Originally from American Review of International Arbitration - ARIA

Preview Page

I. INTRODUCTION

International commercial arbitration is commonly praised by its advocates as a relatively inexpensive way of settling disputes, with the saving on costs by the users of international commercial arbitration considered as one of its advantages. Many arbitration practitioners, however, recognize the limited value of this appraisal, and its misleading character for the inexperienced.

The truth is that international commercial arbitration is by nature expensive.1 Unlike in court proceedings, there are no taxpayers, and no public funds are made available by the State to finance and subsidize the work of the arbitrators, and, as the case may be, of the institution administering the arbitral proceedings. It is for the parties alone to pay for the services of those they want to be their judges. Despite this very simple fact and explanation, international commercial arbitration may prove to be "less expensive" than a dispute settlement by conventional means would ultimately have been. It will, however, rarely be "cheap" and therefore, the crucial issue for any user of international commercial arbitration is whether arbitration is worth the money.2

Whereas the losing party in an arbitration will tend to answer the latter question in the negative, it seems true that such an answer may, in most cases, only be given once the arbitration is over, since a fair assessment will depend on a combination of many factors, such as the rapidity of the proceedings, the professionalism of the arbitrators, and the quality of their award. However, it must be a prerequisite to any international arbitration that the parties know well in advance what to budget for costs, and that the cost system of the administering institution is fully transparent from the outset, so that clients and their counsel know how their money will be spent, and if they can expect to recoup it fully or in part. Furthermore, a party should be in a position to reasonably predict the level of financial risk it will incur in an arbitration, and the conditions it needs to satisfy to make a good claim for costs.3