Define: Arbitration

UK 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.



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.

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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 a 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 sector.

In arbitration, an independent third party considers both sides in a dispute and makes a decision to resolve it. The arbitrator is impartial, 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.

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

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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.


Synonyms For Arbitration


adjudication, arbitrage, arbitral tribunal, mediation, arbitral


Cite Term


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Arbitration. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. February 25, 2020 https://payrollheaven.com/define/arbitration/.
Chicago Manual of Style (CMS):
Arbitration. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/arbitration/ (accessed: February 25, 2020).
American Psychological Association (APA):
Arbitration. PayrollHeaven.com. Retrieved February 25, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/arbitration/

Definition Sources


Definitions for Arbitration are sourced/syndicated and enhanced from:

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

This glossary post was last updated: 26th December 2018.