Jackson calls for costs budgeting to curb high costs of arbitration

Jackson: Budgeting now works well in England

Sir Rupert Jackson, only weeks into his new role as an arbitrator, has called for costs budgeting to tackle the “high level of costs” in arbitration, at least for lower-value claims.

Sir Rupert, back at his old chambers, 4 New Square, told an international conference in Mauritius that this year’s annual arbitration survey by Queen Mary University, published last month, found that two-thirds of respondents described the high level of costs as “the worst feature of international arbitration”.

“I understand that the lion’s share of those costs are the legal fees of the parties, rather than the fees paid to arbitrators,” he said.

“I therefore invite people to consider the benefits of introducing costs budgeting/costs management into arbitrations, at least for lower-value claims. This regime, although controversial at first, now works well in the English courts.

“A mild version of costs budgeting already exists in maritime arbitrations under the LMAA Terms. Para 11 of schedule 2 requires the parties, after the close of pleadings, to complete a questionnaire. Question 15 asks for an estimate of costs through to the end of the reference. At the end of the case arbitrators can take this into account when assessing recoverable costs.”

Virtually all of the survey’s 922 respondents favoured arbitration rather than litigation for cross-border disputes because of better enforceability of awards and the ability to avoid national courts.

Sir Rupert, who retired from the Court of Appeal in March this year, said he had appeared as a barrister in many arbitrations, domestic and international, between 1973 and 1998.

Among the changes he noticed in arbitration was a “proliferation of arbitral institutions”, with a greater proportion of cases than before, and more use of three-person tribunals.

The former judge, who recalled that he had only appeared as a barrister before male arbitrators, noted: “There are more women arbitrators and it is clear that the gender balance will continue to improve.”

In a speech delivered to the 11th International Conference on Law and Alternative Dispute Resolution, he said: “In England, most of the construction arbitration work now is international rather than domestic. London is an attractive centre for international arbitrations.

“At the same time there are fewer domestic arbitrations than in the 1990s for two reasons: First, adjudication now leads to the resolution of most construction disputes. Very few cases go on to any further proceedings after there has been an adjudication.

“Secondly, improvements in the court process often make litigation in the TCC [Technology and Construction Court] more attractive than arbitration.”

Sir Rupert said arbitration was “head and shoulders above litigation” in terms of procedural reform.

“Every dispute resolution system needs to adapt to the changing needs of society and the rapid advances of technology. That means an almost constant process of procedural reform.

“In the world of litigation, procedural reform is a political process. That character of the process sometimes prevents necessary reforms from ever happening. I have seen many instances of that in my work of civil justice reform.

“Even when political intervention does not block civil justice reforms, it often causes substantial delays. There was a delay of some three-and-a-half years between the publication of my January 2010 report and the implementation of its recommendations. By contrast, arbitral institutions can and do respond swiftly to the changing needs of their users”.

Sir Rupert said arbitration had led the way with the hot tubbing of experts, a procedure which was now “catching on” in the courts of England and Wales, despite initial scepticism.

However, he said arbitration was not as transparent as litigation, leading to comments from Lord Thomas, the former Lord Chief Justice, that arbitrators were developing the law without judicial insight and giving awards and setting out principles known only to the ‘cognoscenti’.

Sir Rupert commented: “It is fair to say that there is a problem here. In some areas of business activity, disputes are almost always arbitrated.

“Examples are big IT disputes, satellite agreements and large joint venture agreements. In these areas there is not any publicly available body of judicial decisions, which parties can study before they embark upon arbitration. Other relevant arbitral decisions are not generally available and they do not have the status of precedent.”

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