AD-Hoc Arbitration in Business Contracts

Dispute Resolution has come a long way. In the past, the common perception for solving all disputes lied in the processes of court. With time, courts of law became congested and it was therefore required that other modalities be explored in matters relating to dispute resolution. Alternative dispute resolution has been developing for a long time, with Mediation and Arbitration being the most formidable alternatives to court procedures. Whereas mediation is used in informal arrangement of dispute resolution, arbitration has been touted as a stronger alternative to court procedures. In addition, court processes are costly and often take a lot of time to dispense justice. The fact that there must be a loser and a winner also dissuades court processes and that is why AD-Hoc arbitration exists.

AD-Hoc Arbitration Hearing
AD-Hoc Arbitration Hearing

Arbitration in Modern Times

In recent times, the development of global business has made it necessary for agreements to be made on how businesses will be contracted. In the local regimes and in the international field, business is being conducted everyday. Contracts have therefore become part and parcel for any business arrangements.

The increase in the number of mergers and acquisitions that paint the business practice, dispute resolution is one factor that cannot be ignored. This coupled with the increased availability of credit will sometimes mean that other parties are not willing to accept losses brought through non-payment. Through these developments, it has become necessary to state that there are a wide range of sectors that require business arbitration. With the optimism surrounding these mergers and acquisitions, it is required that there is a mechanism in which they can resolve their disputes amicably. Some of the industries affected are; technology, finance, telecommunications, healthcare, and media communication; just to name a few.

Arbitration in the Business World

For arbitration clauses in the agreements to be fostered by the new developments in the conduct of business, there needs to be an arrangement through arbitration mechanisms. Mergers and acquisitions especially bring the need for the development of arbitration foundations. For instance, a particular merger or acquisition might run into hundreds of millions. Where the transaction could have taken a lot of fees for attorneys, the cost of the same in arbitration is comparably reasonable. Additionally, disputes arising under the same arrangements will be speedily resolved. Business deals in general will go well or they can turn sour based on the good will and the intentions of the different parties. Ad-Hoc arbitration will be well placed to deal with such problems. This has happened in developed markets in China, Asia, Europe and the United States.

What is AD-Hoc Arbitration

The word AD-Hoc mean “for this specific purpose”. So, an AD-Hoc arbitration is one which not all the rules, guidelines and administrations have been outlined within the contract, thus; making it “for the specific purpose of this arbitration”. Each arbitration under that contract can be held differently, in different places, at different time and with different rules and guidelines.

Ad-Hoc arbitration can be administered by an institution such as the ICC, AAA, JAMS, or PhloxADR. The parties will therefore have to determine all aspects of the arbitration themselves – for example: the number of arbitrators, appointment of those arbitrators, the applicable law and the procedure for conducting the arbitration. In the description above, it is apparent that AD-Hoc arbitration clauses in agreements tend to be flexible and they take care of the parties’ needs while at the same time providing a cheaper option than institutionalized arbitration.

The clause in such an agreement does not necessarily mean that there will be specific spelled out terms. A simple clause such as the below referenced is sufficient for many AD-Hoc arbitration clauses.

“in case of any disputes arising out of this agreement as set herein, such disputes shall be referred to arbitration”.

This allows the disputing parties to agree on the terms of the AD-Hoc arbitration at the time of the dispute without wasting valuable contract space to outline all arbitration specifics. This further allows for many different types of disputes handled under the same contract or business model while all-in-all the business is growing and changing rapidly.

Costs in AD-Hoc Arbitration

The costs involved in AD-Hoc arbitration are only payable to the arbitrators, attorneys, or other representatives as they may be constituted. Costs as regarding courts can be minimized as the sittings can be done in conference centers, on a construction site, office site or in the arbitrator’s office. This is a huge cost savings as it avoids severely crowded courts, lengthily judicial constraints and allows for a flexible hearing schedule.

Depending on the type of hearing and award demanded in arbitration, the entire hearing can be from a thousand dollars up depending on many factors. Where the hearings are set to the number of arbitrators to the length of testimony heard, AD-Hoc arbitration allows for the disputing parties to curtail costs not viable in a court room settings.

Suited for AD-Hoc Arbitraiton

Parties in any arbitration are the masters of their dispute. In this regard, the parties should elect to be involved in AD-Hoc arbitration where the values involved are not prohibitive. The binding nature of AD-Hoc clauses can be disputed in court and therefore the preferable mean will be institutionalized arbitration. There are recognized bodies for this and the binding effect and the international recognition will be important for contracts between parties from different geographical locations.

Another important factor for suitability is whether the other party will patriciate. When a party will avoid service or intentionally delay when setting the terms just to further delay, it may be prudent to file a Motion to Compel Arbitration in a court of law. This allows the judge of the applicable jurisdiction to place the party on notice to appear and participate.

For the most part, AD-Hoc arbitration is intended for parties that have a business relationship where goods or services will be exchanged.

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