Ad hoc arbitration is a form of arbitration where there is no specific institution chosen by parties to administer the arbitration. The parties may determine the rules to govern the arbitration process which is different as compared to institutional arbitrations.
In contrast, institutional arbitrations are administered by arbitration institutions such as the Asian International Arbitration Centre (AIAC), Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC) etc. The arbitration process in these arbitrations are governed by a set of rules that have been drafted and set by these arbitration institutions.
What are the advantages of an ad hoc arbitration?
- Flexible. This is one of the main reasons that parties choose to proceed with ad hoc arbitration specifically rather than have an arbitration institution administer it. Since parties are free to decide on the rules governing the process of the arbitration, they can craft out an arbitration procedure that suits their dispute rather than having a pre-determined template set of rules to decide how their arbitration should be run.
- Faster. Given that parties have the flexibility to decide the procedures governing their arbitration, the process could be faster if, for example, some of the bureaucratic procedures governing the appointment of arbitrators provided by the arbitration institutions, are omitted.
- Cheaper. Since arbitration institutions are not involved, there are naturally no fees for the administration of arbitration by these institutions. These administrative fees can be substantial as they are charged based on the quantum of the amount in dispute.
What are the disadvantages of an ad hoc arbitration?
- Cooperation between the parties is vital. Having an ad hoc arbitration means that parties are to work out the rules of the arbitration together. However, this can be a challenge as parties who are already in a dispute may find it difficult to come to a common ground on key procedural issues.
- Dependency on the law of the seat of arbitration. Flowing from the point above, if the parties could not agree, for example, on how the arbitrator is to be appointed or how the proceedings are to be conducted, then these matters will be determined according to the law of the seat of arbitration. If the law of the seat of arbitration does not have an established law of arbitration, further complications may then arise.
- More time and costs could be incurred. Although it is possible for ad hoc arbitrations to be faster than institutional arbitration, the reverse could also be true. Parties may take considerable time, which would in effect incur costs, to agree on procedural aspects of the arbitration. Assistance from the Courts might even be necessary to move the arbitration forward and this spells, further time and costs for the parties.
- Arbitration award might be susceptible to mistakes. For institutional arbitrations, the arbitration award must go through a technical review before it can be finalised and released to the parties. This review identifies and rectifies errors, reducing the risk of the award being challenged or set aside on technical grounds. There is no such technical review in an ad hoc arbitration.
Is the award from an ad hoc arbitration enforceable?
In Malaysia, there is no difference between how an award from an ad hoc arbitration or an institutional arbitration is enforced and recognised by the High Courts. As long as there are no grounds under Section 39 of the Arbitration Act 2005 to refuse the enforcement and recognition of the arbitration award, then the ad hoc arbitration award should be enforced and recognised by the Courts.
However, this may not necessarily be the same if the arbitration award is to be registered in a foreign jurisdiction. Sometimes, institutional arbitration awards would be easier to enforce given that the Courts would have more confidence in the administration of those arbitrations, especially if it is done by well-established institutional arbitration centres.
Can I change to ad hoc arbitration if my arbitration agreement provides for institutional arbitration, and vice versa?
Yes, since arbitration proceedings are essentially based on parties’ agreement and parties can proceed with either ad hoc or institutional arbitration as long both parties agree to do so.
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This article was written by Sean Ferdinand Ng (Senior Associate) from Donovan & Ho’s dispute resolution practice.
Donovan & Ho is a law firm in Malaysia. Our dispute resolution provides advice and legal representation in the civil and industrial courts. We also represent clients in both domestic and international arbitration, as well as other forms of alternative dispute resolution. Our experienced lawyers are also able to assist in commercial and civil disputes (such as debt recovery, shareholders’ or directors’ disputes, breach of contract and claims for injunctive relief), constructive disputes (arbitration and/or adjudication proceedings, disputes relating to delays, liquidated damages, defects and rectification work) and employment disputes (unfair dismissal claims, judicial review proceedings, and employment-related civil claims). Have a question? Please contact us.