After a dispute arises and a business seeks legal advice, one of the first questions is usually “how much is this going to cost me?”. Pursuing or defending a claim in arbitration proceedings is a big financial risk for companies and effective cost management is essential.
Managing the cost of disputes starts with the contract. Companies have a lot of power at the contract negotiation stage to mitigate the costs of future disputes by considering carefully where potential disputes may come from as well as the value and complexity of any potential claims. This analysis can be reflected in the contract’s dispute resolution clause by agreeing on a process for which the costs are proportional to the claims that are likely to arise. This process may also include non-binding methods such as mediation or expert determination to assist the parties in arriving at a settlement before deciding whether to enter into a binding arbitration. The costs of the arbitration itself can vary considerably depending on the arbitral institution, the number of arbitrators and the procedural tools available under the chosen arbitration rules, such as the possibility of an expedited or fast-track arbitration or the power to consolidate claims. From a procedural perspective, it is worth considering, for example, whether hearings can be conducted remotely, or whether they are even necessary at all. Hearings can be expensive, particularly in international cases where travel costs can be high. In essence, it is vital to agree on a cost-effective dispute resolution process that works for the transaction or project underlying the contract.
After the costs of the lawyers and any experts, the fees of the arbitrators are the most significant expenses of an arbitration. Under the LCAM Arbitration Rules, arbitrators charge a flat hourly rate ranging from £200 for amounts in dispute under £100,000, up to a maximum of £400 for amounts in dispute over £1,000,000. Many other institutions favour an ad valorem approach, which determines costs proportionally to the amount in dispute. A high value claim does not necessarily turn on factually or legally complex issues, and the LCAM’s approach more directly reflects the complexity of the dispute as well as the amount of time that the arbitrator spends on it.
The costs of the arbitral institution include the filing fee, the administrative costs and sometimes also the costs of the decision-making organ of the institution. Many institutions favour an ad valorem approach here too. The LCAM’s administrative fees are fixed in brackets according to the amount in dispute, up to a maximum of £10,000 for disputes over £10,000,000. This includes the administrative work handled by the Secretariat as well as any decisions that need to be taken by the Board. The Board decides on matters such as the jurisdiction of the LCAM, the determination of advances on costs, the appointment of arbitrators, challenges to arbitrators, the removal of arbitrators and the fixing of arbitration costs. The predictability in institutional costs is a welcome feature of the LCAM Arbitration Rules.
A salient feature of the LCAM’s arbitration offering remains its Expedited Arbitration Rules. They provide for a documents-only procedure for a fixed fee and a final award within six months of the commencement of the arbitration. The Expedited Arbitration Rules impose word limits on the written submissions, supporting documents, witness statements and expert reports. The administrative and arbitrator fees are all-inclusive. The precise cost of the proceedings depends on whether the claim or counterclaim falls below or above £100,000. The Expedited Arbitration Rules even set an upper limit on the total legal costs that each party may recover. This is currently £4,000 if the claim and counterclaim are under £100,000 and £6,000 if the claim or counterclaim is above £100,000. This package makes the Expedited Arbitration Rules particularly appealing for transactions or projects where any claims are likely to be small in value or complexity.
Duncan Gorst, Senior Associate, Osborne Clarke