International arbitration News, analytics and practice

27Jan/10Off

Stereotypes of international arbitration. Stereotype No 1. Speed and economy

This post opens the set of short comments concerning the most common stereotypes related to the advantages and disadvantages of international arbitration as well as other myths related to international arbitration.

Stereotype No 1. Speed and economy

“Arbitration is faster and less expensive than litigation in the courts. Although a complex international dispute may sometimes take a great deal of time and money to resolve, even by arbitration, the limited scope for challenge against arbitral awards, as compared with court judgements, offers a clear advantage. Above all, it helps to ensure that the parties will not subsequently be entangled in a prolonged and costly series of appeals. Furthermore, arbitration offers the parties the flexibility to set up proceedings that can be conducted as quickly and economically as the circumstances allow. In this way, a multi-million dollar ICC arbitration was once completed in just over two months.”

ICC International Court of Arbitration

“Introduction to arbitration. Advantages of arbitration”

speed Stereotypes of international arbitration. Stereotype No 1. Speed and economy

It has long been said that arbitration offers a cheaper, quicker means of dispute resolution than national court proceedings. In reality, both international arbitration and international litigation can involve significant expense and delay. Disputes often require between 1 and 2,5 years to reach a final award. Theoretically, arbitration can proceed much faster than court action, provided the parties are co-operative, however it is seldom cheap, at least in significant cases. It should be noted that apart the fees of the arbitrators and, usually, of an arbitral institution, the parties will also be required to pay the expenses of renting hearing rooms, lodging, translation costs, traveling costs for the arbitrators and witnesses, fees for the experts appointed by the tribunal, etc. This entails expenses that do not exist in national court litigation.

Statistics provided by the ICC International Court of Arbitration based on ICC cases that went to a final award in 2003 and 2004 show that the costs incurred by the parties in presenting their cases constituted the largest part of the total cost of ICC arbitration proceedings. On average, the costs in these ICC arbitration cases were spread as follows:

  • Costs borne by the parties to present their cases: 82%

(including, as the case may be, lawyers’ fees and expenses, expenses related to witness and expert evidence, and other costs incurred by the parties for the arbitration other than those set forth below)

  • Arbitrators’ fees and expenses: 16%
  • Administrative expenses of ICC: 2%

Thus, on the other side of the myth about the speed and economy of international arbitration there is a growing stereotype about the arbitration as time-consuming and expensive process. As it was clearly demonstrated in certain surveys, expense and the length of time to resolve disputes were the two most common disadvantages. Arbitration can be more expensive than litigation, particularly outside some common law jurisdictions. By the way, this statement is fair if we are talking about Ukraine. The expenses of litigation in national economic courts (they consider commercial disputes) may not be compared with those of international arbitration. The claimant shall pay the state duty which is 1 percent of the claim (but not less than approximately EUR 8,5 and not more than app. EUR 2125) for those claims which may be assessed and about EUR 7 for other claims and the costs for informational and technical support of the process which are even less burdensome. Latter the court will allocate the expenses. There is no unified practice of allocation of advocates’ fees in Ukraine. Thus, it is not the cost effectiveness that is attractive in international arbitration from the Ukrainian lawyer’s point of view.

It is worth mentioning that many arbitration practitioners and arbitration institutions are concerned about these issues, and arbitration institutions have issued guidelines for the parties and the arbitrators to reduce the time and cost of arbitration proceedings. It seams logical that International Chamber of Commerce being one of the world-renowned international institution developing arbitration issued a very useful document - ICC Publication 843 “Techniques for Controlling Time and Costs in Arbitration. Report from the ICC Commission on Arbitration”. This documents has been prepared by the Task Force on Reducing Time and Costs in Arbitration, set up by the ICC Commission on Arbitration with the aim to present a large number of techniques which can be used for organizing the arbitral proceedings and controlling their duration and cost. We shall mention that the document is a product of the ICC Commission on Arbitration and not of the ICC International Court of Arbitration and thus it is not part of or interpretative of the ICC Rules of Arbitration or in any way binding upon the Court. Rather. Finally, while this document was conceived with the ICC Rules of Arbitration in mind, the vast majority of the techniques as well as the dynamics generated by the document can be used in all arbitrations.

(c) by International arbitration blog