Administered or unadministered arbitration: what is the difference?

There are two types of arbitration:

a) Administered (or, as it is more frequently referred to, Institutional) arbitration.

b) Non-administered (or, as it is often referred to, Ad-Hoc) arbitration.

Administered/Institutional arbitration

An administered/institutional arbitration agreement will incorporate the rules of one of the recognised arbitral institutions and will be conducted under the aegis of that arbitral institution. There are many different international arbitration institutions to choose from. Examples of well known and popular  institutions, include the International Court of Arbitration of the International Chamber of Commerce (ICC) based in Paris, but with administrative offices in Hong Kong, New York; Sao Paolo, Singapore and Abu Dhabi, the LCIA (formerly known as the London Court of International Arbitration) in London; the Stockholm Chamber of Commerce (SCC); the International Centre for Dispute Resolution (ICDR, part of the American Arbitration Association headquartered in New York; the International Centre for the Settlement of Investment Disputes (ICSID, part of the World Bank) in Washington DC; the Hong Kong International Arbitration Centre (HKIAC); the Singapore International Arbitration Centre (SIAC); and, the China International Economic and Trade Association Commission (CIETAC) in Beijing.

The benefits of administered arbitration are:

Efficiency - The arbitration rules of the principal institutions are designed to ensure the efficient conduct of an arbitration through to the making of an enforceable award. The rules contain provisions which will ensure that a tribunal is appointed to deal with the arbitration, that a party cannot frustrate the arbitration by refusing to co-operate and that an arbitrator can not do so either.

Impartiality - A good institution will provide an impartial apparatus (unbiased toward any particular economic or political interest bloc) for the administration and supervision of the arbitration.

Support - An institution can assist in getting an arbitration started in the face of opposition from a reluctant party by ensuring that a tribunal is constituted without recourse to the courts for an appointment (such recourse, in any event, not being available in all countries). It can also assist in the selection of a suitable tribunal, oversee the payment of the expenses of the arbitration, fix the fees of the arbitrators, hold deposits as security for the costs of the arbitration, provide support and guidance for the arbitrators and the parties, review the award and keep hitches in the running of the arbitration to a minimum.

Possible disadvantages of institutional arbitration include:

Cost - Institutional arbitration tends to be expensive because in addition to the fees of the arbitrator(s) and the cost of the venue, the institution itself must be paid for the administrative service provided by it. It may be possible, however, to recoup the administrative fee by way of saved legal expenses in an efficiently administered arbitration. The saving in wear and tear on the parties and their advisers is also not to be underestimated.

Delay - The administrative procedures themselves may be time consuming and therefore not suited to arbitrations where speed is of the essence, although many institutions now provide for expedited arbitration within their rules.

Level of service - The level and quality of services provided by the arbitral institutions may vary.Some institutions, like the LCIA and the ICDR, offer a full service, including the institution of all communications between the parties and the tribunal. Others such as the ICC, offer a semi-administered service, controlling the establishment of the tribunal, fees and expenses and vetting the award. The tribunal and the parties, however, communicate directly with each other.

Non-administered/'Ad hoc' arbitration

In non-administered/ad hoc arbitrations the arbitration agreement may specify it own rules or adopt the arbitration rules of a trade or industry association or, for international arbitrations the UNCITRAL rules The advantages and disadvantages of non-administered/ad hoc arbitration are for the mos part, the converse of those for administered/institutional arbitration. The following point are, however, worth bearing in mind:

a) Non-administered arbitrations are not very suitable in countries which do not have well developed arbitration legislation, and a court system capable of enforcing the arbitration laws.

b) Non-administered arbitration may be more advantageous in connection with a dispute which has already come into existence. Knowing what the dispute is, and being aware of the circumstances surrounding it (such as the amount of relevant documentation and the number of potential witnesses) the parties can design ad hoc rule to sui the requirements of the particular dispute. This perceived advantage may sometimes be more apparent than real, however, because when a dispute has already arisen the parties often find it difficult to agree on procedural matters.

c) Ad hoc arbitration is not for amateurs. Ad hoc clauses are intricate to plan and time-consuming to draft and negotiate. Preparing them requires a practiced knowledge of all of the procedural matters covered in an institution' standard rules Ad hoc arbitration is best suited, not to routine contracts between parties inexperienced in dispute resolution, but to special business relationships between parties who are sophisticated in arbitration and whose draftsmen are keenly aware of the problems those special relationships may produce.

As can be seen, administered and non-administered are quite different. Both types of arbitration may contain traps for the unaware. It is important that the advantages and disadvantages of both are carefully considered before selecting one or the other.