TYPES OF ARBITRATION SERIES-2 AD HOC ARBITRATION

his week in the arbitration types series, we wanted to continue with the subject of Ad Hoc Arbitration.

Ad hoc arbitration is a type of arbitration conducted by arbitrators specifically selected by the parties to resolve a dispute. The term “ad hoc” means that something is arranged or established specifically for a specific situation. In this context, in ad hoc arbitration, the parties initiate an arbitration process within the framework of their own rules, instead of a previously determined arbitration institution or rules, to resolve their disputes.

In ad hoc arbitration, an arbitration agreement is usually made and the parties freely determine which arbitrators will serve, how they will conduct the arbitration process, which rules will be applied, and similar details. This type of arbitration provides the parties with more flexibility because they are not bound by the rules determined by a formal arbitration institution. However, the parties must comply with a certain framework of rules for dispute resolution, and in this type of arbitration, the selection of arbitrators and the management of the processes may create disagreements between the parties.

The ad hoc arbitration process generally proceeds in the following steps;

1. Making the Arbitration Agreement: The parties make a contract or agreement stating that they will choose arbitration for resolution in the event of a dispute. The principles regarding the arbitration process are determined in this agreement (selection of arbitrators, rules, place of arbitration, etc.).
2. Selection of Arbitrators: The parties select arbitrators for dispute resolution. In this step, each party usually selects one arbitrator and these arbitrators form an arbitration board by selecting a third arbitrator. Alternatively, the parties may also select a single arbitrator. The arbitrators will serve according to the rules determined by the parties.
3. Determination of Arbitration Rules: In ad hoc arbitration, the parties do not adhere to an aritration institution or set of rules that they have previously accepted. Instead, they may accept the rules they determine or the rules of a specific arbitration institution. The parties may also determine the place of arbitration, language and other procedures.
4. Initiation of the Arbitration Process: The parties submit the necessary written application to initiate the arbitration process. This application usually includes the subject of the dispute, the requests and the parties’ contact information. The arbitration process begins after the arbitrators are selected.
5. Arbitration Proceedings: The arbitrators judge the case based on the evidence and arguments presented by the parties. At this stage, both parties present their oral or written defenses. The arbitrators evaluate the evidence presented by the parties and hear witnesses when necessary.
6. Making the Decision: At the end of the arbitration process, the arbitrator or arbitration board makes a binding decision against the parties. This decision must be accepted by the parties. The decision given in ad hoc arbitration is final and binding according to the rules specified in the arbitration agreement.
7. Implementation of the Decision: The implementation of the decision given in ad hoc arbitration is generally subject to the rules specified in the arbitration agreement and the process of recognition and enforcement of arbitration decisions determined by local laws. If the parties do not want the decision to be implemented, the decision can be enforced through the courts.

Ad hoc arbitration, although flexible, requires trust and agreement between the parties, because it operates without relying on specific rules and the support of a formal arbitration institution. Therefore, it is important for the parties to have good communication and agreement for the orderly operation of the process.

When looking at world examples, Ad Hoc Team is widely used in different judicial systems. If we consider these examples;

