Arbitration is a form of alternate dispute resolution (ADR) which allows disagreements and differences between two parties to be resolved outside of the traditional court system. In a general sense,  in an arbitration proceeding, the parties to a dispute will refer it to one or more persons – known as the ‘arbitrators’ or an ‘arbitral tribunal’ – by whose decision or award they agree to be bound. Arbitration is often used to resolve commercial disputes, most importantly in the context of international commercial transactions. This process provides dispute resolution without unnecessary delay and cost and at the same time, necessary freedom and flexibility to the parties.[1]

In India, arbitration proceedings are dichromatic namely ad-hoc arbitration and institutional arbitration. The parties have the option to seek recourse to either of them depending on their subject matter, choice and convenience.[2]

Ad hoc arbitration

An ad hoc arbitration is a type of arbitration which is not administered by a traditional institution such as the ICC or DIAC. The parties are therefore expected to determine all aspects of the arbitration on their own which shall range from the number of arbitrators, procedure of appointing those arbitrators, the law to be applied and the procedure for conducting the arbitration.

The arbitration agreement, whether reached before or after a dispute has arisen, may simply state that ‘disputes between parties will be arbitrated by the process of arbitration’. It is infinitely preferable at least to specify the place or ‘seat’ of the arbitration as well since this will have a significant impact on several vital issues such as the procedural laws governing the arbitration and the enforceability of the award.[3] In Ad-hoc arbitration, if the parties are unable to nominate arbitrator/arbitrators by mutual consent, the appointment of arbitrator is carried out by the High Court (in case of domestic arbitration) and by the Supreme Court(in case of international commercial arbitration). In India’s case, most of the arbitrations are Ad-Hoc Arbitrations.

The procedure in Ad hoc arbitration is in the hands of the parties and the arbitrators, within the permissible limits of the principles of (international) arbitration and the mandatory procedural rules at the seat of arbitration, including aspects like Right to be heard Fair trial / equal treatment.

Advantages of ad hoc arbitration

  • Ad hoc arbitration is suitable for all types of claims, large or small. It may be designed in accordance with the necessities of the parties, especially where the stakes are large or where a state or government agency is involved.
  • Parties are in control of the process. They are allowed to write their own rules, set their own timelines and move the arbitration along their own pace. The process is flexible in terms of permitting the parties to cooperate and decide upon the dispute resolution process. . However, this will of course require a greater degree of effort, cooperation and expertise from the parties to determine the rules of arbitration. Often the parties may misunderstand each other if they belong to nationalities and come from different jurisdictions, and this can results in delays.
  • Ad hoc arbitration is less expensive than institutional arbitration as the parties will only have to pay fees for the arbitrators, lawyers or representatives for the costs incurred in conducting the proceedings is less than paying fees to any arbitration institution. The parties also have the flexibility of holding the hearings at any venue. Normally, an institutional arbitration will be held in the institution’s premises.
  • The arbitrators’ fees will be negotiated directly between the parties and the arbitrators, allowing them the option to negotiate, whereas in institutional arbitration the arbitrators’ fees will be set by the institution.[4]
  • State parties may prefer ad hoc arbitration if they are concerned that a submission to institutional arbitration devalues their sovereignty particularly when the disputes involve public interest and large sums of public monies. They would want the flexibility to define issues quickly and also adopt acceptable procedures; for example; they may wish to file simultaneous pleadings as neither party would want to be a respondent as they both believe they have justifiable claims against each other.

Disadvantages of ad hoc proceedings

  • The approach of opting for ad hoc arbitration can require considerable time, attention and expense with no guarantee that the terms eventually agreed, will address all the eventualities. Furthermore, if parties have not agreed on arbitration terms before any dispute arises they are unlikely to fully cooperate in doing so after such a dispute has arisen.[5]
  • Constitution of the arbitral tribunal and decisions about challenges can be quite complicated considering blockade and additional costs. Parties in ad hoc arbitrations normally have to rely on their own good judgment as to the identity and quality of the individual arbitrator. This may be especially difficult as a party may not be able to choose a well-known arbitrator from his nation due to objections of national bias and would have little, or no, knowledge of arbitrators outside his country.
  • It is only effective when both parties are ready to cooperate as it depends, for its full effectiveness, upon the spirit of cooperation between the parties and their lawyers backed up an adequate legal system in the place of arbitration. The failure of one or both parties to fully cooperate can result in time spent resolving issues or an ultimate recourse to court
  • When the rules drawn up by an institutional provider are incorporated into ad hoc proceedings existing provisions which require administration by the provider, will need to be amended or excluded. This possesses the risk of creating ambiguities, or of the parties unintentionally creating an institutional process.

