02.11.

2016

NAME …………: HUSEYİN ACAR

PHONE…………: 0532 063 12 25

E-MAIL…………: resithukuk@gmail.com

Table of Contest

I. Definition of Arbitration ......................................................................................................... 2

A-) Defination of “Arbitration” ? .............................................................................................. 2
II. Ad Hoc Arbitration .................................................................................................................. 3
i. Advantages of Ad Hoc Arbitration ............................................................................. 5
ii. Disadvantages of Ad Hoc Arbitration .......................................................................... 6
III. Institutional Arbitration ........................................................................................................... 7
i. Advantages of Institutional Arbitration ...................................................................... 8
ii. Disadvantages of Institutional Arbitration ................................................................. 9
IV. CONCLUSION .......................................................................................................................... 10

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 COMPARISON OF AD HOC ARBITRATION AND
INSTITUTIONAL ARBITRATION

I. DEFINITION OF ARBITRATION

Arbitration is a form of alternative dispute resolution which allows disagreements between two
parties to be resolved outside of the traditional court system.1 In an arbitration case the parties to
a dispute will refer it to one or more persons - known as the 'arbitrators' or an 'arbitral tribunal' -
by whose decision or award they agree to be bound. Arbitration is often used to resolve commercial
disputes, particularly in the context of international commercial transactions.
The arbitral tribunal comprises one or more independent individuals selected by the parties or
appointed through a mechanism that the parties have agreed upon.2 An arbitral tribunal’s
substantive decision is called an award. Awards in international arbitrations are not subject to any
appeal (save in a very limited number of jurisdictions) and can be enforced under both domestic
and international enforcement regimes including, notably, the 1958 New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards. The parties to an arbitration are free to
agree on whether to use the Rules of the ICC International Court of Arbitration, the rules of another
arbitral institution or no rules at all.
Arbitration is the only alternative to court litigation for achieving a final, binding and enforceable
resolution of a dispute. Due to its numerous advantages over litigation, arbitration has become the
preferred and most widely used mechanism for resolving international commercial disputes.

International arbitrations may be either “Institutional” or “Ad Hoc”. There are theoretical and
practical differences between these two forms of arbitration.3 However, this article compare the
differences between institutional and 'ad hoc' arbitration methods, and the advantages and
disadvantages of each.

1
YEĞENGİL, s. 91.
2
9 ŞANLI, C. : Milletlerarası Ticari Tahkimde Esasa Uygulanacak Hukuk, Ankara 1986, s. 24; AKINCI,
Z. :Milletlerarası Tahkim, Ankara 2003, s. 27-28
3
Gary B. Born, International Commercial Arbitration, (Kluwer Law International, 2014), p.26

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 II. AD HOC ARBITRATION

One of the choices parties must make when they decide to arbitrate is whether they want to
arbitration to be administered by an arbitral institution, or whether they want the arbitration to be
ad hoc.4Ad hoc arbitration is a proceeding that is not administered by others and requires the parties
to make their own arrangements for selection of arbitrators5 and for designation of rules, applicable
law, procedures and administrative support. 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 make this a popular choice.

The arbitration agreement, whether arrived at before or after the dispute arises, might simply
state that "disputes between the parties will be arbitrated", and if the place of arbitration is
designated, that will suffice. If the parties cannot agree on arbitral detail, all unresolved problems
and questions attending implementation of the arbitration, for example "how the arbitral tribunal
will be appointed", "how the proceedings will be conducted" or "how the award will be enforced"
will be determined by the law of the place designated for the arbitration, i.e., the "seat" of the
arbitration. Such an abbreviated approach will work only if the jurisdiction selected has an
established arbitration law. The ad hoc proceeding need not be entirely divorced from its
institutional counterpart. Oftentimes the appointment of a qualified and/or impartial arbitrator
(actual or perceived) constitutes a sticking point in ad hoc proceedings. In such case, the parties
can agree to designate an institutional provider as the appointing authority. Further, the parties can
at any time in the course of an ad hoc proceeding decide to engage an institutional provider to
administer the arbitration.

Parties wishing to include an ad hoc arbitration clause in the underlying contract between them,
or seeking to arrive at terms of arbitration after a dispute has arisen, have the option of negotiating

4
Ad hoc arbitration is not an option in China. See Jingzhou Tao & Clarisse von Wunschheim, Article I6
and I8 of the PRC Arbitration Law- The Great Wall of China for Foreign Arbtiration Institutions, 23 Arb.
Int. 309, 324 (2007)
5
Art. 3, UNCITRAL Arbitration Rules

3
a complete set of rules, establishing procedures which fit precisely their particular needs.
Experience has shown that this approach can require considerable time, attention and expense
without providing assurance that the terms agreed will address all eventualities.

