In the realm of Alternative Dispute Resolution (ADR), arbitration is a preferred method for resolving commercial disputes due to its flexibility and efficiency. Among the types of arbitration, Ad Hoc Arbitration is widely used in both domestic and international disputes for its party-centric control and cost-effectiveness.
What is Ad Hoc Arbitration?
Ad Hoc Arbitration refers to a non-institutional form of arbitration, where the entire arbitration process is organized and conducted by the parties themselves, without the involvement of a permanent arbitral institution.
The parties are free to:
- Choose the rules of procedure.
- Select their own arbitrators.
- Decide on the venue and language of arbitration.
- Set the fee structure and timelines.
This form of arbitration contrasts with institutional arbitration, where a recognized arbitral institution (like ICC, LCIA, SIAC, or ICA) administers the process.
Legal Recognition of Ad Hoc Arbitration in India
- Governed by the Arbitration and Conciliation Act, 1996.
- Both domestic and international commercial arbitrations can be conducted as Ad Hoc proceedings.
- Recognized under Section 10, which allows parties to determine the number of arbitrators and procedural rules.
- The Act provides default provisions in case of non-agreement between parties.
Key Features of Ad Hoc Arbitration
- Party Autonomy: Full control over the arbitration process, rules, and appointment of arbitrators.
- Flexibility: Procedures can be tailored to the complexity and nature of the dispute.
- Cost-Effective: No administrative fees of institutions, making it economical.
- Confidentiality: Proceedings are private and discreet.
- Neutrality: Parties can mutually choose a neutral location and arbitrator.
Advantages of Ad Hoc Arbitration
- Reduced Costs: Absence of institutional fees lowers overall expenses.
- Customized Procedure: Parties can adopt any set of rules (e.g., UNCITRAL Arbitration Rules).
- Speedy Resolution: Parties can set strict timelines to avoid delays.
- Informality: More relaxed structure compared to institutional arbitration.
Disadvantages of Ad Hoc Arbitration
- Lack of Administrative Support: No institutional assistance to resolve procedural issues or appoint arbitrators in case of disputes.
- Risk of Deadlocks: In the absence of agreement, arbitration may stall.
- Enforcement Challenges: Institutional awards may carry greater perceived legitimacy and ease of enforcement.
- Delays in Appointment: If parties cannot agree on arbitrators, they must approach the court under Section 11 of the Act.
UNCITRAL Arbitration Rules and Ad Hoc Arbitration
- The United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules are widely adopted in Ad Hoc Arbitration.
- These rules offer a neutral and internationally accepted framework, especially useful in cross-border disputes.
Judicial Approach to Ad Hoc Arbitration in India
Indian courts support Ad Hoc Arbitration provided:
- The agreement is valid and enforceable.
- The arbitrators are appointed in accordance with the agreement or by court intervention under Section 11.
- The award is enforceable under Section 36 of the Act.
Relevant Case Law:
- Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (2012) – Recognized and clarified enforcement of foreign arbitral awards, including those arising from ad hoc proceedings.
- SBP & Co. v. Patel Engineering Ltd. (2005) – Held that the power to appoint arbitrators under Section 11 is a judicial function.
Ad Hoc vs. Institutional Arbitration
| Feature | Ad Hoc Arbitration | Institutional Arbitration |
|---|---|---|
| Control | Full control by parties | Administered by institutions |
| Cost | Lower | Higher (includes admin fees) |
| Procedural Rules | Decided by parties | Pre-defined by institution |
| Administrative Support | Absent | Available |
| Flexibility | High | Moderate |
When to Choose Ad Hoc Arbitration?
Ad Hoc Arbitration is ideal when:
- The parties are familiar with arbitration procedures.
- The dispute is straightforward or low in value.
- Parties want greater cost control and flexibility.
- There’s mutual trust and cooperation between parties.