Institutional arbitration

An institutional arbitration is a process in which a specialised institution intervenes and assumes the responsibility of administering the arbitration process. Each institution has its own set of regulations which provide an outline for the arbitration, and its own form of administration to assist in the process.The parties then submit their disagreements to the institution which administers the arbitral process as permitted by the rules of that institution. The institution does not arbitrate the dispute but it is the arbitral panel which arbitrates the dispute.

There are many almost 1200 institutions worldwide, some of them being-: the London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC), the Dubai International Finance Centre (DIFC) and the Dubai International Arbitration Centre (DIAC). Often, the contract between two parties will contain an arbitration clause which will designate a particular institution as the arbitration administrator.

Advantages of institutional arbitration

For those who can afford institutional arbitration, the most important advantages are:

  • Such specialized institution have – Pre-established, up-to date set of rules, administered arbitration process, i.e. the institution oversees the whole proceeding and guarantees a certain standard flow of the procedure to its clients.
  • One more advantage of going for institutional arbitration is that such institutes provide trained staff to the parties for administering the whole process. The administrative staff will ensure that the time limits are being complied to, and the process is going ahead as smoothly as possible.
  • One of the major advantages of institutional arbitration is that they have an extensive panel of experts, who acts as arbitrators. These institutions also have arbitrators who specialize in different areas, so that any type of dispute can be resolved. Institution’s panel of arbitrators will usually be made up of experts from various jurisdictions and include many different vocations. This allows parties to select an arbitrator possessing the required skill set and expertise to provide a rapid and effective dispute resolution process.
  • Unlike ad hoc arbitration, institution arbitration has a better mechanism to deal with non-cooperative parties. Many institutional arbitrators expressly provide the rule that the proceedings will continue. If any party fails to appear for the proceeding without any valid excuse, even after it has been duly summoned by the institution, the Tribunal will still go ahead with the proceedings
  • Institutional arbitration saves parties and their lawyers the effort of deciding upon the arbitration procedure and of drafting an arbitration clause, which is provided by the institution. Once the parties have selected an institution, they can incorporate that institution’s draft clause into their contract, in which they can later on add certain clauses if need arises.[6]
  • One of the most significant advantages of opting for institutional arbitration is the reputation of the institution. Awards given under the name of any prestigious institution is easier to enforce as it is accepted by a majority of other forums.[7]

Disadvantages of institutional arbitration

  • High administrative fees for services and use of the facilities, which can be considerable if there is a large amount in dispute – sometimes, more than the actual disputed amount
  • There have often been complaints of bureaucracy from within the institution, which can lead to del Inflexible as it forfeits the exclusive autonomy of the parties over arbitration
  • The process can be termed as inflexible as it forefits the exclusive autonomy of the parties over arbitration proceeding.

Conclusion

It is often said that the parties are the real masters in the process of arbitration. Although ad hoc arbitration may seem preferable in today’s modern and commercially complex world, it is really only suitable for smaller claims involving less affluent parties in domestic arbitrations.

In the context of international commercial disputes, institutional arbitrations may be more suitable – despite being more expensive because of its relative reliability, predictability and acceptance, which also means an easier enforcement of the award. The institutional process provides established and up to date arbitration rules, support, supervision and monitoring of the arbitration, review of the awards and strengthens the awards’ credibility.

The parties will, applicable law, particular circumstances of the parties and the nature of the dispute will ultimately determine whether institutional or ad hoc arbitration should prevail.


[1]Article 2(a) of the UNCITRAL Model Law on International Commercial Arbitration recognizes both ad hoc and institutional arbitrations as it defines arbitration as:

[2]Arkin, H L, “International Ad Hoc Arbitration: A Practical Alternative”, International Business Lawyer, (January 1987)

[3]SundraRajoo, ‘Institutional and Ad hoc Arbitrations: Advantages and Disadvantages’, The Law Review (2010), 

[4]Abraham, C, “Importance of Institutional Arbitration in International Commercial Arbitration”, Symposium on Need for Speed: International Institutional Arbitration, Federation House, New Delhi, India, November 22, 2008.

[5]Gerald Aksen, ‘Ad hoc Verses Institutional Arbitration’, 2(1) ICC Bulletin (1991): 8-14

[6] P.C. Rao& William Sheffield eds, ‘Alternate Dispute Resolution’, 13 (Universal Law Publishing co. Pvt. Ltd.).

[7]Butterworths, Halsbury’s Laws of England (4th edition, 1991)

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