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Controlling time and cost: if you don’t do it, no one will

How to speed up arbitration and save costs? At the risk of stating the obvious, most practitioners know the answer: focus on the real issues, use common sense and cooperate with the other side on procedural issues. Much waste and delay can be saved where the parties avoid pressing hopeless points, refrain from procedural posturing and show flexibility on points that are of relatively marginal importance. The International Chamber of Commerce (ICC) Commission’s Report on Controlling Time and Costs in Arbitration provides excellent guidance on specific issues that often arise in practice.

Costs overload

Of course, there are many reasons why a pragmatic, common sense approach often does not work. One reason is that the threat of protracted proceedings and high costs can in itself be an effective tool in a party’s arsenal. Seeking to increase the financial and procedural burden on the opposite side (whilst minimising your own) can often have the effect of forcing the other side to settle on advantageous terms. However, high value cases, and where the parties have deep pockets, may result in a long war of attrition. In those cases, “controlling” costs and delays might, in effect, deprive a party of a source of leverage. It is a complex (moral) question whether a party should make use of such a tactic in the first place, and whether efforts to “control” time and costs infringe on a party’s right to present its case.

Procedural inertia

Another reason for high costs and delay can be counsel’s and tribunals’ procedural inertia. Many disputes do not need two rounds of memorials, separated by a full-blown document production stage, and followed by a hearing and post-hearing briefs. Yet this or a similar format is often adopted because this is what many practitioners expect to see in arbitration. Whilst following an established procedure adds to its legitimacy and predictability, it may do so to the detriment of cost and time efficiency. A more bespoke approach, by both the tribunals and counsel, to devise an appropriate arbitral procedure is needed, which makes the best use of arbitration’s inherent procedural flexibility.

Backloading

Case backloading is often another reason for delay and unnecessary costs. For reasons of costs, urgency or tactics, parties will sometimes set out only the bare bones of their case in the early stages of the proceedings. They may hope to settle the case early and don’t want to spend too much on the arbitration in the meantime, or they might not have sufficient time to respond fully to a point (particularly, if the party is the respondent). As fuller particulars are flushed out later in the proceedings, objections are often raised about “shifting sands”, or even new claims being advanced. This, in turn, may lead to a revised procedure with further rounds of supplemental submissions or expert reports. Of course, abandoning a point or raising a new one late in the case leads to waste and delay. It might, therefore, pay off to engage fully with the case early in the proceedings and allow or encourage the other side to do the same.

Emotions

Yet another reason for delay and high costs can be parties’ emotions. In some types of cases in particular, such as partnership disputes, parties may feel strongly about certain personalities or events in the dispute, though they might have little bearing on the legal merits of the case. In those circumstances, counsel will add value by helping the client to see through the emotions and focus on legal issues.

Legal representation fees

Finally, given that by far the largest part of arbitration costs is legal representation fees, alternative fee arrangements and appropriate staffing may also help improve arbitration efficiency. This requires an alignment of the client’s and counsel’s financial interests, which is a complex issue beyond the scope of this blog post.

Institutional solutions

In recent years, a number of arbitral institutions have sought to address the problem of high costs and delays by introducing expedited procedure rules for lower value cases, the most recent example being the 2017 ICC Arbitration Rules (specifically Article 30 and Appendix VI). In circumstances where the applicable arbitration rules already provide the arbitral tribunal with broad powers in relation to the conduct of arbitration, such special rules are, arguably, redundant. In the author’s experience, it is perfectly possible to agree a compact timetable with the merits hearing scheduled to take place within four months of the request for arbitration under the standard London Court of International Arbitration (LCIA) Rules, by making use of the expedited formation of arbitral tribunal provisions in Article 9A. It is a difficult balancing act for institutions to devise effective cost and time reduction measures without sliding down the path of overregulation.

Effect of third party funding

It will also be interesting to see what effect third party funding will have on arbitration costs and delays. On the one hand, it should, in principle, encourage time and cost efficiency, as finance providers seek to allocate and use their capital in the most efficient manner. On the other hand, availability of finance may encourage or unnecessarily prolong proceedings, for example, where the funder is financing a large but speculative claim.

Don’t throw out the baby

In short, like any multifaceted problem, the issue of time and cost may only be solved by a combination of measures, which target the underlying cost drivers and procedural concerns. In doing so, however, it is important not to throw out the twin babies of procedural flexibility and party autonomy with the bathwater of protracted and costly proceedings. Whilst arbitral institutions have an important role to play, in the end, the parties themselves are best placed to ensure that time and costs are under control.

King & Spalding Grigori Lazarev

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