Arbitration is a type of alternative dispute resolution (ADR) that allows two parties to settle their differences outside of the traditional judicial system. In an arbitration case, the parties to a disagreement will refer it to one or more people – known as “arbitrators” or “arbitral tribunals” – to whom they will agree to be bound by their decision or award. Commercial disputes are frequently resolved through arbitration, particularly in the context of multinational business transactions. There are two types of arbitrations, institutional arbitrations and ad hoc arbitrations.
An institutional arbitration is one in which a specialized institution intervenes and administers the arbitration procedure on behalf of the parties. Each institution has its own set of rules that serve as a foundation for the arbitration, as well as its own administrative structure to help with the process.
The London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC), the Dubai International Finance Center (DIFC), and the Dubai International Arbitration Center are some of the most well-known institutions (DIAC). There are roughly 1200 institutions that provide arbitration services globally, with some specializing in a certain trade or industry. Some institutions may act under regulations that are not properly drafted, therefore caution should be exercised during the selection process.
Sometimes, an arbitration clause will be included in a contract between two parties, designating a specific institution as the arbitrator. This approach is frequently preferable to less formal ‘ad hoc’ methods of arbitration if institutional administrative charges are not a concern for the parties.
Advantages of Institutional Arbitrations
The following are the most significant benefits for individuals who can afford institutional arbitration:
- Administrative assistance from the institution, which will provide a secretariat or court of arbitration.
- A list of qualified arbitrators to choose from.
- Assistance in persuading reluctant parties to proceed with arbitration
- An established format with a proven track record.
Institutional arbitration saves parties and their lawyers the time and effort of deciding on an arbitration procedure and creating an arbitration clause that the institution provides. After the parties have chosen an institution, they can include the draught clause from that institution in their contract. In some cases, they may want to add additional items to the clause. These clauses can be updated at any moment by the institution, based on its experience conducting arbitrations on a regular basis, and guarantee that the arbitration process is clear.
Typically, an institution’s panel of arbitrators will be made up of specialists from diverse parts of the world who represent a variety of professions. This enables parties to choose an arbitrator with the requisite competence, experience, and expertise to facilitate a speedy and efficient conflict resolution procedure. However, the parties just recommend an arbitrator; the institution must select the arbitrator, and the institution is able to refuse an appointment if it believes the nominated arbitrator has the required competence or impartiality.
Institutional arbitration also has the advantage of allowing the parties and arbitrators to seek assistance and guidance from institutional staff. Parties to the arbitration would have to seek the court in order to move the arbitration forward in a less formal ad hoc manner, which would certainly result in additional costs.
One of the purported benefits of arbitration is that it produces a final and binding decision that cannot be challenged. However, there is always the possibility that a tribunal’s mistake will not be corrected later. To mitigate this risk, certain institutional norms require that the draught award be scrutinized before the final award is issued. A disgruntled party could then appeal to a second-instance arbitral tribunal, which could confirm, change, amend, or set aside the draught judgment. There is no such choice in less formal processes.