When Arbitration Fails Its Purpose: A Call for Practical Reform

[This article examines practical challenges in arbitration that often affect party experience despite the system’s strong theoretical foundations. It highlights issues relating to arbitrator appointments, fee structures, institutional charges, procedural costs, and role overlap within arbitration centres. Based on practical observations, it brings attention to concerns frequently experienced by parties but rarely expressed openly, and considers ways in which current practices may be refined to enhance fairness, transparency, and flexibility in commercial dispute resolution.]

Introduction

Arbitration is widely regarded as an efficient mechanism for resolving commercial disputes. In theory, it offers neutrality, expertise, confidentiality, flexibility and procedural efficiency—qualities that make it an attractive alternative to litigation. However, practical experience often reveals a different reality.

In numerous arbitration proceedings, recurring structural and procedural concerns emerge that undermine the integrity of the system. While arbitration as a concept remains sound and valuable, its implementation in practice often gives rise to dissatisfaction among parties, many of whom leave the process frustrated and disillusioned.

This article highlights key issues encountered in practice and gives voice to concerns widely experienced by parties but often left unspoken, while proposing considerations aimed at strengthening the arbitration framework and addressing long-standing concerns that have burdened parties for years.

Some of these concerns are increasingly discussed in professional forums and arbitration platforms. However, discussion alone is not sufficient; meaningful attention and practical steps are required to address the underlying issues.

Appointment of Arbitrators: A Question of Impartiality

In most arbitration proceedings, arbitrators are appointed by the parties. While this is intended to preserve party autonomy, in practice it may compromise perceived impartiality from the outset.

Parties typically rely heavily on their legal representatives when selecting arbitrators. Inevitably, counsel may recommend individuals they are familiar with or prefer professionally, rather than those best suited to the subject matter of the dispute. This creates a perception, if not a risk, of partiality, particularly where arbitrators are both appointed and remunerated by the parties.

To address this concern, consideration may be given to a more structured appointment mechanism. Arbitration centres could maintain a vetted panel of arbitrators, with appointments made by the institution based on the nature and complexity of the dispute. Parties could retain the right to object to specific appointments, but not to directly nominate replacements. Such a system may enhance neutrality while preserving procedural fairness.

Arbitrators’ Fees: Discretion and Its Consequences

A further concern arises from the manner in which arbitrators determine their fees. In many cases, fees are set by the arbitrators themselves, often based on the value of the claim.

This raises an important question: should a dispute resolution mechanism operate in a way where decision-makers determine their own remuneration?

Linking fees to the monetary value of a claim does not necessarily reflect the complexity or effort required. For example, two disputes involving similar legal and factual issues, such as shipment disputes, may attract vastly different fees solely due to differences in the value of the goods (e.g., cotton versus gold).

A more balanced approach may involve fixed or regulated fee structures determined by arbitration centres, based on the complexity and nature of the dispute rather than its financial value. This would reinforce the perception of arbitration as a principled legal process rather than a commercially driven exercise.

A further practical issue arises during the conduct of hearings. Arbitrators may initially agree on a certain fee structure, for example, a fixed rate per session, but subsequently extend hearing durations and, correspondingly, multiply their fees, often without providing parties with a meaningful opportunity to express their concerns.

There are occasions where the duration of hearings is extended, yet the proceedings do not fully utilize the additional fixed time allocated. Despite this, parties are still required to bear the increased costs associated with the extended hearing time.

In such situations, parties may naturally question the rationale behind the calculation. For instance, where a fixed amount is agreed per time unit, the expectation would logically be that payment corresponds to the actual number of time units utilized. However, in practice, this is often not the case.

Parties are frequently unable to raise such concerns openly, as there may be apprehension that doing so could have an unintended impact on the overall conduct or perception of their case. As a result, legitimate cost-related concerns often remain unspoken and unaddressed.

While efficiency is a legitimate objective, such decisions are sometimes made without sufficient consideration of the financial impact on the parties. Given that arbitrators occupy a quasi-judicial role, concerns arise where they are effectively placed in a position to influence their own remuneration. It may be questioned how appropriate it is for a decision-maker in a dispute to also be involved, directly or indirectly, in determining the cost of their own appointment.

To address this issue, consideration should be given to vesting the responsibility for determining arbitrators’ fees with arbitration centres, supported by a clearly defined fee schedule. Parties should be able to communicate any concerns regarding costs directly with designated officers of the arbitration centre. This process should operate independently of the arbitrators’ knowledge or discretion, in order to preserve confidence in the neutrality of the proceedings. Otherwise, there may be a perception, whether justified or not, that parties who raise concerns about costs could be placed at a disadvantage, which may contribute to silence on such issues.

