If an ad hoc arbitration is an available option, should parties consider it over an institutional arbitration? Syed Rahman looks at the pros and cons.
Parties that have agreed to arbitrate disputes that arise between them have a choice: ad hoc arbitration or institutional arbitration?
Institutional arbitration is conducted in accordance with a particular institution’s rules. Notable institutions include the LCIA or the ICC, but there are a number of reputable institutions all around the world. Find a summary of some of the main international arbitration institutions and rules in our in-depth guide to international arbitration.
Where the arbitration agreement does not specify a particular institution, or a particular set of rules which must be followed, then the parties may agree to an ad hoc arbitration. In ad hoc arbitrations, the parties often elect to follow the UNCITRAL arbitration rules or the UNCITRAL Model Law, which guides the procedure.
Reasons to choose institutional arbitration
Parties usually choose institutional arbitration for the benefit of the administrative support that it offers.
For example, it can:
- provide a list of suitably qualified arbitrators for the dispute
- act as a fundholder for security for costs, and
- resolve problems in the arbitration.
The institution’s rules usually provide a default procedure in the event that one party does not engage with the arbitration, so that the dispute does not reach an impasse at the outset.
The administrative function comes with associated costs. But these costs are usually set out in a schedule to the rules, which gives the parties a level of predictability for budgeting purposes.
The institution’s rules provide structure for the arbitration, with set timescales for each stage. This can help the parties to plan the course of the dispute and manage the time spent on the dispute by key people in the business.
Given that there is more structure and predictability to an institutional arbitration, it is often preferred by commercial parties.
It may appear to be a safer option in terms of enforcement too. While the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards applies to all arbitral awards, it can be helpful to have the stamp of an institution like the LCIA or ICC. These are reputable institutions that may carry weight when it comes to enforcement.
Reasons to choose ad hoc arbitration
The main attraction of ad hoc arbitration is the lack of administrative charges from the institution. Without those charges, an ad hoc arbitration can end up being less expensive than an institutional one. These arbitrations tend to be less formal, and may be more flexible in terms of procedure.
As there is no administrative institution, it usually falls to the arbitrator to organise the arbitration. Legal representation for the parties will draft procedural orders that govern the arbitration, which the tribunal will usually rubber stamp.
This means that there is more flexibility for the way in which the arbitration is run. However, if anything is excluded from the procedural orders, the fallback position is the statutory regime. In the UK, that is the Arbitration Act 1996 (as amended by the Arbitration Act 2025).
Speed: Ad hoc arbitration may be quicker if parties co-operate
In theory, ad hoc arbitrations can be a quicker option. However, this is dependant on the conduct of the parties and whether or not they co-operate with each other and the process.
When thinking about the speed of the arbitration, it is worth noting that institutions provide for expedited procedures for disputes of smaller value. The ICC allows parties to elect this procedure if they want to, or if the value in dispute is less than $3 million. An expedited procedure run with the help of an administrative function could be more efficient than an ad hoc arbitration.
Similarly, if the parties reach an impasse on appointing a tribunal in an ad hoc arbitration, they may be required to apply to court. This can be time-consuming and draw out the process of an ad hoc arbitration.
Which disputes are suitable for ad hoc arbitration?
It is usually smaller disputes that benefit from ad hoc arbitration over institutional. They can be resolved more quickly, with the help of a flexible process.
It also depends on the commercial relationship between the parties. If the parties can cooperate throughout the arbitration, the ad hoc route offers a more informal, and cheaper option.
However, costs can escalate if the dispute becomes more acrimonious and parties can no longer agree on procedural steps or other conduct of the arbitration. There is no institutional support to resolve problems. This needs to be weighed in the balance of the decision.
Parties are encouraged to take advice at an early stage to assess which framework best aligns with the nature of the dispute and commercial objectives in play.
