What is the average cost of an international arbitration?
“How much will it cost?” It is a perennial question for in-house counsel when considering how to resolve a dispute. Concerns about expense often prompt parties to consider arbitration over litigation because of arbitration’s reputation for being the cheaper of the two. Although that may be true of domestic arbitration, it is not always the case in international arbitration.
When parties talk about the cost of arbitration, they are generally talking about two different categories: legal costs and arbitration costs.
Legal costs are by far the more significant in international arbitration. They include counsel fees and expenses, as well as costs associated with experts and witnesses. A survey from the Chartered Institute of Arbitrators estimated that legal costs account for around 80% of the overall cost of arbitration.
Fee shifting, however, can greatly minimize costs associated with attorneys’ fees. While fee-shifting is often unavailable in domestic litigation, arbitration parties regularly agree that the arbitrator can determine whether the losing party should bear the winning party’s costs. Allen & Overy reported that the successful party in investor-state arbitrations recovers some portion of its costs in 51% of cases.
The second category is arbitration costs. These include the fees and expenses of the arbitrators and any institution administering the case. Although not as significant as attorneys’ fees, arbitration costs also impact the bottom line for an international arbitration.
Each institution has its own way of calculating arbitration costs. At the London Court of International Arbitration (“LCIA”), arbitrators’ fees are calculated on the basis of hourly rates (currently capped at GBP 500). At the International Chamber of Commerce (“ICC”), they are calculated ad valorem, i.e., based on the value of the dispute. The size of a tribunal affects cost: three-member cases are more expensive than sole-arbitrator cases.
A report from the LCIA highlights significant differences in costs between institutions. The average cost of arbitrations at both the Hong Kong International Arbitration Centre (“HKIAC”) and the ICC, for example, is $199,000 (USD). The average cost of an LCIA arbitration, by contrast, is $97,000 (USD).
The type of arbitration being pursued also impacts costs. Investor-state arbitration, for example, is generally longer and significantly more expensive than commercial arbitration. Investors pursuing arbitration under investment treaties should anticipate that, on average, tribunal costs will be around $1 million (USD).
In the end, the cost of international arbitration depends in large part on the procedural choices parties make. Costs can be a function of time, and time, in turn, a function of procedure. There is no such thing as a “standard” international arbitration because there is no standard set of rules applying across all international arbitrations. Parties can greatly control costs by agreeing to procedural rules that promote efficiency.
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