INTEGRAL UNIVERSITY

Alternative Dispute Resolution

TOPIC: AD HOC Arbitration

VERSUS
Institution Arbitration

SUBMITTED BY: SUBMITTED TO:

Khubeb Ahmad Siddiqui Mohd. Owaish Ansari
COURSE: B.A.LL. B Law Faculty

ENROLLMENT NO: 2100102549

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 ACKNOWLEDGMENT
I would like to express my special thanks of gratitude to
my teacher Mohd. Owais Ansari Sir, who gave me the
golden opportunity to do this wonderful assignment. This
assignment also helped me in doing a lot of research and
I came to know about so many new things. I am really
thankful to him.

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 Introduction

Disputing parties increasingly resort to arbitration, particularly in commercial disputes, for a

variety of reasons, including the fact that it is a faster, cost-effective, and confidential process
in which the parties take an active role by selecting arbitrators who specialize in the relevant
subject of dispute.

Thanks to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards
(“New York Convention”), adopted on 10 June 1958 with more than 160 contracting states,
arbitration decisions are recognized and enforced across the globe, including Türkiye.

Parties wishing to have recourse to arbitration for resolving current or potential commercial
conflicts should enter into an arbitration agreement. This type of agreement can be made
through a separate contract or an arbitration clause in the principal agreement that establishes
the legal relationship between the parties.

Arbitration allows parties to freely determine the arbitrators or courts that will settle their cases,
their number and characteristics, the method of selection, and the content of the arbitration
agreement, such as the place of arbitration, the governing law of the arbitration agreement and
the arbitration procedure, the substantive law applicable to essential requirements, the
procedure, manner and language of proceedings, and the means of proof.

To make an arbitration agreement, the parties can select between two fundamentally distinct
forms of arbitration, namely “Institutional Arbitration” and “Ad Hoc Arbitration”.

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 ➢ AD HOC Arbitration: -

Ad hoc arbitration is the procedure where the disputing parties agree upon the form of
arbitration as provided for in their contract or by referring the case to an arbitral tribunal. The
parties may choose to adopt the rules of a particular arbitration institution without actually
taking the case to them. If the disputing parties are unable to mutually nominate an arbitrator,
the appointment of the arbitrator will be done by the High Court, in domestic disputes, and by
the Supreme Court in international affairs.

Ad hoc arbitration helps serve the purpose of arbitration more as compared to

institutional arbitration, vis-à-vis the flexibility that comes with dispute resolution
methods. However, along with flexibility there is also increased cooperation, trust and
commitment that is vital to follow through with this arbitration method.

In ad-hoc arbitration, the parties only pay fees of the arbitrators, lawyers, and the
costs incurred during the process. In ad-hoc arbitration, parties tend to negotiate and
settle fees with the arbitrators directly, which allows them the window to negotiate
and reduce the fees. It proves to be economical. However, if the disputing parties are
unable to mutually consent to the nomination of an arbitrator, the procedure can be
time-consuming which cancels out the benefits of opting for arbitration. Unlike
institutional arbitration, ad hoc arbitration allows the parties to manage any or
all aspects of the arbitration process themselves. The parties may determine their own
arbitration rules or refer to the arbitration rules of the United Nations Commission
on International Trade Law (UNCITRAL). Article 1 in UNCITRAL Arbitration Rules
states:
“Where parties have agreed that disputes between them in respect of a defined legal
relationship, whether contractual or not, shall be referred to arbitration under the
UNCITRAL Arbitration Rules, then such disputes shall be settled in accordance with
these Rules subject to such modification as the parties may agree.
The parties may turn to ad hoc arbitration because the bureaucratic structure of
institutional arbitration centers may result in increased expenses and delays in
arbitration processes.
Ad hoc arbitration appears to be more widespread than institutional arbitration in
today’s commercial arbitration practices having international aspects.

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Professional guidance from experts in the relevant legislation is crucial to understand why
arbitration is advantageous for the resolution of certain disputes, to discern whether a dispute
is suitable for arbitration, and to ascertain how the arbitration process can be managed
properly and effectively.

❖ Advantages of Ad Hoc Arbitration: -

Ad hoc arbitration can be cheaper than institutional arbitration, making it a better fit
for smaller claims and parties with less money. However, it relies on the parties
agreeing on procedures while already in a dispute. If they don't cooperate, it can lead
to time-consuming delays and court involvement.

The primary advantage of ad hoc arbitration is flexibility, which enables the parties to decide
upon the dispute resolution procedure.

• By reason of its flexibility, ad hoc arbitration is preferred in cases involving state parties
who consider that a submission to institutional arbitration devalues their sovereignty and they
are therefore reluctant to submit to institutional control.

• Another primary advantage of ad hoc arbitration is that it is less expensive than

institutional arbitration. The parties only pay fees of the arbitrators', lawyers or
representatives, and the costs incurred for conducting the arbitration i.e. expenses of the
arbitrators, venue charges, etc.

• In ad hoc arbitration, parties negotiate and settle fees with the arbitrators directly, unlike
institutional arbitration wherein the parties pay arbitrators' fees as stipulated by the
institution. This allows them the opportunity of negotiating a reduction in fees.

❖ Disadvantages of Ad Hoc Arbitration: -

Electing to move away from the rules of institutions can be extremely beneficial to some
parties, however, it also carries several risks, for instance.

