There are many ways for clients to minimize the cost of international arbitration, some of which are directly under the control of parties to a dispute, such as the selection of legal counsel. Many others are directly under the control of lawyers and arbitrators, over which the client has no direct control, but may influence indirectly through his or her legal counsel.
The list below explains how clients can reduce the cost of international arbitration, organized in terms of the probable magnitude of the impact on the reduction of their overall legal expenditures.
- Attempt to settle the dispute if possible. If the dispute can be settled on fair terms, both parties will clearly reduce their legal expenditures dramatically. They should try to do so whenever this is possible.
- Provide for a sole arbitrator rather than three arbitrators to resolve your dispute. This will reduce the amount that is paid for arbitrators by approximately 2/3. While arbitrators account for only a small portion of the cost of international arbitration, there is no need need to have three arbitrators for international arbitrations that are not complex.
- Use experienced and cost-effective lawyers. Surveys shows that 74% of party costs in any given arbitration have been found to be attributable to legal fees. As legal fees account for the vast majority of the cost of international arbitration, a reduction in this head of costs will, mathematically-speaking, have by far the greatest impact on its reduction. Clients should actively compare the value of the legal services being offered by multiple law firms prior to retaining arbitration legal counsel. They should also insist that a maximum cap on legal fees be in place prior to formally engaging legal representation, which will allow the client to know the true cost of international arbitration that he or she will be paying in advance. Clients can also ask for caps on every stage of an international arbitration, and they should ensure that lawyers have significant previous arbitration experience, since procedures are very different than court proceedings. The members of the IAA Network provide some of the best legal representation at a reasonable cost, with rates that are designed to reduce the overall cost of international arbitration by over half.
- Use fast-track arbitration clauses in contracts whose total value is USD 500,000 or less. Parties to smaller contracts should use fast-track arbitration clauses that limit the time and procedural mechanisms available to be used by both parties’ counsel should a legal dispute arise. Fast-track arbitration rules are designed to enable an arbitration to proceed quickly and can include provisions limiting the duration of a dispute. Parties can also agree upon fast-track arbitration after a dispute has arisen, although this is more difficult.
- Consider using third-party funders to pay for your case. Third-party funders will cover up to 100% of the costs of any given case. There is a considerable drawback, however, namely that they will keep a large percentage of the total amount you are actually awarded. It is also a very time-consuming process to obtain third-party funding in all but the largest cases. An alternative to third-party funding is asking your legal counsel to take your case on a full or partial success fee, although arbitration lawyers in certain jurisdictions may have restrictions imposed by their bar rules with respect to whether success fees are possible.
- Stress the importance of avoiding the bifurcation of the arbitration proceeding to your counsel unless it will truly limit the number of legal issues to be decided upon. Far too frequently, the bifurcation or trifurcation of an international arbitration results in additional costs to an arbitral proceeding, in effect ensuring that rather than one arbitration taking placing, two or three arbitrations of similar duration take place in its stead. Bifurcation should always be avoided unless there is a real possibility that splitting the arbitration procedure into separate parts will result in a more cost-effective proceeding.
- Encourage your lawyer to select cost-effective experts. Like lawyers, the rates charged by quantum experts, and some legal experts, vary considerably, often with little correlation to the value of the services they provide. The cost of quantum experts frequently runs up to many hundreds of thousands of USD or more. Encourage your lawyer to shop around for high-value quantum experts and to provide you with multiple quotations for their services, so that you can select one that is highly-qualified but also cost-effective. If a quantum expert or legal expert is unnecessary for your case then do not use one.
- Revise the arbitration agreement with the opposing party when an arbitration has arisen. Nothing prevents parties from revising the terms of their arbitration agreement once an arbitration proceeding has commenced or when it seems that a dispute may arise. To reduce costs, for instance, two parties may agree about the appointment of a sole arbitrator rather than three arbitrators as called for in an arbitration agreement.
- If a hearing is unnecessary, suggest to your lawyer that there be no hearing or that the oral hearing be limited in duration. An oral hearing is not required in international arbitration proceedings, and each day of oral hearings drives up costs considerably. This can be limited by the agreement of the parties.
- Request a limitation in terms of document production or no document production at all. Document production costs can spiral out of control, resulting in U.S.-style discovery that increases legal fees considerably and unnecessarily. Have your legal counsel suggest the limitation of document production at the outset of a case, unless you honestly think that the adverse party has documents in its possession that can have an impact on the outcome of your case. When document production is provided for, it may be useful to suggest that the useful IBA Rules on the Taking of Evidence in International Arbitration be followed.
