INSTITUTIONAL V AD HOC ARBITRATION

OF TITANS, OLYMPIANS AND CHIMERAS

According to the Ancient Greeks, in the beginning there was Chaos. Out of this vast nothingness came the Elder Gods, who later gave birth to the Titans. The rule of the Titans did not last long and their rebellious offsprings ultimately seized the throne of Olympus.

The world history of arbitration is not that dissimilar. From the unstructured process that had little to nothing in common with the modern arbitration (Chaos) to the first attempts at the judicialization of the proceedings (the Elder Gods Era), the emergence of ad hoc arbitration, as we know it (Titans), and the present rule of institutional arbitration (Olympians).

Is ad hoc arbitration as bad as its mythological counterpart?

Is institutional arbitration better and the rightful heir to the arbitration domain?

A glance at the Ancient Greek myth book is sufficient to tell that the Titans were not inherently bad or evil while the Olympians were far being the role models. The same holds somewhat true for the ad hoc and institutional arbitration: each has its pros and cons. 

THE MISCONCEPTIONS

'In ad hoc arbitration the dispute is resolved by a panel of arbitrators formed for a particular dispute, while in institutional arbitration the dispute is decided by a standing body'

Whether it is ad hoc or institutional proceedings, the dispute is resolved by an arbitral tribunal appointed by or for the parties for a particular dispute; once an award is rendered the arbitral tribunal becomes functus officio with the exception of certain post-award remedies (e.g. interpretation of the award). 

Although the arbitral institution does not cease to function upon the issuance of the award by arbitrators, the institution itself does not resolve the dispute. The decisions by an institution are of administrative and not judicial/quasi-judicial nature. 

I highly recommend reading the 'Functions of Arbitral Institutions' by Remy Gerbay to understand the role institutions play in arbitral proceedings. In a nutshell, the arbitral institution provides administrative services and assists the parties and the tribunal in situations of default (e.g. failure to appoint an arbitrator). 

 'Ad hoc proceedings are cheaper'

Indeed, in ad hoc proceedings one does not have to pay the administrative fees of the institution. However, it does not mean that ad hoc proceedings are cheaper. In the absense of a fixed ad valorem schedule or a capped hourly rate for arbitrators, ad hoc proceedings might end up being more expensive that their institutional counterpart. 

Further, the users often forget that it is the legal fees that represent the bulk of arbitration-related costs. Depending on the circumstances of a particular case, the legal fees for ad hoc proceedings may be higher than those for institutional arbitration. 

'There is no legal difference between ad hoc and institutional arbitration'

Although this statement is largely true under the UNCITRAL: United Nations Commission on International Trade Law Model Law, it is not the universal truth. 

To wit, in some jurisdictions certain disputes can only be referred to institutional arbitration (e.g. Russia), while in other - ad hoc arbitration as the mode of dispute resolution may not be available for domestic disputes at all (e.g. China). 

Some leges arbitri may contain specific requirements for arbitration agreements referring a dispute to institutional arbitration (e.g. Kyrgyzstan), or impose additional obligations on the tribunal in ad hoc proceedings (e.g. Uzbekistan Domestic Arbitration Law). 

CHOOSING BETWEEN THE TWO

As is often the case with arbitration, there is no one-size-fits-all solution. Ad hoc arbitration is undoubtedly more flexible in comparison to the institutional one. However, that inherent flexibility is a double-edged sword: unless the parties, their counsel and the arbitral tribunal know how to utilize it, it would only complicate and/or delay resolution of the dispute. As such, the rule of thumb is, if in doubt, choose institutional arbitration.

THE BEST OF TWO WORLDS: THE RISE OF CHIMERAS?

What if you do not want to / cannot choose? Well, fret not, many arbitral institutions these days, including the London Court of International Arbitration (LCIA), ICC Arbitration, SCC Arbitration Institute, HKIAC and Singapore International Arbitration Centre provide administrative support for ad hoc proceedings (e.g. appointment and/or fundholding services). That type of 'chimeric' proceedings may be the best of two worlds, combining the flexibility of an ad hoc arbitration with predictability/streamlined nature of institutional arbitration. 

 Prof. Elijah Putilin FCIArb