What is Business Arbitration?

Felicia Dye
Felicia Dye
Businessman with a briefcase
Businessman with a briefcase

Business arbitration is a method of settling disputes. Often referred to as commercial arbitration, this dispute resolution tactic allows businesses to work through disagreements in a professional manner that does not require them to go to court, but that does bind them to the final decision. The result is that agreements are often easier and quicker to reach, and the costs of doing so are substantially lower than they would be in the event of a lawsuit.

Disputes between businesses can be very inconvenient and can have long-reaching effects. Consider, for example, if there is a dispute between a supplier and a transport company. If an agreement is not reached and the products are not delivered, the distributor will suffer, which will in turn create a problem for consumers. Business arbitration is often the preferred resolution process in instances such as these.

In many cases, businesses sign arbitration contracts or clauses at the beginning of their dealings with one another. When a problem arises, the disputing parties are already aware of the manner by which it will be solved. Agreeing in advance is not a requirement, however. One party can submit a dispute to the arbitration association in his jurisdiction, and if the other party agrees to this method of resolution, the business arbitration can proceed.

All business arbitration terms are not the same. Some businesses may set strict rules, such as time limits or caps on award amounts. There may even be terms that allow the original terms to be modified under certain circumstances.

Business arbitration requires the involvement of a third party, the arbitrator. This is an individual who should be impartial to the matter. It is often best to have someone who has knowledge of or experience in the industry that the disputing parties are in. The arbitration association generally provides the disputing parties with a list of options and facilitates the process of helping them to make a mutual choice. If this is not possible, an arbitrator may be appointed by the arbitration association.

Although business arbitration allows disputing parties to avoid court, in many ways the proceedings are similar. The business arbitration process usually involves hearings, the presentation of evidence, and even testimony from witnesses. Each of the disputing parties must generally be provided equal opportunity to present their sides of the case.

Afterward, the arbitrator is usually given a certain amount of time to deliberate before making a final decision. This decision is binding, meaning that the parties generally must accept it and abide by it. Otherwise, they may find themselves in court.

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