making it easier for parties to choose the most appropriate arbitrators for their case. Greater efficiency is key for maintaining confidence in the arbitration process, and providing ways of minimising costs allows the process to remain accessible and attractive to a wide range of parties.

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Topics: International Arbitration, Arbitration

Natasha Mellersh

Written by Natasha Mellersh