If the concept of arbitration is not clear to you, it is a form of ADR or alternative dispute resolution. It is a process through which two disputing parties can resolve their issue without the conventional court system. In arbitration, the disputing parties approach either an individual arbitrator or 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. It is especially true in the context of commercial transactions worldwide. The following points would throw some light on the differences between ad hoc and institutional arbitration so, the advantages of both methods.
Ad Hoc Arbitration – The Advantages
Ad hoc arbitration procedure does not fall under the regulation of ICC, DIAC, LCIA, or DIFC. The parties in ad hoc arbitration will have no other option but to self-determine the essential aspects of arbitration. This includes the number of arbitrators, choosing and appointing the arbitrators, the process of arbitration, and the applicable law.
If the parties co-operate during their approach to the arbitration, the proceedings in ad hoc arbitration can be cheaper, faster, and more flexible than 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.
In most cases appointing a qualified and skilled arbitrator can result in the parties agreeing to appoint an authority. Besides that, the parties in dispute might agree to bring in an institutional provider. It will be the institutional provider’s responsibility 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 co-operate. Only then, agreeing on the rules of arbitration will be possible. Moreover, the parties can negotiate the arbitrator’s fees. 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 necessary to conduct the arbitration process. Different institutions have different rules that act as the entire procedure’s framework. In addition to that, the institutions have their respective administrations to manage the procedure.
As of now, there are more or less 1200 institutions across the globe through which parties can avail of arbitration services. 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. The main issue here is that some institutions might operate under rules which do not have proper drafting.
The most significant advantage of institutional arbitration is the presence of rules and procedures that ensure 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 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.
Arbitrators are not usually lawyers. However, they might not have the required knowledge as well as expertise. This might lead to improper and misinformed decisions, 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 court’s intervention. The litigation costs would nullify the advantages that ad hoc arbitration had over institutional arbitration cost-wise. Thirdly, appointing a secretary to manage the administrative work can accentuate the costs.
Disputing parties are the masters of arbitration. This is questionable in institutional arbitration. In the latter case, the institution takes the authority into its hands and makes decisions.