Is arbitration becoming more expensive than litigation?

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Alternative methods of dispute resolution, in particular arbitration, have become increasingly popular in Bangladesh over the past two decades, so much so that a separate Arbitration Act has been enacted to accommodate it. A full arbitration proceeding can be completed in less than a year or six months. This is faster than the time it takes to prepare and file a case in court, which is why arbitration is becoming increasingly popular. Additionally, parties to a dispute often want their case to be settled in a private setting to keep things confidential.

While arbitration is considered a safe option, there is no guarantee that it will be less costly than litigation. This common “low cost” assumption is what gives arbitration its influence over traditional court litigation. Surprisingly, no research or study has been conducted to support this assumption.

In accordance with section 7 of the Arbitration Act 2001, unless otherwise agreed by the parties, the costs of arbitration shall be fixed by the arbitral tribunal. It also specifies that the arbitral tribunal shall specify the party entitled to the costs, the party who pays the costs, the amount of the costs or the method of determining this amount and the method of payment of the costs.

The Arbitration Act does not specify any particular range or standard of costs, but does mention “reasonable costs” regarding the fees and expenses of “arbitrators and witnesses, legal fees and expenses, administrative costs of the institution overseeing the arbitration and any other expenses incurred in connection with the arbitral proceedings and the arbitral award.”

In effect, the “reasonable fees” provision leaves arbitrators free to set their own standards for fees. The range of fees largely depends on the assessment of the dispute but sometimes it is ridiculously beyond the scope of the parties.

Arbitrators have the freedom to charge fees according to their own standard per session or sometimes even to charge by the hour. Although our traditional practice of law does not allow for billable hours, arbitrators take the opportunity to set hourly rates for their professional time, whether it is to hear the parties or for a simple task like scanning a document. For example, in any typical arbitration proceeding consisting of two arbitrators and a chairperson, the standard fees may be up to 15 BDT lacs per arbitrator, with the remuneration of the chairperson alone sometimes amounting to 25 BDT lacs for an average of ten sitting days. This is far fetched compared to an average cost of filing a civil complaint which ranges from 20,000 tk to 1,00,000 BDT. On many occasions, parties who agreed to arbitration earlier are forced to withdraw due to lack of funds.

It can be argued that the costs of traditional litigation are not lower than those of arbitration. The only difference is that in litigation, the fees paid here and there amount to roughly the same amount as arbitration but unlike the latter, it is evenly distributed in several tranches over a period of several years. The idea of ​​having to pay large sums of money in short intervals is what makes arbitration expensive. However, this varies widely from case to case.

A simple matter of fees should not undermine its capabilities and prevent litigants from reaping the benefits. With the above problem solved, the benefits of arbitration can never be underestimated. This ambitious mechanism still has the potential to regain its lost glory by regulating the level of fees, training arbitrators, establishing standard rules of procedure, drafting clauses and settling cases in a speedy manner.

The author is a lawyer, Dhaka Judge Court.

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