In this fifth article in our series, we address the thorny question of the cost of international arbitration, and what can be done to manage it. We will explore the extent to which, in a changed world, there might be appetite to reflect on some of the issues in arbitration which have caused the cost of arbitrations to increase. We will also consider what steps businesses, law firms and international arbitral institutions might be able to take to help to manage down some of the costs.
If we are to improve productivity in arbitration and benefit from the efficiencies and lower costs that technology could provide, all the different stakeholders will need to work together. And ultimately, it needs you, our clients, to engage in an active dialogue with your lawyers, about how we can work together to achieve the efficiencies that you are looking for.
There have been a number of developments, or perhaps false starts, in international arbitration that ought to have contributed to increased efficiency and lower costs. But opportunities have been missed and potential efficiencies have often been offset or lost.
By way of example, the increasing use of electronic documentation ought to have led to a corresponding decrease in the use of paper; but so often we have been involved in cases where the use of the electronic documentation has not replaced paper documentation but simply augmented it, significantly adding to the costs.
Likewise improved electronic search and filing facilities ought to have led to a simplification of the process and the narrowing of the issues; but instead they have often dramatically increased the amount of “evidence” on the record, much of which is ultimately never relied upon.
In a time when the global economy is suffering and so many businesses are under financial pressure shouldn’t we all be considering what steps we might take to help manage the costs of the process?
So the purpose of the second part of this article is to raise some of the areas where efficiencies might be achieved, to encourage parties, counsel, tribunals and arbitral institutions to think about and discuss some of these issues, before the costs are incurred.
There are now a greater number of dispute resolution mechanisms and within those resolution dispute mechanisms are a variety of different options. Some of those choices can be combined to create a sophisticated dispute mechanism. Some of these choices are best made at the time of drafting a contract; others can be selected by agreement between the parties at a later stage.
All of those choices have an impact on the costs. This is not the place to examine each and every option, but by way of example, a one day mediation will typically be cheaper than a full blown arbitration. But if the mediation fails, and an arbitration follows, the overall costs may very well be increased.
There are now a plethora of arbitration institutions available, all of which have their pros and cons.
Some institutions take more active involvement in the procedural side of starting and running the case and some are hands off and leave it to the parties and the Tribunal to run the case as they agree. Typically the more active the institution, the higher the institutional cost, although that will not always be the case.
There are also choices as between genuinely global institutions, larger regional institutions and some of the newer institutions which focus on arbitrations involving investments in one or two jurisdictions. In recent years a number of regional institutions have positioned themselves as very credible alternatives to some of the bigger global players. In the next few years perhaps the major development will be the rise in newer more local centres, for example, across Africa.
The choice of institution will not just have an impact on the overall cost but will also have an impact on how those costs accrue. Some institutions tend to frontload costs, others have lower costs at the start of the process and others have costs that are more evenly spread.
All of these institutions have their pros and cons as regards a particular dispute that needs to be resolved, and again, these choices will impact on overall costs.
There is also increasing competition among venues (which may or may not be associated with a particular arbitration institution).
The nature of the venue is no longer distinguishable solely on the quality of the lunch and the availability of the air conditioning! As arbitration becomes more sophisticated, the availability of IT support, in particular as regards witness and video conferencing, is becoming increasingly important. Some venues charge higher costs for a more sophisticated service and others charge little more than a room fee.
Of course if a case is likely to involve witness conferencing, electronic documentation and potentially virtual hearings than the fully supported venue may well be the right choice. On the other hand, for a simpler case, perhaps with only a handful of hearing attendees a much more streamlined approach to the venue may make more sense. Indeed with a virtual arbitration there may be no venue or associated costs, including travel and accommodation, at all.
One of the areas which can have a big impact on the costs in an arbitration is the preparation of documentation. Although technology is now available to assist with the process of document review there is an extent to which the preparation of supporting documentation is perhaps more of an art than a science and getting the art right can make a huge difference to the cost of the document handling during the course of the case. The art might be summarised as follows:
At the start of the case collating and providing to the lawyers a well presented set of documents that address all the key issues and give the legal team a good sense of the merits of the case without overwhelming the team with reams of irrelevant or tangential material.
As the case develops and depending on the approach to documentation that has been chosen (and this may depend on the custom of the arbitration institution as well as the choice of the parties) the key is to present the documentation in a user friendly fashion so that time is not wasted triaging and sorting volumes of documents.
In relation to the disclosure element, which may again be affected by the custom of the institution, as well as the choice of the parties and the procedural and substantive law of the dispute, the art is to provide the documentation that is really required to get to the bottom of the dispute having in mind that a tendency has developed in arbitration to provide far more documents than the parties and the Tribunal can realistically assimilate. Where possible, the document dump should be avoided!
One of the impacts of COVID has been to force parties and tribunals to become more comfortable with the use of electronic documentation throughout the process, but we have still seen numerous examples even during COVID of tribunal members insisting upon provision of hard copy documents irrespective of the expense and inconvenience. That must surely become a thing of the past, and it is down to the parties to reject the provision of unnecessary documentation.
We have already touched upon the use of electronic documentation, but the likely need for fully or partially virtual hearings for the foreseeable future raises more fundamental issues about the nature of the hearing itself, which could bring about efficiencies if managed properly. The early feedback is that cross examination of witnesses is generally slower in virtual arbitrations and so more thought needs to be given as to whether or not it is really necessary to cross examine all of the witnesses and experts put forward by a party and how that should be done.
We are all familiar with the situation where a witness is dropped at the last minute due to lack of time; or questions are put in cross examination without any serious intent to challenge the evidence that has already been provided in witness statements. We are also familiar with the cross examination of experts that focuses almost entirely on the expert’s CV in case something unexpected pops up. In truth this sort of cross examination seldom changes the outcome of the case and wastes valuable hearing time.
Putting more work into planning for the hearing at an early stage, perhaps being more selective about witnesses to be cross examined, and putting more effort into narrowing expert issues, so that, for example, an agreed joint report deals with the majority of expert issues, can significantly reduce hearing duration and costs.
This one is directed at institutions and tribunals, and is a particular bugbear of these authors.
There are two broad approaches to the assessment of tribunal and arbitral institution costs. The first is the ad valorem approach, based on the value of the case and the second is the time cost approach based on the hours incurred by the Tribunal. There is theoretical transparency around these issues but we all know in practice that, certainly for larger cases, the Tribunal and institution costs are frequently far in excess of what the parties might have legitimately expected.
With respect isn’t it about time that tribunals and arbitral institutions put more effort into keeping the proceedings to the expected budget and give greater clarity as to the additional costs which might be incurred, particularly if proceedings take an unexpected course? Again this is an area where commercial parties should be encouraged to express their views, so that institutions and tribunals recognise the damage that is done when costs far exceed what is anticipated.
These efficiencies can only be achieved if parties, law firms, tribunals and arbitral institutions work together to improve the process and we hope that this article will give our clients the tools to raise the right questions, particularly at the start of the case, to achieve a more efficient outcome.
If you would like to discuss any of the points or issues raised in this article please contact us.