“Nothing is so unproductive as the law. It is expensive whether you win or lose.” — Gilbert Parker
Commercial arbitration has been touted as a viable alternative to litigation on account of its relative affordability. In theory, this appears to be a no-brainer yet in practice many a party to arbitral proceedings have learnt the hard way that the cost of arbitration tends to be astronomical if the process is not properly managed.
The costs of commercial arbitration fall into two categories, namely, common costs and party costs. Common costs are costs, which cannot be attributed to any particular party, for instance the arbitrator’s fees and administrative costs of an arbitration institution if the parties opt for institutional arbitration. Party costs entail expenses related to legal representation in arbitral proceedings commonly referred to as “legal costs”. The latter includes counsel’s fees and expenses and if experts are involved, as they frequently are in international commercial arbitration, the fees and expenses of those experts.
Employing non-adversarial alternative dispute resolution methods
One of the best ways to circumvent an inefficient arbitration is to completely avoid arbitration in the first place. In his article titled, Managing for Business Effectiveness (May 1963:53) Harvard Business Review, Peter Drucker famously observed “there is surely nothing quite so useless as doing with great efficiency what should not be done at all”. Alternative dispute resolution methods like negotiation and mediation can settle disputes more efficiently than arbitration while preserving relations between the parties because of their non-adversarial nature. Other alternatives like expert determination can be employed in certain cases to reach binding decisions more swiftly than arbitration. Multi-layered dispute resolution clauses can make it peremptory for parties to have recourse to such measures before going to arbitration. These alternatives can and should be resorted to more often, to compliment arbitration. Even if, for instance, mediation fails to resolve all claims, it may still be used to settle some of the claims and curtail the issues for arbitration.
Settling for a sole arbitrator
Parties often choose to have three arbitrators to guard against error or for other strategic reasons. However, the additional expense may significantly nullify the perceived advantage, particularly for modest disputes. One of the easiest ways of simplifying arbitration and making it super-efficient is doing away with a bloated arbitral tribunal. Appointing one arbitrator as opposed to a tribunal of three arbitrators is self-evidently efficient.
Arbitrator’s fees comprise one of the biggest costs in commercial arbitration so the advantage of selecting a single arbitrator instead of three arbitrators cannot be overstated. Further, it is also easier to schedule meetings with one arbitrator than with a panel whose members have different schedules. With a sole arbitrator, decisions do not require coordination and consensus among members, thus the award is not susceptible to delays due to protracted deliberations.
Curtailing the duration of proceedings
Parties may employ an assortment of measures in their arbitration agreements to truncate arbitral proceedings. For instance, it can be agreed that the hearing will be held and finalised within a determined time from the filing of the request for arbitration. Alternatively, parties can stipulate that the award will be delivered within a specific time from the constitution of the arbitral tribunal. Parties can, further alternatively, agree that the award will be rendered within a determined time from the final hearing or the filing of the last written submission. The arbitration agreement can provide for consequences of non-compliance, for example parties can stipulate that the tribunal will consider any delays when assessing costs.
Imposing a limit on submissions
Lawyers often fail to resist the age-old temptation to file voluminous and rambling submissions. Filing lengthy written submissions is a die-hard habit which lawyers bring from litigation. Unfortunately, such voluminous submissions are an unnecessary cost for the parties and thus contribute to the inefficiency of arbitration.
Moreover, arbitrators may be justified in complaining that they cannot reasonably be expected to read and process literally mountains of pages of submissions and evidence filed by overreaching lawyers. As a cost cutting measure, parties may limit the number of exchanges of written pleadings and memorials. Truncating the number of pages that parties are permitted to file and limiting documents to a specific number of pages can save both costs and time. Such measures may even facilitate better comprehension of the dispute by the arbitrators.
Limits on hearings
Arguably, arbitral hearings constitute the most costly part of arbitral proceedings. This cost can be significantly reduced if the parties set reasonable limits on the scope or duration of hearings in their arbitration agreements. Restrictions of this nature may encourage the parties to bring only the witnesses and testimony most relevant to the settlement of the dispute. In appropriate cases, parties can agree that their disputes will be determined on the basis of documents alone provided, of course, that they can also stipulate that the arbitrators can determine after consultation with the parties that a hearing is appropriate.
Choice of lawyer
There can be no doubt that a sizeable chunk of arbitration costs goes towards legal fees. Clearly, therefore, reducing counsel costs will significantly reduce the costs of arbitration in general. The use of cost-effective and experienced alternative dispute resolution lawyers who are familiar with the effective prosecution of arbitral proceedings can make a huge difference. For example, it is often the inexperienced lawyers who commit a plethora of procedural blunders in arbitration on account of their lack of appreciation of the distinction between arbitration and litigation. Instructing a lawyer who is well-versed in arbitration will go a long way in keeping costs of arbitration down.
l Jacob Mutevedzi is a commercial lawyer and partner at Clairwood Chambers Attorneys and writes in his personal capacity. He can be contacted at +263775987784 or at firstname.lastname@example.org