Arbitration procedure: Overview, definition, and example
What is arbitration procedure?
Arbitration procedure refers to the structured process by which a dispute between two or more parties is resolved by an impartial third party, known as an arbitrator, rather than by going through the court system. Arbitration is often included as a dispute resolution mechanism in contracts and agreements, providing a quicker, more cost-effective alternative to litigation. The procedure outlines the steps involved in resolving the dispute, including the appointment of arbitrators, the presentation of evidence, the hearing process, and the final decision (award).
Arbitration is typically governed by an arbitration agreement, which specifies how the procedure will be conducted, the rules to be followed, and how the arbitration decision will be enforced. Arbitration can be binding, meaning the decision is final and legally enforceable, or non-binding, meaning the parties can still pursue other legal remedies if they do not agree with the decision.
Why is arbitration procedure important?
The arbitration procedure is important because it offers a streamlined and private way to resolve disputes without involving the courts. It is especially valuable in commercial contracts, international agreements, and industries where confidentiality and expediency are crucial. Arbitration can help avoid the delays, costs, and formalities associated with litigation, offering parties a more flexible and quicker route to resolving their issues.
For businesses, arbitration procedures provide a means to address conflicts efficiently and ensure that decisions are made by experts in the relevant field. For individuals or parties to the agreement, it offers a way to resolve disputes without the public exposure or formalities of courtroom litigation, while still ensuring that the outcome is enforceable.
Understanding arbitration procedure through an example
Imagine two companies involved in a commercial contract dispute over product delivery and quality. The contract includes an arbitration clause that specifies that any disputes will be resolved through arbitration rather than in court. Following the initiation of the dispute, the companies select an arbitrator, who is an expert in commercial contracts. The arbitration procedure involves both companies submitting their evidence, presenting arguments, and attending a hearing. After reviewing the evidence and arguments, the arbitrator issues a binding decision that resolves the dispute.
In another example, two parties in a construction contract have a disagreement over payment terms. The contract includes an arbitration provision, and the parties agree to select an arbitration panel of three arbitrators. After a series of hearings, the panel renders a decision based on the contract terms and applicable law, and the final decision is binding on both parties.
An example of an arbitration procedure clause
Here’s how an arbitration procedure clause might appear in a contract:
“Any dispute or claim arising out of or in connection with this Agreement shall be resolved by arbitration in accordance with the rules of [Arbitration Organization]. The arbitration shall be conducted by a single arbitrator, who shall be appointed by mutual agreement of the parties. If the parties are unable to agree on an arbitrator, one shall be appointed by [Arbitration Organization]. The arbitration shall take place in [Location], and the language of the arbitration shall be [Language]. The arbitrator’s decision shall be final and binding on the parties, and any award may be enforced in any court of competent jurisdiction.”
Conclusion
Arbitration procedures provide an effective alternative to traditional litigation by offering a more efficient, private, and potentially less costly method for resolving disputes. By clearly outlining the process in a contract, parties can ensure that they have a clear path to resolution if issues arise. The arbitration procedure ensures that the dispute is handled by impartial experts and that the decision is enforceable, providing both parties with a clear resolution to the issue at hand.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.