1. International Trade and Investment Arbitration (ICC – International Chamber of Commerce) Although ICC is generally known as an institutionalized arbitration provider, ad hoc arbitration is also quite common. Instead of ICC rules, parties can determine an independent arbitration process to resolve their disputes between themselves. Although the arbitration rules offered by ICC are very common, parties can choose an ad hoc process instead of ICC rules.
2. United Nations Commission on Trade Law (UNCITRAL) UNCITRAL has an important role in ad hoc arbitration. This institution, established by the United Nations, provides general rules for ad hoc arbitration (UNCITRAL Arbitration Rules). These rules help parties manage their own arbitration processes. They are frequently used worldwide, especially between states and non-state parties. Example: Many international investment disputes are resolved through ad hoc arbitration under UNCITRAL rules. For example, some investor-country disputes are arbitrated under UNCITRAL rules.
3. United States of America (USA) Ad hoc arbitration is also common in the US, especially in the trade and business world. Parties can resort to ad hoc arbitration under American arbitration laws (for example, the Federal Arbitration Act) and rules they determine. Example: Many major trade disputes are resolved through ad hoc arbitration based on the parties’ agreement. In addition, ad hoc arbitration can also be preferred in international investment disputes.
4. France France is an important center for ad hoc arbitration. French arbitration courts recognize ad hoc arbitration decisions and facilitate their implementation through the judiciary. French law allows parties to resort to ad hoc arbitration, especially in trade disputes. Example: Paris in France has been the center of many international trade arbitrations and ad hoc arbitration cases.
5. China China has widely accepted ad hoc arbitration, but many trade disputes in the country are resolved through official arbitration institutions. However, ad hoc arbitration offers an important solution, especially in disputes between investors and the government. Example: In investment disputes between China and other countries, ad hoc arbitration is usually conducted under UNCITRAL rules.
6. Germany Germany is a country that supports ad hoc arbitration practices. In German law, it is possible to resort to ad hoc arbitration in the event of a dispute between the parties, and such cases are frequently seen. Example: In Germany, ad hoc arbitration is widely used, especially in the trade and business world. Parties usually resort to arbitration under the rules they determine.
7. India Ad hoc arbitration is also widely used in India. The judicial system in India allows parties to resolve their disputes through ad hoc arbitration. Example: In India, ad hoc arbitration is often preferred, especially in the construction sector. In addition, disputes between foreign investors outside the country and India are usually resolved through ad hoc arbitration.
8. Brazil Ad hoc arbitration is also widely used in Brazil. Parties can usually determine their own arbitration processes with special agreements. Example: In the business world in Brazil, ad hoc arbitration practices are seen, especially in large construction and trade disputes.
9. Australia Australia is an important country in ad hoc arbitration, and ad hoc arbitration is preferred especially in the business world and trade sector. Parties can choose ad hoc arbitration with the rules they determine instead of an official arbitration institution. Example: International trade disputes in Australia are generally resolved through ad hoc arbitration.
10. African Countries In some African countries, ad hoc arbitration is a frequently used method, especially in trade disputes. Parties generally prefer to resolve disputes within the framework of the rules they determine. Example: In countries such as Nigeria and South Africa, ad hoc arbitration is a preferred solution method, especially in trade and investment disputes.

In Turkey, ad hoc arbitration is an arbitration method that is also accepted and applied in the Turkish legal system. Ad hoc arbitration in Turkey is widely used especially in commercial disputes and investment disputes. In this context, the legal regulations in Turkey regarding Ad Hoc Arbitration can be listed as follows;

• Turkish Code of Obligations No. 6098: Arbitration is regulated in the Code of Obligations. The Turkish Code of Obligations accepts that parties may apply to arbitration and that arbitration agreements are valid.
• Code of Civil Procedure No. 6100 (HMK): Article 410 of the HMK determines the procedural provisions regarding arbitration. These rules also apply to ad hoc arbitration.
• Turkish Commercial Code: Ad hoc arbitration can also be used in disputes related to trade. The Turkish Commercial Code also includes arbitration provisions regarding commercial cases.
• New York Convention (1958): Turkey, as a party to this convention, recognizes and enforces international arbitration decisions.

In Turkey, ad hoc arbitration is an alternative dispute resolution method that offers great flexibility to the parties. Parties can shape the arbitration process according to their own needs and obtain faster, more flexible and more specific solutions during the trial process. However, in ad hoc arbitration, good communication and understanding are required for the management of disputes between the parties and the smooth functioning of the process.

However, as with every resolution method, ad hoc arbitration also has some advantages and disadvantages.

