High Cost of Arbitration

In some jurisdictions, for example Nigeria, a common law jurisdiction, high cost of arbitration is a major argument against the option of this form of alternative dispute resolution (ADR) when compared with litigation. This high cost of arbitration is not unconnected to the reason for increase in third party funding.

Of a truth, I have some reservations about third party funding; however, I would not attempt to state my reservations now, to avoid digression.

A writer once opined the reason for high cost of arbitration. He stated that, in jurisdictions plagued by frivolous litigations that frustrate the legitimate expectations of commercial parties, the relatively higher cost of arbitration, vis-à-vis litigation appears to be a reasonable quid pro quo. A litigant who is party to an arbitration agreement is less likely to pursue a frivolous or speculative claim, when confronted with the reality of the likely costs involved.¹

Costs must be incurred for the arbitral process to proceed well. These costs include: arbitrator’s fees; costs of securing the arbitration venue; costs of providing transcripts; legal fees of advocates; expert fees; disbursements; and other allowances.² Thus, it could be understood the reason for cost, in arbitration.

However, the increasing costs of arbitration, therefore, imposes a financial barrier to access to justice since it deters poor claimants from prosecuting their claims, and, alternatively, forces poor defendants to settle claims due to the fear of having to pay high costs should they lose.³

Cost effectiveness used to be a major attraction to arbitration in the past, and that made it indeed an alternative to the regular court dispute resolution. It is therefore imperative that arbitration bodies both nationally and internationally should find a way to reduce the cost of arbitration for prospective parties.

I surely believe that this is very possible and realistic.

¹Ajibade Babatunde, ‘Nigeria: Much Ado About The Cost Of Arbitration’ (Mondaq, 2 February 2021) < https://www.mondaq.com/nigeria/trials-amp-appeals-amp-compensation/1031990/much-ado-about-the-cost-of-arbitration-> accessed 18 February 2023

²Muigua K, Settling disputes through arbitration in Kenya, Glenwood Publishers, Nairobi, 2012, 161

³Ng’etich Raphael, ‘The Current Trend of Costs in Arbitration: Implications on Access to
Justice and the Attractiveness of Arbitration’ (2017) Alternative Dispute Resolution 5(2) 2017, 111-129, <https://ssrn.com/abstract=3644333> accessed 18 February 2023

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