Referral to arbitration: Overview, definition, and example
What is referral to arbitration?
Referral to arbitration is the process in which parties involved in a dispute agree to submit their disagreement to an impartial third party, known as an arbitrator, for resolution. Arbitration is an alternative dispute resolution (ADR) method where the arbitrator listens to both sides of the dispute, examines evidence, and makes a binding decision that is enforceable by law. Referral to arbitration typically occurs when the parties have agreed in advance (through a contract or agreement) to resolve any potential disputes through arbitration rather than through traditional court litigation.
In practice, a referral to arbitration is initiated by one party sending a formal notice to the other party, indicating their intention to resolve the dispute through arbitration. The arbitrator’s decision is usually final and may only be appealed on very limited grounds, such as procedural errors or lack of impartiality.
Why is referral to arbitration important?
Referral to arbitration is important because it offers a more efficient, confidential, and potentially less expensive alternative to court litigation. Arbitration can resolve disputes more quickly than the court system and allows businesses to avoid the costs and public exposure associated with court trials. For businesses, arbitration provides a controlled process with a neutral third party, which can be beneficial when dealing with international disputes or ongoing business relationships where preserving confidentiality and minimizing disruptions is key.
For parties involved in a dispute, referring the matter to arbitration can be an effective way to settle disagreements outside of court, offering a flexible resolution process that can be tailored to the nature of the dispute and the preferences of the parties involved.
Understanding referral to arbitration through an example
Imagine two companies, A and B, that enter into a service contract. The contract includes a clause stating that any disputes arising from the contract will be resolved through arbitration. After a disagreement arises over the quality of the services provided, Company A decides to initiate the referral to arbitration by notifying Company B in writing. The dispute is then referred to an independent arbitrator who reviews the terms of the contract, hears both parties' arguments, and renders a binding decision on the matter.
In another example, a consumer and a service provider might enter into an agreement with an arbitration clause. When the consumer has an issue with the service received, they formally refer the matter to arbitration by filing a request with an arbitration body. The arbitrator then reviews the facts, makes a decision, and both parties are bound by the outcome.
An example of a referral to arbitration clause
Here’s how a referral to arbitration clause might appear in a contract or agreement:
“In the event of any dispute arising from or in connection with this Agreement, the Parties agree to submit the dispute to arbitration in accordance with the rules of [arbitration institution]. The arbitration will be conducted by a single arbitrator, whose decision will be final and binding upon the Parties. The location of the arbitration shall be [location], and the language of the proceedings shall be [language].”
Conclusion
Referral to arbitration is a valuable mechanism for resolving disputes efficiently and privately. It allows businesses and individuals to avoid the lengthy and costly process of court litigation, while still obtaining a legally binding resolution. By agreeing to refer disputes to arbitration, parties can ensure that disagreements are resolved in a controlled, impartial, and often quicker manner, which is especially beneficial in commercial, international, or high-stakes situations.
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.