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With the rapid increase in importance of arbitration as a method of dispute resolution during recent years, it is imperative that one should understand what arbitration is. Arbitration refers to an alternative method for resolution of dispute without a formal court procedure. In arbitration, the dispute is settled by a privately-retained neutral party without seeking redressal in a court of law with a court trial. The person to whom the claims and defenses are presented is called the "arbitrator" or "arbiter." There are several methods of arbitration. These are collectively referred to as "alternative dispute resolution" (ADR). The arbitrators reach their decision after considering all the evidence presented, and listening to summary arguments in a dispute. Arbitration is one of the safest methods of conflict resolution. The process of arbitration is less expensive and less time consuming.
Usually, most commercial transaction agreements will contain arbitration clauses. As per these clauses, the parties can arbitrate their disputes without approaching a court. An arbitration clause shall state whether the parties agree to alternative dispute resolution by an arbitrator ordered by the court or a member of the American Arbitration Association. In case no contract exists, each party can choose an arbitrator. Those two arbitrators will select another arbitrator and all three will then form the arbitrating panel.
A tribunal formed to resolve a dispute by way of arbitration is called an arbitral tribunal. Such a tribunal shall be headed by a sole arbitrator or two or more arbitrators. If there are two or more arbitrators, the tribunal shall be headed by a chairman. The decision made by an arbitration tribunal is called an arbitral award. An arbitration award may be monetary or non-monetary in nature. Arbitration agreements as well as arbiter's decisions is enforceable under federal or state law. Ordinarily, an arbitration agreement states that it has been adopted for the resolution of any potential disputes and claims through the process of arbitration instead to resorting to the judicial system and its processes. Submission to arbitration will bind the parties to abide by the decision of the arbitrators. Before deciding a dispute, an informal hearing may be conducted, with both sides presenting witnesses and evidence.
Arbitral awards are binding over the parties who have committed to arbitration. In binding arbitration, the decision of the arbitrator is considered final and enforceable; whereas in a non-binding arbitration, although the arbitrator decides the rights of the disputing parties, such a decision is not binding on them. Arbitration awards issued in one contracting state can be enforced in another contracting state. However, enforcement of arbitration awards is possible in any other contracting state only if such enforcement is not against public policy.
The United Nations adopted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards on June 10, 1956. According to this convention, all courts of contracting states should effectuate private agreements to arbitrate made in other contracting states. By respecting the dispute resolution process, all contracting states are bound to enforce arbitral awards of other contracting states. As the international business started growing faster, the International Chamber of Commerce brought into force the International Rules of Arbitration on January 1, 1998.
Mediation is another dispute resolution process similar to arbitration. Here also, a dispute between two parties is heard by a mediator. However, the decision of the mediator is not binding over the parties and if not satisfied, they have the right to approach a competent court. Mostly, mediation happens in divorce cases and other family disputes to decide over alimony, child custody, child support, or division of property. A mediator's decision is considered only an advisory opinion.
Arbitration is an alternative dispute resolution process by which the matter that you are disputing will be decided over by a third party without approaching the court. An agreement to arbitrate over a dispute is called an arbitration agreement. Usually, a business contract will contain an arbitration clause. An arbitration agreement is a statement that commits both parties to a resolution of potential dispute of conflicts through an arbitration process, where the settlement of the dispute would not require the processes of the judiciary. In this adoption of arbitration, the parties also agree to bide by the final decision of the arbitrator.
A dispute subjected to arbitration will be arbitrated by an arbitral tribunal. An arbitral tribunal will be headed either by a sole arbitrator or two or more arbitrators. Usually, business agreements will contain an arbitration clause. Arbitration clauses state that disputes over a transaction will be resolved by arbitration. It will also contain information about selection of arbitrators. In other words, the arbitration clause clarifies and confirms that both parties, in case of a dispute, will agree to an alternative process of dispute resolution. This will be done by either an arbitrator selected by a court or a representative of the American Arbitration Association. The decision of the arbitrator is called an arbitral award.
Arbitration and mediation are two separate conflict resolution methods. Arbitration is the final resolution of a dispute, and enforcement of an arbitration award is strictly legal. Mediation is a similar process, but the decision of the mediator is not binding over the parties. Upon dissatisfaction, the parties can approach a competent court seeking redress. Generally, a mediator acts as an advisory body and is common in resolution of disputes related to divorce, alimony, child custody, child support, and division of property cases.
When arbitration is the chosen method of dispute resolution, the resulting arbitral award is binding on the conflicting parties. The arbitrator, under binding arbitration has the final say in the matter, and his/her decision can be mandatorily enforced. In the case where arbitration is non- binding, the decision regarding the issues between the parties in dispute by the arbitrator is not necessarily enforceable. However, in circumstances where arbitration awards are issued between contracting states, while most awards may be mutually enforceable, there may exist cases where the arbitration award may go against existing public policy, in which case, it cannot be enforced.
The New York Convention was adopted by the United Nations in the June of 1956. This convention resolved that private arbitration agreements in one contracting state should be effectuated in another contracting state. Therefore, it was a commitment by the contracting states to honor the alternative process of dispute resolution by recognizing and enforcing the arbitral awards from other participating/contracting states. Additionally, to accommodate the rapid growth of international business, The International Rules of Arbitration were drafted and brought into effect on the 1st of January, 1998 by the International Chamber of Commerce.