Building cost-effective arbitration clauses: drafting tips and strategies for clients in SEE / CEE

The costs of arbitration proceedings can be reduced drastically by drafting an arbitration clause best suited for the contract at hand. Not all arbitration clauses should follow the same pattern, as factors such as the value of the contract and the parties (e.g. their nationality, location of their seats) will vary.

Nevertheless, the points below are a few tips that companies in the SEE/CEE region should consider when drafting an arbitration clause:

• Choose local law as applicable law for the contract – Parties in the SEE/CEE region often provide for a law which they are not familiar with in their arbitration clauses. It is also common for parties, eager to finish the negotiations, to unwisely agree to the law chosen by their counterparty without realising the future effect of this decision. This is an important consideration when drafting an arbitration clause as the cost of the arbitration proceedings will vary drastically if the parties choose, for example, English or French as the applicable law instead of Serbian, Montenegrin or another local law. This is especially the case where parties in the transaction have no connection to the UK, and significantly increases the costs of arbitration proceedings. Furthermore, hiring UK or France-based legal professionals well-versed in these legal system will be more costly than hiring legal experts from the SEE/CEE region where a local law has been chosen.
• Choose a local arbitration institution – The arbitration proceedings before the local arbitration institutions, such as the Permanent Arbitration Court at the Croatian Chamber of Economy, Permanent Court of Arbitration at the Chamber of Commerce and Industry of Serbia are more cost-effective than arbitration proceedings before institutions such as the ICC, LCIA, and PCA. For example, an arbitration proceeding for a EUR 100,000 dispute will cost you approximately EUR 6,000 at the Croatian Chamber of Economy and EUR 7,700 at the Serbian Chamber of Commerce. An arbitration proceeding before the ICC will cost you more than EUR 30,000, which is almost five times the cost of taking the proceedings before local arbitration institutions. Therefore, companies should carefully consider the choice of an institution and make sure that it is the best fit in the event of a dispute.
• Choose an affordable city for the place of arbitration – The parties usually opt for cities that are also the seat of the arbitration institution they have chosen: London for the LCIA, Paris for the ICC, and The Hague for the PCA. Such locations are not mandatory or cost-effective since these cities are known for being expensive in terms of accommodation, food and travel costs. You can choose a city which is drastically more affordable, such as Belgrade (offering well-connected air lines with most of the European cities), Budapest, or even smaller cities like Subotica close to Serbian-Hungarian border and Palic lake, which will reduce the costs of arbitration proceeding substantially. The only thing you need for the arbitration proceeding is a spacious conference room where the parties and tribunal can be comfortable. Such conference rooms can be found in most medium-sized cities.
• Choose the local language as the language of the proceedings – Choosing the local language, provided that the parties and members of the tribunal are fluent in it, can eliminate translation costs. These can be very high in foreign jurisdictions if there is a significant amount of evidence to be presented to the tribunal. This is especially valid for languages spoken in the territory of former Yugoslavia.
• Provide for mediation or negotiation precondition – Resolving disputes through alternative methods before resorting to arbitration can be more time consuming, but cost-effective. Therefore, consider requiring mediation or negotiation as a precondition to arbitration while drafting your arbitration clause as this could significantly reduce the potential costs of arbitration proceedings. 
• Provide for an expedited procedure – Rules for expedited procedures tend to apply automatically when the amount in dispute is below a defined threshold. However, you can also choose to opt in for the expedited procedures for larger disputes, depending on the arbitration institution. These procedures are highly cost-effective, significantly reducing the expenses associated with arbitration. They are also time-efficient, taking considerably less time to resolve, which can further save on operational costs. This allows businesses to reallocate resources into growth and development rather than keeping funds tied up in reserves. As the saying goes, "time is money," and opting for expedited procedures exemplifies this perfectly.
• Provide for a single arbitrator: You can always choose a single arbitrator instead of a panel of arbitrators to resolve your dispute. Choosing a single arbitrator over a panel of arbitrator can result in significant cost reductions. Not only will you be saving on fees for the arbitrators, but you will also be saving associated expenses such as travel costs and accommodation. 

In conclusion, drafting the arbitration clause should be more than just a task on your to-do list, or something that is done quickly and thoughtlessly in an eagerness to close a transaction. Drafting arbitration clauses should be a strategic move that can save money and set the stage for quicker, more efficient dispute resolutions that will keep your business running smoothly. 

By implementing these tips and strategies when drafting an arbitration clause, you can prevent major headaches down the line. So, dive into the details, draft with diligence, and equip yourself with clauses that safeguard your interests efficiently and effectively.