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As a business owner, running a company is not always easy. Instead, there may be some hurdles in your business activity that cause commercial disputes, especially when these activities are cross-border. When a commercial dispute arises, one way to resolve it is through international commercial arbitration. Although arbitration may be an alternative to the courts, there are still costs that you should be aware of. This article will, therefore, explain three critical points about costs in international arbitration to help you decide if it is suitable for your commercial dispute.
What is Arbitration?
Arbitration is an alternative dispute resolution (ADR) method for resolving a commercial dispute that takes place outside of the courts. Despite it being different to litigation, however, it is still fairly formal and has its own rules and procedures. Arbitration takes place in front of an arbitral panel consisting of one or more expert arbitrators. During the proceedings, the arbitrator will listen to the evidence from each party, which should result in them making a binding decision. This decision is called the arbitral award.
International arbitration follows this basic definition but involves two parties from different countries. Therefore, you may also have to consider factors such as the location (also called the seat) and which country’s laws apply when you engage in international arbitration. One example of an international arbitration seat in the UK is the London Court of International Arbitration (LCIA).
What Do I Need to Know About Costs in Arbitration?
If you are deciding whether to use international arbitration to resolve your commercial dispute, costs are an important factor to consider. Below, we look at three key points about costs that you should be aware of.
1. How High Are Overall Costs?
It is usually encouraged to try to resolve commercial disputes out of court, and one of the reasons for this is that court litigation can be expensive. However, you may not realise that arbitration, despite being an ADR method, can also be costly. It is even possible for international arbitration costs sometimes to be higher than commercial court litigation. Nonetheless, the likelihood of this occurring is lower because the parties to the arbitration proceedings have some control over the proceedings. This means that you can make decisions that result in lower costs. For example, you and the other party may cut costs by having truncated or shortened proceedings.
2. What Do Arbitration Costs Consist of?
In order to properly evaluate international arbitration costs, you should be aware of where expenses may be incurred. Costs in international arbitration can include the following fees:
- arbitral tribunal administrative fees;
- cost of the arbitrator or panel of arbitrators;
- fees for the lawyer who represents you;
- expert fees if you need to use an expert;
- hearing fees, which can include room hire, interpreters, and transcription services.
3. Who Pays the Arbitration Costs?
A key point to understand about the costs in international arbitration is who pays these when you are party to arbitration. You will not be clear about this until your arbitration proceedings have concluded. Usually, the tribunal will decide who pays the costs for the arbitration. They may ask the losing party to pay all of the costs or some of these. However, an arbitral tribunal can ask parties to pay for their own costs, so neither the losing nor the successful party pays the costs. This is where the arbitrator decides that costs ‘lie where they fall’. It is important to understand these possible outcomes so you are prepared to accept the costs should you be expected to pay them.
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Key Takeaways
If you fall into an overseas commercial dispute, you may decide international arbitration is the best dispute resolution method to use. This alternative dispute resolution (ADR) method is where an arbitral panel listens to evidence about your dispute. They will conclude with a binding decision, which is the arbitral award. To evaluate whether the arbitral process is suitable for you, you must consider the costs involved. In particular, you should note that:
- arbitration costs, though flexible, can still be high;
- costs can come from a range of sources, such as lawyer or hearing fees; and
- the arbitrator decides who is liable to pay costs.
If you have any further questions about international arbitration costs, LegalVision’s experienced disputes lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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