Institutional Arbitration vs Ad Hoc Arbitration: pros and cons
Arbitration is not a monolith; like Proteus can assume different shapes.
We can divide arbitration proceedings into two: “institutional” arbitration and “ad hoc” arbitration.
Let’s analyse the differences between the two and their pros and cons.
In the end, we shall deal with “semi-institutional” arbitration.
In a nutshell, an arbitration is “institutional” if it is governed by a specialist arbitral institution (like the International Chamber of Commerce International Court of Arbitration, the London Court of International Arbitration, the Hong Kong International Arbitration Centre, and many others) and has its own set of rules. There are also arbitral institutions specialized in some particular kinds of disputes, like the World Intellectual Property Organization Arbitral Centre, the Court of Arbitration for Sport, and the Singapore Chamber of Maritime Arbitration.
On the other hand, in an “ad hoc” arbitration, the rules are set up by the parties or the arbitral tribunal, even though it is possible to follow a dedicated set of rules (like the UNCITRAL Arbitration Rules 2010).
The main advantage of an “ad hoc” arbitration is its extreme flexibility: the parties can tailor the rules following their needs. But this requires fully cooperative parties: otherwise, the arbitration can become a place for legal ambushes. Another pro is extreme confidentiality: no one but the arbitral tribunal, the parties and their representatives know about the existence and content of an arbitration.
In “institutional” arbitration, you have a precise set of rules (but the arbitral tribunal keeps some “freedom of movement” in conducting the arbitration) and the support of the institutions for some “core” activities (like appointing arbitrators, dealing with the challenge of an arbitrator, granting interim measures before the arbitral tribunal is appointed, consolidation of related arbitration), but also for some “side” activities (like collecting expenses and fees from the parties, provide venue and services for the hearings, and so on). In institutional arbitration, the arbitral tribunal and the parties are constantly supported by the institution’s administrative staff.
Is everything perfect with institutional arbitration? No. Sometimes, the timeframe set by the rules can delay the proceedings or be too short for that particular arbitration. Usually, institutional arbitration is deemed expensive, but the competition among the arbitral institutions has lowered expenses and fees.
Additionally, more and more arbitral institutions have a special set of rules for small claim disputes: a sole arbitrator that – in a short time – issues the award at reduced costs.
Finally, we have the “semi-institutional” arbitration: they are – basically – “ad hoc” arbitration that can enjoy a dedicated set of rules drafted by an arbitral institution which intervenes in the arbitration very sparingly.
Two examples are the Chartered Institute of Arbitrators Arbitration Rules 2015 and the London Maritime Arbitrators Association.
Which one to choose? Institutional, Semi-institutional or ad hoc?
There is no “one size fits all” answer; it depends on your needs and expectations.
For these reasons, when entering into a contract, you should carefully draft the dispute resolution clause picking up the most suitable tool for that particular commercial relationship.
To know more about the proper drafting of the resolution clause, follow our next drop of arbitration.
If you want to know something more about our services or if you have questions regarding Arbitration and ADR, send an e-mail to: [email protected]
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