By Sana Mahmud, Associate, Fenwick Elliott
There is little doubt that international arbitration can be an expensive process. Against this background, on 3 November 2015, the LCIA released data on the average costs and durations of the arbitrations that it administers. The analysis also included a high-level cost comparison with other institutions including the ICC, SIAC and HKIAC. However, an analysis of average durations across these institutions was impossible because the others do not provide comparable statistics.
The LCIA recognised that in comparing costs, users can often rely on approximate cost calculators provided by institutions such as the ICC that operate on an ad valorem basis, where costs are relative to the value of a claim. The LCIA operates on an hourly basis which means that any indicator of prospective costs must rely on actual data. In compiling its statistics, the LCIA used data relating to costs and durations from cases between 1 January 2013 and 15 June 2015 in which a final award was issued.
Duration was calculated as being the period between the date on which the Request for Arbitration was received by the LCIA, and the date of the final award. This included any formal or informal stay periods.
The LCIA’s calculation of its mean and median cost figures was based on actual records of arbitrations falling into the above criteria. These costs were defined to include the LCIA’s administrative charges, the tribunal’s fees and, if applicable, the fees of the tribunal’s secretary, any cancellation charges and the fees of the LCIA division appointed to determine a challenge. Expense and VAT were excluded.
For the purpose of a cost comparison with other institutions, the LCIA used the amounts in dispute in each case and input those figures into the available cost calculators for the ICC, SIAC and HKIAC. The analysis assumed that the other institutions would appoint a tribunal of the same composition as the LCIA in a dispute with the same amount at stake.
As mentioned, the LCIA was unable to carry out a comparison of durations across the ICC, SIAC and HKIAC because of a lack of available data from those institutions. The analysis of LCIA cases shows that the median duration for an LCIA arbitration is 16 months. The mean is 20 months.
The analysis found that the median and mean costs of an LCIA arbitration are US$99,000 and US$192,000 respectively.
In comparison with other institutions, the analysis showed that where the amount in dispute was less than US$1 million, the LCIA’s costs were comparable with the ICC and SIAC, and higher than HKIAC. A threshold of US$1 million was used because it was the smallest amount in dispute which resulted in a significant subset of data.
Where the amount in dispute was over US$1 million, the LCIA’s costs were lower than those of the ICC and SIAC, and comparable with HKIAC.
The LCIA’s stated purpose in publishing this data is to encourage transparency in relation to costs and duration, enabling users to make informed decisions about their choice of arbitral institution. According to the LCIA, arbitrators’ fees and institutional costs are said to comprise approximately 20% of the overall costs incurred in arbitral proceedings. This represents a not insignificant percentage of total costs. Legitimate concerns about the costs involved in the process are often raised by end-users, and the publication of these figures by the LCIA is certainly a step in the right direction. It remains to be seen whether the other institutions follow suit and publish their own equivalent data which would allow users to draw a fair comparison.
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