What is meant by "arbitration" in contract disputes?

Arbitration refers to a specific method of resolving disputes that occurs outside of the court system. It involves the submission of a disagreement between parties to an impartial third party, known as an arbitrator. This third party reviews the evidence and arguments presented by both sides and then makes a decision that is binding on all parties involved.

This process is sought after for several reasons, including its typically faster resolution time compared to traditional litigation, privacy, and the flexibility it offers in terms of procedures. Additionally, arbitration is especially common in commercial contracts where parties prefer to avoid the formalities and potential uncertainties of court proceedings.

In the context of contract disputes, arbitration serves as an effective alternative that provides a definitive resolution to the disagreement, thus allowing parties to move forward without further litigation. This distinguishes it from other options, such as mediation or informal negotiations, which may not culminate in a binding decision.