Arbitration Definition and Process

The term arbitration might sound like an age-old term, but it is a term that is very frequently used in the business world. You can find this term easily in places like credit card agreements, employment contracts, or retail contracts. It is a standard clause that parties include in deals before getting into it. Therefore, it is essential to have an understanding of this procedure.

Read this article to learn in-depth about the arbitration.

Definition

The arbitration can be defined as an alternate procedure to court proceedings to settle down a dispute among the two parties out of the court. One or more arbitrators give the binding decision in the conflict by the mutual agreements of the parties.

What is arbitration?

Arbitration is a type of Alternative Dispute Resolution (ADR). It is a procedure adopted by parties involved to settle their dispute without going to court in the hope of saving both cost and time in the process.

The court based procedure is known as litigation. Both processes are different from one another based on the processes involved in deciding the binding decision. Both methods are formal processes, and the final decision given by both processes is equally valid. However, the arbitration process is less expensive and takes less time to settle disputes as compared to the litigation.

The process of arbitration

In the arbitration process, the business dispute between two parties is taken in front of the disinterested third party with the hope of getting a resolution. The process of arbitration can be conducted within the organization. In this case, it will be referred to as ad hoc arbitration. Otherwise, parties can take the support of organizations like AAA (American Arbitration Association).

One or two arbitrators are mutually selected by both the parties involved. The arbitrators that provide resolutions are not necessarily required to be lawyers. The arbitrators selected can be an expert in the field of the dispute.

The process of arbitration is quite similar to the hearing process. In this process, both parties bring their evidence, and the arbitrator gives his opinion after hearing the evidence brought by both parties. The advice given by the arbitrator is not considered as public opinion or as a trial judge, but it is used as a binding decision between both parties to resolve their dispute.

The following steps are in the Arbitration Process.

1. Filing and Initiation

The process of arbitration begins when one party enters the demand for arbitration to the authorized institution like AAA. Then the other party involved in the dispute is notified and is asked to respond before the deadline.

2. Arbitrator selection

In the next step, the arbitrator is selected. The organization works with both parties involved and selects an arbitrator based on the type of dispute.

3. Preliminary hearing

Once the arbitrator is selected, the arbitrator conducts an initial discussion with both parties involved in the matter. In this step, the issue of the case is discussed and other critical procedural things like sharing information, witnesses, and depositions, etc.

4. Information exchange and preparation

The parties are given the time for the preparation and exchange of information at the proceeding.

5. Hearings

At the hearing, both parties will present information and evidence, and based on this evidence and information shared, the arbitrator gives his decision. The arbitrator usually provides the decision within one hearing unless the case is not very complicated.

6. Post-hearing submissions

Based on the discussion of the first gearing, both parties might be asked by the arbitrator to submit additional documents.

7. The award

In the last step, the case is closed by the arbitrator by issuing a decision or an award (If applicable).

Difference between Arbitration and Mediation

Many times, the process of arbitration is confused with mediation. Mediation is an informal process where a third party gets involved in the two parties having disputes about something.

The mediating is a voluntary act on behalf of the arbitrator, and the decision of the mediator is not binding on the parties involved in the dispute.

In the mediation process, the mediator meets both parties and makes them sit together to solve the dispute through mutual discussion and understanding.

Selection of an arbitrator

The choice of an arbitrator is an essential step in the arbitration procedure. The arbitrator selected for the arbitration process should have expertise in areas such as commercial, labor, employment, construction, or international disputes.

There are some organizations like the American Arbitration Association that have a roster of arbitrators in different areas that parties can select to resolve their differences.

Characteristics of arbitration

The arbitration is a procedure that two parties can choose to settle their dispute out of the court. However, it doesn’t mean that the arbitration procedure is informal. There are a few characteristics of arbitration that makes it a formal process that many parties opt for this procedure rather than going to court to settle their disputes.

Let us learn about them one by one.

1. Arbitration is consensual

The first and foremost characteristic of arbitration is that it is consensual. That means both parties involved in the arbitration process should agree to take part in the procedure.

The parties involved insert an arbitration clause in the relevant contract to avoid future disputes that might arise in the future among the parties. However, a current disagreement among the parties is referred to as a submission agreement in the arbitration procedure.

2. Arbitration is a confidential procedure

Another critical characteristic of arbitration is that it is a confidential procedure. The existence of the arbitration, any disclosure made during the process, and awards are kept confidential throughout the proceeding.

There are only a few exceptions like restricted access to trade secrets, other types of critical information shared with the arbitral tribunal, or with the arbitrator of the arbitration procedure are kept secret among the parties.

3. In arbitration, an arbitrator is chosen by the parties involved

In the arbitration process, both parties have the right to select a sole arbitrator with mutual understanding. However, if both parties want to have a three-member arbitral, then each party can choose to appoint one arbitrator from their side. Then these two arbitrators introduced by the parties have to agree on the presiding arbitrator.

Otherwise, the potential arbitrators can be selected by the center based on their expertise or direct members of the arbitral tribunal that can also be applied directly. There are specific organizations that provide arbitrators to the parties that might want to go for the arbitration procedure to solve their dispute rather than going to court.

There can be seasoned disputes-resolution generalists or highly specialized practitioners or expert arbitrators who are specialized in dealing with the entire technical and legal spectrum of intellectual property.

4. Arbitration is neutral

The arbitration process is neutral. That means, in the arbitration procedure, both parties are treated equally, and no party is given added advantage. For example, in the case of parties of different nations, parties have the right to choose the venue of arbitration, applicable law, and language used in the proceeding.

In this way, in the arbitration procedure, it is ensured that no parties are enjoying the home-court advantage.

5. The end decision of arbitration is final and easy to enforce

As per the rule, the parties are required to carry out the decision given by the arbitral tribunal without making any delay. However, under a few exceptional circumstances, the parties have permission to keep aside the decision for a specified period.