International Arbitration: Which Institution?
Legal News & Analysis - Asia Pacific - Dispute Resolution
14 December, 2017
The majority of international arbitration users favour institutional rather than ad hoc arbitration. However, when deciding which institution to select, there are several to choose from, but little guidance to assist in the selection process.
This Quickguide aims to provide such guidance, covering:
- The differences between institutional and ad hoc arbitration, and why institutional arbitration is favoured
- The key factors parties should consider when choosing an arbitral institution and
- A comparison of the rules, style, and perceived advantages and disadvantages of the leading arbitral institutions
Institutional vs ad hoc arbitration
The two broad forms of arbitration are institutional arbitration and ad hoc arbitration.
In choosing institutional arbitration, contracting parties are agreeing to adopt the procedural rules of a particular institution and to have that institution administer and supervise the conduct of any arbitration that is commenced under the arbitration agreement. Specifically, this involves the institution, depending on the particular institutional rules, administering the appointment of arbitrators (confirmation, default appointment, challenges, etc.), determining the fees payable to the arbitrator (often by reference to a fixed methodology set out in the institution's rules), overseeing the taking of deposits and making of payments to the arbitrators, assisting in logistics for hearings (hearing rooms, transcript services, etc.), and sometimes even scrutinising draft awards to ensure enforceability.
Ad hoc arbitration
Ad hoc arbitration, on the other hand, is arbitration which the parties manage themselves. It is conducted under rules adopted for the purpose of the specific arbitration, without the involvement of any arbitral institution. The parties can draw up the arbitral rules themselves, leave the rules to the discretion of the arbitrators or, as is more common, adopt rules specially written for ad hoc arbitration, for example, the UNCITRAL Rules.1 They then proceed to conduct the arbitration in conjunction with the arbitrator directly. In other words, the appointment of arbitrators and associated issues are managed by the parties, arbitrators' fees are negotiated directly with the arbitrator and paid directly by the parties, parties must arrange all logistics for the hearing, and there is no supervision of awards.
Why institutional arbitration is often favoured
A recent survey of international arbitration users found that 79 per cent of the arbitrations they were involved in over the past five years were institutional arbitrations.2
There are several reasons for this preference for institutional arbitration. An institution can lend political or moral weight to awards but, more practically, because institutional rules are designed to regulate the proceedings comprehensively from beginning to end, the institutions are better suited to cater for contingencies that might arise, even if (as sometimes happens) the respondent fails or refuses to co-operate.
By incorporating an institution's rules into the contract, contracting parties also avoid the time and expense of drafting a suitable ad hoc clause.
As noted above, the institution will also assume administrative responsibility for the arbitration, and take care of fundamental aspects of the arbitration procedure. The fees and expenses of the arbitration are, with varying degrees of certainty, regulated, and some arbitral institutions independently vet awards to ensure enforceability.
Ad hoc arbitration lacks the "support net" of an institution and depends for its full effectiveness on a spirit of co-operation between the parties, which is usually lacking by the time disputes have arisen. The potential problems of arbitration more generally, such as the ability to delay proceedings, are more likely to arise in ad hoc arbitration.
Having said that, the additional layer of bureaucracy imposed by institutional arbitration may cause delay and, inevitably, additional fees are payable. Although the arbitrators' fees are reduced because they have less administration to do, the fees of the institution can add a significant amount to overall costs. This is particularly so where large amounts are in dispute and the fees are calculated by reference to the value of the claims (see further below).
Key factors to consider in choosing an arbitral institution
Having decided to select institutional arbitration, the first question in a party's mind is "which institution?"
There are many institutions to choose from. There is no magic formula for choosing between them. Increasingly, institutions and institutional rules are offering similar processes with little to distinguish them. An example is the widespread introduction of mechanisms such as emergency arbitration, once a key distinguishing feature of only certain leading institutions. Such similarity leads parties to look to more subjective factors in deciding which institution to use: familiarity with the institution, their opinion of the international acceptability or reputation of a given institution, the pro-activeness and responsiveness of the institution's staff, and the institution's neutrality or "internationalism".3
Another key consideration for parties is the chosen seat of arbitration. Selection of the seat is generally viewed as more important than selection of institution as it determines the procedural law of the arbitration, the courts responsible for applying the procedural law, and the "nationality" of the award for enforcement purposes. A reputable institution based in the parties' chosen seat will often be viewed favourably because of its perceived association with and knowledge of how things work in that seat, as well as its geographic proximity.
