Arbitration is a method of business dispute settlement involving neutral “arbitrators.” Arbitration is often required under business and consumer contracts and is seen as an alternative to litigation in courts. In most cases courts will honor arbitration clauses in contracts and refrain from entertaining lawsuits covered by arbitration.
The disputing parties typically choose the arbitrators, often with each side selecting one arbitrator and the two selected arbitrators choosing a third arbitrator. Alternatively, arbitrators may be chosen from an approved list through an “arbitration center,” such as the American Arbitration Association or the International Chamber of Commerce in Paris. Together the arbitrators are a “panel.” Arbitrators operate under rules of procedure regarding evidence, testimony, and the like that are more informal than court rules. Ultimately the arbitrators will render a decision that is binding upon the disputing parties. The binding nature of arbitration distinguishes it from mediation and conciliation, which is nonbinding. Mediators and conciliators act as “go-betweens,” attempting to facilitate resolution of the dispute, not decide it.
The decisions of arbitrators are called “arbitral awards.” Such awards are generally enforceable in courts under the U.S. Federal Arbitration Act and internationally, in the many countries like the United States that adhere to the “New York Convention” on judicial enforcement of arbitral awards. The enforceability of business-related arbitral awards around the globe is one of its key attributes.