Arbitration is a dispute resolution method where a neutral arbitrator helps parties reach a solution without going to court. An arbitration clause in a contract outlines the terms of arbitration and binds parties to the final decision, which is enforceable. The clause should specify what disputes will be handled, who pays for the services, and where dispute resolution will be handled.
Arbitration is a consensual dispute method. It allows disputing parties to have a neutral party, known as an arbitrator, to assist them in arriving at a solution. An arbitration clause is commonly inserted into contracts to eliminate the threat of lawsuits in the event of a dispute. This clause normally outlines the terms of the arbitration and binds the parties to the final decision.
When two parties agree to arbitration, they agree to resolve their issues without courts or lawyers. Resolving a dispute in court can be very expensive. Avoiding the potential payment of these costs is one of the main reasons for including an arbitration clause in a contract. Such a clause can be found in various types of contracts, including those between landlords and tenants or between employers and their staff.
The final decision in arbitration is usually made by the arbitrator. Although this person is not a member of the legal system, his or her decision is enforceable. A dissatisfied party generally cannot decide to go to court if he is not satisfied with the outcome. This is because the arbitration clause usually binds both parties to accept the arbitrator’s final ruling.
The arbitration clause generally outlines most or all of the terms surrounding the arbitration process. This should include what types of disputes will be handled this way. Many clauses state that all contractual matters are subject to arbitration. Others, however, limit the arbitration to minor matters, while reserving the right to contest important matters in court. When only certain issues will be handled by the arbitrator, they should be explicitly stated to eliminate confusion or disagreement.
Sometimes an arbiter is specified. In other cases, a process is outlined in the arbitration clause that specifies how an arbitrator will be chosen in the event of a dispute. In general, the parties to a contract have the opportunity to agree on the arbitrator. If the parties cannot reach an agreement, the arbitration clause typically indicates how that situation will be handled.
While arbitration is generally cheaper than a lawsuit, it is usually not free. This means that someone has to pay for the services rendered. The arbitration clause should indicate who is responsible for paying or what part of the costs is borne by each party.
Another important topic that should be covered in the arbitration clause is jurisdiction. In many cases, the parties to a contract containing such a clause are located in distant locations. Therefore, it may be necessary for the parties to agree on where dispute resolution will be handled.
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