September2017/septembre 2017

Ad Hoc v. Institutional Arbitration – Advantages and

By William Hartnett, QC and Michael Schafler

The availability of institutional arbitration services from the ADR Institute of Canada (ADRIC) is a new
development which provides parties with another option for their arbitration. Accordingly, the authors
discuss the advantages and disadvantages of ad hoc arbitration and institutional arbitration in Canada.

There can be no doubt that arbitration as a real alternative to traditional litigation has taken a foothold in
Canadian dispute resolution culture. Parties, counsel and arbitrators have also, generally speaking,
begun to understand that arbitration is not “litigation sitting down”. Nor is it the case that institutional
arbitration necessarily means resorting to well-known foreign organizations like the International
Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), or the International
Center for Dispute Resolution (ICDR, an affiliate of the American Arbitration Association). Instead, Canada
now has its own national administering institution, the ADR Institute of Canada (ADRIC). Users of
arbitration should be aware of the key differences between ad hoc and institutional arbitration which we
would like to highlight in this paper.

What is an institutional arbitration? It is a proceeding where the parties designate an institution to

By contrast, an ad hoc arbitration is a proceeding that requires the parties to select the arbitrator(s), and
the rules and procedures. If necessary, the parties can still designate an arbitral institution as an
appointing authority and adopt an institution’s arbitration rules, if the rules allow the parties to opt out of
case administration by that institution. The parties may also adopt the UNCITAL ad hoc rules for domestic
and international disputes.

Each of these types of arbitration has advantages and disadvantages. We discuss some of these below,
recognizing that each situation has its unique circumstances, with the result that our list is by no means
exhaustive.

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The availability of ADRIC arbitration administration services in Canada is an important new development
which provides parties with another option for their arbitration. More generally, institutional arbitration
has the following advantages:

• Each institution publishes and makes available for use comprehensive rules which govern the
conduct of the arbitration – most, if not all institutions, now also provide for emergency relief
procedures (see e.g. ADRIC Rule 3.7).

• The parties will know the procedural rules well in advance of any actual dispute. There is,
therefore, no need to negotiate the rules of engagement at a time when the dispute has already
begun. This may result in a potentially less adversarial and speedier approach. Many institutions
have rosters of arbitrators setting out their qualifications and experience.

• Institutions, by application of their rules, are given the authority to appoint arbitrators at the
parties’ request or in the event that the parties cannot otherwise agree – so that the parties can
avoid going to court to seek an appointment.

• Draft arbitration clauses from institutions are up to date with recent developments in arbitration
law and procedure – and are less likely to lead to interpretive disputes.

• The institution – rather than the arbitrators – will communicate with the parties with respect to
fees, and will hold the funds.

We perceive the following disadvantages to institutional arbitration:

• There may be situations where the parties need to respond to the institution or pursuant to its
rules within unrealistic time frames, though the parties may be able to agree to time frames
more appropriate for the situation.

• Some users tend to complain about an overly “bureaucratic” feeling to the process.

• One needs to carefully review the rules before agreeing to them. For example ADRIC Rule 5.4.7(b)
renders the award immune to appeal, thus ousting the right (provided in most domestic
arbitration legislation) to seek leave to appeal.

• Some institutional fees may be expensive, in particular where they reflect a percentage of the
value of a significant amount in dispute.

Ad hoc arbitration has the following advantages, in our view:

• The parties have more flexibility to tailor the arbitration to their specific needs.

• It tends to be less expensive than an institutional arbitration since the parties will only have to
pay the fees for their lawyers and arbitrators. However, there will still be fees which reflect the
time spent by arbitrators on administrative matters. An ad hoc arbitration will be cost-effective in
situations where the parties and their counsel cooperate, the arbitration rules and procedures
are understood, and the arbitrators have the appropriate skills and experience. All of this also
assumes that counsel don’t treat the arbitral process as “litigation sitting down”.

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We see the following disadvantages to ad hoc arbitration:

• The failure of one or both parties to cooperate on arbitration rules and the appointment
procedure can result in higher costs, delay, and the need to seek recourse from the courts.
However, the parties can lessen this risk by agreement in advance on provisions for the use of
institutional rules and an institutional appointing authority, if necessary. There are numerous
institutions, such as ADRIC, which will appoint arbitrators at the parties’ request or in accordance
with the institution’s arbitration rules.

• The parties’ discussion about fees with arbitrators may be awkward since no party wishes to
upset an arbitrator who will determine the outcome of the arbitration.

• The arbitrators have the administrative burden with costs at their hourly rate.

Understanding these and potentially other advantages or disadvantages to arbitration processes is

W.J. Hartnett, Q.C. has been a leading proponent of using ADR to effectively resolve commercial disputes
for more than twenty-five years. In January 2017, he retired as vice-president and general counsel of
Imperial Oil Limited.

Michael Schafler is a partner with Dentons Canada LLP in Toronto. He co-leads Denton’s Litigation and
Dispute Resolution group in Canada and is a practice leader in Denton’s global Litigation and Dispute
Resolution group.

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