The London Court of International Arbitration (LCIA) has released a report on the costs and duration of arbitrations conducted under its rules since 2013. We look at some of the headline points and trends.
In recent years, there has been much talk of the cost and duration of arbitral proceedings, with parties keen to keep both under control and to understand how long proceedings are likely to take and how much they are likely to cost. It is not just the fees of the lawyers involved; parties have also found it difficult accurately to compare the fees of the institutions and the cost of the arbitrators appointed under the institutions' rules since some (e.g. ICC) have a fee scale based on the sum in dispute, and others (e.g. LCIA) allow arbitrators to charge hourly rates.
In 2015, partly because of the arbitrators' hourly rates charging structure (which has a cap of £450 per hour), the LCIA was the first arbitral institution to provide actual costs and duration figures for arbitrations under its rules, in order to give parties some visibility on these matters. Cost and duration has since become something of a battleground between institutions vying for parties' business. Since LCIA's 2015 report, a number of other institutions have also released actual costs and duration figures for the arbitrations they administer, to supplement the fee scales and calculators published on their websites.
In this latest report, the LCIA updates and expands the picture in its 2015 report by adding data from 2016. The updated report looks at 224 LCIA cases which reached a final award in the period 2013 - 2016, and the LCIA says this larger dataset has allowed more detailed analysis of the costs and duration of its arbitrations. Of course, these statistics do not include the fees charged by the lawyers representing the parties, the fees of experts or the hiring of venues.
Headline facts and figures
- Cost: the average LCIA arbitration costs US $97,000, comprising $82,000 of tribunal fees and $17,000 of LCIA's administrative charges
- Duration: the average LCIA arbitration lasts a total of 16 months from receipt of a request for arbitration to the date of final award
- Time to award: on average, LCIA arbitrators take three months from the date of the parties' final submissions to produce awards
- 54% of LCIA cases are heard by a sole arbitrator; 46% by a three member tribunal. Sole arbitrators sit most commonly on disputes valued at $1 - 10m; tribunals on those valued at $10 - 100m (although both do also sit on disputes worth less than $1m and more than $100m).
In calculating the cost and duration figures, LCIA has used median rather than mean to avoid outliers (e.g. particularly long proceedings) skewing the picture.
Trends and analysis
- The LCIA figures show that the total duration of its proceedings has seen a slight increase during the period 2013 - 2016. The duration of smaller cases has increased, but the duration for the largest cases has fallen.
- Perhaps unsurprisingly, the total duration of proceedings increases with the value in dispute.
- The time taken for arbitrators to produce an award is however fairly constant, regardless of the total duration of proceedings. In other words, in the larger cases where proceedings are more protracted, it is generally the parties' submissions which take up the additional time, not the arbitrator or arbitrators' deliberations.
- Likewise, LCIA's administrative charges are fairly constant regardless of the cost and duration of proceedings. The administrative burden of higher value disputes is not significantly greater than those with a lower value, the increase in cost is mainly in the arbitrators' fees, which increase with duration and complexity.
- LCIA concludes that appointing more arbitrators does not of itself necessarily lead to greater arbitration costs - it is often just a sign of complexity, and it is that which increases costs.
- Cases where the amount in dispute is under $1m are swiftly resolved - over 70% of them within 12 months.
Comparison to other institutions
LCIA claims that at present the actual cost and duration figures published by other institutions are not directly comparable because of a lack of transparency over the methodology employed. In this updated report, LCIA has engaged third party consultants to update its statistics, and it invites other institutions to use consultants as a neutral conduit to enable direct comparison of actual costs. At present though, this report looks at the actual costs and duration of LCIA arbitrations and compares these to the estimated costs and duration of those proceedings at other institutions, using those institutions' own costs schedules or calculators. On that basis, LCIA claims:
- its actual arbitration costs (comprising both the tribunal's fees and the LCIA's administrative charges) are lower than the estimated costs of compared institutions in disputes of all values.
- the difference is especially marked in cases valued over $100m, where it estimates proceedings in competing institutions are on average 225% more expensive.
- LCIA tribunal fees are on average 50% less than for the compared institutions; administrative charges 40% less.
- LCIA is less than half as expensive as ICC for cases with amounts in dispute over $10m.
The LCIA is keen to demonstrate that its actual costs are less expensive than the estimated costs of competing institutions at disputes of all values, and that its own administrative costs in particular are very competitive.
Its figures for the time to issue an award and for the speed of resolution of smaller value disputes appear impressive, and LCIA seems to imply that there is therefore no value in it introducing expedited procedures like those of its competitors, saying "given the extent to which duration is attributable to the parties, it is not clear how realistic or indeed desirable it is to seek a further reduction in duration".
Whilst the report makes interesting reading and will give parties some indication of at least part of the costs and the duration of proceedings under LCIA Rules, those are of course only one factor in choosing an arbitral institution. Moreover, the fees of the arbitrators and the costs of the institutions are generally only a small part of the overall cost of the arbitral process. If you are considering arbitration for current or future disputes, our arbitration practitioners can assist in advising on appropriate dispute resolution provisions and arbitral institutions.