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.
Enforcement of Arbitration
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.