LCIA report highlights cost effectiveness and efficiency

The LCIA recently published its biggest ever report – Costs and Duration Analysis 2024 – analysing the cost and duration of all LCIA arbitrations subject to a final award between 1 January 2017 and 12 May 2024. This report builds on previous editions from 2015 and 2017, marking the longest time period studied by the LCIA and any institution to date, allowing for a detailed and comparative analysis.

This report covers 616 cases with a median amount in dispute of US$4.6 million, reflecting the LCIA’s ongoing commitment to transparency and assisting users in making informed choices. Scheherazade Dubash, international arbitration expert at Pinsent Masons said: “The report underscores the stability in costs and duration over time, providing predictability for parties. However, the impact of Covid-19 on arbitration timelines and costs requires further analysis.”

The report compares LCIA costs with those of other institutions using their own cost calculators, which are subject to methodological differences. Unlike many comparable arbitral institutions, the LCIA typically calculates administrative, and tribunal fees based on time spent rather than the sum in dispute. The key driver in the LCIA costs system is the complexity of the case, which cannot be assessed by the amount in dispute alone. The LCIA Court applies this assessment when deciding on the number of arbitrators and setting the maximum hourly rate for arbitrators. Staged advances are then requested in consultation with the tribunal as the case progresses. This approach provides actual data about LCIA cases, offering insights into costs and the effectiveness of LCIA arbitration.

Rob Wilkins, international arbitration expert at Pinsent Masons, said: “While there are differences of methodology, these costs are low by reference to other institutions across the range of amounts in dispute, with the difference particularly acute for higher value disputes.”

The report also identifies the median duration of an LCIA arbitration as 20 months, 12 months when the amount in dispute is under US$1 million, with the tribunal typically taking four months to render the award. This compares favourably with the data available for other institutions.

Wilkins said: “As arbitration practitioners, the first questions we are asked is how long it will take to get to final award and how much will it cost us to get there. This data will help stakeholders to make informed decisions about the way in which they want their disputes to be resolved.”

Additionally, the report offers valuable insights into how this approach plays out in practice, allowing parties to better understand the effectiveness and cost of LCIA arbitration.

This approach contrasts with institutions like the International Chamber of Commerce (ICC), Singapore International Arbitration Centre (SIAC), and Stockholm Chamber of Commerce (SCC), which calculate costs primarily based on the amounts in dispute. The Hong Kong International Arbitration Centre (HKIAC) offers a choice between the two methods, defaulting to hourly rates if no agreement is reached within 30 days. To compare costs across institutions, the LCIA report uses cost calculators embedded on the websites of these institutions. For cases outside the scope of current calculators, historical data is used. Average arbitrator fees are applied for SIAC, SCC, and ICC, while maximum fees are used for HKIAC. Specific adjustments are made for SIAC and HKIAC to ensure accurate comparisons. The report estimates the costs of 568 LCIA cases if they had been conducted at other institutions, using median figures to minimize the impact of outliers. This comparison reveals that LCIA arbitration costs are generally lower, particularly for larger disputes, highlighting the LCIA's cost-effectiveness and efficiency.

“This methodology provides a clear picture of how LCIA costs compare to those of other major arbitration institutions, offering valuable insights for parties considering their arbitration options,” said Dubash.

The LCIA's tribunal fees are the lowest among major arbitration institutions, and its administrative charges are also among the lowest, comparable to those of HKIAC and SIAC. In contrast, the ICC and SCC have the highest administrative costs, with the ICC being the most expensive. Both HKIAC and ICC have the highest tribunal fees. A comprehensive comparison of costs by institution relative to the amount in dispute reveals that the LCIA consistently has the lowest median arbitration costs across almost all dispute values. This cost advantage becomes more pronounced as the amount in dispute increases, with LCIA costs being less than half those of SIAC and HKIAC, and almost half of ICC's costs for disputes ranging from US$100 million to US$1 billion and above. This highlights the LCIA's cost-effectiveness, especially for high-value disputes.

Dubash said: “While these comparisons provide useful insights, they come with substantial caveats due to variations in methodologies and the opacity of fee-setting processes at other institutions. Nevertheless, the report emphasises the LCIA’s cost-effectiveness, particularly for larger disputes, and its relatively low administrative charged compares to other major arbitration institutions.”

The recent Global Arbitration Review (GAR) 100 data report also highlights the importance of data in understanding arbitration trends and making informed decisions. Both reports underscore the value of comprehensive data analysis in providing transparency and insights into arbitration costs and durations.

Dubash said: “As more organisations recognise the value of data, these reports play a crucial role in helping parties navigate the arbitration landscape effectively. The GAR 100 report, like LCIA report, emphasises the need for detailed data to benchmark against industry standards and adapt strategies accordingly. This growing recognition of data’s importance reflects a broader trend towards data-driven decision making in the arbitration community.”