Arbitration

Arbitration is a formal method of dispute resolution involving a neutral person or entity who makes a binding decision (commonly called binding arbitration). The neutral third party (the 'arbitrator,' 'arbiter,' or 'arbitral tribunal') renders the decision in the form of an 'arbitration award'. 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).

Advantages and disadvantages

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.