• When negotiating and drafting an ad hoc arbitration agreement, parties may fail to
account for all eventualities that may arise during an arbitration. The parties’
agreement on the procedure may also be ambiguous or otherwise defective.

While problems with the agreement can be addressed by a tribunal once constituted, even
appointing a tribunal may prove challenging if the ad hoc arbitration agreement is defective.

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 • ad hoc arbitration depends for its full effectiveness on cooperation between the parties
and their lawyers.
• This appears mostly at the beginning of an arbitration, where the proceedings can be
delayed for example, if a party refuses to appoint an arbitrator, forcing the other party
to rely on the law and potentially the courts of the seat of the arbitration to constitute
the tribunal.

Moreover, it can also be delayed during proceedings with regard to procedural decisions, like
admitting evidence.

• Disputes may arise between the parties, or between the parties and the tribunal, in
relation to arbitrators’ fees and expenses.
• Awards may lack credibility if not associated with an arbitral institution, this is of
particular importance if enforcement will be sought internationally, or through foreign
courts.
• Some jurisdictions do not recognize ad hoc arbitration as a legitimate form of dispute
resolution. In particular, an arbitration in China will not be valid unless it is
administered by an ‘arbitration commission’.

➢ Institution Arbitration: -
Institutional arbitration is advantageous as the arbitrator is bound by rules and regulations
which he as well as the parties are supposed to adhere to which formalises and regulates the
entire procedure. There is increased enforceability in the decisions taken by the arbitral
tribunal. There is a default procedure carried out which increases uniformity and stability in
the arbitration process making it more reliable and free of bias. The disputing parties need not
worry on the details and technicalities as the administration is overseen by the institution which
lets the parties provide the undivided attention towards resolving the dispute.

It is said that parties are the masters of the arbitration process. However, this cannot be held
true in institutional arbitration as by way of the process, the power and freedom of the parties
gets taken away. When the procedure becomes formal, it also becomes rigid which takes away
the essence of the flexible nature of dispute resolution methods. Further, due to the
formalisation and regulation, the procedure can be tedious and take long hours for the parties
to resolve their dispute.

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In conclusion, while there are pros and cons to both institutional and ad hoc arbitration, the
latter seems to be the more preferred form of arbitration in India. Section 89 of the Civil
Procedure Code of 1908 supports the Alternative Dispute Resolution system and urges parties
to settle disputes outside the traditional courtroom setting. which proves to be a step towards
development.

In an institutional arbitration, the parties appoint an arbitral institution to carry out the whole
process. The judiciary in institutional arbitration is not an arbitration centre, but arbitrators
selected by the parties. Institutional arbitration requires the parties to make an arbitration
agreement that will specify an arbitral institution to resolve their current or future legal claims.

Since arbitral institutions have predetermined procedures and rules to settle disputes, the parties
do not need to specify the requirements for their arbitration proceedings, in contrast to an ad
hoc arbitration.

Institutional arbitration centres can be preferred because they are experienced in handling
arbitration proceedings, are familiar with the procedures and rules of institutional arbitration
centers and have the technical and administrative infrastructure to carry out the process.

❖ Advantages of institutional arbitration:-

For those who can afford institutional arbitration, the most important advantages are:

• The availability of pre-established rules and procedures which ensure the

arbitration proceedings begin in a timely manner.
• Administrative assistance from the institution, which will provide a secretariat
or court of arbitration.
• A list of qualified arbitrators to choose from;
• Assistance in encouraging reluctant parties to proceed with arbitration; and
an established format with a proven record.

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❖ Disadvantages of institutional arbitration: -

The primary disadvantages of institutional arbitration are:

• Administrative fees for services and use of the facilities, which can be
considerable if there is a large amount in dispute - sometimes, more than the
actual amount in dispute;
• Bureaucracy from within the institution, which can lead to delays and additional
costs;
• The parties may be required to respond within unrealistic time frames.

➢ Conclusion: -
It is said that the parties are the masters of the arbitration but in institutional arbitration,
the institutions virtually acquire certain powers of the parties' such as appointment of
arbitrators, etc. and are in a position to impose their will upon the parties. This seems
to be against the very spirit of arbitration and one may say that this is not arbitration in
the true sense. Though ad hoc arbitration would then be preferred, it can be argued that
in today's modern and complex commercial world, ad hoc arbitration is suitable only to
disputes involving smaller claims and less affluent parties and to domestic arbitrations,
excepting where state parties are involved, for the reasons stated hereinabove. One may
quote in support thereof that “Whatever its merits in a purely domestic situation, ad hoc
arbitration in an international setting frequently frustrates the party seeking to enforce
the contract” since international commercial arbitrations involve complicated legal
issues, which parties coming from different jurisdictions may be unable to deal with.

In the context of international commercial disputes, one may argue that institutional
arbitration is more suitable, even though apparently it is more expensive, time
consuming and rigid than ad hoc arbitration, keeping in mind the fact that it provides
established & updated arbitration rules, support, supervision & monitoring of the
arbitration, review of awards and most importantly, strengthens the credibility of the
awards. In conclusion, it is must be said that it is hard to claim that institutional
arbitration is superior to ad hoc proceedings or vice versa.

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