Arbitration has become a Victorian slow coach, arriving not on time and making lawyers rich.
Updated: Nov 10, 2021
The brilliant and erstwhile Cambridge University historian Timothy Blanning appreciated key revolutionary inventions that gave rise to the modern economy. His excellent historical narrative, The Pursuit of Glory, published in 2006, is doused with both subtle and direct examples of these. It is a book I highly recommend for those who seek to understand how the slow incremental improvements of thinking following the late mediaeval period finally gave rise to the rapid flurry of inventions that have caused the modern era of the Industrial State.
One of these improvements that has struck me with wonder since childhood, which Blanning eloquently describes in his book, is the invention of the turnpike road in the late 17th Century. These were effectively the first modern paved or stoned roads for carriages, that more than halved journey times by horse and carriage in 17th and 18th Century Europe.
Suddenly a late night epistolary from a Cardinal or other high ranking ecclesiastical figure, would make its way with as much speed and flurry as the ink that was used to scribe it, to its intended destination. The roads were paved not just to move people, but also letters. The invention, met with a new social vigour of travel, became perhaps a pre-cursor to the romantic age of letters before the coming of the telegraph.
Basic changes such as paving making galactic changes to logistics and efficiency of the movement of both people and goods, were in many ways revolutionising human productivity in the way the computer has done so today. In the same vein arbitration, an infrastructural tool for the modern economy, has the potential to do so but fails miserably to reach its capacity. Why? The economic reason is the closed shop.
Since the steady increase in international commercial arbitrations since the 1980s lawyers, ever keen to engage in the economically illiterate activity of selling time for money, have sought to push into this emerging market to make a career, stifle competition (not necessarily deliberately) so as to fix prices, and bring up entry barriers in a way the great observant of market dynamics Mr. Michael Porter would be proud of.
As a result the consumer of such services inevitably suffers. A long heated discussion with a friend, also a General Counsel at one of the world’s biggest companies, saw myself fortunate to get to the bottom of the frustrations of the costs of arbitration that sharp lawyers working in-house are increasingly becoming aware of.
They are also ever increasingly aware of the delays that go with these and huge legal costs. However as a decent corporate economics 101 student may tell them, they are in effect paying to keep the delays in place. Kaplan in his number one best seller Balancing the Scorecard intimates how prices of service products are built around the provider’s own internal revenue targets. Law-firms have deeply entrenched, albeit it historically arbitrary in their provenance, ideas of what cyclical earnings of litigation should be.
This is, in turn, results in revenue modelling of service providers that is not aligned with consumer interest. A simple example of a commonly used misalignment of market pricing to cost occurs when a cost-margin analysis of the number of arbitration cases a firm should take on in a given instance in order to amply contribute to turnover every annum and every five years is pursued. This doesn’t of course mirror at all with the consumer’s goals of cheap speedy adjudication. The pricing is further fixed, in almost cartel like fashion, to the prospective client who (often fortunately for the large firms) are limited in their procurement capacities of these services by hiring lawyers to make procurement decisions from these same self-serving firms.
It’s like a parasite not just attacking the host, but controlling when the host will actually feel itchy. If this wasn’t so morally nauseating for those who are interested in fairer pricing of legal services, it would bring out a small smirk of admiration at the villainy. My General Counsel friend, perhaps through some of our discussions on this topic (but to claim to be such a cause would go to far) avoids the parasitic relationship entirely knowing full well that deliberating the writing-off large claims, like a bad car crash, may well be a more sensible option before even considering the options of expense and delay (and all the poor range of offerings of the different shades of grey that these come in) that international arbitration entails.
He would be right. Where that leaves those genuinely in search for efficient customer orientated arbitration services, at least in theory, is unclear. Lawyer’s sanctimony (a particular brand of moral self-embellishment) learned as early as law school, that arbitration is fast, cheap and assists the rule of law is a claim so hollow that it now verges on the delusional.
Yet don’t expect those who get away with such flagrant sales speak masquerading as client interest to be squashed. Stuck in a hot climate presently brings to mind a varied range of odd and inapposite analogies, and for this one asks to be forgiven. I feel though I must throw one here as an ineffectual closing punch-line. The parasites will surely remain undeterred so long as their victims are foolish enough to wear shorts, not trousers pulled into their socks, wildly exposing bare flesh during a long insufferable Summer’s heat.
Dr Abhijit Pandya
Arbitration Notes 6 November 2021.
(Spelling of mediaeval as opposed to medieval deliberate, as a personal acknowledgement to Lord Monckton of Bletchley).