Originally from The College of Commercial Arbitrators Guide to Best Practices in Commercial Arbitration, Fifth Edition

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CHAPTER 4

I.            THE IMPORTANCE OF CLEAR INITIAL AGREEMENTS

Issues concerning arbitrator compensation and reimbursement for expenses are inherent to the arbitration process and must be addressed by both the parties and the arbitrators. Many of the difficulties encountered in this area usually can be avoided by employing due care and transparency from the very beginning of the arbitration process.

It is critically important for arbitrators and arbitral institutions to memorialize, in writing at the outset of the arbitration, the parties’ agreement to all terms and arrangements for professional services and associated expenses, including (1) the rate at which arbitrators will be paid for hearings and for work outside of hearings;; (2) when invoices will be issued and when payment is due; (3) amounts that the arbitrators may charge if the hearing is cancelled or postponed and how far in advance a hearing may be cancelled or postponed without incurring such charges; (4) amounts to be charged by the arbitrators or an arbitral organization for case administration; (5) charges for the arbitrators’ expenses for out-of-town travel or other purposes. The initial allocation of all charges among the parties should also be recorded.

In administered cases, these understandings normally will be reached by the arbitral organization, acting on behalf of the arbitrators, and the parties. In non-administered cases, the arbitrators and the parties will communicate directly, or the arbitrators may elect to have money matters handled (without general administration) by one of the arbitral organizations.

Arbitration is entirely a creature of party agreement. Accordingly, absent exceptional situations, arbitrators are entitled to be paid for their services in any manner and amount agreed to by the parties. This chapter provides guidelines for what many experienced commercial arbitrators consider best practices and alternatives for dealing with arbitrator fees and expenses. Commercial arbitrators should also consult the guidelines set out in the AAA/ABA Code of Ethics for Arbitrators in Commercial Disputes. Although most considerations concerning arbitrator fees and expenses are the same regardless of whether the tribunal consists of one or three arbitrators, the involvement of a tripartite panel raises additional factors that must be addressed. For a more complete discussion of that topic, see chapter 11 at sections III.C.15 and IV.C, infra.

II.           ARBITRATOR FEES

A.           Billing Rates

Although arbitrators occasionally use billing models not based exclusively on billable hours—for example, an all-inclusive charge for the entire arbitration or a fixed charge for a hearing day (a per diem charge) regardless of its length—it is most common for arbitrator services to be billed on the basis of contemporaneously recorded time devoted to the parties’ matter. Even when a daily rate is set for hearings, it is necessary to establish an hourly rate for non-hearing work, such as review of briefs and other written submissions, drafting orders on motions, conference calls, deliberations, and award writing. Accordingly, this section focuses on issues related to hourly billing.

Billing rates vary considerably among arbitrators as a result of many factors. The administering institution may prescribe a rate for certain cases, as AAA currently does for consumer arbitrations. In most instances, setting a billing rate is up to the arbitrator. The arbitrator may take into account

(1) the arbitrator’s experience and expertise as an arbitrator, lawyer, engineer, insurance broker, or other professional; (2) typical pay for counsel in such cases; (3) the arbitrator’s reputation; (4) the extent of the demand for the arbitrator’s services; (5) the rates of other arbitrators who handle similar cases in the relevant geographic area; and (6) the degree to which the arbitrator wishes to attract and maintain a full caseload of arbitrations. 

Some arbitrators establish one hourly rate for hearing time and a different rate for work done outside of hearings. This approach can create an opportunity for party dissatisfaction. Charging higher rates for hearing time than non-hearing time may be confusing or give rise to concerns about efficiency.  A better course in most cases is to charge the same hourly rate for all time devoted to a particular matter. The one exception to this recommendation is a situation in which an arbitrator performs administrative tasks, such as handling deposits and preparing and issuing bills.  Some arbitrators may not charge for this time at all. Others may establish a lower charge to perform such tasks.