Arbitration

Arbitration is a method of dispute resolution where conflicting parties agree to submit their disputes to one or more arbitrators, whose decision they agree to be bound by.
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Updated on May 28, 2024
Reading time 4 minutes

3 key takeaways

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  • Arbitration is a form of alternative dispute resolution where disputes are resolved outside of courts by arbitrators.
  • The arbitrators’ decision, known as an award, is usually binding and enforceable by law.
  • Arbitration is often chosen for its confidentiality, speed, and efficiency compared to traditional court proceedings.

What is arbitration?

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Arbitration is a legal technique for the resolution of disputes outside the traditional judicial system. In arbitration, the parties involved in a dispute agree to present their case to an impartial third party or a panel of arbitrators. These arbitrators review the evidence, hear arguments, and make a decision known as an award. The award is typically binding on the parties and enforceable in court, providing a final resolution to the dispute.

Importance of arbitration

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Arbitration is important because it offers a private, efficient, and often less costly alternative to resolving disputes compared to court litigation. It is widely used in commercial agreements, employment contracts, and international trade because it provides a neutral and specialized forum for resolving complex disputes. Arbitration can also offer greater flexibility in terms of procedures and scheduling, and it allows parties to choose arbitrators with specific expertise relevant to their dispute.

How arbitration works

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Agreement to arbitrate: The process begins with an arbitration agreement, which can be a clause in a contract or a separate agreement. This agreement specifies that any disputes arising between the parties will be resolved through arbitration rather than court litigation.

Selection of arbitrators: The parties select one or more arbitrators to hear their case. Arbitrators are chosen based on their expertise, neutrality, and mutual agreement between the parties.

Arbitration proceedings: The arbitration process involves presenting evidence, witness testimonies, and arguments. The proceedings can be less formal than court trials and can be tailored to suit the needs of the parties involved.

Arbitration award: After considering the evidence and arguments, the arbitrator(s) make a decision, known as an award. This award is usually binding and final, meaning that the parties must comply with it.

Enforcement: The arbitration award can be enforced in court if necessary. Most jurisdictions have legal frameworks that support the enforcement of arbitration awards, ensuring that parties adhere to the arbitrators’ decision.

Examples of arbitration

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  • Commercial disputes: Two businesses involved in a contractual disagreement agree to settle their dispute through arbitration. They select an arbitrator with expertise in commercial law, present their cases, and accept the arbitrator’s binding decision.
  • Labor disputes: An employee and employer have a conflict over employment terms. Instead of going to court, they agree to arbitration, where an arbitrator reviews the case and makes a binding decision that both parties must follow.
  • International trade disputes: Companies from different countries face a dispute over a trade agreement. They choose arbitration to resolve the issue, benefiting from a neutral forum and arbitrators experienced in international trade law.

Real-world application

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Consider a technology company and a software vendor who have a contractual dispute over the delivery and performance of software. Their contract includes an arbitration clause, specifying that any disputes will be resolved through arbitration. When the dispute arises, they select an arbitrator with experience in technology contracts. The arbitration process is conducted, involving document submissions and hearings. After reviewing all evidence, the arbitrator issues a binding award, resolving the dispute more quickly and privately than through traditional court litigation.

Understanding arbitration is crucial for businesses, legal professionals, and individuals who seek efficient and effective ways to resolve disputes. It provides a viable alternative to court litigation, offering benefits like confidentiality, speed, and specialized expertise.

Related topics you might want to learn about include mediation, alternative dispute resolution (ADR), and contract law. These areas provide further insights into various methods and legal principles for resolving disputes outside of traditional courtroom settings.


Sources & references

Arti

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Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000 Invezz related data points, has read every piece of research, news and guidance we\'ve ever produced, and is trained to never make up new...