Other options available to parties wishing to proceed ad hoc, who are not in need of rules
drawn specially for them, or of formal administration and oversight, include: (i) adaption of the
rules of an arbitral institution, amending provisions for selection of the arbitrator(s) and removing
provisions for administration of the arbitration by the institution, (ii) incorporating statutory
procedures such as the United States Federal Arbitration Act (or applicable state law) or
the English Arbitration Act 1996, (iii) adopting rules crafted specifically for ad hoc arbitral
proceedings such as the UNCITRAL Rules6 (U.N. Commission on International Trade Law)
or CPR Rules (International Institute for Conflict Prevention and Resolution), which may be used
in both domestic and international disputes, and (iv) adopting an ad hoc provision copied from
another contract.7 Risks accompanying two of the available options are worthy of particular note.

Incorporating rules drawn by an institutional arbitration provider, amending provisions for

appointment of the arbitrator and excising provisions requiring administration by the provider,
carries with it the risk of creating ambiguities in the institutional rules as amended, despite efforts
to redraw them to suit an ad hoc proceeding. It is also possible that in the adaptation process the
parties may inadvertently create an institutional process. Copying an ad hoc arbitration clause from
another contract may also result in later grief if the purloined clause was originally crafted for a
particular, possibly unique, set of circumstances and/or was drafted taking into account different
applicable arbitration law.

Properly structured, ad hoc arbitration should be less expensive than institutional arbitration
and, thus, better suit smaller claims and less affluent parties. Ad hoc arbitration places more of a
burden on the arbitrator(s), and to a lesser extent upon the parties, to organize and administer the
arbitration in an effective manner. A distinct disadvantage of the ad hoc approach is that its
effectiveness may be dependent upon the willingness of the parties to agree upon procedures at a

6
BALCI, s. 109; ŞANLI, s. 96
7
ŞANLI, s. 98-99

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time when they are already in dispute. Failure of one or both of the parties to cooperate in
facilitating the arbitration can result in an undue expenditure of time in resolving the issues. The
savings contemplated by use of the ad hoc arbitral process may be somewhat illusory if delays
precipitated by a recalcitrant party necessitate repeated recourse to the courts in the course of the
proceedings.

i. Advantages of Ad Hoc Arbitration

A properly structured ad hoc arbitration should be more cost effective, and therefore better
suited to smaller claims and less wealthy parties. The ad hoc process places a heavier burden on
the arbitrator to organize and administer the arbitration. A distinct disadvantage of the ad hoc
process is that its effectiveness is dependent on how willing the parties are to agree on the
arbitration procedures at a time when there may already be a dispute. The failure of one or both
parties to fully cooperate can result in time spent resolving issues or an ultimate recourse to court.
A primary advantage of the ad hoc process is its flexibility, enabling the parties to decide the
dispute resolution procedure themselves. 8However, this will of course require a greater degree of
effort, cooperation and expertise from the parties to determine the arbitration rules. Often the
parties may misunderstand each other if they are different nationalities and come from different
jurisdictions, and this can cause delays. Again, once a dispute has arisen this may frustrate the
parties' intention to resolve the dispute on an ad hoc basis.

Such situations can be avoided if the parties agree that their arbitration should be conducted
under certain arbitration rules. This will result in reduced deliberation and legal fees, and parties
will be able to begin proceedings early as they will not have to engage in negotiating specific rules.
The United Nations Commission on International Trade Law (UNICITRAL) Arbitration Rules,
revised in 2010, are among the most suitable rules for this purpose.9

Another reason why ad hoc arbitration is less expensive than institutional arbitration is that
the parties will only have to pay fees for the arbitrators, lawyers or representatives and the costs
incurred in conducting the proceedings rather than paying fees to an arbitration institution. If the
amount in dispute is considerable, these fees can be prohibitively expensive. In order to reduce
costs, parties and the arbitrators may agree to conduct the arbitration at the arbitrator's office.

