Arbitration is a more formal approach to dispute resolution than litigation. In this process, the conflicting parties present their case to a neutral third party, who then makes a decision. This method is widely used in both public and private sectors. Negotiation is the primary mode of dispute resolution.
The two most popular forms of Alternative Dispute Resolution (ADR) are arbitration and mediation. Negotiation is usually the first step in resolving a dispute. This form of dispute resolution has the advantage of allowing the parties to control the process and the outcome. Negotiation is much less formal than other types of ADR and provides more flexibility.
In simple terms, arbitration is an out-of-court settlement of a disagreement between two commercial entities, decided by an impartial third party, the arbitrator. Decisions made by the parties tend to be more durable than those of a judge or jury in litigation or an arbitrator in arbitration. The arbitration is directed and decided by an arbitration panel or a single arbitrator, as agreed upon by the parties. Regardless of the type of arbitration being considered, it is important to be aware of both the benefits and restrictions that may arise when using arbitration to resolve legal issues.
The parties typically select the arbitrator and have control over certain aspects of the arbitration procedure. Mediation offers a flexible alternative to arbitration and can be initiated at any time before or during an arbitration case. The parties are entitled to a trial if they are not satisfied with the arbitrators' award, but in some systems they must pay court costs or arbitrators' fees if they do not obtain a better outcome in the trial. Arbitration agreements usually provide a way to select the arbitrator or panel of arbitrators, the format of the hearing, the procedural and evidentiary rules to be used, and the applicable law.
In arbitration, the third party (an arbitrator or several arbitrators) will play an important role, since they will issue an arbitration award that will be binding on the parties.