Arbitration is the will of the contracting parties. Based on this rule, they may go for “institutional arbitration” or opt for “ad hoc arbitration”. There are, of course advantages and disadvantages for each of the two scenarios. I will discuss both, however, in this article will focus on “ad hoc arbitration” its pros and cons.
The main advantages of “ad hoc arbitration”, among other things, we could say that it is deemed suitable for all types of claims. Ad hoc arbitration, if properly structured should be less expensive compared to institutional arbitration. It is suitable in all types of claims, large or small. Generally, companies may prefer ad hoc because they have large in-house legal depts., with relative experience in arbitration. Ad hoc, may be designed according to the requirements of the parties, particularly where stakes are large or where Gov. is involved.
In ad hoc, we notice relative control of the process by the parties. They write their own rules, set timelines and move the arbitration along their own pace. The arbitrator and the parties must shoulder the burden of organizing and administering the proceedings. However, effectiveness of ad hoc arbitration depends upon the party’s willingness to agree upon procedures at the time when they are already in dispute. If the parties do not cooperate in facilitating the arbitration, there could be loss of time which may delay the arbitration. We have noticed that when a dispute arises, parties tend to disagree even on the most basic things. For example, parties of different nationalities and jurisdiction may find it difficult to agree and cooperate, which can delay proceedings and resolution of the dispute. To avoid disagreement, they can agree to conduct arbitration under selected arbitration rules.
Sovereignty issues may cause issues, as Gov. parties may prefer ad hoc if they are concerned that institutional arbitration affects sovereignty particularly when disputes involve public interest and large sums of money.
Ad hoc, is less expensive than institutional arbitration, as no need to pay the arbitration institution fees which, if the amount of the dispute is big, can be expensive. The parties also can take the hearings at any venue and institutional arbitration will be held in the institution premises. In ad hoc, the parties have to agree on the scale of remuneration and agree on fees directly. There is no opportunity for negotiation of the fees in institutional arbitration, which requires the parties pay fees as stipulated by the institution.
There may be situations where ad hoc arbitrations may not be more advantageous than institutional arbitration. As the parties in ad hoc arbitrations normally have to rely on their own good judgment as to the identity and quality of the individual arbitrator. Parties when represented by lay persons may lack necessary knowledge and expertise to set up the arrangements to arbitration.
In ad hoc, the parties have to agree their timing. This is fine to the extent that they cooperate and agree on the overall speed of the proceedings and the timing. Non-cooperation can result in procedural stalemate. The parties, for example, may seek Court intervention especially if they are not cooperating to progress the arbitration. Such action will increase costs, which negates the cost-effectiveness of ad hoc arbitration and also it is against the intention to resolve the dispute. Yes, there could be many obstacles, I have personally faced many difficult situations, in ad hoc arbitration instances.
In ad hoc arbitrations, progressing with the proceedings in the absence of one of the parties (or a witness or others) may be risky, given that the absent party may later challenge the award on the grounds that the arbitrator has not given him a fair opportunity to be heard.
In many cases, the parties may have to go for ad hoc arbitration, due to certain circumstances including costs. They are free to go the path of ad hoc, however, above points among others are to be taken in consideration. Parties, interested to opt for arbitration to settle their dispute, need to analyze and comprehend the available possibilities of arbitration method. They need to take the pros and cons of each method and choose the most appropriate one that fits their requirements.
I strongly believe that, this is not an easy job as there are many repercussions associated to the related decision. The parties are required to seek legal assistance as to which of which and why of why. Seeking arbitration, no doubt, is the best suitable alternative for settlement of disputes. However, choosing the wrong path or course may destroy the good spirit of arbitration to avail speedy justice. Carefulness is a big must.