Authored by - Chloé Matar, Research Intern at MediateGuru
I. Introduction
Arbitration, as a popular dispute resolution method, has gained prominence for being seen as a more efficient and cost-effective alternative to litigation. Arbitration hearings are typically shorter and less formal than court trials, and arbitrators are generally more experienced in resolving commercial disputes However, the speed and effectiveness of arbitration often come at a considerable financial cost. The cost of arbitration can vary depending on the complexity of the dispute and the arbitrator's fees. In some cases, the cost of arbitration may be comparable to the cost of litigation, or even higher. Do the benefits of faster dispute resolution outweigh the costs of arbitration?
II. Arbitration as an Efficient[1] Dispute Resolution Mechanism
At its core, arbitration is a way for two or more parties to resolve a dispute outside of court. Instead of going before a judge and jury, the parties agree to let a neutral third party, called an arbitrator, decide the case. Arbitration can be a faster and more flexible way to resolve disputes than going to court. One of the main benefits of arbitration is that it is faster than going to court. For instance, court cases can drag on for months or even years, but arbitration is designed to be quicker and more efficient. The parties can choose arbitrators who are experts in the relevant field, which can lead to better and faster decisions. In addition, it also allows the parties to have more control over the scheduling of hearings, which reduces the risk of delays. Even though Arbitration has many advantages, it also raises concerns about cost, transparency, and accountability. As the legal landscape changes, the balance between cost and efficiency in arbitration is still being debated. This reflects the changing nature of modern dispute resolution.
III. The Financial Burdens of Arbitration
Costs are also one of the known benefits of arbitration, as in theory at least, arbitration is said to have lower costs when compared to litigation. This is, unfortunately, not always the case, as arbitration can often tend to be more costly. One of the main challenges in arbitration is how to divide the costs between the parties involved. Usually, each party pays its own legal fees and other expenses for presenting its case. Sometimes, the parties have to share the costs of paying the arbitrator and other administrative costs.
In order to commence arbitration proceedings, claimants must pay a non-refundable filing fee. In addition to the filing fee, most arbitral institutions charge an administrative fee, which depends on the amount in dispute or may be charged at a fixed annual rate. Another factor is the arbitrator's fees. However, the fees and costs of the arbitrators and arbitral institutions represents a small portion of the overall expenses, as the largest portion, are legal fees and other party-related costs, including the cost of experts, translators, hearing printing costs or costs of in-house counsel.
The way costs are divided is important and needs to be carefully considered. It affects how likely parties are to choose arbitration instead of going to court. It is important to divide the costs fairly so that arbitration remains an attractive and accessible way to resolve disputes.
IV. Balancing Cost and Efficiency
To address the cost challenges in arbitration, various approaches and strategies have emerged. One approach is to use technology to streamline processes, reduce paperwork, and improve communication. Digital platforms and tools [2]can facilitate remote hearings, document sharing, and case management, making arbitration more cost-efficient and accessible.
Another strategy is to develop guidelines and best practices for managing costs in arbitration. Institutions and organizations involved in arbitration have issued recommendations and guidance on cost control, case management, and efficient dispute resolution. These resources serve as valuable references for parties and arbitrators seeking to navigate the cost landscape effectively.
Arbitrators, too, have a role to play in addressing the cost burden. They can promote efficiency by actively managing the proceedings, setting clear timelines, and encouraging the parties to focus on the central issues.
Arbitration institutions have also taken steps to address the cost issue. Some institutions have introduced rules and procedures tailored to expedite the resolution of disputes, particularly in cases involving lower monetary amounts.
For instance, we mention here the AAA Commercial Arbitration Rules[3]. In addition, the UNCITRAL Model Law on Expedited Arbitration[4], which aim to strike a balance between the efficiency of the arbitration process and, equally importantly, ensuring that the parties are afforded their due process rights and treated fairly. Furthermore, the 2021 ICC Rules [5]article 37-38 outline the procedure for covering the costs associated with arbitration proceedings and deal with the determination of costs in arbitration cases
These mechanisms are designed to provide a cost-effective alternative for parties with smaller claims.
V. Conclusion
Efficiency is important in arbitration to keep costs down. But it is also important to make sure that both sides have a fair chance to present their case. This is especially important in international arbitration, where the parties may come from different backgrounds. The challenge is to find a balance between efficiency and fairness. Streamlining procedures can reduce costs and make the process faster, but it should not come at the expense of denying parties their right to be heard and present their case effectively. Striking this balance requires adopting an approach that takes into account the specific circumstances of each arbitration. The cost burden in arbitration is a complex challenge that affects different aspects of the arbitration process. Achieving a balanced approach that combines efficiency with fairness is essential to address this challenge effectively. Parties, arbitrators, and institutions must work together to explore innovative strategies, use technology, and adopt best practices to manage costs and ensure that arbitration remains an accessible and practical means of dispute resolution in today's complex legal landscape. Balancing the scales of justice while controlling the financial burden ensures that arbitration remains a viable option for parties seeking to resolve disputes efficiently and fairly.
[1] Arbitration Vs. Litigation, https://legal.thomsonreuters.com/blog/arbitration-vs-litigation-the-differences/, last 5 accessed October 2023 [2] Advantages Of ODR, https://justact.co.in/blog/advantages-of-ODR#:~:text=ODR%20offers%20a%20swift%2C%20transparent,both%20low%20and%20high%20value., last accessed 5 October 2023 [3] Rule 53-55 of the AAA Commercial Arbitration Rules, https://adr.org/sites/default/files/Commercial%20Rules.pdf, last accessed on 4 October 2023. [4] UNCITRAL Model Law on Expedited Arbitration, https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/uncitral_ear-e_website.pdf, last accessed on 4 October 2023. [5] Article 37-38 of the 2021 ICC Rules, https://iccwbo.org/dispute-resolution/dispute-resolution-services/arbitration/rules-procedure/2021-arbitration-rules/#block-accordion-30, last accessed on 4 October 2023.