International arbitration is often associated with institutions such as the ICC, LCIA, SIAC, HKIAC, SCC and others. These institutions perform useful functions. They administer cases, communicate with parties and tribunals, appoint arbitrators when necessary, decide arbitrator challenges, collect and administer advances on costs, scrutinise awards in some cases, and keep records of awards.
But does international arbitration truly need arbitral institutions?
Strictly speaking, no. International arbitration does not always need a full arbitral institution. It does, however, need something more modest, but essential: a workable mechanism to constitute the arbitral tribunal and to deal with problems concerning arbitrators once the arbitration has begun.
That is the core function without which arbitration can fail before it starts.
The Most Important Function: Constituting the Tribunal
For many arbitrations, the most useful aspect of an arbitration institution is not its letterhead, its case management team, its statistics, or even its rules. It is the ability to constitute the arbitral tribunal when a dispute has arisen and the parties can no longer agree.
At the time a contract is signed, the parties often assume that, if a dispute arises, they will be able to cooperate on procedural matters. In practice, once relations have broken down, even basic procedural cooperation may become impossible. A respondent may refuse to participate. A party may object to every proposed arbitrator. Two party-appointed arbitrators may be unable to agree on a presiding arbitrator. In such circumstances, the power of a neutral third party to appoint an arbitrator is not a procedural convenience. It is often what prevents the arbitration from stalling before it has even begun, and what allows the dispute to be heard at all.
This is precisely why the UNCITRAL Arbitration Rules devote significant attention to appointing authorities and the appointment of arbitrators. If the parties cannot agree on a sole arbitrator, the appointing authority may appoint one. If a party fails to appoint its arbitrator in a three-member tribunal, the appointing authority may do so. If the two arbitrators cannot agree on the presiding arbitrator, the appointing authority may appoint the presiding arbitrator. The appointing authority can also step in where there is a failure to constitute the tribunal under the Rules. This works because the UNCITRAL framework provides for an appointing authority, and, if none has been agreed, a mechanism for one to be designated.
Without such a mechanism, the party seeking arbitration may be forced to turn to national courts to constitute the tribunal. National courts frequently have powers to assist with appointment problems in ad hoc arbitration, but this introduces delay, uncertainty, local procedural requirements and potentially disputes over which court has jurisdiction. This can be especially problematic when the arbitration clause is poorly drafted or does not identify the seat of arbitration.
Challenges to Arbitrators Also Require a Decision-Maker
There is a second essential function: someone must be able to decide challenges to arbitrators.
A party may contend that an arbitrator lacks independence or impartiality. The challenged arbitrator may refuse to withdraw. The other party may disagree with the challenge. If there is no institution, no appointing authority and no other agreed decision-maker, the arbitration can become mired in procedural conflict.
Again, the UNCITRAL Arbitration Rules provide the answer. They allow an arbitrator to be challenged where circumstances give rise to justifiable doubts as to independence or impartiality, and if the challenge is not agreed or the arbitrator does not withdraw, the challenging party may seek a decision from the appointing authority.
This is not an administrative embellishment. It is a structural necessity. Arbitration depends on a tribunal that is properly constituted and perceived as independent and impartial. If there is no mechanism for deciding challenges, the process can become vulnerable to obstruction.
What Can Be Done Without an Institution?
Almost everything else can be handled without a full arbitral institution, provided there is a competent tribunal, a good set of procedural rules and an appointing authority able to intervene if necessary.
The UNCITRAL Arbitration Rules are the leading example. UNCITRAL itself describes them as a comprehensive set of procedural rules for arbitral proceedings, used in both ad hoc and administered arbitrations. They cover the appointment of arbitrators, the conduct of proceedings and the form, effect and interpretation of awards.
Once the tribunal is constituted, a competent arbitral tribunal can usually manage the arbitration efficiently. Under the UNCITRAL Rules, the tribunal may conduct the arbitration as it considers appropriate, subject to equality of treatment and a reasonable opportunity for each party to present its case. The tribunal is also instructed to avoid unnecessary delay and expense and to provide a fair and efficient process.
This means that many institutional functions can be replicated by the tribunal itself. The tribunal can establish a timetable, determine procedural issues, manage submissions, decide whether hearings are needed, address evidence and ultimately render an award. In most cases, there may be little need for an institution to supervise every procedural step.
This only works, however, because the UNCITRAL framework does not leave the parties entirely on their own. It assumes that an appointing authority can intervene if the tribunal cannot be constituted, if an arbitrator must be replaced, or if a challenge to an arbitrator must be decided.
Useful Bells and Whistles
This does not mean that arbitral institutions are useless. They offer conveniences that can be valuable.
For example, an institution may hold and administer advances on costs. The ICC explains that its advance on costs system is designed to ensure that the arbitration may proceed once the relevant fees and expenses of the arbitrators and the institution are covered.
Institutions may also keep copies of awards and provide certified copies. Under the ICC Rules, the Secretariat notifies the parties of the signed award, and additional certified true copies may be made available to the parties on request.
These are useful services. They can reduce friction and reassure parties. They can also be helpful when one party refuses to pay advances, when certified copies are needed, or when an institution’s administrative involvement gives the proceedings additional structure.
But such features are not strictly necessary for arbitration to function. Advances on costs can be requested by the tribunal under the UNCITRAL Rules. The tribunal can manage the proceedings. The tribunal can issue the award. What cannot safely be left to goodwill is the constitution of the tribunal and the resolution of arbitrator challenges.
The Dangerous Clause: “Disputes Shall Be Resolved by Arbitration”
The worst solution is not ad hoc arbitration. Properly drafted ad hoc arbitration can work very well.
The dangerous solution is a clause that merely says that disputes shall be resolved by arbitration, without identifying an institution, without incorporating the UNCITRAL Arbitration Rules or another set of rules, without naming an appointing authority, and often without specifying the seat, number of arbitrators or method of appointment.
That is a recipe for problems. Such clauses often leave the parties fighting about how to constitute the tribunal before they can even begin fighting about the merits. A clause should at least indicate the seat of arbitration and provide a mechanism for the appointment of the tribunal. Bare clauses that merely refer disputes to arbitration can create practical difficulties in activating the arbitration mechanism and getting the tribunal established.
The UNCITRAL model clause itself avoids this problem by providing that disputes shall be settled in accordance with the UNCITRAL Arbitration Rules, and it recommends that parties consider adding the appointing authority, number of arbitrators, place of arbitration and language of the proceedings. The model clause is as follows:
Model arbitration clause for contracts
Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules.
Note. Parties should consider adding:
(a) The appointing authority shall be . . . [name of institution or person];
(b) The number of arbitrators shall be . . . [one or three];
(c) The place of arbitration shall be . . . [town and country];
(d) The language to be used in the arbitral proceedings shall be . . . .
Conclusion
International arbitration does not always need an international arbitration institution. A well-run ad hoc arbitration under the UNCITRAL Arbitration Rules can be efficient, flexible and cost-effective.
But arbitration does need a mechanism to appoint the tribunal when cooperation breaks down. It also needs a mechanism to decide challenges to arbitrators. These are the indispensable functions that prevent arbitration from being derailed at the outset when one party refuses to cooperate, as frequently occurs once relations have deteriorated.
The lesson is simple. Parties may choose institutional arbitration. They may also choose ad hoc arbitration under the UNCITRAL Arbitration Rules with a designated appointing authority. What they should not do is agree only to “arbitration” in the abstract. A bare reference to arbitration, without rules, without an institution and without an appointing authority, is an invitation to procedural disputes before the merits are ever reached.