ARBITRATION: PAY TO PLAY
Arbitration is a ‘pay to play’ process – that is, parties to arbitration agreements must pay the necessary costs of arbitration to get their disputes resolved.
In the 2021 Internation Chamber of Commerce (ICC) Arbitration Rules, the costs of arbitration are defined in article 38 as including “the fees and expenses of the arbitrators and the ICC administrative expenses fixed by the Court… as well as the fees and expenses of any experts appointed by the arbitral tribunal and the reasonable legal and other costs incurred by the parties for the arbitration”.
Commercial parties have available to them a range of options on how to pay to bring or defend a case in arbitration. Traditionally, parties self-funded their actions, and this remains a common option. Impecunious parties must seek funding from elsewhere, relying upon legal liability insurance if coverage has been taken, or resorting to commercial loans, shareholder borrowing or in more recent times, third-party funding.
While third-party funding was at one time unlawful for champerty and maintenance, more and more states are recognising that it can provide access to justice which might otherwise be denied and are permitting third-party funding in appropriate cases for both litigation and arbitration. Third-party funding may come from law firms, banks, private funds and insurers and specialist third-party funders.
In England for example, following reforms proposed by Lord Justice Jackson, the law was amended to permit contingency fees or damages-based agreements (DBAs) from 1 April 2013. This is where payment of lawyers’ fees is contingent on the funded party winning the case. Where the client is successful, the lawyer is entitled to the agreed share of the damages won.
Apr-Jun 2024 issue
Adrian Cole