If the concept of arbitration is not clear to you, it is a form of ADR or alternative dispute resolution through which two parties disagreeing with each other can resolve their issues without having to depend on the conventional court system. During the arbitration, the parties who are in dispute with each other are likely to refer the case either to one individual who is known as an arbitrator or more persons who constitute an arbitration tribunal. The decision of the arbitrator or the arbitration panel is final and binding on both parties. Parties often avail the process of arbitration to settle commercial disputes, especially in the context of commercial transactions conducted globally. The following points would throw some light on the differences between ad hoc and institutional arbitration and also, the advantages of both methods.
Ad Hoc Arbitration – The Advantages
Ad hoc arbitration is a procedure that is not regulated by the ICC, DIAC, LCIA, or DIFC. The parties involved in ad hoc arbitration will have no other option but to self-determine the essential aspects such as the number of arbitrators, choosing and appointing the arbitrators, the process through which the arbitration will be conducted, as well as the law that will be applicable.
Considering that the parties co-operate with themselves during their approach to the arbitration, the proceedings in ad hoc arbitration can be cheaper, faster, and more flexible than the proceedings in institutional arbitration. The lack of administrative fees is an amazing incentive in the case of the ad hoc procedure. There is no need to keep ad hoc proceedings separate from institutional arbitration.
Many a time, the appointment of a qualified and skilled arbitrator can result in the parties agreeing to give the appointing authority to an institutional provider whom they designate. Aside from that, the parties in dispute might agree to bring in an institutional provider whose responsibility will be to conduct the arbitration process whenever they feel it’s necessary.
Since an ad hoc arbitration can be lighter on the pockets, parties that are not affluent enough can find the method suitable. Due to its flexibility, the parties can resolve the disputes within themselves. However, if that is the target, the parties will have to give greater effort, apply their expertise, and cooperate. Only then, agreeing on the rules of arbitration will be possible. Moreover, as far as the fee of the arbitrator is concerned, the parties can negotiate that part with the arbitrator. This is in stark contrast to institutional arbitration, where the institution decides the fee of an arbitrator.
Institutional Arbitration – The Advantages
In this method of arbitration, the intervention of a specialized institution is needed to conduct the arbitration process. Different institutions have different rules who act as the framework for the entire procedure. In addition to that, the institutions have their respective administrations to manage the procedure.
The common institutions that generally overlook the arbitration process are the ICC or the International Chamber of Commerce, the Dubai International Arbitration Centre, the London Court of International Arbitration, and the Dubai International Finance Centre. As of now, there are more or less 1200 institutions across the globe through which parties can avail of arbitration services. The main issue here is that some institutions might operate under rules that haven’t been drafted properly.
The most significant advantage of institutional arbitration is the presence of rules and procedures that makes sure there is no delay in the arbitration proceedings. Next, the institutions provide administrative assistance in an arbitration proceeding. Parties can choose from a complete list of skilled and qualified arbitrators. Institutions assist and play a key role in encouraging the parties which are reluctant to get involved in an arbitration process. Last but not the least, every record is in an established format.
Is Ad Hoc Arbitration Cheaper?
If you look at the practical scenario, ad hoc arbitration might not be cheaper than institutional arbitration. In ad hoc arbitration, the parties have the liberty to make all the necessary arrangements by themselves. However, they might not have the required knowledge as well as expertise. Arbitrators are not usually lawyers. This might lead to decisions that are improper and misinformed, particularly in the case of international commercial arbitration.
Secondly, if the parties fail to co-operate with each other somehow, or there is a delay in the arbitration process, either party might require the intervention of the court. The litigation costs would actually nullify the advantages that ad hoc arbitration had over institutional arbitration cost-wise. Thirdly, the need to appoint a secretary to manage the administrative work can accentuate the costs.
Parties are considered to be masters of arbitration. But as far as institutional arbitration is concerned, this is questionable. In the latter case, the institution takes the authority into its hands and makes decisions.