Business, Legal & Accounting Glossary

Definition: Arbitration


Quick Summary of Arbitration

In arbitration, an independent third party considers both sides in a dispute and makes a decision to resolve it. Arbitration is considered a form of alternative dispute resolution (ADR). It allows two parties to bring their legal dispute before an arbiter, or third party. Arbitration is considered a simplified version of a trial where both parties will receive information prior to the hearing. During the arbitration, both parties can hear witness testimony and present evidence. Each party is also allowed to cross-examine witnesses. Then the arbiter hears the evidence and makes a decision, which is generally binding to both parties.

Video Guide For Arbitration

What is the dictionary definition of Arbitration?

Dictionary Definition

The voluntary submission of a dispute to an impartial person or people for final and binding determination.

(or) the use of an arbitrator to settle a dispute.

  1. The act or process of arbitrating.
  2. A process through which two or more parties use an arbitrator or arbiter in order to resolve a dispute.
  3. In general, a form of justice where both parties designate a person whose ruling they will accept formally. More specifically in Market Anarchist (market anarchy) theory, arbitration designates the process by which two agencies pre-negotiate a set of common rules in anticipation of cases where a customer from each agency is involved in a dispute.

A process of settling legal disputes outside a court of law. In an arbitration proceeding, parties to a dispute submit the matter to an impartial third party for a resolution, agreeing in advance to comply with the judgment rendered. The arbitrator issues his decision after a hearing at which both sides are provided with the opportunity to present evidence and testimony. The arbitrator’s decision is usually final, and courts rarely re-examine it. Arbitration is a well-established and widely used means to end legal disputes. It is one of several categories of ‘alternative dispute resolution’ that offer the parties to a disagreement an option other than the typically expensive and unpleasant litigation process.


Full Definition of Arbitration

Arbitration is a means to settle a disagreement by turning it over to an impartial agent, the arbitrator. In order to properly carry out arbitration, an arbitrator is chosen by the two parties involved in the dispute. The key purpose of arbitration is to resolve the dispute by determining an equitable settlement. Traditionally, arbitration is carried out as a binding procedure. That is every arbitration decision is final and arbitration does not give way to further appeals. In practice, however, arbitration is usually performed by each side selecting one arbitrator, which in turn selects the third one. The dispute of arbitration is then presented to the three arbitrators chosen, with a majority of the arbitrators rendering a final decision. In financial disputes, arbitration is often favoured as a prudent alternative to litigation, which is typically a lengthier, less predictable, and more resource-consuming process.

Arbitration is the most formal alternative to litigation. In this process, the disputing parties present their case to a neutral third party, who renders a decision.

Arbitration is widely used to resolve disputes in both the private and public sectors.

Arbitration uses rules of evidence and procedure that are less formal than those followed in trial courts, which usually leads to a faster, less-expensive resolution. There are many types of arbitration in common use: Binding arbitration is similar to a court proceeding in that the arbitrator has the power to impose a decision, although this is sometimes limited by agreement — for example, in “hi-lo arbitration” the parties may agree in advance to a maximum and minimum award. In non-binding arbitration, the arbitrator can recommend but not impose a decision. Many contracts — including those imposed on customers by many financial and healthcare organizations — require mandatory arbitration in the event of a dispute. This may be reasonable when the arbitrator really is neutral but is justifiably criticized when the large company that writes the contract is able to influence the choice of the arbitrator.

In arbitration, an independent third party considers both sides in a dispute and makes a decision to resolve it. The arbitrator is impartial, which means he or she does not take sides. In most cases the arbitrator’s decision is legally binding on both sides, so it is not possible to go to court if you are unhappy with the decision.

Arbitration allows disputes to be settled without going to court, thus saving both time and money. Arbitration and mediation have become the two most popular forms of alternative dispute resolution. Arbitration is considered a more formal process than mediation, and in some states, litigants must first participate in arbitration or mediation before they can proceed to trial.

In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.

Most types of arbitration have the following in common:

  • Both parties must agree to use the process
  • It’s private
  • The decision is made by a third party, not the people involved
  • The arbitrator often decides on the basis of written information
  • If there is a hearing, it is likely to be less formal than court
  • The process is final and legally binding
  • There are limited grounds for challenging the decision

Traditionally, labour and commerce were the two largest areas of the law where disagreeing parties might resort to arbitration proceedings. However, since the mid-1970s, this form of dispute resolution has seen considerable expansion into other legal sectors. Today, for instance, a great many contracts will include clauses specifying arbitration in the event of a dispute between fellow contractees. Reliance on this mode of resolution is also becoming increasingly popular in the case of auto assurance claims and employment disputes. Even international business frictions are now frequently resolved by means of arbitration proceedings. A major reason for this development, no doubt, is that arbitration tends to be quicker, cheaper, and more private than the more traditional civil court hearing.



Examples of Arbitration in a sentence

The lawyer for the insurance company and the lawyer for the claimant could not reach an agreement, so the suit went to the judge for arbitration.

Rather than incurring all of the legal costs involved with taking the other person to court, many people find it’s easier to settle a claim in arbitration.

There was an arbitration clause in the contract making it necessary to seek out a mediator before going to an attorney to settle disputes.

By settling disputes via arbitration, parties involved in costly and time-consuming litigation issues can resolve issues without the need to escalate matters toward the civil court’s systems.

Lucy hated having to enact arbitration to close a deal between the seller and buyers when the terms of the purchase reached a deadlock from the inadequate representation of one of the parties involved.

Synonyms For Arbitration

arbitral tribunal

Related Phrases

uniform submission agreement
arbitration panel
compulsory arbitration
arbitration clause
Securities Industry Committee on Arbitration (SICA)
arbitration panel
compulsory arbitration

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Arbitration. Payroll & Accounting Heaven Ltd.
January 29, 2022
Chicago Manual of Style (CMS):
Arbitration. Payroll & Accounting Heaven Ltd. (accessed: January 29, 2022).
American Psychological Association (APA):
Arbitration. Retrieved January 29, 2022
, from website:

Definition Sources

Definitions for Arbitration are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 26th November, 2021 | 260 Views.