A tale of two arbitrations: Burford’s Bogart on reducing time and costs

Imagine signing up for a cost-effective sprint, only to find yourself caught in an expensive marathon. This is the situation many parties face when opting for international commercial arbitration. Initially drawn by arbitration’s promises of confidentiality, the freedom to choose their tribunal, and, most compellingly, the expectation of a swift and cost-effective final resolution, parties are now increasingly disillusioned – because arbitration, once touted as a speedy alternative to traditional litigation, is too often bogged down by the very complexities it was meant to bypass.

Data from the arbitral institutions cloud the issue at hand, because institutions routinely run a significant number of small arbitrations that make their performance look better than it actually is when it comes to larger, more complex arbitrations. And while it is of course fine that small arbitrations occur, the reality is that they sit in a different segment than larger, complex matters.

Because Burford funds so many large, complex arbitrations, we have a unique opportunity to comment on these issues generally and to compare and contrast two matters to illustrate the difficulty facing arbitration and its users today.

Arbitration has now grown beyond most domestic court systems (although not in the US). For example, the Commercial Court of England and Wales rendered 97 judgments last year, while there were more than 1,200 arbitrations commenced at the ICC and the LCIA combined.

Yet arbitration struggles with uniformity and case management. Inefficient handling of cases, coupled with an increasingly litigious approach by parties, has transformed arbitration into a process that mirrors the drawn-out nature of civil litigation. This crisis has prompted leading figures in the field such as J William Rowley KC to question whether arbitration has lost its way and to call for a reset. Clients may also become frustrated – and no surprise, as delay translates to increased costs.

We are at a pivotal moment for arbitration. We regularly encounter clients who have been avid arbitration users for the past few decades who are seriously considering a return to court litigation as their default. However, all is not lost. Arbitral institutions have the power to turn the tide by enforcing stricter case management protocols, encouraging practices that prioritise efficiency, and sharing up-to-date cost and duration data about administered cases. If arbitration centres fail to address these issues, clients should consider "shopping with their feet", opting for institutions that demonstrate a genuine commitment to swift and effective dispute resolution. The future of arbitration rests on its ability to reclaim its original promise of efficiency – before it becomes indistinguishable from the litigation it was designed to replace. And make no mistake – this is work for the institutions because only they can actually enforce change; deferring to tribunals isn’t working.

Arbitration’s hidden price tag

Despite its reputation for being faster than litigation, arbitration is often not quick in practice. According to the ICC data on duration – which is reported annually – for ICC cases that concluded by way of final award in 2023, the average duration was 27 months and the median duration was 25 months. Every arbitral institution should produce this kind of detailed duration data on an annual basis.

And with time comes money – lots of it. Because the most significant costs of any given arbitration are legal fees, typically billed by the hour, longer durations lead to higher expenses. Indeed, legal fees comprise the bulk (83% on average) of the overall costs of international arbitrations. And with eye-popping statistics like a 40% increase in top UK law firm fees over the past five years, it is not surprising that arbitration is expensive.

What's driving these ballooning costs? Procedural inefficiencies are a major culprit. A typical international arbitral proceeding often involves multiple stages: the exchange of a request for arbitration and a response; at least two rounds of written submissions accompanied or followed by witness statements and expert reports; document disclosure; a hearing on the merits; a further exchange of post-hearing written submissions; and frequently other procedural steps depending on the case. Tribunals, meanwhile, are left with the critical responsibility of reining in these proceedings through strong and decisive case management – a responsibility they too often struggle to meet.

Moreover, arbitration matters settle less frequently than litigation cases. A principal reason for this in my view is arbitrators’ unwillingness to engage in summary disposition processes, so the parties often do not have enough feedback before the final hearing to settle matters intelligently.

The role of the tribunal in the cost control crisis

For many parties and in many cases, arbitration is simply another species of litigation. There is no desire for a consensual, negotiated approach to resolving a dispute; there is instead the use of traditional bare-knuckled litigation tactics – just in in a different forum. 

Some arbitrators get it. They've sharpened their case management skills, adapting to the combative realities of modern arbitration. In tough, high-stakes cases, these arbitrators start to resemble judges, wielding their authority to keep things on track.

