Parties agree to use arbitration as their chosen method of dispute resolution either by an arbitration agreement in relation to future disputes or by a submission agreement once a dispute has arisen. They must also make important decisions about where that arbitration will take place and what rules will govern it.

The rules under which arbitral proceedings will be conducted depend on whether the parties decide to have an "ad hoc" or "institutional" arbitration, and in the case of the latter, which institution they choose to administer the arbitration.

In this, the second part of our mini series on international arbitration, we take a look at the issues to consider when making decisions on where, and under what rules, arbitration will take place.

Ad hoc arbitration

Ad hoc arbitrations allow parties to conduct arbitration without the involvement of an arbitral institution and in accordance with procedural rules either agreed between the parties or laid down by an arbitral tribunal.

The most popular rules adopted are those published by the United Nations Commission on International Trade Law - the "UNCITRAL Arbitration Rules". These are specifically designed for worldwide use in ad hoc arbitrations.

Alternatively, parties can choose to devise their own procedural rules in an ad hoc arbitration, although there should be good reasons for incurring the time and expense of doing so. Parties may agree simply that any arbitration shall be conducted according to specific domestic legislation such as the Arbitration Act 1996 or the "laws of England and Wales".

The inherent flexibility of an ad hoc arbitration, especially in relation to the parties' choice of rules, means that it is particularly suited to cases requiring a greater level of sensitivity to the status and needs of individual parties. However, such flexibility may also be exploited by uncooperative parties and, as such, proceedings may not run smoothly until a tribunal and an agreed set of rules are in place. For this reason, the arbitration agreement should include a default appointment provision, which is triggered if one party refuses to appoint an arbitrator. The risk of non-co-operation after a dispute has arisen also reinforces the need for prior nomination of a known set of procedural rules.

Institutional arbitration

The alternative is an arbitration supervised by a specialist arbitral institution in accordance with its own established rules. The rules by which the arbitration is conducted in institutional arbitration, and the degree and nature of the administering institution's involvement, are intrinsically linked. From the outset, the parties submit to a ready-made set of internationally recognised rules and, in most cases, with the administrative support of specially-trained staff.

The perceived advantages (and disadvantages) of using certain institutions, and their rules, are determined by the specific preferences and requirements of individual parties and the nature of their dispute. The typical key areas of concern are:

Fees

Some institutions - such as the International Chamber of Commerce (ICC) and the International Centre for Dispute Resolution (ICDR) - charge fees in proportion to the size of the claim. The ICC also requires payment of a significant deposit which is intended to be a best estimate of the total costs of the arbitration.

By contrast, the London Court of International Arbitration (LCIA) fee structure is based upon the amount of time spent on a matter and usually involves small staged deposits. As such, the choice of institution can have a dramatic impact on the cost of the arbitration.

Speed

Some rules include certain procedural steps which are capable of causing delays to the procedure by many months. For example, the ICC Rules require the parties to agree Terms of Reference and submit awards for approval. Equally there are other institutions which facilitate a speedy arbitration, such as the LCIA and the Stockholm Chamber of Commerce (SCC) which do not include such steps. The SCC also provides Rules for Expedited Arbitrations.

Relevant experience and expertise

The nature of the parties and their dispute may affect the choice of institution and rules. For example, the World Intellectual Property Organisation is particularly suited to complex and/or international intellectual property disputes, particularly those that require the arbitrators to have a certain level of specialist knowledge. The International Centre for Settlement of Investment Disputes (ICSID) specialises in foreign investment disputes.

Scrutiny of award

Where parties are concerned at the prospect of the enforcement of a final award being challenged, they should consider ensuring that the rules of their choice of institution provide that the final award is scrutinised by a reviewing body. In an ICC arbitration, the ICC Court will scrutinise final awards for mistakes providing the arbitration laws of the country where the award is made require it to. The ICDR will also do this, but the LCIA, WIPO and SCC will not.

Choosing a venue

One of the key advantages to resolving disputes in international arbitration is the parties' ability to choose a neutral venue or "seat". By choosing a mutually satisfactory place for hearings, parties can avoid clear geographical, logistical and/or linguistic advantages (or disadvantages) of certain locations for individual parties, and thus conduct proceedings on a more level playing field.

The choice of seat will necessarily determine the framework of national laws within which the arbitral process is conducted and therefore define many of the procedural aspects of the arbitration. Choice of seat is arguably less important than it used to be, primarily because of the impact of international institutions standardising the rules of procedure. However, the key consequence of the choice of seat is the regime which will apply for the recognition and enforcement of a final award. For enforcement purposes, there are usually very strong reasons for choosing a venue within a jurisdiction which is a party to the New York Convention.