Ad hoc versus institutional arbitration

An arbitration clause in a contract may provide for arbitration without specifying an institution to administer the proceedings under its rules. If so, this will be an “ad hoc” arbitration. If it is seated in London, the proceedings will be conducted under the Arbitration Act 1996 with the Commercial Court in a supporting role. See my blog post, Ad hoc arbitration: a quiet majority.

It is open to the parties to an ad hoc arbitration to agree on a set of procedural rules to govern their arbitration.  

Ad hoc arbitrations arising from disputes in the shipping industry will often be submitted to arbitrators in London who accept appointments on the London Maritime Arbitrators Association (LMAA) Terms. I am an Aspiring Full Member of the LMAA and will accept appointments on its Terms: lmaa.london/arbitrators-aspiring-full-members/.

Parties may also choose an institution as an “appointing authority” whether pursuant to the UNCITRAL Arbitration Rules or otherwise. It is then the institution, not the courts, which could:

• appoint an arbitrator in default of an appointment by a party
• deal with challenges to arbitrators
• act as a fund-holder for advances on the arbitrators’ fees
• carry out any other particular functions which the parties might agree to submit to it.

In London, the LCIA is occasionally appointed to carry out such functions in ad hoc arbitrations. It may do so if the parties have agreed that it should in an arbitration clause or after a dispute has arisen, perhaps on the recommendation of an arbitral tribunal. Such arbitrations will usually be conducted under the UNCITRAL Arbitration Rules. The LCIA has introduced Terms and Conditions for the Administration of and/or Provision of Specific Services in UNCITRAL Arbitrations. Having served as Registrar of the LCIA for four years, I am familiar with the services it provides to parties in ad hoc arbitrations.

An arbitration clause may, instead, provide that the parties’ dispute will be submitted to an institution for determination under its own rules. In addition to all of the functions of an appointing authority listed above, the institution should:

• ‍have its own set of procedural rules and default timetables
• supervise the smooth running of the proceedings
• fix the arbitrators’ fees
• monitor the tribunal’s budget and provide updates on fees and charges to the parties
• raise queries with the tribunal, eg about the timing of an award, in a neutral manner
• proofread the award and provide certified copies.

Users of institutional arbitration are sometimes unaware of the extent to which ad hoc arbitration is preferred in certain sectors, such as shipping. See my LexisNexis Blog post on the silo effect in arbitration. Likewise users are sometimes unaware of matters which are covered by ad hoc arbitration rules but omitted from certain institutional rules. See my analysis for LexisNexis: The law of the arbitration agreement – a lacuna in the ICC Arbitration Rules.

The numbers of cases dealt with in ad hoc arbitration tend to be ignored in surveys. See my Lexis Blog posts arbitration statistics and alternative facts and Arbitration statistics: a reality check. Caseload reports indicated that ad hoc arbitration fared relatively better than institutional in 2022. See my LexisNexis Blog post Arbitration statistics 2022: ad hoc strengthens as institutions recede.

Caseload statistics from institutions sometimes mask the fact that they include filings which don’t reach the desks of arbitrators. Ad hoc arbitrations, on the other hand, generally commence with the appointment of an arbitrator. See my Lexis Blog post Arbitrations without arbitrators: an institutional paradox.

With no intermediaries or built-in administration, ad hoc lends itself well to expedited arbitration. For a discussion of the UNCITRAL Expedited Arbitration Rules and how they might be improved in this regard, see my chapter A Neglected Blueprint: The LMAA’s Small Claims Procedure in Expedited International Arbitration: Policies, Rules, and Procedures (Herman Verbist and Alan M Anderson ed, Kluwer, forthcoming in 2024).

Commercial parties deserve choice. It is essential that ad hoc and institutional arbitration be allowed to thrive and develop alongside each other. Regrettably, ad hoc arbitration finds itself increasingly under attack by governments, university law schools, the media, and others. Unjustified claims are made for institutions' superiority and thought leadership.

In a joint article with Cherine Foty, Conflicting Perceptions of Ethics in International Arbitration, Arbitration, 85, 2 (2019), pp 185-2020 (download here), we challenged the notion that arbitral institutions are uniquely suited to uphold standards of conduct and ensure fairness in arbitrations.  Arbitrators who handle ad hoc arbitrations, associations of arbitrators, such as the LMAA, and professional bodies, such as the CIArb, are just as well suited to fulfil these functions.

See also my ICMA XXI paper, Ad hoc arbitration and its enemies, in which I called for the international commercial arbitration community to demonstrate solidarity and ensure that the voice of ad hoc arbitration was heard.