Arbitrating International Contract Disputes in England – Why and How?

The popularity and prestige of England and Wales as an arbitration jurisdiction is well-known, and this is particularly true concerning arbitrating in London. Despite uncertainties surrounding the impact of Brexit, when it comes to international arbitration there seems to be no noticeable negative change. On the contrary, as we will see, the case numbers are rising, commercial arbitration remains the most-popular resolution mechanism for international transactions, and primary attractions of England and London remain the same. Some of these were already discussed in the AKT blog (https://www.akt.rs/en/publication/english-contract-law-and-its-importance-for-international-commercial-transactions) but it is worth focussing on what arbitrating in London actually entails, in particular for companies such as those from Serbia.

In broad terms, most attractive points for opting for London are the refined legal framework, strong support for arbitration by experienced courts, and a number of world-renown arbitral institutions at parties’ disposal, most importantly the London Court of International Arbitration (LCIA). On the other hand, arbitration can be very expensive to pursue and in complex cases the length of time to reach a decision might not be shorter than when opting for courts, such as the Commercial Court in London (which handles a very large number of purely international cases as a selected forum).

Whilst the legal framework and the role of the courts will be discussed more in the forthcoming blogposts, in terms of arbitral institutions, LCIA is the main representative of the scene. To get an idea of the nature of work and contracts and sums involved, it is worth looking at some recent numbers. LCIA had a record number of arbitrations referred to it in 2019 – 406. There was also an increase in cases in 2020, so the COVID-19 crisis is likely to lead to additional cases. An impact of the COVID-19 pandemic has been the increased shift to virtual hearings, and the LCIA Arbitration Rules 2020, which came into force on 1 October 2020, reflect this development and expressly allow remote hearings.

Out of the 2019 cases, 346 were referred under the LCIA Rules, with non-UK parties accounting for 81% of its users. In a quarter of those cases, the sum claimed was between USD 5 million and USD 100 million, with the sum claimed exceeding USD 100 million in a further 4% of cases. Key sectors are banking and finance, and energy and resources, coming at 32% and 22% of disputes respectively. LCIA’s focus on transparency is evidenced through an online database of anonymised arbitrator challenge decisions. Arbitrator challenges were relatively infrequent in 2015-2019, corresponding to 2% of the percentage of arbitrations commenced in each year.

What does this all mean in terms of costs and length? The latest LCIA data is from 2017, suggesting that the median length of a case before an LCIA tribunal is 16 months, and the median cost is USD 97,000. The amount varies drastically, of course, depending on the value of the dispute. Median cost for a dispute of less than USD 1 million is about USD 32,000, going ten times that at about USD 323,000 for disputes over USD 100 million in value. To this, of course, one needs to add the costs of legal representation and associated expenses. This again varies depending on the law firm(s) engaged and complexity of disputes, but they tend to vary between USD 300,000 for smaller disputes to around USD 2.5 million in high value ones. Depending on the success of the dispute, of course, these costs or their part can be paid by the losing side.

To conclude, international arbitration in London and England and Wales more generally is an efficient and expert-driven dispute resolution process, well-supported by courts. But it is a fairly expensive one, and any inclusion of arbitration in international commercial contracts should be preceded by careful evaluation and a cost/benefit analysis. If the potential dispute is worth it, then there are not many better places to arbitrate than London.

Velimir Zivkovic