Empirical Data On The Cost Of International Arbitration
The main complaint concerning international arbitration over the past two decades has been its increasing cost, with the largest cost element typically being legal fees. As an average arbitration may require between 1,500 and 4,500 hours of legal work, it is not hard to see why legal fees may be significant if billed on an hourly basis. For a relatively simple arbitration requiring 1,500 hours of legal work, for instance, if billed at the rate of USD 300/hour, legal fees would equal USD 450,000 on an hourly basis. Boutique arbitration law firms that bill on a capped stage-by-stage basis, such as Aceris Law LLC, can significantly reduce the traditional cost of international arbitration, which is analysed below.
The CIArb Costs of International Arbitration Survey, based on 254 arbitrations conducted between 1991 and 2010, contains perhaps the most extensive analysis of the cost of international arbitration to date. The survey included data from ICC, LCIA, LMAA, AAA, SCC, ad hoc and other types of arbitrations, finding the overall average cost of international arbitration to be approximately GBP 1,580,000 (USD 2.6 million or EUR 2 million using recent exchange rates) for Claimants, and approximately 10% less for Respondents. These figures remain similar in more recent surveys, although the cost of investment arbitration is higher and individual disputes may cost significantly less.
The breakdown of how much each party spent, on the basis of three ranges of amounts in dispute, is shown in the table below, taken from the CIArb Survey.
While not insignificant, arbitrator fees and administrative expenses (common costs) represented only 20% of total costs of international arbitration according to the findings of the survey. This corresponds to previous findings of the ICC, which similarly determined that ICC arbitrator fees and administrative expenses account for roughly 18% of the costs of arbitration.
Party costs, found by the survey to be between GBP 1,348,000-1,521,000 per arbitration (on average), included the costs of experts, witnesses and arbitration legal fees and represented approximately 80% of overall costs. 74% of party costs were attributable to legal fees, implying average international arbitration legal fees of GBP 997,520-1,125,540 (USD 1.6-1.8 million or EUR 1.3-1.4 million) per arbitration. Again, the primary culprit is the significant number of hours of legal work generated by each arbitration.
It must be noted that where the amount in dispute was less than GBP 1 million, costs were less than GBP 250,000 in approximately one-half of cases. In addition, for arbitrations where the amount in dispute ranged from GBP 1 million to GBP 10 million, approximately one-quarter of disputes generated less than GBP 250,000 in costs.
There are a number of effective ways to reduce the cost of international arbitration. In theory, international arbitration should be less costly than international litigation, for the simple reason that there are no appeals to an arbitration award.
The full CIArb Costs of International Arbitration Survey 2011 is shown below.