Arbitration offers many advantages — neutrality, arbitrators’ expertise, procedural flexibility, speed, and the potential for confidentiality—but it is often criticized for its cost. This criticism is not always justified. Admittedly, the parties must pay the arbitrators and, where applicable, cover the costs of an arbitration center. In the absence of a well-established code of civil procedure, the parties also pay counsel to debate numerous procedural issues that would likely never have been raised before a state court. However, access to certain state courts can prove costly. Furthermore, state proceedings are often lengthy because not only can the courts be overburdened, but there are generally multiple levels of jurisdiction. Naturally, this slowness entails costs (an increase in the number of parties involved, loss of “case history,” etc.). In this regard, while arbitration may indeed be more expensive compared to proceedings pending before, for example, a French court of first instance, its cost will immediately appear significantly lower compared to state litigation involving, for example, a court of first instance, a court of appeals, and then a supreme court.
Even if criticism regarding costs is sometimes unfounded, the fact remains that there are numerous solutions available to anticipate and, consequently, effectively control the costs of arbitration proceedings. The parties would therefore be wrong to forgo these remedies. The following are a few tools available to users of arbitration, with the caveat that there are many other solutions and that this article is by no means exhaustive.
1. Draft the arbitration clause carefully
A poorly drafted arbitration clause is a sure–fire way to drive up arbitration costs. If it leaves room for interpretation regarding (i) the parties’ intent to proceed to arbitration, (ii) the institution responsible for organizing the arbitration, (iii) the chosen seat, (iv) the number of arbitrators and their selection process, (v) confidentiality, or (vi) the language of the proceedings, it will lead to lengthy and therefore costly debates. The solution is to draft the arbitration clause carefully. To do so, it is best to consult arbitration experts. Compared to the potential savings in the future, the cost of their services will be modest.
2. Tailor the procedure to the stakes and complexity of the dispute
While arbitration costs can be substantial, this is sometimes due to the resources allocated being excessive. Arbitration proceedings tend to follow a standardized format: an arbitral tribunal composed of three arbitrators, drafting of terms of reference, two rounds of briefs, a document production phase, a hearing with witness testimony, expert testimony, and oral arguments, followed by post-hearing briefs and statement of costs. However, not all disputes lend themselves to this approach. An arbitration relatively straightforward and/or involving limited financial stakes could, for example, be conducted by a single arbitrator, without a document production phase and without a hearing. Here again, it is advisable to plan ahead, and the appropriate time to do so is when the parties are not yet in dispute and agree on the arbitration clause. The parties may then provide for a simplified procedure or refer to arbitration rules that provide for appropriate formats, such as the expedited procedure under the International Chamber of Commerce’s arbitration rules.
To ensure that costs are appropriately aligned with the stakes of the dispute, it may be advisable to limit the number of briefs, exhibits, and other submissions. Indeed, the most experienced arbitration practitioners all note a tendency toward excessive production of documents, without this being consistently justified.
3. Leveraging Technology
Even without mentioning the phenomenal advances in artificial intelligence (AI) in recent years, numerous software programs and applications have been developed over the past decade that can yield significant cost savings in arbitration proceedings.
The most striking example is likely that of videoconferencing. They have reached such a high standard of quality that, provided there are reliable internet connections, they can now facilitate entirely virtual hearings. Thus, when appropriate, a virtual hearing should be seriously considered. In addition to environmental considerations, it will save on the costs of renting hearing rooms, booking hotels, and purchasing airline tickets.
In the same vein, software is now available to manage the numbering and indexing of exhibits. This saves many hours of work that are typically assigned to junior staff and/or interns.
Finally, it is hard not to mention AI today. Many providers now offer AI-based solutions for searching case law, summarizing documents, drafting interview reports, and identifying relevant documents from a large volume of materials, among other tasks. When such tools function effectively, they save valuable time and, consequently, can result in substantial cost savings.
4. Countering Delaying Tactics
It is not uncommon for a party to resort to delaying tactics. These tactics generally serve to slow down the proceedings and increase costs. The submission of briefs or exhibits after the deadline is a prime example. If the arbitral tribunal accepts them, this may trigger the submission of new exhibits and briefs in response, in order to uphold the adversarial principle. Conversely, if the tribunal deems them inadmissible, costs remain under control.
Arbitrators regularly favor the first option. However, a review of case law, particularly French case law, shows that tribunals can safely enforce the agreed-upon schedule by declaring late-submitted briefs and exhibits inadmissible. Choosing an arbitrator whom one believes will prioritize procedural efficiency is thus another method of cost control. Including a provision in the terms of reference (where applicable), accepted by the parties and requiring strict adherence to deadlines, can also help. Indeed, the arbitrator may rely on this agreement to reject evidence submitted after the deadline.
5. Facilitating the Recovery of Arbitration Costs
A party whose opponent is ordered to reimburse all of its arbitration costs is unlikely to find the proceedings too costly (provided, of course, that it had the means to advance the necessary funds and that the opposing party voluntarily complies with the award). This is, in fact, a factor that can make arbitration less expensive than state courts. Depending on the country, judges — unlike arbitrators — sometimes order reimbursement of only a tiny fraction of the costs incurred.
Anything that may motivate or even compel the tribunal to award reimbursement of arbitration costs is therefore ultimately aimed at limiting the costs of arbitration. In this regard, the arbitration clause can be useful. In particular, it may provide that the prevailing party shall be entitled to reimbursement of all its costs, without further consideration. This must obviously be handled with caution, as the losing party could end up reimbursing unnecessary costs (such as those incurred, for example, by the prevailing party to develop subsidiary arguments that were ultimately not decided by the arbitral tribunal due to lack of relevance).
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The points above (which, once again, represent only a sample of the possibilities) demonstrate that it is not unrealistic to seek to benefit from the advantages of arbitration while mitigating one of its most frequently cited drawbacks: its cost. To achieve this, however, the parties must agree to invest effort prior to the dispute, whether at the stage of drafting the arbitration clause or, where applicable, the engagement agreement.