What is “arbitration”?

December 10, 2021

Category:

2 min read

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Origins

If you have a legal issue that needs resolved, who are you gonna call? (Hint: it’s not the Ghostbusters). You might instigate judicial proceedings, bring a claim against the other party or, increasingly, opt to use a method of dispute resolution that does not involve a court. One of these alternative methods is known as arbitration. With roots dating back thousands of years to the dawn of commerce itself, arbitration is a procedure where the parties agree to submit their disagreement to a neutral third party. After hearing the facts of the dispute, these independent adjudicators (known as “arbitrators”) will then deliver a binding decision. This is different from mediation, where a mediator assists the parties in reaching a solution but their guidance is non-binding.

Overview

In recent years, arbitration has increased in popularity, with many firms advising their clients to pursue non-judicial methods of dispute resolution instead of going to court. In fact, LexisNexis reported a 12.5% increase in the total number of arbitration cases brought between 2018 and 2019. But why is arbitration preferable to litigation? Well, for starters, it’s usually far cheaper than instigating court proceedings and often leads to resolution in much less time. Arbitration can minimise hostility, since all parties are encouraged to participate fully in the resolution process. This is very different from the “us-vs-them” mentality typically seen in traditional litigation. Arbitration is also great for multi-jurisdictional disputes, since the decision can be enforced worldwide without the need to rehear the issues in a separate court. However, arbitration is certainly not perfect. Since arbitration cases are usually dealt with in private, this can raise concerns about transparency in legal decision-making. Furthermore, the nature of arbitration itself means that power imbalances between parties can often be magnified.

Verdict

Despite its limitations, arbitration is certainly a good tool to have in a firm’s legal toolbox, and its ever-increasing popularity demonstrates just how useful it can be. For parties seeking a quick, cost-effective solution to their legal disagreement, arbitration might just be the perfect fit.

Report written by a LittleLaw Reporter

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