Arbitration is a formal method of dispute resolution involving a third party neutral who makes a binding decision. The third party neutral (the 'arbitrator', 'arbiter' or 'arbitral tribunal') renders the decision in the form of an 'arbitration award'.[1] An arbitration award is legally binding on both sides and enforceable in local courts, unless all parties stipulate that the arbitration process and decision are non-binding.
Arbitration is often used for the resolution of commercial disputes, particularly in the context of international commercial transactions. In certain countries, such as the United States, arbitration is also frequently employed in consumer and employment matters, where arbitration may be mandated by the terms of employment or commercial contracts and may include a waiver of the right to bring a class action claim. Mandatory consumer and employment arbitration should be distinguished from consensual arbitration, particularly commercial arbitration.
There are limited rights of review and appeal of arbitration awards. Arbitration is not the same as judicial proceedings (although in some jurisdictions, court proceedings are sometimes referred as arbitrations), alternative dispute resolution, expert determination, or mediation (a form of settlement negotiation facilitated by a neutral third party).
Parties often seek to resolve disputes through arbitration because of a number of perceived potential advantages over judicial proceedings. Companies often require arbitration with their customers, but prefer the advantages of courts in disputes with competitors.[5][failed verification] Prevalent advantages of arbitration over litigation involve:
Most importantly, the parties' ability to choose what substantive and procedural law governs the arbitration. This is often called the principle of 'party autonomy'.
In contrast to litigation, where one cannot "choose the judge",arbitration allows the parties to choose their own tribunal, since it is the parties who appoint the arbitrators. This is especially useful when the subject matter of the dispute is highly technical: arbitrators with an appropriate degree of expertise (for example, quantity surveying expertise, in the case of a construction dispute, or expertise in commercial property law, in the case of a real estate dispute) can be chosen.
Arbitration is supposed to be faster than litigation.
Arbitral proceedings (other than investor-state arbitration) and arbitral awards can be made confidential.
In arbitral proceedings the language of arbitration may be chosen, whereas in judicial proceedings the official language of the country of the competent court will be automatically applied.
Because of the provisions of the New York Convention 1958, arbitration awards are generally easier to enforce in other nations than court verdicts.
In most legal systems there are limited avenues for appeal of an arbitral award, which is sometimes an advantage because it limits the duration of the dispute and any associated liability.