An ad hoc arbitration is one which is not administered by an institution and therefore, the parties are required to determine all aspects of the arbitration like the number of arbitrators, manner of their appointment, procedure for conducting the arbitration, etc. Provided the parties approach the arbitration in a spirit of cooperation, ad hoc proceedings can be more flexible, cheaper and faster than an administered proceeding. The absence of administrative fees alone makes this a popular choice.
An institutional arbitration on the other hand is one in which a specialized institution with a permanent character intervenes and assumes the functions of aiding and administering the arbitral process, as according to the rules of that institution. It is important to note that these institutions do not arbitrate the dispute, it is the arbitrators who arbitrate, and so the term arbitration institution is inapt and only the rules of the institution apply.
In institutional arbitration, the first issue arising for agreement of the parties is choice of the institution, appropriate for the resolution of disputes, arising out of their contract. Whilst making such choice, there are various factors to be considered i.e. nature & commercial value of the dispute, rules of the institution as these rules differ, past record and reputation of the institution and also that the institutional rules are in tune with the latest developments. It is also alleged that national courts have a tendency to grant enforcement of awards made in institutional arbitration, though doubts have been raised, since international arbitration institutions have the benefit of worldwide recognition and their professional capability adds to the certainty and finality of the proceedings. Courts are more likely to even enforce an award obtained in default of the other party, which they would refuse had it been obtained in ad hoc arbitration, in view of the strict arbitration procedures followed by these institutions.
One of the criticisms of institutional arbitration is that, parties need to comply with the procedural requirements, resulting in unnecessary delays in the arbitration. One may argue that such requirements, in fact, avoid delay. In default of a party in ad hoc arbitration, the other party may seek court involvement to make the defaulting party to initiate or continue the arbitration and this may result in longer delays, than that involved in complying with these procedural requirements, intended to ensure smooth and successful dispute resolution.
In the context of international commercial disputes, one may argue that institutional arbitration is more suitable, even though apparently it is more expensive, time consuming and rigid than ad hoc arbitration, keeping in mind the fact that it provides established & updated arbitration rules, support, supervision & monitoring of the arbitration, review of awards and most importantly, strengthens the credibility of the awards. In conclusion, it is must be said that it is hard to claim that institutional arbitration is superior to ad hoc proceedings or vice versa.
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