Access to Justice in Arbitration – Costs and Technology

This article first appeared in The ICLG to: International Arbitration Laws and Regulations, which covers common issues in international arbitration laws and regulations - including arbitration agreements, governing legislation, choice of law rules, selection of arbitral tribunal, preliminary relief and interim measures - in 36 jurisdictions.

Introduction

There is no single definition of what constitutes “access to justice”, but it can generally be understood as referring to a person’s right to have access to the court and a fair trial. The equivalent definition can be said to apply to arbitration, i.e. a person has a right to have access to arbitration and a fair hearing.

In their 1978 Survey,¹ Mauro Cappelletti and Bryant Garth advocated arbitration as playing a significant role in securing access to justice outside of the court system.  Securing access to justice through arbitration has grown exponentially in recent decades, reaching disputes that were traditionally the purview of the courts. This has been particularly seen in international commercial disputes, investor-state disputes and marine disputes, but more recently in its expansion to (amongst others) labour and employment, competition, family, human rights and sports disputes. Whilst typically seen as the preserve of high-value, cross-border disputes, there is also a concerted effort to attract lower value disputes to this forum.

One of the main inhibitors to the expansion of access to justice in arbitration are the costs of arbitration. The increasing use of technology can serve to curb some of this cost, but to what extent does technological efficiency impact upon due process, and can adequate access to justice in arbitration be secured?

Costs

In the costs context, access to justice in arbitration can mean having or having access to the financial resources required to bring your claim or mount your defence.  There is a myriad of funding options available, from self-funding to relying upon funds from a parent company, third-party funding, insurance that covers legal costs, or using legal fee arrangements such as contingent or conditional fee agreements. The better position to be in is to have funding arrangements in place prior to the existence of a dispute (i.e. self-funding, a parent company or existing insurance policy). In the absence of existing resources being available prior to a dispute, greater difficulties may arise in securing funding to obtain access to justice. A third-party funder, insurance provider or legal fee arrangements often require certain criteria to be met before advancing funding. For example, third-party funding often follows an assessment of the likely cost of an arbitration balanced against the quantum of the claim and the nature of the defence. The cost of an arbitration can therefore be critical to enabling a party to secure access to justice.

Arbitration has often been touted as an inexpensive alternative to litigation. This has, to some extent, contributed to the success of arbitration over the years as an alternative form of dispute resolution. Unfortunately, however, this advantage of arbitration has been somewhat eroded. Much to the chagrin of the arbitral community, the cost of arbitrating has been on the rise. Indeed, it can be substantial. The International Arbitration Survey 2018 by Queen Mary University of London found that two-thirds of respondents described cost as “…arbitration’s worst feature”.² It is one of the causes of parties looking to other forums (i.e. mediation, etc.) for more cost-effective dispute resolution, either in isolation or in conjunction with arbitration.

Arbitrator costs, administration fees and venue fees are those that most typically stand out in arbitration since they are generally not payable where recourse is obtained through the courts. There are, of course, options available to parties to lower the cost of arbitration. For example, parties might tailor the arbitration agreement to opt for a one-member tribunal. Where adopted, they should carefully consider an arbitral institution’s fee structure. For example, are arbitrator fees based on an hourly rate (i.e. as is found at the London Court of International Arbitration) or a percentage of the amount in dispute (i.e. as is found at the International Chamber of Commerce)? The higher the value of the dispute, the greater cost benefit may be achieved in adopting an institution that applies hourly rates. Parties might also think about selecting an arbitral institution with lower administration fees. Where available under institutional or other rules, parties may further adopt a fast-track arbitration procedure. The use of technology (discussed below) may also assist in reducing cost (including, but not limited to, venue fees) so as to give greater access to justice in arbitration.

The Role of Technology

It can certainly be said that the use of technology has increased access to justice in arbitration and that arbitration has long been known to be at the forefront of technological innovation. There are various ways in which technology can assist in making arbitration more efficient, timely and cost effective. It already engages in electronic filing and service of documents, as well as technology-assisted disclosure, telephone hearings and video-link evidence. It is generally ahead of the curve in technological development, most likely because of its inherently flexible nature.

As a result of the COVID-19 pandemic, over the last 18 months we have witnessed an acceleration in the development and use of technology in arbitration.  This has been particularly the case in relation to virtual hearings, which effectively replaced in-person hearings. A 2021 International Arbitration Survey conducted by White & Case³ reported “…an explosion in the use of virtual hearing rooms: 72% of respondents report using virtual hearing rooms at least ‘sometimes’, if not ‘frequently’ or ‘always’”. This was in stark contrast to their 2018 Survey, “…when 64% of respondents said that they had ‘never’ utilised virtual hearing rooms and a further 14% said they had used them ‘rarely’”. 

A litany of virtual hearing platforms is now available, many of which have rapidly evolved to resolve any issues initially experienced; for example, Microsoft Teams developed breakout rooms and Zoom resolved its security issues. And while virtual hearing rooms carry their own costs (in terms of their arrangement, which should reduce over time as arrangements are streamlined), they do serve to substantially reduce the costs of an arbitration hearing, including the costs of travel, accommodation and hearing venues, thereby increasing access to justice in arbitration. 

Whilst occasionally used prior to COVID-19, the pandemic’s restrictions have resulted in an increased use of virtual split hearings (i.e. of discrete issues) and hybrid hearings (i.e. hearings part in person and part virtual). This has often been borne out of the difficulties of holding lengthy virtual hearings for participants located in significantly different time zones. Hybrid hearings allow for the most flexible form of hearing. The issues arising from such hearings are how to ensure fairness and equality between the parties. For example, if one party attends a hearing in person with the tribunal and the other attends virtually, is this fair on the party attending virtually, or does it open a tribunal award up to challenge in enforcement? Certain courts are already finding that such hearings are not unfair, but this will be jurisdiction-dependent.

