A recent London Court of International Arbitration (“LCIA”) report (the “Report”) suggests that LCIA arbitration costs are generally less than arbitration costs at other institutions at all levels of dispute (for the purposes of the Report, arbitration costs means tribunal fees and administrative charges). The cost savings offered by the LCIA may be explained by its commitment to time efficiency and its use of hourly rates to calculate most of its costs.
The Report analyses the cost and duration of all 224 cases administered under the LCIA Arbitration Rules that had reached a final award between 1 January 2013 and 31 December 2016.
The Report found that arbitration costs at the LCIA average USD$97,000 and are generally lower than the estimated arbitration costs of each of the ICC, SCC, SIAC and HKIAC across all amounts in dispute, particularly – and significantly – in relation to cases involving larger amounts. The data showed that arbitration costs in cases with claims worth less than USD$1m were on average 14% higher those institutions, whereas in claims worth more than USD$100m they were on average 225% higher than arbitration conducted under the LCIA Arbitration Rules.
This difference in overall arbitration costs may be explained by two separate features of LCIA arbitration highlighted by the Report:
Emphasis on time efficiency
The time taken for arbitrators to produce a final award following the parties’ final submissions on the merits of the dispute is on average 2 months for claims worth less than USD$1m, and 3 months for all claims worth over USD$1m.
The LCIA observes that the consistency in the amount of time taken to produce a final award may reflect the role of the 2014 version of the LCIA Arbitration Rules in facilitating the fast and efficient resolution of disputes. In particular, article 15.10 requires tribunals to make their final awards as soon as reasonably possible, provide parties with a timeframe, and set aside adequate time for deliberations as soon as possible after the last submission.
Method of cost calculation
The LCIA calculates tribunal fees and administrative charges by reference to hourly rates, whilst other arbitration institutions generally calculate most of their costs by reference to the overall size of the claim. The Report suggests that the calculation of costs on an hourly basis has not in fact led to more expensive disputes, but has instead brought about cost savings across all levels of disputes, with tribunal fees 50% less on average, and administrative charges 40% less on average compared with other institutions.
Number of Arbitrators
The Report also found that while arbitrations involving three arbitrators were more expensive than arbitrations involving a sole arbitrator, the difference in cost was proportionally less than the difference in the size of the claim – the median amount in dispute involving three arbitrators was five times greater than that of cases involving a sole arbitrator, but the median arbitration costs were only three times greater. The Report observes that (if amount in dispute can be taken to be a proxy for complexity), complexity of dispute may therefore be the principal driver behind greater arbitration costs in three arbitrator cases (as opposed to the appointment of more arbitrators in itself).
The LCIA report demonstrates a promising trend towards greater cost- and time-efficiency in LCIA arbitrations and suggests that LCIA arbitration will continue to be a strong and viable choice for parties wishing to arbitrate their disputes. However, the extent to which the findings of the Report may end up directly influencing parties’ choice between institutions is more questionable. Whilst the desire of the LCIA to increase the transparency of arbitration costs for users is laudable, tribunal fees and institutional charges are only one component of the likely expenses that parties to an arbitration face. Furthermore, they are not the only factor that differentiate institutions from one another.
A copy of the Report can be found on the LCIA’s website.
Jacqueline Chaplin would like to thank Irene Han for her assistance in preparing this article.