Why Is Commercial Arbitration So Expensive?

Commercial arbitrators often hear litigators and business people complain that arbitration has become just as expensive as litigation.

“Why arbitrate when it costs so much? Plus we have to pay the arbitrator; in court, at least we don’t pay for the judge.”

It’s a valid question. But I think the more important question is: what can arbitrators and counsel do to make arbitration more cost effective?

The arbitrator needs to take control of the process. This is harder than it sounds. Arbitration exists because the parties have agreed to arbitrate rather than litigate. So the parties control the process and set the rules to a certain extent. If the parties agree that there will be full discovery, it’s very difficult for the arbitrator to say no. If the parties say they need two weeks for the hearing, it’s tough for the arbitrator to say do it in one.

But there are several things the arbitrator can do:

• Hold an early conference call with counsel to set out the main issues in dispute. Make the parties define the issues — and narrow them, if possible. Arbitration claims and defences tend to read like any other pleadings – throw everything in. What’s the arbitration really all about?
• Parkinson’s Law (“Work expands so as to fill the time available for its completion.”) applies to arbitration, just as much as it does to litigation. Set a tight deadline for each step of the process – generally, the quicker the arbitration the less expensive it will be. Set a realistic hearing date and work backward for each step.
• Set limits on document production, especially large volumes of electronic documents. In commercial disputes, most of the evidence will be documentary, but it’s easy to lose sight of what’s relevant and what’s not.
• Limit examinations for discovery. Is it really necessary at all? If it is necessary, can the time be reduced?
• Have the parties produce a joint book of documents and an agreed statement of facts. Use witness statements to summarize the evidence on disputed issues.
• Use experts where necessary – especially for complex technical issues – but limit the number of experts. Can the parties agree on a joint expert or to have the arbitration tribunal appoint the expert?
• Consider using written evidence – affidavits and cross-examination – rather than oral evidence for some or all of the issues or witnesses, to reduce the number of hearing days needed.

I’ve heard it said that no case is so complex that it can’t be arbitrated within one year from the notice of arbitration. True or not, it’s a good benchmark to use when setting an arbitration schedule.

Counsel can also do a lot to make arbitration more cost effective for their clients, without conceding any advocacy points.

The “we can outspend the other side; we’ll just keep going until they run out of money” strategy is not that appealing to most clients. Not if they can get a good result more quickly and cheaply.

Recognize that arbitration is different from litigation. The parties chose arbitration because they didn’t want to litigate. Use the process to realize the benefits that the parties wanted when they originally decided to arbitrate.

If the other side is making life difficult and driving up costs unnecessarily, don’t be shy about going to the arbitrator to enforce the schedule and stick to relevant issues.

But be selective about pre-hearing motions. They can rapidly increase costs, for very little long term benefit. Procedural motions don’t have to be as formal as in litigation. A simple statement of the issue, the arguments and some case law in support of the order requested is all that’s really needed. Avoid frivolous tactical motions. Don’t forget the motion is being heard by the same arbitrator who will decide the substantive issues!

Use the applicable arbitration rules to your advantage. Most rules give the arbitrator the power to decide whether discovery is necessary or not, or to limit the scope of discovery. If the arbitration is about the interpretation of a contract and you have the evidence you need, there’s no need for extra discovery.

Arbitration isn’t bound by the strict rules of evidence, so the witnesses can simply tell their story at the hearing. Most of the hearing time can be spent on cross-examination to test the evidence and let the arbitrator determine credibility.

Evidence and legal arguments can be given to the arbitrator in writing, to cut down on the hearing time. Is it really necessary to argue every point or are there some things that the parties and their counsel can agree on? A lot of time and cost can be saved by providing the arbitrator with a clear roadmap, in the form of agreed statements of fact, witness statements, joint document books, technical briefs, joint expert reports and the like. Then the arbitration hearing can focus on the real issues in dispute.

None of this means giving up any tactical advantages. It just means using the arbitration process itself to best advantage. It’s fundamentally different from litigation; don’t treat it as a summary trial or private court.