Legal Definitions - ad hoc arbitration

Ad hoc arbitration refers to a process of resolving a dispute through arbitration that is specifically created and managed by the parties involved, rather than being administered by an established arbitration institution (like the American Arbitration Association or the International Chamber of Commerce). The term "ad hoc" is Latin for "for this specific purpose."

In ad hoc arbitration, the parties themselves agree on all aspects of the arbitration, including:

• The number and selection of arbitrators
• The rules and procedures that will govern the arbitration
• The location and language of the proceedings
• How the costs will be shared

This approach offers flexibility and can be more cost-effective in some situations, but it requires significant cooperation between the parties to set up and manage the process.

Here are some examples to illustrate ad hoc arbitration:

• Example 1: Software Development Dispute

  A small tech startup, "Innovate Solutions," contracts with a freelance software developer, "CodeMaster," to build a custom application. During the project, a disagreement arises regarding the scope of work and payment for certain features. Instead of going to court or using a pre-existing arbitration service, Innovate Solutions and CodeMaster agree to resolve their dispute through ad hoc arbitration. They jointly select a retired software engineer with dispute resolution experience to act as their sole arbitrator, decide on a simple set of procedural rules for submitting evidence and arguments, and agree that the arbitrator's decision will be binding. They also agree to split the arbitrator's fees evenly.

  This illustrates ad hoc arbitration because the parties did not rely on an institutional body; they custom-designed the entire arbitration process, from selecting the arbitrator to defining the rules, specifically for their unique dispute.

• Example 2: Family Business Succession

  Two siblings, who are co-owners of a long-standing family manufacturing business, find themselves at an impasse over the terms of one sibling's buyout and retirement from the company. To avoid public litigation and preserve family relationships, they opt for ad hoc arbitration. They engage a mutually respected business valuation expert, who also has experience in mediation, to serve as their arbitrator. They draft a short agreement outlining the issues to be decided, the timeline for submitting financial documents, and the confidentiality of the proceedings. They agree that the arbitrator's decision on the buyout price and terms will be final.

  This is an example of ad hoc arbitration because the siblings created a bespoke arbitration framework—choosing their own arbitrator and setting their own rules—tailored precisely to their specific family business dispute, rather than using a standard institutional process.

• Example 3: International Supply Chain Disagreement

  A clothing retailer in the United States, "Global Threads," has a dispute with its fabric supplier in Vietnam, "Silk Weavers," over a shipment of materials that Global Threads claims did not meet quality specifications. Their initial contract did not specify an arbitration institution. To avoid the complexities and costs of litigation in either country's courts, both companies agree to ad hoc arbitration. They jointly appoint an independent textile industry expert from a neutral third country to act as arbitrator. They decide to use the UNCITRAL Arbitration Rules as a procedural guide but modify certain aspects, such as the language of the proceedings (English) and the location of the hearing (Singapore), to suit their needs. They also agree on how to share the costs.

  This demonstrates ad hoc arbitration because Global Threads and Silk Weavers established a unique arbitration process for their specific international trade dispute, selecting their own arbitrator, adapting existing rules, and determining procedural details without the involvement of a pre-existing arbitration institution.