What is Arbitration in Law?

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What is arbitration? As arbitration has grown in popularity and success, many businesses, individuals, and countries have begun to use the alternative dispute resolution process to resolve their contract and commercial disputes. International arbitration has also grown as a tool to bridge the legal systems of multiple countries. Arbitration can be a helpful tool to resolve disputes and avoid court; however, it is important to understand the legal and commercial implications of arbitration before diving in. This article will discuss arbitration, its place in the law, and what conflicts may benefit from arbitration to ensure that decisions to arbitrate are made with adequate understanding.

Defining Arbitration

Arbitration is an alternative dispute resolution process that allows the participants to submit their dispute to a decision maker known as the arbitrator. The arbitrator, or arbitral tribunal if there is a panel, is a neutral third party that reviews the evidence submitted by the parties through written evidence, argument, or both, to decide the case with a decision called the arbitration award. In some ways, it is similar to a bench or jury trial because the parties will present their evidence and have little control over the outcome, but the process is much less formal than a jury trial and allows flexibility in other areas.

An important characteristic of arbitration is that is consensual. Arbitration can only take place if the parties agree or have an arbitration agreement that allows them to submit the case to arbitration.

These are most frequently contained in arbitration clauses in contracts.

Specific Arbitration Types

While the majority of arbitrations proceed through the standard arbitration process, there are a few specific types of arbitration that aid dispute resolution for specific conflicts.

  • Binding Arbitration: Most arbitrations will be submitted to binding arbitration. This means that the decision that the arbitral tribunal makes will be the legally binding decision in the dispute and the parties must follow it unless there is a reason to overturn or appeal.
  • Non-Binding Arbitration: Occasionally, the parties agree to a non-binding arbitration. This means that the parties do not need to follow the arbitrator’s award. It functions similarly to an advisory opinion from a court. It can be helpful for the parties to be able to test out their arguments.
  • Baseball Arbitration: Baseball arbitration is a process where there are two packaged options that the parties present to the arbitrator who chooses between the two. The arbitrator is not allowed to change the options or meet in the middle.
  • Bracketed Arbitration: A bracketed arbitration, also called a high-low arbitration, results when the parties agree on a set range of acceptable decisions. The arbitrator issues an award within these parameters.

Outside of these minor changes or parameters on the arbitration decisions, arbitration proceeds similarly most of the time.

The Arbitration Process

The arbitration process is consistent across types of arbitration and subject matters. It will typically follow these steps:

  1. The parties choose to arbitrate. This will happen either after the dispute arises or after the parties determine that the dispute is covered by arbitration provisions in a contract.
  2. The parties choose an arbitrator. This can happen in a few ways. The arbitrator or arbitrators may be appointed by an organization or the parties to the dispute agree on an arbitrator for the dispute resolution.
  3. The parties submit written documentation of their arguments and how they would like the dispute to be resolved. The arbitrator will often review these before the formal hearing.
  4. The parties will attend an arbitration hearing where they will discuss their viewpoints and present their options. In some cases, the parties may not argue the case, especially if they feel confident in their written statements.
  5. The arbitrator issues an arbitration decision called the award. The parties will then need to follow this legally binding document.

Arbitration procedures are more uniform than other alternative dispute resolution mechanisms because they have a binding effect on the parties. Arbitration awards are difficult to overturn unless there is clear bias, so it is important to ensure that the parties receive what they expect.

The Law of Arbitration

Understanding that arbitration awards are legally enforceable means that it is important to know where the legal backing for enforcement can be found.

There are two major sections of law and an international convention that can apply.

The Federal Arbitration Act

The Federal Arbitration Act is the arbitration law in the United States. This law outlines the court procedures to enforce an arbitration award and ensures that arbitration agreements are honored in the United States. It also outlines when arbitration awards can be challenged in court.

Case Law

The Supreme Court and other national courts have heard various cases revolving around arbitration agreements and arbitration awards. In most cases, the court will enforce an agreement or award unless there was a clear unfair advantage.

New York Convention

The New York Convention is an international convention that governs international arbitration agreements and international commercial arbitration. This convention outlines how a court may acknowledge an agreement or award from another country or between citizens of countries with different governing laws. This enables a court to ensure that the arbitrators’ awards are enforced without having to make their own rules.

Judicial Arbitration: Determining What Disputes May Benefit

Certain disputes will benefit from the skill or expertise that an arbitral tribunal can bring to the table.

Commercial Disputes

Commercial arbitration allows businesses and companies to resolve their commercial and investment disputes through arbitration. This can be helpful, especially when arbitration clauses are contained in commercial contracts because it ensures that a business will not be tied up in court for every dispute. It can also benefit from an experienced panel of arbitrators for technical issues.

Employment Law

Arbitration works to resolve disputes in employment contracts because it can be confidential and allow either party to keep details secure. It also allows the dispute to be resolved quickly and the parties to move forward.

Intellectual Property

Disputes around the intellectual property can benefit greatly from a skilled and experienced panel of arbitrators given the advanced technicality of the subject area. An arbitral tribunal with IP experience will likely produce better results than an inexperienced jury.

Arbitration can be useful for many disputes. If you are interested in learning about arbitration, please check out our courses and other articles.

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