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What Is Ad Hoc Arbitration
Ad hoc arbitration is a type of arbitration where the parties and the arbitrator mutually determine the rules and procedures applicable to the arbitration without dealing with an arbitral institution.
In essence, arbitration is a form of alternative dispute resolution (or ADR) where the parties in dispute may resolve their conflict outside of the traditional court system.
When arbitration proceedings are engaged, the parties will generally appoint one or more arbitrators who will be mandated to resolve the commercial dispute between the parties.
Ad Hoc Arbitration Definition
How do you define ad hoc arbitration?
The most simple way of defining ad hoc arbitration is as follows:
Ad hoc arbitration is a type of arbitration where the parties mutually define the arbitration rules and procedures without involving an arbitral institution
You can contrast ad hoc arbitration with institutional arbitration where the parties conduct their arbitration using the rules of an arbitral institution and where the arbitration is overseen by the institution.
Ad Hoc Arbitration Advantages
If done right, ad hoc arbitration can provide the parties important advantages.
One important advantage of ad hoc arbitration is the flexibility the parties will have to mutually define the rules applicable to their arbitration proceedings.
In other words, the parties will have the possibility of better defining the procedures that can help them better resolve their dispute.
Another important advantage of ad hoc arbitrations is that the parties will only have to assume the fees of the arbitrator and their attorneys.
The fees that would normally go to the arbitration institution will be saved by the parties.
With regard to the arbitrator’s fees, the parties will have the ability to negotiate a rate that makes sense and is suitable to the parties.
How Does Ad Hoc Arbitration Work
The parties involved in ad hoc arbitration proceedings are in charge of defining the arbitration rules and procedures.
In essence, the key difference between ad hoc arbitration and regular arbitration is that you do not have an institution in charge of administering the arbitration between the parties.
Ad hoc arbitration is chosen essentially for the following reasons:
- It gives the parties more flexibility
- The parties have less reliance on external support to progress
- They can more quickly resolve their dispute
- They will not have the institution’s fees and charges to pay
- The parties can mutually negotiate their arbitrator’s rates
Typically, when parties choose ad hoc arbitration, they must be well-informed and knowledgeable in managing arbitration cases.
The first step is to mutually negotiate arbitration provisions in the parties’ commercial contracts establishing the rules and guidelines for the ad hoc arbitration.
The parties’ arbitration clauses can be mutually amended by the parties when a conflict arises to the extent the parties are willing to do so.
Then, in the event of a dispute, the parties select their own arbitrator, negotiate the arbitrator’s fees, and mutually determine the procedures to apply to the case.
Ad Hoc Arbitration Disadvantages
Although ad hoc arbitration proceedings can have advantages, there are also important drawbacks to consider.
The most notable drawback is that it may be quite difficult for the parties to mutually agree and negotiate the specific rules applicable to their arbitration proceeding.
This will require a significant amount of time to agree to arbitration clauses and provisions that may or may never be used.
Another key disadvantage is that the parties will need to have some level of cooperation to mutually discuss and define the arbitration procedures when conflict does arise.
If the parties are closed off and do not have the ability to reach any type of agreement with one another, ad hoc arbitration may lead to a more costly dispute resolution path.
In large part, the effectiveness of the “ad hoc arbitration” will depend on how well the parties are able to communicate with one another and agree on the arbitration procedures.
Also, in international trade, the parties may not only have to deal with their dispute but may also have challenges in speaking and understanding one another due to the parties having different nationalities, being in different jurisdictions, and having language barriers.
If the parties are unable to properly understand one another and have a common understanding of the rules they are looking to apply to their proceedings, the arbitration proceeding may get quite frustrating for all.
Ad Hoc Arbitration vs Institutional Arbitration
When the arbitration proceeding refers to arbitration rules that are promulgated and administered by an arbitration institution, you’ll refer to this as institutional arbitration.
For example, the ICC Rules of Arbitration, the Swiss Rules of International Arbitration, or the ICDR rules of the American Arbitration Association are institutional arbitration rules.
On the other hand, when the parties agree to arbitrate a particular conflict without referring to the rules to institutional arbitration rules, then you’ll refer to this as ad hoc arbitration.
In general, the United Nationals Commission on International Trade Law (UNCITRAL) is a set of rules that parties to ad hoc arbitration may use to conduct their proceedings.
Arbitration Ad Hoc Takeaways
So there you have it folks!
What Does Ad Hoc Arbitration Mean
Ad hoc arbitration is a type of arbitration that is not administered by an arbitration institution such as the American Arbitration Association (or AAA).
In “ad hoc arbitration”, the parties are in charge of defining all aspects of the arbitration proceedings by themselves.
To the extent that the parties can collaborate in agreeing to the terms of the arbitration proceeding, this type of arbitration can cost less, be more flexible, and potentially resolve the parties’ dispute more quickly.
Now that you know what is ad hoc arbitration, its advantages and disadvantages, and how it works, good luck with your research or alternative dispute resolution!
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