Different Modes of Arbitration: Institutional v. Ad hoc v. Statutory Arbitration Proceedings
Author: Yashita Bhardwaj and Aanya Anvesha
Designation: Law Students; Institute of Law, Nirma University
Email ID: firstname.lastname@example.org & email@example.com
Arbitration being one of the modes of alternative dispute resolution (ADR) is an effective process of obtaining a binding decision on parties, without any reference to a court of law (until and unless the losing party fails to implement the award voluntarily). Generally, the parties have a contract between them, in which they decide the type of arbitration and manner in which the arbitral tribunal will move forward. Choosing a type of arbitration is more of a default duty for parties than a choice. By keeping all the factors in mind, the nature of the dispute, laws applicable, and subject matter of dispute, arbitration can be differentiated into some categories namely: Institutional, Ad-hoc, and Statutory Arbitration. When it comes to categorizing the different types of arbitration and defining them, surprisingly no definition is universally agreed of either of the categories
Generally, parties have arbitration agreements between them to opt for the arbitration process rather than litigation in case of disputes. Arbitration is said to be institutional if parties to an arbitration agreement, specifically mention that arbitration shall be administered by a particular arbitral institution which would administer the whole arbitral proceedings under its own rules and regulations. Article 2(a) of the UNCITRAL Model Law, throws light on the second kind of arbitration, i.e. an Ad hoc arbitration wherein parties agree upon a system of arbitral proceedings that is specific to a particular contract without referring to any particular arbitral institution. However, the scenario is quite different in the case of a statutory form of arbitration, where the consent of parties in determining the nature of the proceeding is immaterial. Such arbitration usually takes place because a provision of a special statute or enactment provides for arbitration in respect of a dispute arising from the matters mentioned in that particular statute.
A Broad Overview of Institutional, Ad-hoc and Statutory Arbitration
1. Institutional Arbitration
Under Institutional Arbitration a specialized institution plays the role of an arbitrator and administers the arbitration process. Every institution has its own set of rules to govern the process of arbitration. With a rapid increase in the number of international arbitrations and arbitral institutions, the importance of institutional arbitration is increasing and institutions have likewise gained increasingly decisive roles in the arbitrations they manage. Many arbitral institutions nowadays "possess private regulatory power" which strengthen their independence and public enforceability of such private institution's mechanism. Institutional Arbitration has various advantages over Ad-hoc and Statutory arbitration. Under institutional arbitration, the parties are not required to decide the arbitration procedure which saves parties time and their lawyer's efforts and also a pre-established list of rules is provided by different arbitral institutions, so this saves parties time in deciding the clauses of an arbitration agreement. Institutional Arbitration provides more qualified arbitrators from different regions of the world, often experts in various fields. Under Institutional Arbitration the clients can take assistance and advice from Institutional staff also. The demerits of this system are that sometimes parties may feel that the process is overly bureaucratic or these institutions need them to respond in an unrealistic time frame. Some institutional fees may prove to be expensive, particularly where they reflect a percentage of the value of a large amount in dispute. The decision in an institutional arbitration is final and binding, however, this comes with a risk that if any mistake is done by the institution then it couldn’t be rectified at a later stage.
2. Ad-Hoc Arbitration
Unlike Institutional Arbitration, in Ad hoc, arbitration parties make their arbitration agreement and decide the arbitration process. Ad hoc arbitration is not administered by other institutions instead it is administered by arbitrators selected by the parties. An ad hoc arbitration is very much flexible as parties get to tailor the arbitration to their requirements allowing for easier implementation and quicker settlement of disputes. The second advantage has to do with cost-efficiency as the parties only have to provide for fees of their arbitrators and less administrative costs are to be dealt with. Parties with financial constraints generally prefer this process over the court system. However, this system has its own demerits too. In case both the parties find it difficult to cooperate with arbitration rules and the appointment procedure, such conflicts would generally result in greater costs that can result in higher costs or delay in the proceedings. The parties also may find it difficult to initiate a discussion concerning fees with arbitrators since they would not want to upset an arbitrator who will determine the final arbitral award.
3. Statutory Arbitration
Every country has various Central as well as State Acts in place, which provide for Compulsory or statutory arbitrations. Unlike other arbitrations, statutory arbitration lacks the meeting of the minds of parties even if arbitration law is applied. The reason can be that since Statutory arbitration is derived from acts of parliament, they are more of an obligation of statues than a consensus dispute settlement. Statutory arbitration is a sort of compulsory arbitration that is governed by particular statutes that require mandatory arbitration on a dispute. The major criticism of such arbitration is that in other arbitration parties are free to decide everything, while statutory arbitration does not leave scope for parties to exercise their will.
It is pertinent to note that the choice over ad hoc arbitration, institutional arbitration, or statutory arbitration depends on the parties, the contractual circumstances, and the nature of the dispute.
Research shows that the majority of the companies in India prefer ad-hoc (47%) over institutional arbitration (40%) including companies with zero experience of arbitration. However, the scenario is quite different in other countries that may prefer institutional arbitration. Each kind of arbitration has its pros and cons and the parties need to determine their preference following their requirements.
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