Key takeaways from the LCIA's latest report on the costs and duration of arbitration

A bit about arbitration generally….

Arbitration is a method of dispute resolution, usually agreed upon by parties through a contract. It serves as an alternative to taking a dispute to a national court. When parties have agreed to arbitrate, they generally cannot seek to resolve disputes through the court. It involves an independent tribunal making a binding decision, with the process generally being quicker and less formal than litigation.

Parties can choose to participate in:

• Institutional arbitration - arbitration conducted under the rules and administration of an established arbitration institution (of which there are many). These institutions have their own procedural rules that govern the arbitration process, including the appointment of arbitrators, managing communications and logistics. How they charge for their services varies. 
• Alternatively, parties can choose to engage in ad hoc arbitration which is not administered by any institution. The parties themselves agree on the arbitration process and rules to apply.

In December 2024 the London Court of International Arbitration (LCIA), one of the world’s leading arbitral institutions, released its third report on the costs and duration associated with LCIA arbitrations (the Report).

The Report considers data from 616 LCIA arbitrations that reached conclusion (by way of a final award) between 1 January 2017 and 12 May 2024. The Report provides an interesting insight into the reality of the cost and timeframe that can be expected when entering into LCIA arbitrations. It also provides some comparisons with other arbitral institutions, which users may wish to consider to when making difficult decisions about whether arbitration is appropriate, and if so, which institution to engage.

Key findings:

1. The median cost of an LCIA arbitration is US$117,653, representing a modest increase from US$97,000 since 2017 (NB: these figures are not adjusted for inflation)
2. The median duration of an LCIA arbitration is 20 months, four months longer than in 2017)
3. Cases with claims for less than US$1,000,000 are often resolved swiftly, typically within a 12-month period
4. The median time for an arbitral tribunal to make an award is four months, 1 month longer than the LCIA’s three-month target
5. LCIA tribunal fees are said to be typically lower than those for the International Court of Arbitration (ICA), Hong Kong International Arbitration Centre (HKIAC), and Singapore International Arbitration Centre (SIAC), especially as dispute values increase

Practical applications

Parties to a dispute can take several insights from this report, in circumstances when deciding whether arbitration is a suitable means of dispute resolution for them, and furthermore, which arbitral institution might be appropriate.

1. Cost planning: Understanding that arbitration costs may increase over time is crucial for budgeting and deciding whether pursuing arbitration is going to be cost effective. As noted by the Report, unsurprisingly, cases with a longer duration have higher costs. It is also important to be aware that the LCIA operates on an hourly rate system which applies to arbitrator fees and administrative charges. This contrasts to other institutions (such as the ICC, SIAC and the SCC) which use the amount in dispute to estimate costs. The key driver in the LCIA costs system is the complexity of the case. The practical implication of this is that the LCIA doesn’t require parties to be specific about the value of their claims unlike the value-based institutions. The LCIA also warns that the cost calculators found on some of the other institutions’ websites should be treated with caution.
2. Timing: Knowing the average lifespan of LCIA arbitrations and the LCIA’s efficiency in producing final awards provides a helpful reference point when setting realistic timelines and expectations for dispute resolution. This can be helpful when managing internal governance and external commercial relationships.
3. Choosing the number of arbitrators: The LCIA found that there was a preference for three-member tribunals in higher value disputes. Typically, an arbitration agreement will stipulate how many arbitrators to appoint, and it is certainly a point to consider when drafting your arbitration agreement. Although there are benefits of having three arbitrators (namely, a reduced risk of questionable decision making), these will have to be weighed against the fact that the costs of having just one arbitrator will of course be significantly less.

Conclusion

Although the LCIA’s insights therefore provide helpful analysis into how it manages its arbitrations, the LCIA itself notes that it is just one institution and it remains difficult for users to make fully informed decisions about their dispute resolution strategies. Furthermore, the most significant costs in arbitration tend to be those that the institutions have no control over, such as the costs of appointing counsel and experts.

To gain a better understanding of these issues, we therefore recommend seeking early advice from experienced arbitration practitioners who can offer tailored guidance on choosing the right institution or method to resolve your dispute in the most cost-efficient and effective way.