The parties often find themselves in a lock-in position where they are unable to proceed with the hearing due to financial constraints preventing them from covering the costs, while at the same time being unable to withdraw from the proceedings once arbitration has been agreed as the chosen dispute resolution mechanism. As a result, parties may become effectively trapped within the process, leading to a sense of procedural and financial helplessness.

In practice, there are situations where parties are already under financial strain and may be compelled to incur further costs or even additional debt to continue participating in the proceedings. A structured and independent fee-setting mechanism would help ensure that any adjustments to hearing schedules or costs are transparent, predictable, and subject to appropriate institutional safeguards.

Arbitration Centre Fees: Reconsidering the Basis

Arbitration centres often charge registration or filing fees in addition to administrative fees based on the value of the claim.

This approach raises significant policy concerns. The administrative function of an arbitration centre, namely, registration of the case, appointment coordination, procedural management, and case administration, remains substantially the same regardless of the monetary value of the dispute. Whether the underlying contract concerns a lower-value shipment, such as cotton wool, or a significantly higher-value transaction, such as gold, the procedural responsibilities of the centre do not materially change.

Linking administrative fees to the value of the claim therefore creates a disconnect between the service rendered and the cost imposed. The financial value of the dispute does not increase the administrative workload of the institution, nor does it justify a proportionate escalation in institutional fees.

More importantly, a high-value claim does not necessarily reflect the financial strength of the parties involved. In many instances, it is precisely these disputes that arise in circumstances of commercial breakdown, exposure, or financial strain. As a result, higher institutional fees may compound the burden on parties who are already engaged in significant financial difficulty.

Against this backdrop, the current approach risks transforming arbitration into a more costly process without a corresponding increase in institutional service. A fixed or standardized administrative fee structure would more accurately reflect the nature of the centre’s function, ensuring that costs are aligned with services rendered rather than the commercial value of the underlying transaction.

Such an approach would enhance accessibility, fairness, and confidence in arbitration as a dispute resolution mechanism, particularly in complex commercial disputes where financial stakes are already substantial.

Switching between Roles: Arbitrator and Counsel

A further issue relates to professional overlap within arbitration practice. Within the same arbitration centre, it is not uncommon for individuals to act as counsel in one matter and as arbitrators in another, sometimes within a close timeframe.

While such dual roles may be justified on the basis of professional independence, their occurrence within the same institutional environment raises legitimate concerns regarding confidentiality, perceived impartiality, and the maintenance of clear professional boundaries. Even where independence is preserved in substance, the perception of overlapping roles may be sufficient to undermine confidence in the arbitration process.

Accordingly, it is suggested that a clear institutional restriction be introduced within arbitration centres, providing that an individual acting as an arbitrator should not simultaneously act as counsel representing a party in arbitration proceedings during the period of such appointment, at least within the same arbitration centre. This would help ensure a clearer separation between advocacy and adjudicatory functions and strengthen confidence in the neutrality of the system.

In addition, arbitration centres are encouraged to make greater use of retired judges and highly experienced legal professionals with subject-matter expertise. Such individuals bring extensive judicial experience, familiarity with evidentiary assessment, and a developed understanding of legal reasoning. There is no shortage of suitably qualified professionals in this category. Greater reliance on this pool of expertise would not only enhance the quality of arbitral decision-making but also ensure a more structured and institutionally independent framework.

This approach may be viewed as mutually beneficial where arbitration centres would benefit from proven judicial expertise, while experienced professionals would continue to contribute meaningfully to the development of dispute resolution systems. Ultimately, this would serve to reinforce both efficiency and confidence in arbitration as a dispute resolution mechanism.

Conclusion

The purpose of this discussion is not to criticize or undermine arbitration as a system, but to contribute to its continued development and effectiveness.

In its ideal form, arbitration serves as a vital mechanism for resolving commercial disputes efficiently and fairly. However, the concerns outlined above reflect a growing disconnect between its theoretical strengths and its practical implementation.

These concerns are neither isolated nor insignificant. They represent long-standing issues that have, over time, burdened parties, particularly in terms of time and cost, and have, in many instances, contributed to a gradual erosion of confidence in arbitration as a preferred dispute resolution mechanism.

This article should therefore be understood not as a critique of the system itself, but as an honest effort to give voice to those concerns and to highlight practical difficulties experienced by parties who often do not express them openly. The intention is to contribute toward alleviating these challenges and restoring trust in the process.

Bringing these concerns to light is an essential step toward meaningful reform. By setting out the practical realities faced by parties, this article seeks to enhance awareness among institutions and policymakers, so that they are better positioned to recognize these issues and take appropriate corrective action and reinforce the integrity of the system.

A system designed to deliver justice should not, in practice, place undue burden on those who rely on it. The confidence in a system depends on whether its processes are experienced as fair as well as principled.