What is Arbitration? A Guide to Understanding the Arbitration Process

Arbitration is a method of resolving disputes outside of the courtroom. It is a voluntary process where parties agree to have their case heard by one or more arbitrators who act as neutral third parties. The arbitrator(s) listen to both sides, review evidence, and make a binding decision to settle the dispute.

Arbitration Process

The arbitration process involves several steps:

  1. Filing a demand for arbitration: One party initiates the process by submitting a demand for arbitration to the other party, specifying the nature of the dispute and the relief sought.
  2. Selecting an arbitrator: Both parties agree on selecting a neutral arbitrator or a panel of arbitrators who have expertise in the relevant field.
  3. Preliminary conference: A meeting is held to discuss the procedural aspects of the arbitration, set the timeline, and establish guidelines for the submission of evidence.
  4. Exchange of information: Both parties provide relevant documents, witness statements, and any other evidence supporting their case.
  5. Hearing: The parties present their arguments and evidence before the arbitrator(s) at a formal hearing. The arbitrator(s) may ask questions and consider witness testimony.
  6. Arbitration award: The arbitrator(s) review the evidence and arguments presented and issue a written decision, known as an arbitration award, which is binding on both parties.

Benefits of Arbitration

Arbitration offers several advantages over traditional court proceedings:

  • Speed and efficiency: Arbitration generally proceeds faster than litigation, saving time and reducing costs.
  • Flexibility and control: Parties have more control over the arbitration process, including selecting the arbitrator(s) and setting the schedule.
  • Expertise: Parties can choose arbitrators with specific knowledge and experience in the subject matter of the dispute, ensuring a fair and informed decision.
  • Confidentiality: Arbitration proceedings are typically confidential, providing a level of privacy to sensitive business matters.
  • Finality: Arbitration awards are generally final and binding, with limited grounds for appeal, providing closure to the dispute.

Types of Arbitration

Arbitration can take various forms, depending on the specific requirements of the parties involved:

Types of Arbitration Description
Ad Hoc Arbitration Parties agree on the rules and procedures to be followed during the arbitration process.
Institutional Arbitration Arbitration administered by established institutions, such as the American Arbitration Association (AAA) or International Chamber of Commerce (ICC), following their rules and processes.
Binding Arbitration The decision reached by the arbitrator(s) is final and legally enforceable, without the right to appeal.
Non-Binding Arbitration The arbitrator(s) provide a recommendation, but the parties are not required to accept it and can pursue other means of resolving the dispute.

Arbitration Agreement

An arbitration agreement is a contract between parties that outlines their intention to resolve any disputes through arbitration. It typically includes:

  • Dispute resolution clause: Specifies that any disputes arising from the agreement will be resolved through arbitration.
  • Arbitrator selection process: Outlines how arbitrators will be chosen, whether through mutual agreement or a specified institution.
  • Choice of law: Determines which jurisdiction’s laws will govern the arbitration process.
  • Confidentiality provisions: Sets out the level of confidentiality expected during the arbitration proceedings.


Arbitration provides an alternative to traditional court litigation, offering a streamlined, cost-effective, and flexible method for resolving disputes. It allows parties to maintain control over the process, choose arbitrators with industry-specific expertise, and achieve a final and binding decision. By opting for arbitration and including an arbitration agreement in contracts, small businesses can navigate conflicts efficiently and preserve valuable resources.