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Home // Arbitration: Should We Opt For Ad Hoc Or Institutional Proceedings?

Arbitration is the form of ADR that perhaps most closely resembles court proceedings. Nevertheless it retains that crucial element of flexibility that makes ADR such a popular way of resolving even the most complex and seemingly intractable business and personal disputes. The parties’ control over the arbitration process begins with their choice of the type of arbitration they wish to proceed with. Parties may choose to follow the rules of an arbitral institution like the London Court of International Arbitration (the LCIA) or the International Bar Association (the IBA). Alternatively they may decide that ad hoc arbitration – where the parties create their own rules of procedure from scratch – is more appropriate for them. This might be because there is a degree of cooperation between the two sides or because of the nature of the issues at the heart of the dispute. Here we look at some of the differences between the two types of arbitration.

How Does Institutional Arbitration Work?

As arbitration as a form of ADR has developed, several internationally recognised bodies have emerged under whose auspices the majority of commercial arbitrations are carried out. At Nath Solicitors in London we are often involved in arbitrations that follow the LCIA rules.  Other recognised bodies include the IBA, the Hong Kong International Arbitration Centre (HKIAC) and the International Chamber of Commerce (ICC).

Each of these bodies has extensive sets of rules and guidance that parties to an arbitration follow. In addition it’s possible to adopt a preferred institution’s standard arbitration clause when negotiating and drafting the relevant contract. This enables you and the other party to the contract to set out the rules to follow if a dispute arises – at the beginning of your commercial relationship.

Here are some of the advantages of institutional arbitration:

  • The rules are already set and are tried and tested so parties do not have to spend valuable time and resources in formulating bespoke procedures to arbitrate the dispute
  • Most institutions, including the LCIA will regularly update their rules adopting when necessary procedures to ensure the rules work as effectively in practice as possible
  • Arbitral institutions possess the infrastructure to ensure that proceedings run efficiently. This includes provision of hearing centres where required, administrative support staff and a wide and varied panel of approved arbitrators from which the parties can choose the most appropriate arbitrator(s) to hear the dispute
  • Institutional procedural rules aren’t set in stone –in line with the principle characteristic of arbitration generally – flexibility – most institutions allow the parties to modify the overarching institutional rules to suit the dispute at hand. For example, LCIA Rule 15 sets out a detailed procedural timetable which most arbitrations will follow. However the rule itself indicates that parties can agree changes to the specified timetable between themselves

Would Ad Hoc Arbitration Work For Me?

If you wish to control completely the way your arbitration is run – and if the other side is agreeable – you may opt for ad hoc arbitration. Among other things this will involve:

  • Creating your own procedural rules
  • Agreeing how to appoint and remove arbitrators
  • Deciding which laws apply to proceedings
  • Choosing a location or ‘seat’ for the arbitration

We’ve mentioned that institutional arbitration is an inherently flexible process. But the manner in which ad hoc arbitration is organised is even more loosely defined While you may have to spend time at the outset developing a framework for your arbitration you will save the costs associated with institutional arbitration. These costs include the institution’s costs of oversight and administration which can be considerable depending on the nature of the dispute.

Comment

Ad hoc arbitration can be cheaper because there are no institutional costs to meet. Often parties to ad hoc arbitration will adopt some or all of the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules to reduce time spent in creating rules from scratch. It’s worth pointing out however that if the parties have never arbitrated before and have no knowledge of how this form of ADR operates in practice a lot of the potential cost savings will be undermined by the time taken to create a bespoke set of rules. Ad hoc arbitration tends to work most effectively where there is a reasonable prospect of cooperation between the parties. And of course so long as the parties agree, a change from one form of arbitration to another is possible.

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To get in touch with our Arbitration Lawyers please call 44 (0) 203 670 5540 or complete our online contact form.

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