What is Ad Hoc Arbitration?

Ad hoc arbitration offers parties a flexible and cost-effective alternative to traditional institutional arbitration. In this form of dispute resolution, parties have the freedom to customise the arbitration process according to their specific needs and preferences.

While ad hoc arbitration offers several advantages, including flexibility and cost savings, it also presents challenges such as the need for parties to handle administrative tasks themselves and the potential for delays. Despite these challenges, ad hoc arbitration remains a popular choice for parties seeking a tailored and efficient dispute resolution process.

Meaning of ad hoc arbitration

Ad hoc arbitration is a process where arbitration is not administered by any institution, requiring the parties involved to determine all aspects of the arbitration, such as the number of arbitrators, their appointment process and the procedure for conducting the arbitration.

In this type of arbitration, the parties must make their own arrangements for selecting arbitrators and establishing rules, applicable laws, procedures and administrative support. Ad hoc proceedings can be more flexible, cost-effective and faster compared to administered proceedings, mainly due to the absence of administrative fees.

In Ad-hoc arbitration, if the parties are not able to nominate arbitrator/arbitrators by consent, the appointment of arbitrator is made by the High Court (in case of domestic arbitration) and by the Supreme Court(in case of international commercial arbitration). In India, still most of the arbitrations are Ad-Hoc Arbitrations.

The arbitration agreement can simply state that “disputes between the parties will be arbitrated,” along with a designated place of arbitration. If the parties cannot agree on arbitration details, unresolved issues are determined by the law of the designated place of arbitration, known as the “seat” of the arbitration. Although ad hoc proceedings are distinct from institutional arbitration, parties can still designate an institutional provider as the appointing authority or engage one to administer the arbitration if needed.

Parties can include an ad hoc arbitration clause in their contract or negotiate terms of arbitration after a dispute arises, allowing them to tailor rules and procedures to their specific needs. However, this approach can be time-consuming, costly and may not cover all eventualities.

Alternatively, parties not requiring specially drawn rules or formal administration can adapt institutional arbitration rules, incorporate statutory procedures or adopt rules specifically crafted for ad hoc arbitration, such as the UNCITRAL Rules or CPR Rules. These options provide flexibility but also come with risks, such as creating ambiguities in amended institutional rules or adopting clauses not suitable for the current circumstances or applicable arbitration law.

When to choose ad hoc arbitration: The advantages

Ad hoc arbitration can be a suitable choice in several circumstances, depending on the specific needs and preferences of the parties involved. Here are some situations where ad hoc arbitration may be the preferred option:

Flexibility

Ad hoc arbitration offers parties the flexibility to tailor the arbitration process to their specific needs. This can be particularly beneficial in complex or unique disputes where a more flexible approach to arbitration is desired.

Cost-Effectiveness

Ad hoc arbitration is generally less expensive than institutional arbitration, as there are no administrative fees associated with an institution. Parties looking to minimise costs may choose ad hoc arbitration as a more cost-effective option.

Confidentiality

Ad hoc arbitration offers a high level of confidentiality, as the arbitration is not administered by an institution. This can be important for parties seeking to keep the details of their dispute private.

Sovereignty

Parties who are concerned about maintaining sovereignty over the arbitration process may prefer ad hoc arbitration. Ad hoc arbitration allows parties to shape the arbitration in a manner that respects their autonomy and avoids institutional control.

Quick Resolution

Ad hoc arbitration can be faster than institutional arbitration, as the parties have greater control over the process. This can be advantageous for parties seeking a quick resolution to their dispute.

Customisation

Ad hoc arbitration allows parties to customise the arbitration process to meet their specific needs. Parties can negotiate a complete set of rules or adopt existing rules that fit their particular circumstances.

Avoidance of Institutional Rules

Some parties may prefer ad hoc arbitration to avoid the constraints of institutional rules. Ad hoc arbitration allows parties to create a process that is tailored to their needs, rather than being bound by the rules of an institution.

Experience and Expertise

Parties who are experienced in arbitration or who have access to expert advisors may prefer ad hoc arbitration. Ad hoc arbitration requires a higher level of involvement from the parties, so parties with the necessary expertise may find this approach more suitable.

Disadvantages of ad hoc arbitration

While ad hoc arbitration offers various advantages, it also comes with several disadvantages that parties should consider before opting for this form of dispute resolution. Here are some key disadvantages:

Complexity and Uncertainty

Ad hoc arbitration can be more complex and uncertain compared to institutional arbitration. Since the parties are responsible for determining all aspects of the arbitration, including rules, procedures and the appointment of arbitrators, there is a higher risk of disagreements and disputes arising during the arbitration process.

Lack of Administrative Support

One of the main disadvantages of ad hoc arbitration is the lack of administrative support. Without the assistance of an institution, parties must handle administrative tasks themselves, such as scheduling hearings, managing documents and ensuring compliance with procedural requirements. This can be challenging and time-consuming, particularly for parties with limited experience in arbitration.

Higher Costs in Some Cases

While ad hoc arbitration is generally considered to be less expensive than institutional arbitration, it can sometimes result in higher costs. Parties may incur additional expenses due to the need for expert assistance in drafting arbitration agreements, navigating procedural issues and managing the arbitration process. These costs can negate the cost-saving benefits of ad hoc arbitration.

Potential for Delay

Ad hoc arbitration can be more susceptible to delays compared to institutional arbitration. Without the structure and oversight provided by an institution, parties may face difficulties in resolving procedural issues and moving the arbitration process forward in a timely manner. This can result in prolonged disputes and increased costs for the parties.

Limited Enforcement Mechanisms

Ad hoc arbitration may have limited enforcement mechanisms compared to institutional arbitration. Without the backing of an institution, parties may face challenges in enforcing arbitral awards, particularly in cases where the losing party refuses to comply with the award. This can result in additional costs and delays in obtaining a final resolution.

Risk of Inconsistency

Ad hoc arbitration carries a risk of inconsistency in decision-making. Since each ad hoc arbitration is unique and lacks the uniformity of institutional arbitration, there is a possibility that decisions in similar cases may vary, leading to uncertainty and unpredictability for parties involved in future disputes.

Need for Cooperation

Ad hoc arbitration requires a high level of cooperation between the parties. If one party is uncooperative or unwilling to participate in the arbitration process, it can lead to delays and difficulties in reaching a resolution. This can prolong the arbitration process and increase costs for both parties.

Conclusion

Ad hoc arbitration is a form of arbitration where the parties involved in a dispute agree to resolve their dispute outside of court without the involvement of an institution. In ad hoc arbitration, the parties themselves determine all aspects of the arbitration process, including the selection of arbitrators, the procedural rules and the location of the arbitration.

This form of arbitration is often chosen for its flexibility and cost-effectiveness, as it allows parties to tailor the arbitration process to their specific needs and avoid the administrative fees associated with institutional arbitration.