Arbitration as a form of alternative dispute resolution (ADR), is a prescriptive technique for the resolution of disputes initially outside the Court room. The parties refer a dispute to one or more persons (the “arbitrators”, “arbiters” or “arbitration tribunal”), by whose decision (the “award”) they agree to be bound. It is a resolution technique in which a third party reviews the evidence in the case and imposes a decision that is legally binding for both sides and enforceable. Arbitration is often used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is also frequently employed in consumer and employment matters, where arbitration may be mandated by the terms of employment or commercial contracts.
Arbitration can be either voluntary or mandatory (although mandatory arbitration can only come from a statute or from a legally valid contract that is voluntarily entered into by the parties. The parties agree to refer all existing or future disputes to arbitration, without necessarily knowing, specifically, what disputes will ever occur) and can be either legally binding or non-binding. Non-binding arbitration is similar to mediation in that a decision cannot be imposed on the parties. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable. By one definition arbitration is binding and so non-binding arbitration is technically not arbitration.