Advantages of Ad Hoc Arbitration

1. Flexibility: Ad hoc arbitration provides the parties with more control and flexibility over the process. The parties can set their own rules, are free to choose arbitrators, and shape the arbitration process as they wish. This flexibility can be customized according to specific and commercial needs.
2. Less Formalities: It requires fewer formal regulations and procedures than institutional arbitration. This can provide a faster resolution process and simplify the parties’ transactions.
3. More Affordable Costs: Since you are not tied to a specific arbitration institution in ad hoc arbitration, there are no institutional fees and administrative expenses. This usually results in lower costs. The parties only pay the arbitrator fees and other direct expenses.
4. Fast Resolution: In institutionalized arbitration processes, delays can sometimes occur. Ad hoc arbitration can be concluded in a shorter time due to the parties agreeing quickly and initiating the process.
5. Suitability to the Needs of the Parties: By determining the details of the resolution process themselves, the parties can find more appropriate and faster solutions to certain disputes. In commercial and investment disputes in particular, it may be important for the process to focus on certain needs.

Disadvantages of Ad Hoc Arbitration

1. Risk of Disagreement Between the Parties: In ad hoc arbitration, the parties may have disagreements about how the process will work, which rules will apply and which arbitrators will be selected. Lack of trust between the parties can make it difficult to start the process.
2. Incomplete Legal Framework: In ad hoc arbitration, uncertainties may arise if all the rules and procedures are not specified in the arbitration agreement. This can be more complex and time-consuming for the parties because the management of the process becomes less clear.
3. High Referee Fees: In ad hoc arbitration, the parties choose their own arbitrators, and the fees of these arbitrators can be higher than the fixed fees of a particular arbitration institution. These fees can be a significant cost element, especially when highly experienced arbitrators are selected.
4. Enforcement of the Decision Can Be Difficult: In ad hoc arbitration, the recognition and enforcement of decisions made by national courts can sometimes be problematic. If one of the parties does not recognize the arbitration decision, it may be necessary to go to court, which can cause the process to be prolonged.
5. Lack of Experience: For some parties, the management of the process in ad hoc arbitration can be more complex. This is because the parties lack the experience and infrastructure provided by arbitration institutions. Inexperienced parties in particular may have difficulty managing the process.
6. Concerns About Independence and Impartiality: There may be doubts about the impartiality and independence of the arbitrators. The parties may think that the arbitrators they choose may be under pressure to make a fair decision. In addition, lack of trust between the parties can create resistance to the arbitrators’ decision, making the process difficult.

As a result, Ad hoc arbitration can provide advantages, especially flexibility, speed and cost. However, there may also be disadvantages such as uncertainties in the process, disagreements between the parties and difficulties in the execution phase. The arbitration method to be used may vary depending on the needs of the parties, the characteristics of the dispute and the level of trust between the parties.

When looking at the world, it is widely used in different jurisdictions. This method provides flexibility to the parties and is generally preferred as a solution for private trade disputes and investment issues.

Sources

https://jusmundi.com/en/document/publication/en-ad-hoc-arbitration

https://eskihukuk.com/ad-hoc-arbitration-or-institutional-arbitration-advantages-and-disadvantages

https://www.carlsonssolicitors.com/news/2021/9/1/what-is-ad-hoc-arbitration-and-why-is-it-used

https://www.resithukuk.com/blog/comparison-of-ad-hoc-arbitration-and-institutional-arbitration

https://www.euro-arbitration.org/node.php/en/adhoc

https://www.pinsentmasons.com/out-law/guides/institutional-vs-ad-hoc-arbitration

https://www.acerislaw.com/arbitration/ad-hoc-arbitration/

https://centerarbitr.ru/en/ad-hoc-arbitration/general-information/

Resul, ŞAHİNOL; “Ad Hoc Tahkim (Uncıtral Tahkim Kuralları)”, Master Tezi, Ankara, 2006.

Ziya, AKINCI; “Milletlerarası Tahkim”, Vedat Kitapçılık, 4.Bası, İstanbul 2016.