Furthermore, tribunals should generally remain vigilant in relation to possible challenges to enforcement following virtual hearings, particularly where one or both parties object to, or where institutional rules or laws do not clearly provide for, virtual hearings or where technology has disrupted the substance of a hearing (i.e. through technical difficulties), which may lead to assertions of an unfair hearing.⁴

Post-pandemic, the use of virtual hearings is expected to become more common, at least in relation to the smaller and/or less complex disputes, or where great cost savings can be achieved. In respect of the larger and/or more complex disputes, or in relation to disputes of a certain nature (such as cases involving fraud), one is likely to see parties revert to in-person hearings if only because of the longer hearing durations and the desire (and in some cases, the perceived need) to see evidence given in person. However, given the technological advancements in other forums (i.e. the courts), arbitration must not become complacent. It must continue to make efforts to keep on top of technological developments and stay ahead of the curve.

Developing technologies

Given the significant uptake (and the corollary benefits) of virtual hearings in the wake of COVID-19, one now also hopes to see the embracement of more radical technologies to streamline the arbitral process. 

Online dispute resolution (ODR) is of growing interest. It is effectively the online version of alternative dispute resolution (ADR), enhanced by the benefit of adding technology into the process. ODR began in use by e-commerce companies such as eBay and PayPal and has since been adopted by local courts, i.e. England and Wales for low-value claims,⁵ and the EU for consumer disputes.⁶ Online arbitration is surely to be expanded going forward since it has the capability of being private and more expedient than resolving disputes in the courts. There are currently concerns, however, as to whether the absence of a regulatory framework may generate challenges to arbitral awards, particularly where expediency is balanced against due process and the latter is not seen as secured. The 2018 Queen Mary Survey⁷ found that “[r]espondents… believe that an increased use of technology would lead to more efficiency in the conduct of arbitration proceedings”, yet it found that “‘[d]ue process paranoia’ also continues to be one of the main issues that users believe is preventing arbitral proceedings from being more efficient”. It can be a fine balancing act to achieve.

A longstanding question also arises as to whether new technologies can propel arbitration to the lofty heights of the “AI Arbitrator” – the possibility of eventually offering fully automated dispute resolution solutions using artificial intelligence (AI) to decide disputes based on data input automatically by smart contracts. The next step for this would be “on-chain” ADR, which contains the ability to automatically enforce decisions on a blockchain. For example, the AI Arbitrator would determine the outcome, and sums held on account would immediately be deducted for satisfaction of the award.

Unfortunately, we are not there yet and it is questionable as to whether AI can ever feasibly replace the role of a human arbitrator. What it can and does presently assist with, however, is the legal work carried out by practitioners to prepare a party’s case, such as facilitating large and complex e-discovery exercises. White & Case’s 2021 Survey⁸ confirmed that “…adoption of AI continues to lag behind other forms of IT. 35% of the respondent group stated that they have ‘never’ used AI, while 24% stated that they have used AI rarely. Only 15% declared that they used AI ‘frequently’ or ‘always’”. Practitioners and parties, therefore, need to become more open to and familiar with the use of this technology to assist the more efficient conduct of proceedings. They also need to be mindful that the accuracy of AI is wholly reliant upon the size and quality of the dataset.

Conclusion

It is clear that arbitration has become more accessible in recent years, but there is still some way to go.

More focus needs to be given to reducing arbitration cost and, whilst there are already a number of ways to do this, technology is certainly able to assist further. COVID-19 has served in a very short space of time to highlight the potential (i.e. with virtual hearings) and to address some of the practitioner reluctance to engage with technological advancements that may serve their clients well. Regrettably, it is anticipated that we will have to deal with new pandemics in the future and, therefore, the adoption and progression of the technological advancements must continue to ensure the ongoing future success of arbitration.

There is a fine line, of course, between efficiency forming part of access to justice in arbitration and whether it is something that must be balanced against due process. As long as participants are careful to try to ensure that one does not come at the cost of the other, increasing the use of technology in the pursuit of greater access to justice in arbitration must be a worthwhile venture. Of course, as more technologies and approaches are implemented and stress-tested, the position will become clearer. It is presently the role of the human arbitrator to walk the tightrope between an expedient and cost-effective arbitration and one that thoroughly observes due process. To achieve the right balance, governments and arbitral institutions should also look at whether there are any laws or arbitral rules that need to be modified.

Read other items in Commercial Brief - November 2021

Endnotes

1. Access to Justice: The Newest Wave in the Worldwide Movement to Make Rights Effective, 1978.
2. 2018 International Arbitration Survey: The Evolution of International Arbitration, Queen Mary University of London.
3. 2021 International Arbitration Survey: Adapting arbitration to a changing world, 6 May 2021, White & Case.
4. This very question has been examined previously. For example, in the 2016 case Sino Dragon v Noble, the Federal Court of Australia dismissed an application challenging an award on the basis that, amongst other things, there were technical glitches concerning video images and witness evidence given via video conference. The court did later say, however, that the challenge on the basis of technical difficulties did not have “no reasonable chance of success”.
5. https://www.judiciary.uk/reviews/online-dispute-resolution/.
6. Regulation (EU) No 524/2013 of the European Parliament and of the Council of 21 May 2013 on online dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Regulation on consumer ODR).
7. 2018 International Arbitration Survey: The Evolution of International Arbitration, Queen Mary University of London.
8. 2021 International Arbitration Survey: Adapting arbitration to a changing world, 6 May 2021, White & Case.