Ad hoc arbitration: a quiet majority

Ad hoc arbitration: a quiet majority

This year’s Vis Moot problem is based on an ad hoc UNCITRAL Rules arbitration and it suggests that complications can arise if an institution is not involved.  Meanwhile a real life Russian court of appeal decision has found a clause providing for ad hoc arbitration in London under the UNCITRAL Rules to be invalid because it did not identify an administering institution.  Ad hoc arbitration is not a mystery spoken in Latin: it remains first choice for the majority of international commercial arbitrations in London.

I have a walk on part in the reported judgment of Exmek Pharmaceuticals SAC v Alkem Laboratories Ltd [2015] EWHC 3158 (Comm).  I had just taken up post as Registrar of the LCIA in April 2008 when two representatives of the claimant travelled from Peru and visited our offices for the purpose of issuing an arbitration claim there.

The contract in dispute provided for ‘arbitration in the UK in accordance with the provisions of the law in the UK’.   It did not provide for arbitration under the LCIA Rules, as I explained to the claimant’s representatives.  The LCIA couldn’t help unless both sides agreed.

No such agreement was reached and eventually the other side commenced arbitration itself.  Its appointed arbitrator became the sole arbitrator by default.  When the arbitrator made an award confirming his own jurisdiction, that award was challenged by the Peruvian company under section 67 of the Arbitration Act 1996.  See our News Analysis Unsuccessful s 67 challenge includes determination of ‘UK law’ (Exmek v Alkem).

In the course of his judgment, Burton J considered the principle that contractual provisions should be construed in favour of validity rather than invalidity.  He quoted the Latin maxim ‘ut res magis valeat quam pereat’, explaining that he found it useful to quote it in Latin ‘particularly in these days when The Times Latin crossword is encouraging the rebirth of Latin’.

Earlier in his judgment, Burton J had used more Latin when he noted that it was common ground that ‘on any basis there was to be an ad hoc arbitration’.

Parties from outside the UK, unfamiliar with newspaper crosswords in Latin (and with a judicial culture which endorses them), may not readily understand the two words ‘ad hoc’.  Internet searches for ‘arbitration UK’ and ‘arbitration London’ both bring the LCIA to the forefront.  Ad hoc arbitration doesn’t make an appearance on such a search.  Nor do these two words feature in arbitration clauses.

However, ad hoc arbitration is by far the most popular form of international commercial arbitration in London (see my blog posts, Arbitration statistics and alternative facts and The Silo Effect in Arbitration).  In 2016, the London Maritime Arbitrators Association (LMAA) saw more than six times as many new arbitrations submitted to its members (an estimated 1,720) as the LCIA saw new Requests for Arbitration (253).  The LCIA itself serves as an appointing authority and provides various administrative services, such as fundholding, to parties in substantial numbers of ad hoc arbitrations, including under the UNCITRAL Rules (50 in 2016).

In his textbook on international commercial arbitration, Gary Born has a table of arbitrations with leading institutions worldwide.  The LMAA is the only one whose numbers are consistently in the thousands.  But the LMAA is not an institution; arbitrations conducted under its Terms are ad hoc.  As Horace reminds us, ‘quandoque bonus dormitat Homerus’ (‘even the good Homer nods’).

In recent years, the LCIA has been successful in attracting parties to its institutional rules and away from traditional ad hoc arbitration.  It saw a doubling of its caseload in the aftermath of the global financial crisis and in the turmoil in the commodities markets in 2008-2009.  However, ad hoc has held steady in London and remains first choice in the majority of disputes arising from international commerce.

Ad hoc is perceived to have several potential advantages over institutional arbitration, including:

  • Confidentiality (stated to be the reason for its choice in the Vis Moot problem)
  • Fixed fees or hourly rates for arbitrators, rather than ad valorem fees (institutional arbitration’s little bit of Latin, though the LCIA is an exception and sticks to hourly rates)
  • Speed, simplicity and flexibility of procedure
  • Absence of regulations and bureaucracy

Proponents of institutional arbitration would counter with:

  • Preservation of confidentiality within the institution, recourse to court being unnecessary
  • Capped fees and control of costs by the secretariat
  • Monitoring of proceedings and neutral chivvying of arbitrators by the secretariat
  • Best practice and security of process and awards through guidelines and administration

For a more detailed discussion, see our Practice Notes What is ad hoc arbitration?  and What is institutional arbitration?

Ad hoc is favoured in particular markets, such as shipping, and generally by experienced arbitration practitioners and parties who prefer to avoid institutional overlay and its associated costs.  Users can have different perceptions of the advantages and disadvantages of the respective procedures.  What matters in international dispute resolution is choice and for choice to be real, diversity is essential.  So is education: whatever their level of Latin, parties need to understand their choices.

It is with some dismay and puzzlement that practitioners in London are watching developments at other seats, such as in China, Russia and India where institutional arbitration is increasingly treated as necessarily superior to ad hoc.  The voice of ad hoc arbitration needs to be heard more loudly: it can be heard in many different languages, not just Latin.


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About the author:

James is an arbitration specialist. He has more than 25 years’ experience of ad hoc, trade association, institutional and investment arbitrations as a solicitor in London and Paris, as a former Registrar of the London Court of International Arbitration (LCIA), and as a case assessor for legal costs insurers and third party funders. His background as a lawyer is in international trade, commodities, shipping and insurance.

He trained at Withers in London and then spent four years in the firm’s Paris office. He was admitted as an avocat at the Paris bar (1994 – 2008). Returning to London, he spent more than 13 years at Holman Fenwick Willan in its Trade & Energy group. As Registrar and Deputy Director General of the LCIA in 2008 – 2012, he oversaw the administration of more than a thousand commercial arbitrations and assisted with a review of its Arbitration Rules. He subsequently spent two years at Thomas Miller Legal, assessing and managing a wide range of commercial and investment claims on behalf of insurers and funders. Returning to private practice in 2015, he spent a year in Stephenson Harwood’s International Arbitration group where he assisted on ICC and LCIA arbitrations, principally oil and gas disputes.

James is a Fellow of the Chartered Institute of Arbitrators. At LexisNexis, James works on the Lexis®PSL Arbitration module.