Arbitration continues to grow as a preferred method of dispute resolution, particularly for cross-border disputes. Parties often choose arbitration over litigation because of its flexible, confidential process; the opportunity to appoint an experienced tribunal; and the ability to enforce awards under the New York Convention. If properly planned, managed and executed, arbitration can be completed faster than litigation, even when compared against the most efficient judicial systems such as the English courts. Generally, the sooner formal dispute resolution comes to an end, the lower the legal fees and expenses.
Parties should attempt to agree upon the selection of a legal system that is well regarded internationally (e.g., English, New York). If possible, parties should negotiate a governing law that they and their legal counsel are familiar with, dispensing with the need for local counsel to be engaged. Note that the governing law of the arbitration (i.e., the law of the seat) is not always the same as the governing law of the contract.
There are two types of arbitration: those administered by an arbitral institution (e.g., ICC, SIAC, HKIAC etc.), and those that are known as ad hoc arbitrations (e.g., UNCITRAL arbitrations). The former is increasingly more common, as institutions manage certain logistics and seek to ensure that proceedings stay on track. Each institution charges administration fees. Parties may consider institutions that may be more “value for money”, such as Hong Kong and Dubai, compared with ICC and SIAC.
Each arbitral institution has its own set of rules. The rules of most well-known institutions have many similarities including provisions allowing expedited proceedings, joinder of third parties, consolidation of multiple arbitrations into one proceeding, and commencement of a single arbitration related to transactions under multiple contracts.
It is important to select a seat that is a contracting state to the New York Convention to ensure enforceability of the arbitral award in other jurisdictions. The law of the seat establishes the procedural law of the arbitration including the native and extent of judicial involvement in the arbitration process. Further, consideration should be given to select a seat where one set of legal advisors can handle both the arbitration proceeding, as well as potential court proceedings related to interim measures and set aside applications (e.g., Hong Kong compared with Singapore).
The venue of the arbitration is the geographical location where the arbitration hearing will take place, which is not necessarily the same as the seat. The venue should be situated in a place that is convenient for parties and witnesses to attend. Consideration should be given to accommodation costs, visa requirements and travel time.
Arbitral tribunals are comprised of either one or three arbitrators. In the case of a sole arbitrator, the parties should agree on a candidate; in the case of three arbitrators, each party nominates one, and both arbitrators will select a third as the chairperson. If there is no consensus on the sole or third arbitrator, the arbitral institution will make an appointment. In a 2015 survey, it was found that the average time for handing down an LCIA award was 15 months where a sole arbitrator was appointed, and 19 months where three arbitrators were appointed. Generally, only complex arbitrations with highly technical subject matter warrant the cost of three arbitrators.
One of the key benefits of arbitration is the ability to select an appropriate arbitrator with the requisite language skills and technical, industry-specific knowledge. Further, if a less well known governing law has been chosen, it may be preferable to appoint an arbitrator with experience in this law.
Model arbitration clauses almost always provide for one language to be used during the arbitration process. However, some parties select dual language when negotiating these provisions. This often adds significant translation costs for both sides, and can raise allegations of lack of fairness if documents are not fully translated. If dual language is adopted, it is advisable that parties agree to at least one predominant language for correspondence between parties, the tribunal and the institution, without the need for translation.
Most arbitrators prefer a minimal and well managed discovery process. Many arbitration rules give the tribunal discretion as to how it may proceed with document disclosure and production. Some parties choose to expressly expand discovery rights in their arbitration clause and such a decision should be made with caution due to the cost implications of producing and reviewing a high volume of material that may have limited relevance to the resolution of disputes.
Effective legal counsel will set out their client’s case as succinctly and fully as possible from the outset of the case. To save costs, legal counsel may propose bifurcating legal issues where appropriate (e.g. splitting issues of liability from quantum, and jurisdiction from merits) or apply to the tribunal to decide preliminary issues. The ICC reports that around 82% of the costs incurred in an arbitration comprise of lawyers’ fees and the cost of presenting witnesses and experts at the hearing. A carefully prepared budget should assist with managing client expectations and provide an acceptable degree of certainty over legal expenditure. Finally, claimants should investigate whether the respondent has identifiable assets in a jurisdiction where the award can be enforced in order to determine the financial viability of the arbitration process.
Depending on the seat of the arbitration, parties may be able to offer a “without prejudice save as to costs” settlement.I If the offer is not“beaten” by the other side (i.e. the other party is ultimately awarded less than what was offered to them), then the tribunal may award costs on an indemnity basis from the date that the offer should have been accepted by the other side (usually 21 days from the date the offer was made). This applies even if the party making the offer loses the cases.
The arbitral rules and the seat of the arbitration generally deal with the issue of costs, which are often (but not always) left to the tribunal’s discretion. Usually this means that the successful party will be awarded its costs, but these will likely amount to only 60-70% of its actual costs. Parties should be wary of arbitration agreements that mandate that each party should bear their own costs whether such clauses are enforceable depends on the seat of the arbitration.