The above considerations are important, but are often personal to the parties involved. There are, however, some clear objective differences between the various institutions and their rules which parties can consider. We deal with these below, and in the download at the bottom of this guide, where further guidance by way of a comparison table of the leading arbitral institutions is provided.
It is important to recognise that institutional arbitration rules provide only a framework for the procedure of the arbitration. The way in which the arbitration is conducted will be determined by the specific approach of the arbitrators. Factors such as their degree of experience in international arbitration, legal background and training, and views on the legal issues for determination in the arbitration will influence their approach. It is therefore essential to consider carefully the approach you want the tribunal to take when selecting your arbitrator.
Level of institutional involvement
Arbitral institutions have varying levels of involvement in managing and administering arbitrations. Institutions such as the Hong Kong International Arbitration Centre (HKIAC), for example, promote their "light touch" approach with rules emphasising party autonomy and entrusting the arbitrators with the primary decision-making power. Other institutions, such as the International Court of Arbitration of the International Chamber of Commerce (ICC), are known for more intensive involvement in arbitrations.
One practical example of these contrasting approaches is in respect of scrutiny of arbitral awards. Institutions like the ICC and the Singapore International Arbitration Centre (SIAC) engage in a mandatory scrutiny and approval of draft awards of the tribunal. The ICC Court performs the scrutiny and may lay down modifications as to the form of the award and, without affecting the tribunal's liberty of decision, may also draw the tribunal's attention to points of substance. The idea is to prevent the award suffering from defects in form or substance that could give rise to difficulties in enforcement of the award.
Many other institutions, such as the HKIAC, London Court of International Arbitration (LCIA), and the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), do not scrutinise or approve awards, leaving it to the tribunal to render a valid award. This difference reflects the varying views about the value of the scrutiny process: some parties consider the additional quality assurance to be a benefit, while others see it as imposing unnecessary delay and expense.
Costs of the arbitration
Perhaps one of the most important distinguishing features between the various institutions is their methodology for calculating arbitrators' fees and administrative fees and, ultimately, the typical costs for an arbitration administered by them.
Many institutions (such as the ICC, SCC and SIAC) calculate both their administrative fees and arbitrators' fees on an ad valorem basis; that is, by reference to the amount in dispute. Others, like the LCIA, calculate administrative and arbitrator fees based on time spent and capped hourly rates. It should be noted, however, that time spent may still be factored into an ad valorem system by fixing costs within minimum and maximum limits. Conversely, the claim value can be relevant in an hourly rate system, as the circumstances of the case, including the value of a claim, are often factored in to determine the maximum hourly rate.
Those institutions charging on an ad valorem basis helpfully provide cost calculators on their websites to allow parties to obtain an insight, in advance of the arbitration, on the likely costs of their arbitration.4 For those charging based on time and hourly rates, parties are reliant on actual data produced by the institution itself to obtain such an insight. The LCIA, for example, has recently published its own statistics which suggest their hourly rate system is relatively cost-effective when compared with other major institutions operating on an ad valorem basis.5
Confidentiality of arbitral proceedings is one of the key advantages of arbitration. The seat of the arbitration will often determine what level of confidentiality is provided and, where confidentiality is regarded as important, contracting parties should cater for it in their arbitration agreement. That said, the approach of the institution towards confidentiality may also be a factor when choosing the arbitral institution; not all institutions provide for it as a default rule.
The LCIA and DIFC-LCIA Arbitration Centre (DIFC-LCIA) rules, for example, require the parties to keep confidential all awards in the arbitration, as well as all materials created for the purposes of the arbitration, and all other documents produced by a party in the proceedings not otherwise in the public domain.6 Deliberations of the tribunal also remain confidential, and neither institution publishes awards without the prior written consent of the parties and the arbitral tribunal.
The ICC Rules, on the other hand, do not automatically oblige parties to keep awards, materials and documents confidential, but simply empower the tribunal, upon the request of a party, to make orders concerning the confidentiality of proceedings or any other matters in connection with the arbitration. Further, its Rules do not expressly prohibit publication of awards, and the ICC regularly publishes anonymised excerpts from awards.7
Expertise in certain types of cases or industries
Another distinguishing feature that parties may look for is whether the institution has expertise in the particular type of case likely to arise under their contract or in the particular industry in which they operate.
A number of specialist institutions have been set up to handle disputes in particular areas and industries.