8
Art. 17, UNCITRAL Arbitration Rules
9
The UNCITRAL Arbitration Rules have been updated, effective August 15, 2010. Available at
https://www.uncitral.org/pdf/english/texts/arbitration/arb-rules-revised/arb-rules-revised-2010-e.pdf

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 The arbitrator’s fees will be negotiated directly between the parties and the arbitrators,
allowing them the option to negotiate, whereas in institutional arbitration the arbitrators' fees will
be set by the institution. The disadvantage here is that this can involve an uncomfortable discussion
and, in certain cases, the parties may not be able to negotiate a fee reduction. The arbitrators are
the 'judges' in the case and no party would wish to upset the judge, particularly before the
proceedings have even commenced.

ii. Disadvantages of Ad Hoc Arbitration

Parties wishing to include an ad hoc arbitration clause in the underlying contract between
them, or seeking to agree the terms of arbitration after a dispute has arisen, have the option of
negotiating a complete set of rules which meet their needs. However, this approach can require
considerable time, attention and expense with no guarantee that the terms eventually agreed will
address all eventualities. Furthermore, if parties have not agreed on arbitration terms before any
dispute arises they are unlikely to fully cooperate in doing so once a dispute has arisen.

As we have seen, bodies such as UNICITRAL have rules available which are designed
specifically for ad hoc proceedings. Other options available to parties wishing to proceed in this
way, who are not in need of rules drawn specifically for them, include:
• using or adapting a set of institutional rules such as the ICC Rules of Arbitration;

• incorporating statutory procedures, such as the English Arbitration Act of 1996;

• adopting an ad hoc provision from another contract.

These options all carry certain risks. For example, where rules drawn up by an institutional
provider are incorporated into ad hoc proceedings existing provisions which require administration
by the provider - such as making appointments - will need to be amended or excluded. This runs
the risk of creating ambiguities, or of the parties unintentionally creating an institutional process.

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 III. ISTITUTIONAL ARBITRATION

As international commercial arbitration has grown and expanded with the growth of
international business, arbitral institutions have also grown and changed.10 Instıtutıonal
arbitrations are administered by specialized arbitral institutions. A number of organizations
provide institutional arbitration services for international users, sometimes tailored to particular
commercial or other needs. The best-known international commercial arbitration institutions are
the International Chamber of Commerce (ICC)11, the American Arbitration Association (AAA)
and its International Centre for Dispute Resolution (ICDR), the London Court of Internatıonal
Arbitration (LCIA), and the Singapore International Arbitral Centre (SIAC).

These arbitral institutions have promulgated sets of procedural rules that apply where parties
have agreed to arbitration pursuant to such rules, typically by incorporating such rules in their
arbitration agreements. These rules set out the basic procedural framework for arbitral proceedings
and typically authorize the arbitral institution to assist in selecting arbitrators in particular disputes
(that is, to serve as “appointing authority”), to resolve challenges to arbitrators and to review the
arbitrator’s awards to reduce the risk of unenforceability. Each institution has a staff, with the size
varying significantly from one institution to another, and a decision-making body.

It is fundamental that arbitral institutions do not themselves arbitrate the merits of the parties
dispute. This is the responsibility of the individuals selected by the parties or institution as
arbitrators. In practice, arbitrators are almost never employees of the arbitral institution, but instead
are private persons selected by the parties. If parties cannot agree upon an arbitrator, most
institutional rules provide that the host institution will act as an “appointing authority,” to choose
the arbitrators in the absence of the parties agreement.

i. Advantages of Institutional Arbitration

10
The international caseload of major arbitral institutions nearly doubled between 1993 and 2003 and,
during the same period, more than tripled before the American Arbtiration Association and its
İnternational Centre of Dispute Resolution. See Christopher R. Drahozal & Richard W. Naimark,
TOWARDS A SCIENCE OF INTERNATIONAL ARBITRATION: COLLECTED EMPRICAL RESEARCH, 341, app.ı
(2005)
11
Ibid

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 For those who can afford institutional arbitration, the most important advantages are:

i. the availability of pre-established rules and procedures which ensure the arbitration proceedings
begin in a timely manner

ii. administrative assistance from the institution, which will provide a secretariat or court of
arbitration;

iii. a list of qualified arbitrators to choose from;

iv. assistance in encouraging reluctant parties to proceed with arbitration; and

v. an established format with a proven record.

Institutional arbitration saves parties and their lawyers the effort of determining the
arbitration procedure and of drafting an arbitration clause, which is provided by the institution.
Once the parties have selected an institution, they can incorporate that institution's draft clause into
their contract. Arbitration clauses can be amended from time to time by the institution, drawing on
experience in conducting arbitrations regularly, and ensures there is no ambiguity in relation to the
arbitration process.

An institution's panel of arbitrators will usually be made up of experts from various regions
of the world and include many different vocations. This allows parties to select an arbitrator
possessing the necessary skill, experience and expertise to provide a quick and effective dispute
resolution process. It should be noted, however, that the parties merely nominate an arbitrator - it
is up to the institution to make an appointment and the institution is free to refuse an appointment
if it considers that the nominated arbitrator lacks the necessary competence or impartiality. A
further benefit of institutional arbitration is that the parties and arbitrators can seek assistance and
advice from institutional staff. In a less formal ad hoc arrangement, parties to the arbitration would
have to approach the court in order to take the arbitration forward and this would inevitably incur
further expenditure.

