Differentiating Institutional and Ad-hoc Arbitration

The world is pacing towards alternate dispute resolution mechanisms based on expeditious procedures and flexible methods. Consequently, the field of arbitration has developed greatly over the past years. The idea of party autonomy lies at the core of international arbitration. One of the initial steps where this autonomy is exercised is at the time of deciding whether the parties opt for institutional arbitration or ad-hoc arbitration. It is generally agreed upon that these are the two types of arbitration.

 

‘Institutional’ arbitration has been described as one that is administered by a specialist arbitral institution under its own rules of arbitration.[1] Such arbitrations are conducted under the administrative authority of a designated institution that oversees various aspects, including but not limited to, constituting arbitral tribunals, fixing the compensation of arbitrators, other financial arrangements for the arbitration, and assisting the tribunal in matters related to the conduct of the arbitration.

 

There are various arbitration institutions operating globally with their own arbitration rules – of the widely recognized ones are the International Court of Arbitration of the International Chamber of Commerce (ICC); the London Court of International Arbitration (LCIA); Singapore International Centre (SCIA); the Hong Kong International Arbitration Centre (HKIAC); and the International Centre for Dispute Resolution (ICDR).

 

The institutional arbitration clause is mostly incorporated in commercial agreements, especially preferred by the parties that are otherwise not familiar with the alternate dispute resolution mechanism. In such cases, the parties opt for the already established rules and procedures of the arbitral institutions to avoid any further challenges in dispute resolution.

 

In contrast to this, ad-hoc arbitration is defined under Article I (2) (b) of the 1961 Geneva Convention as “settlement by arbitrators appointed for each case”.[2] In simpler terms, any arbitration where the parties have not selected an institution to administer the arbitration is referred to as ad-hoc. Such a form of arbitration offers greater flexibility to the parties in deciding the rules of arbitration as well as other related matters. However, it also means that the parties lack the external support that an institutional arbitration may offer.

 

In the absence of an institution, the parties may agree upon an appointing authority in case their appointment procedure fails for any reason. An appointing authority could be an arbitral institution, a local law society, or any professional organization or association. Making use of the flexibility offered by the ad-hoc arbitration, the parties may agree to negotiate their own set of rules to establish the procedure tailored as per their requirements. They may also use an adapted version of the rules of an arbitral institution or adopt the rules established specifically for ad-hoc arbitration by institutions like United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules or the London Maritime Arbitrators Association (LMAA) Terms.

 

Ad-hoc arbitration generally takes place where the arbitration agreement specifically provides for the UNCITRAL Rules or any other ad-hoc rules. It is widely chosen in industrial sectors such as shipping and construction where the parties prefer to use the procedural rules that have been developed by professional bodies or trade associations for their specific industry. Examples of industry-specific rules are LMAA or the Construction Industry Model Arbitration Rules.

 

A well-organized and structured ad-hoc arbitration is generally more attractive to the parties who are familiar with the alternate dispute resolution mechanism, especially because it is far less expensive as compared to institutional arbitration. However, in the international arena, both institutional and ad-hoc arbitrations are made use of in a wide range of commercial agreements depending upon the personal preference of the parties involved.

 

 

 

[1] ‘Ad-hoc or Institutional Arbitration – A clear-cut distinction? A closer look at borderline cases’, Ulrich G. Schroeter. 10(2) CONTEMP. ASIA ARB. J. 141, 2017.

[2] Ibid.

Rabia Zafar
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