Burges Salmon Arbitration Basics: ad hoc vs institutional arbitration

This article sets out the key considerations for the parties when choosing whether to opt for an ad hoc or an institutional arbitration

14 October 2022

One of the key choices for the parties to arbitral proceedings is whether to opt for an ad hoc or institutional arbitration process. In an institutional arbitration, parties adopt, in their arbitration agreement, the then-prevailing rules set by their chosen arbitral institution. These rules prescribe processes and procedures on a variety of issues concerning the arbitration process, such as the appointment of arbitrators, the conduct of proceedings, the ordering of costs and arbitral awards.

By contrast, in an ad hoc arbitration, the parties have the flexibility to set their own rules, albeit that setting these rules in the absence of co-operation between the parties can prove challenging. Parties can choose to adopt pre-existing rules (such as the United Nations Commission on International Trade Law Arbitration Rules), write their own rules or allow appointed arbitrators to set them (s 4(2), Arbitration Act 1996).

Some of the issues to consider when choosing between these two options are:

Administration

Institutional arbitration alleviates much of the administrative burden on the parties. For instance, in an arbitration conducted through the London Court of International Arbitration (LCIA), the LCIA will monitor the progress of an arbitration (such as monitoring submission deadlines), manage payments to arbitrators, and help with logistical matters such as arranging a venue for the hearing.

Cost

The decreased administrative burden in an institutional arbitration comes at a price. For instance, LCIA has a detailed schedule of costs for its services, which includes a registration fee and time spent by the Secretariat of the LCIA charged at hourly rates. In some arbitral institutions, fees can based on a percentage of the value of a dispute – rather than fixed or hourly rates. This may be undesirable in cases where claim values are high, but more palatable in lower-value disputes.

Generally speaking parties availing of institutional rules will face higher third party costs than parties conducting ad hoc arbitrations who will be able to manage administrative costs internally. Whether that provides value for money will be part of the decision making process as to the appropriate arbitral model.

Supervision of Conduct

In an ad hoc arbitration, proceedings are more vulnerable to being delayed because of a party’s refusal to co-operate. This is a significant risk to consider when parties are in dispute – albeit one that can be tempered by a tribunal with a tight grip on the proceedings.

A party can delay proceedings in an ad hoc arbitration by, for example, refusing to agree on the appointment of a particular arbitrator, whereas, in an institutional arbitration deadlines are set for such decisions to be made and the arbitral body/court may have powers to intervene in the absence of agreement between the parties. For instance, the International Chamber of Commerce’s (ICC) 2021 Arbitration Rules enable the ICC International Court of Arbitration to step in where the parties fail to agree on the number or nomination of arbitrators after a certain time period (Article 12). There is also a 30 day deadline for a party to challenge the appointment of an arbitrator (Article 14(2)).

Arbitration proceedings conducted under institutional rules allow for the institution to intermediate and govern the parties’ conduct, promoting (or enforcing) co-operation.

Experience of the Parties

Ad hoc arbitrations are generally more common to those parties working in certain sectors, such as construction, where arbitration itself is common and the parties tend to be more knowledgeable about the processes involved. However, parties with less prior experience of arbitration (or those working in sectors where arbitration is less prevalent) may prefer the support and guidance provided by an arbitral institution as detailed above.

Enforcement

Finally, an arbitral award from a highly regarded arbitral institution, such as the LCIA or the ICC International Court of Arbitration in Paris, may be easier to enforce than an award made in ad hoc proceedings, due to the high standing and reputation of the institutions involved.

By Christopher Wenn, Gregor Hayworth and Zhuan Faraj.

Key contact

Richard Adams

Richard Adams Partner

  • Construction and Engineering
  • Construction Disputes
  • Energy and Utilities Disputes

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