Arbitration Costs and the Art of Planning Ahead

Much has been written about the perception – and often the reality – that arbitration is no longer faster or cheaper than litigating in court.  In fact it is the most widely discussed topic in ADR today.  So whose fault is it?  Turns out it is everyone’s fault – in-house counsel, outside counsel, arbitrators, ADR providers and probably a few other people.

The component parts of the problem are well known.  They include excessive discovery, numerous motions, too many witnesses, too many delays and so on.  And virtually every ADR provider and organization has responded by adopting new rules and procedures to speed things up:

• The College of Commercial Arbitrators (CCA), has published “Protocols for Expeditious, Cost-Effective Commercial Arbitration”
• The American Arbitration Association (AAA) has adopted rules for both smaller and larger cases
• JAMS introduced “Optional Expedited Arbitration Procedures” and “Arbitration Discovery Protocols” with a variety of tools for moving things along
• The ICC Rules now include language on efficient case management
• CPR came out with “Guidelines On Early Disposition Of Issues In Arbitration” and “Global Rules for Accelerated Commercial Arbitration”
• LCIA rules now include provisions for expedited commencement of arbitration

You get the idea?  So let’s get back to basics. There are many reasons why ADR has become part and parcel of the system of justice in the U.S. and in many countries around the world.  The primary reasons are that it should be cheaper, take less time and remain confidential.  It also allows for much more flexibility for the parties to tailor the process to their needs.

But therein lays the rub.  In many cases one party is interested in a faster, more efficient arbitration process but the other party may be more interested in getting to the bottom of every nuance of the case, and as Admiral David Farragut said at the Battle of Mobile Bay, “damn the torpedoes.”  So much for faster, better, cheaper.

But back to our theory that it’s everyone’s fault: that also means everyone can play a role in solving the problem.  CCA’s paper on Protocols for Expeditious, Cost-Effective Commercial Arbitration provides a series of excellent examples on what each constituency can do.  But the example that stands out the most is having the right agreement in the first place.  Most contract provisions that include dispute resolution language may specify some basic guidelines on resolving disputes through arbitration, but they lack specificity about how to resolve those disputes efficiently.  Language can be introduced that puts parameters around discovery, motions, time frames, and the specific rules that will be adopted by both parties.  By doing this, efficiency is built in to the process before it even begins – and what smart business wouldn’t want that?