Saving arbitration from litigation's costly fate

Richard Freeman says a new fixed-cost arbitration scheme will benefit lawyers. Richard Freeman is a forensic accountant and an arbitrator.

The Chartered Institute of Arbitrators has launched an initiative known as the London Scheme Arbitration.

The London Scheme allows arbitrators to tell parties in advance the maximum amount of costs which they will be able to recover. This is used as the cornerstone to demand that the arbitrator restricts costs to a proportion of the amount in dispute.

The institute decided this should normally be 20 per cent. Some lawyers may be concerned that a new scheme to control the costs of arbitration will threaten their professional fee levels. It should not. Through better case organisation and a reduction in time wastage, lawyers should be able to take on more work for the same fee.

A number of leading QCs and partners in top firms have applied to join the scheme and the panel of arbitrators. There is no question of their working for less than their commercial rates. The same goes for experts.

The scheme's prime movers have been Michael Edwards QC, head of Verulam Chambers, Andrew Fox, a chartered surveyor, and myself, an arbitrator and accountant. The scheme aims to enhance the reputation of a service that has suffered in recent years.

During the first half of this century, London was the world's capital for arbitration. However, it lost this position when the arbitration process became weighed down by procedures more appropriate to litigation.

The complex 1950, 1975 and 1979 Arbitration Acts ensured that arbitral proceedings were as lengthy and expensive as litigation in the public courts.

The rise of alternative dispute resolution (ADR) was perhaps a manifestation of the loss of commercial confidence in arbitration.

Lord Bingham, when Master of the Rolls, said: "By mimicking the processes of the court and becoming over-legalistic and over-lawyered, the arbitration process has betrayed its birthright by allowing itself to become as slow, as expensive and almost as formal as the court proceedings from which it intended to offer escape."

The 1996 Arbitration Act has changed all of that by giving arbitrators the discretion to fashion solutions to suit each case in dispute. They now have the power to enforce their approach and the statutory duty to avoid unnecessary costs.

The institute has thus introduced a standard concept for controlling legal costs which it believes could be unique in English legal history. The control of legal costs will become possible if arbitrators are sufficiently well-trained in the case management process.

A crucial part of the training will address how to conduct a well-organised first meeting. Subsequently, parties may well have to restrict their cases to their best or better points.

The London Scheme is also particularly suitable for conditional fee-type arrangements. It will help lawyers assess how much a case will cost from the outset.

Lawyers' retainer agreements should also benefit from a fast-track arbitration scheme incorporated as one of its terms. Indeed, one of the standard agreements has been incorporated precisely for this purpose.

With mediation, one of the problems is what happens when the process is not fully successful. The new London Scheme treats any ADR costs as part of the arbitration costs, something which the institute believes will also be adopted by the civil justice system.

Perhaps more importantly, mediation working in conjunction with arbitration can more easily unravel a complex dispute, especially where the powers of the arbitrator to make final awards on part of the case is used. Arbitrators applying through the panel will be wholly or partly trained in mediation techniques and several are already practising mediators.

A major aim of the scheme is to re-establish London as the world capital for domestic and international arbitration.

That too must be good news for lawyers working in London and, indeed, throughout England.