Legal Definition of Arbitration
Arbitration is a form of alternative dispute resolution (ADR) where a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.
Arbitration is often used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The key advantage of arbitration over court proceedings is its flexibility and the ability of the parties to choose many of the rules and procedures that will govern the process.
One of the fundamental principles of arbitration is that it is consensual. This means that both parties in the dispute must agree to submit to arbitration. Generally, this agreement is made via an arbitration clause in the contract involved in the dispute. However, it can also be made after a dispute has arisen. Once the parties agree to arbitration, they are generally bound by the arbitrator’s decision and limited in their ability to appeal it in court.
Arbitration can be either binding or non-binding. Binding arbitration means that the parties waive their right to a trial and agree to accept the arbitrator’s decision as final. Non-binding arbitration means that the parties are free to request a trial if they do not accept the arbitrator’s decision.
The arbitration process typically includes the appointment of an arbitrator or a panel of arbitrators by the parties. Arbitrators are usually experts in the law and in the specific subject matter of the dispute. They conduct proceedings in a manner similar to a court trial, with the presentation of evidence and arguments by both sides. However, arbitration allows for more flexibility in procedure and is generally less formal than court proceedings.
Once the arbitrator has heard the evidence and arguments from both sides, they make a decision, known as an arbitral award. This award is usually final and binding on the parties, and courts are typically reluctant to overturn arbitrators’ decisions. However, under certain circumstances, such as fraud, bias, or an arbitrator exceeding their powers, the award can be challenged in court.
Arbitration is favored in many business and commercial settings for its efficiency, confidentiality, and the expertise of arbitrators. Unlike court proceedings, arbitration can be kept confidential, which can be important for preserving business relationships and protecting sensitive information. Moreover, because the parties have greater control over the selection of arbitrators and the rules of the process, they can ensure that the arbitrator has the appropriate expertise to handle the specific nuances of the dispute.
In summary, arbitration is a widely used method of dispute resolution that offers parties the advantages of flexibility, efficiency, and confidentiality. While arbitration removes some of the procedural safeguards inherent in the court system, it allows for a potentially faster, more tailored dispute resolution process.