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What is Arbitration?

Arbitration is a formal legal process that can be put in place to help resolve disputes between different parties. It involves a neutral third party individual presiding over the dispute in order to come to a decision.

This process is often used as an alternative to court action, although it has some features in common with a more formal legal process. This can save the disputing parties a significant amount of time and money in order to come to a legally binding resolution.

This article takes a look at the ways that arbitration might be used in settling a disagreement. It also gives some detail on how the process of arbitration works in practice.

What are The Different Types of Arbitration?

Arbitration can be used in many different situations both nationally and even internationally. As a legal procedure in the United States, it is often preferred to litigation as it is more efficient, less costly, and is often chosen to resolve commercial disputes.

In the US, arbitration as a legal process often takes the following forms:

  • Commercial arbitration: This is when two commercial entities need to resolve a dispute regarding a contract or an agreement
  • Consumer arbitration: When a dispute occurs between a buyer and seller
  • Labor arbitration: This happens when a dispute arises between an employer and an employee

What is the Process of Arbitration?

Arbitration in practice can be similar in many ways to a court case. It has hearings, evidence, and presentations of both the parties’ arguments. It can also sometimes make use of lawyers and it has a legally binding outcome.

The arbitration process normally follows these steps:

  1. A request for arbitration is made by one of the parties seeking resolution
  2. An arbitrator or tribunal is appointed
  3. The arbitrator will have an initial hearing or meeting with the parties involved
  4. The parties will then prepare their case and exchange information
  5. Both parties present their testimony at an official hearing
  6. If the arbitrator allows, the conflicting parties can present any additional information
  7. The arbitrator makes a decision and awards the case to one of the parties

If arbitration fails and either one or both parties dispute the final decision of the case, it will then be a matter for the courts.

How are Arbitrators Appointed?

Arbitrators are normally fully trained professionals who have experience in ruling over disputes. They will usually be accredited by the American Arbitration Association (AAA) and will ordinarily have expertise in a precise type of dispute resolution.

Arbitrators and tribunals can be appointed via a few different selection methods:

  • Selection by mutual agreement between the disputing parties
  • Chosen by an existing tribunal member
  • Appointed by a court or another appointed third party

What’s the Difference Between Arbitration and Mediation

Arbitration and mediation are both forms of alternative dispute resolution (ADR). Whilst both seek to resolve disagreements there are some key differences between the two.

First of all, mediation is a voluntary procedure that parties can opt-out of. It is also not legally binding.

A decision made following arbitration on the other hand is legally binding. Arbitration is also not optional as it usually a legal requirement due to a contract clause or other pre-existing agreement.