Other arbitrators either won’t or can’t adapt, and they are the problem. While they may be perfectly fine in a case where everyone is getting along and trying civilly to get to a result, they are not fit for purpose in challenging cases where that is not the dynamic. Yet they still accept the appointments and try to muddle through. That’s where things go off the rails: Costs escalate, delays abound and parties lose faith in the process.

A tribunal that allows extensive submissions on every conceivable issue will inevitably lead to lengthy pleadings and oral arguments, increasing costs and dissatisfaction among parties. Effective case management, as seen in quality commercial courts in many jurisdictions, requires arbitrators who can cut through the noise – identifying the key issues early and tailoring procedures to streamline the process and keep costs in check.

Public accountability is another tool that arbitration desperately needs. In US and English courts, judges who take too long to issue decisions or move cases along are publicly shamed. Arbitration could benefit from similar transparency. Imagine if institutions published lists of arbitrators with overdue awards – how quickly would we see those deadlines met then? And arbitral institutions could accomplish this without divulging any of the otherwise confidential details about the matters they administer. If this proves unpalatable, a reduction of arbitrator fees for untimely delivery of awards is warranted and effective. For instance, in June 2024, the ICC reported on 2023 awards, explaining that 47% of draft final awards were submitted to the ICC Court for scrutiny on time (three months after the last substantive hearing for a three-member tribunal). That said, among the draft final awards submitted late, delays ranged from a few days to one month (in 56 cases), one to two months (in 46 cases), to more than two months (in 49 cases). The ICC Court applied a fee reduction in 76 cases where the delay was not de minimis and the ICC Court was not satisfied that the delay was attributable to factors beyond the arbitrators’ control or to exceptional circumstances.

A comparative analysis of two high-value disputes 

It’s useful to contrast two real-life arbitrations to understand the real consequences of differing case management approaches and how profound the impact of a mismanaged arbitration can be.

Because we see so many cases, we are able to present two very similar cases of recent vintage. Both of the cases described below were London-seated international commercial arbitrations governed by US law, breach-of-contract disputes between sophisticated parties. Both were about the same size, with hundreds of millions of dollars in dispute. They were straightforward cases that any lawyer could litigate and any arbitrator could adjudicate without requiring special expertise or significant reliance on experts, apart from the usual damages experts. Both tribunals featured renowned, experienced international arbitrators and seasoned counsel with impressive track records. Neither case involves a large volume of documents or more than a handful of fact witnesses. 

And yet, the stark contrast in how these two cases were managed couldn’t be more telling.

The stark contrast between these two arbitrations highlights the critical impact of effective case management on the time and costs involved in international arbitration. Case 1, with its proactive and engaged arbitrators, demonstrates how a structured approach can lead to a swift and satisfactory resolution, even in complex, high-value disputes. In just six months, the case was resolved efficiently with minimal delays, leveraging technology such as video conferencing and virtual hearings to streamline the process.

On the other hand, Case 2 exemplifies the pitfalls of disengaged arbitrators and poor case management. The four-year duration, coupled with extensive delays and excessive documentation, resulted in significant costs and frustration for the parties involved. The nine-month wait for an award post-hearing and the subsequent six months for a costs award underscore the inefficiencies that can arise without timely and decisive tribunal intervention.

These cases drive home a critical point: Choosing arbitrators isn’t just about experience – it's about finding those who are adaptable, decisive and committed to driving the process forward. Embracing technology and enforcing public accountability aren’t just nice-to-haves; they’re essential if arbitration is to reclaim its place as a truly efficient alternative to litigation. As international arbitration continues to evolve, these lessons will be crucial in ensuring it remains a viable and preferred method for resolving commercial disputes.

Time for a reset

The future of international arbitration depends on its ability to return to its roots – offering a faster, more cost-effective alternative to traditional litigation. The current crisis serves as a wake-up call for arbitral institutions to take decisive action in streamlining case management and enforcing efficiency measures. If they fail to do so, the marketplace will inevitably respond – because clients should and will seek out arbitration centres that deliver on their promises. Arbitration's survival and relevance hinge on its capacity to adapt and evolve, ensuring that it remains the preferred choice for resolving commercial disputes. 

The time for a reset is now, and the industry must rise to the challenge or risk becoming obsolete.

This article was originally published in Global Arbitration Review here.