Legal arbitration is an out-of-court method for resolving disputes between two or more parties. In a typical arbitration proceeding, an independent arbitrator or a panel of arbitrators play the role of a judge and jury. The arbitrator usually performs functions like hearing each party’s case, examining the evidence, and making rulings on procedural issues. During the proceedings, an arbitration lawyer represents each of the parties. After all of the evidence has been presented, the arbitrator makes a decision, which may or may not be legally binding, depending on the terms of the legal arbitration.
Arbitration can be used to resolve a variety of issues – from business disputes and consumer cases to divorce and child custody proceedings. Parties may prefer legal arbitration over going to court because it is often less expensive, faster, and less formal. Arbitration can also provide parties with greater privacy and more convenience. A legal arbitration is generally more formal than other alternative dispute resolution (ADR) methods like mediation and negotiation. These ADR methods usually involve a more collaborative approach to resolving a dispute and do not end in a binding judgment.
In the business world, companies often include arbitration clauses in their contracts with suppliers, customers, and other entities. Some contracts require mandatory arbitration, meaning the parties must resolve any disputes through a legal arbitration. Other contracts allow for voluntary arbitration, in which case the parties are not required to resolve a dispute using arbitration methods. In the case of a voluntary proceeding, the parties still maintain the right to bring a lawsuit in court and to appeal the arbitrator's final decision.
An arbitration contract clause usually specifies whether the legal arbitration will be binding on the parties. In a binding arbitration proceeding, the parties must adhere to the arbitrator's final decision, just as they would in a court of law. Non-binding arbitration, on the other hand, means that the parties can still elect to bring the case to court or to use another form of dispute resolution.
Even in a binding legal arbitration, an arbitrator’s decision may be appealed in limited circumstances. For example, a court may reverse the decision if it can be shown that the arbitrator acted in a corrupt manner or was unfairly biased towards one party. A court may also consider an appeal if the arbitrator was bribed or exceeded his or her authority.
Arbitration clauses range greatly in scope. Some contracts include simple clauses that state an agreement to a legal arbitration if a dispute arises. Other clauses include specific requirements like the location for the arbitration, the number of arbitrators to be selected, who pays attorney fees and court costs, and which set of formal arbitration rules apply. As noted above, contract terms can also dictate whether the arbitration will be binding or not and whether it will be mandatory or voluntary.