- Encourage limitations to the length of written submissions. It has become far too common for legal submissions in international arbitration to run to many hundreds of pages. While the legal counsel of defendants facing a barrage of legal arguments by the Claimant’s lawyers may have no choice but to respond to voluminous submissions with voluminous submissions, such lengthy submissions are frequently unnecessary. To avoid the threat of overlawyering, parties can jointly agree to a limitation of the number of pages per submission, for instance to 100 pages per submission, at the outset of a case.
- Limit the number of rounds of written submissions. While it is frequently useful for both parties to have two rounds of submissions, more rounds of written submissions are seldom necessary.
- Ensure that your lawyer avoids unnecessary correspondence. If correspondence by your lawyer serves no purpose, there may be no need for it to be sent. Remind your arbitration lawyer of this to avoid the threat of overlawyering.
- Select experienced international arbitrators. Just like inexperienced lawyers, inexperienced international arbitrators may fail to ensure that an arbitration procedure stays on track. Far worse, they may make a procedural blunder that allows an arbitration award to be overturned after it is rendered. A client should select an arbitrator who is highly-knowledgeable about international arbitration and has good case management skills. Additional suggestions concerning which arbitrators should be selected, as well as tools to find them, are available on this website.
- Ensure your legal counsel has a modern and organized system for retrieving documents and help your legal counsel by providing the most relevant documents with clear explanations of their relevance. This will limit the time it takes your arbitration counsel to find and review documents.
- Encourage the arbitrator and the adverse party to agree to short and realistic time periods. The longer the arbitrator or the parties are given, the longer an arbitration will take and the more legal fees and other costs will continue to accrue. You can limit this by encouraging brisk time limits.
- Keep arbitration clauses simple. Complex arbitration clauses can cause complex jurisdictional battles that would have been unnecessary with proper drafting. Lawyers or in-house counsel drafting arbitration clauses should keep them short and as simple as possible.
- Use the model clauses of a major international arbitration institution when possible, such as those of the ICC, LCIA, SCC, ICDR, SIAC or HKIAC. These model clauses are well-written and there is considerable jurisprudence justifying their legal validity. This will avoid unnecessary legal skirmishes over jurisdiction.
- Avoid ad hoc arbitration when possible. While ad hoc arbitration such as UNCITRAL arbitration can be fine, it is usually better to have a well-known arbitration institution overseeing the procedure to ensure that it stays on track and that arbitrators are working to the best of their ability and meeting deadlines. The administrative costs paid to such arbitral institutions are a very small percentage of the overall cost of any given arbitration, and they are likely to more than pay themselves in terms of the overall cost-effectiveness of the arbitration proceedings.
- Impose time limits on arbitrators to render a final award. This may encourage an arbitrator to work in a more efficient manner, although the time limit should not be so short that arbitrators render a poor award that could be annulled in the future.
- Select arbitrators with sufficient time available to do their work properly. Some arbitrators are too busy to follow a case closely and to ensure that the procedure stays on track. Select one who has sufficient time available.
- Try to agree with the adverse party on using one language per case. Arbitrations in two languages increase the time and costs of a given case.
- The Chairman or President should be empowered to take procedural decisions alone in cases with three arbitrators. This will ensure that there is no gridlock at the level of the arbitral tribunal.
- Ask for meetings to take place via videoconference. Today, many lawyers and arbitrators have access to videoconferencing equipment. If they do not, some meetings can still take place via free videoconferencing solutions. Final hearings can even take place via videoconference, although this is rare with respect to all but the smallest of disputes.
- Encourage legal counsel to set out the case as fully as possible at the outset of the proceedings. This will typically limit the scope of arguments that are raised in the case, resulting in more efficient and therefore less costly proceedings.
- Encourage keeping hard copies to a minimum. Most documents can be stored electronically today. Using electronic documents and e-mail for exchanges will reduce your overall costs.
- Agree on non-certified translations. It is common in international arbitration to agree that translations need not be certified unless they are in dispute in international arbitration. This reduces costs considerably in cases with many documents.
- Limit the number of witnesses. This reduces witness-related expenses and the expense of flying them to a final hearing.
- Limit the number of exchanges of witness statements. Often, only one exchange of witness statements is required. As lawyers in international arbitration can spend a significant amount of time ensuring that witness statements are accurate, limitations on the number of rounds of witness statements will reduce a client’s legal costs.
- Choose the best location for the hearings. In international arbitration, hearings can be held anywhere in the world, regardless of the legal seat of arbitration. The most convenient place for all parties should be selected to minimize costs.
- Consider abandoning post-hearing briefs. If they are unnecessary, request that your legal counsel suggest that they be avoided.
As by far the greatest expense in any arbitration is the cost of legal counsel, ensuring high-value legal representation with an appropriate cap on legal fees should be the priority for a client to ensure that its legal expenditures remain predictable and under control.
The ICC Arbitration Commission Report on Techniques for Controlling Time and Costs in Arbitration has additional advice on controlling the time and costs of international arbitrations.