One of the perceived advantages of arbitration generally is that it provides a final and binding
award which cannot be appealed. However, there is an inherent risk that a mistake made by a
tribunal could not be rectified at a later stage. To counterbalance this risk, some institutional rules
provide for scrutiny of the draft award before the final award is issued. A dissatisfied party could
then appeal to an arbitral tribunal of second instance which would be able to confirm, vary, amend
or set aside the draft award. Less formal processes provide no such option.

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 i. Disadvantages of Institutional Arbitration
The primary disadvantages of institutional arbitration are:

o administrative fees12 for services and use of the facilities, which can be considerable if there is a
large amount in dispute - sometimes, more than the actual amount in dispute13;

o bureaucracy from within the institution, which can lead to delays and additional costs14;

o the parties may be required to respond within unrealistic time frames

Both institutional and ad hoc arbitration have strengths. Institutional arbitration is a conducted
under a standing set of procedural rules and supervised by professional staff. As a practical matter,
this reduces the risks of procedural breakdowns, particularly at the beginning of the arbitral
process, and of technical defects in the arbitration proceedings and award. The institution’s
involvement can be particularly constructive in the appointment of arbitrators, challenges to
arbitrators, selection of an arbitral seat and fixing of arbitrator’s fees where specialized staff
provide better service than ad hoc decisions by national courts with little experience in such
matters.15 Equally important, many provisions concerning competence-competence, separability,
provisional measures, disclosure, arbitrator impartiality, corrections and challenges to awards,
replacement of arbitrators and costs.

On the other hand, ad hoc arbitration is arguably more flexible and potentially more
confidential than institutional arbitration. Moreover, the growing size and sophistication of the
international arbitration bar and the efficacy of legal regimes for arbitration arguably reduces the
advantages of institutional arbitration.

In reality, an ad hoc arbitration may not prove to be less expensive than the institutional
process. 16Firstly, the parties are required to make arrangements to conduct the arbitration but they

12
Some institutions, such as the LCIA, apply hourly fees.
13
Art. 41, UNCITRAL Arbitration Rules
14
The new ICC Rules expressly provide in their Article 1(2) that the Court is the only body authorized to
administer arbitrations under the Rules, including the scrunity and approval of awards rendered in
accordance with the Rules.
15
Gary B. Born, International Commercial Arbitration, (Kluwer Law International, 2014), p.126-127
16
According to statistics provided by the ICC, the institution’s administrative expenses were
approximately 2% of the total costs of arbitration in cases that went to a final award in 2003 and 2004.

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may lack the necessary knowledge and expertise. Arbitrations are generally conducted by people
who are not lawyers - however, this may result in misinformed decisions especially in international
commercial arbitration.

Secondly, where there is lack of cooperation between the parties or delay on the part of the
tribunal conducting the arbitration or writing the award, a party may need to seek court
intervention. Litigation costs would not only negate the cost advantages of ad hoc arbitration, but
also the parties' intention to avoid the courts through alternative dispute resolution methods.

Lastly, in complex cases the tribunal may seek to appoint a secretary to deal with the
considerable administrative work involved. The additional costs of the secretary's fees will add to
the cost burden of the arbitration.

IV. CONCLUSION

It is said that parties are the masters of arbitration. The short answer from this author’s
perspective, trying to wear both the arbitrator’s and counsel’s hat, is that institutional arbitration
is generally preferable to ad hoc and that if ad hoc is chosen, the UNCITRAL Rules should be
referred to.17 However, this is questionable in institutional arbitration, where the institution
effectively acquires the parties' powers to make decisions - such as the appointment of arbitrators
– and can impose their will upon the parties. This seems against the spirit of arbitration. Although
ad hoc arbitration may seem preferable in today's modern and commercially complex world, it is
really only suitable for smaller claims involving less affluent parties in domestic arbitrations.

In the context of international commercial disputes, institutional arbitrations may be more

suitable - despite being more expensive, time consuming and rigid. The institutional process
provides established and up to date arbitration rules, support, supervision and monitoring of the
arbitration, review of the awards and strengthens the awards' credibility. The particular
circumstances of the parties and the nature of the dispute will ultimately determine whether
institutional or ad hoc arbitration should prevail.

See Techniques for Controlling Time and Cısts in Arbitration, Report from the ICC Comission on
Arbitration 2007.
17
Conference: “Trends and Features in International Arbitration held in Oslo on 6 May 2010.

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