- the Panel of Recognised International Market Experts in Finance (P.R.I.M.E Finance), an institution offering mediation, arbitration and other dispute resolution services to the finance sector;
- the World Intellectual Property Organisation (WIPO) Arbitration and Mediation Center, which caters for intellectual property and technology disputes;
- the Court of Arbitration for Sport (CAS), which administers sports-related arbitrations; and
- the Chambre Arbitrale Maritime de Paris which administers and supervises maritime arbitrations.
These institutions publish rules tailored to the types of disputes they deal with, and maintain rosters of arbitrators who specialise in those types of disputes. Most of the major arbitral institutions (like the ICC, and LCIA) do not specialise in this way; the argument being that there is no need for the institution to be specialised as long as the selected arbitrator is a specialist, or is permitted by the institution's rules to appoint experts and/or rely on expert evidence from party-appointed experts. Nevertheless, parties may feel more comfortable dealing with an institution that specialises in its field.
Fast-track arbitration and early determination
In a recent survey of international arbitration users, 92 per cent of respondents were in favour of the adoption of a simplified "fast track" arbitration procedure for claims under a certain value.8 Certain institutions provide for expedited arbitration, which can be on a documents-only basis and before a sole arbitrator. For example, under the SIAC Rules, the expedited procedure can be applied for where the aggregate amount in dispute does not exceed SGD 6 million, the parties agree to use the procedure, or in cases of exceptional urgency. The SCC also has separate expedited rules which the parties can agree to use. As from 1 March 2017, the new ICC expedited procedure will automatically apply to ICC arbitrations where the amounts in dispute are below US$2 million. Parties can choose to use the procedure for higher value cases. If contracting parties want to have the flexibility to adopt a fast-track procedure, this should be taken into consideration.
One of the criticisms of arbitration is the inability to have a claim determined or dismissed at an early stage.
This is often cited as the reason why financial institutions prefer national court litigation over international arbitration. However, the SIAC in its 2016 Rules and the SCC in its 2017 Rules have both introduced a mechanism for summary disposal of disputes. The ICC has also taken action in 2017 to clarify the procedures already available under the general case management provisions of its Rules for summary dismissal applications. An institution's approach to these applications is another factor to be considered by contracting parties when choosing their institution.
Comparison of the major arbitral institutions
A comparison table of the major arbitral institutions is available to download here (2MB).
- The United Nations Commission on International Trade Law Arbitration Rules (as revised in 2010), available online at http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules-revised/arb-rules-revised-2010-e.pdf. Please note that UNCITRAL is not an arbitral institution and does not administer arbitrations.
- 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration by the School of International Arbitration at Queen Mary University of London: http://www.arbitration.qmul.ac.uk/research/2015/.
- See 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration by the School of International Arbitration at Queen Mary University of London, which recorded the reasons for respondents' preference for certain institutions. The top two reasons were "high level of administration (including proactiveness, facilities, quality of staff)", and "neutrality/internationalism".
- See, for example, the ICC cost calculator (http://www.iccwbo.org/products-and-services/arbitration-and-adr/arbitration/cost-and-payment/cost-calculator/), the SCC costs calculator (http://www.sccinstitute.com/dispute-resolution/calculator/), and the SIAC costs calculator (http://siac.org.sg/component/siaccalculator/?Itemid=448).
- See http://www.lcia.org/News/lcia-releases-costs-and-duration-data.aspx. The LCIA's analysis shows that for cases of less than US$1m, the costs of LCIA arbitration are comparable with ICC and SIAC, but higher than the HKIAC. For cases over US$1m, while comparable with HKIAC, LCIA costs are lower than ICC and SIAC. This rule is subject to disclosure that may be required of a party by legal duty, to protect or pursue a legal right, or to enforce or challenge an award in legal proceedings before a state court or other legal authority.
- This rule is subject to disclosure that may be required of a party by legal duty, to protect or pursue a legal right, or to enforce or challenge an award in legal proceedings before a state court or other legal authority.
- See, for example, the ICC Dispute Resolution Library: http://www.iccwbo.org/products-and-services/store/online-libraries/icc-dispute-resolution-library-iccdrl/. Indeed, the Internal Rules of the International Court of Arbitration empower the President or Secretary General of the Court to authorise researchers to acquaint themselves with awards. The researchers must undertake to respect confidentiality and to refrain from publishing anything based upon the award without having previously submitted the text for approval to the Secretary General of the Court.
- 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration by the School of International Arbitration at Queen Mary University of London.
For further information please contact:
Matthew Saunders, Partner, Ashurst