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Binding and Non-binding Arbitration – What is the Difference?

Posted on 04/03/2017 · Posted in Arbitration

Arbitration is a form of alternative dispute resolution (‘ADR‘) that is actively encouraged by the courts, and an increasingly popular route chosen by corporations and individuals seeking to resolve disputes because of the flexible, practical and cost effective alternative it offers to formal litigation.

As more and more disputes are approached – and settled – through the arbitration route, the role and responsibilities of the arbitrator hold more importance than ever. An arbitrator’s role is similar to a judge’s in that he or she is an impartial and independent third party who listens to and evaluates the evidence put forward by each of the disputing parties before making a final decision, also known as an ‘award’.

In binding arbitration, disputing parties waive their right to a trial and agree that they will be bound by the arbitrator’s final decision. In general, this decision can then not be appealed against, except in very unique circumstances such as when fraud or an infringement of public policy can be proven.

However, not all arbitration has to be binding, and parties can agree upfront before proceedings begin if they wish to pursue a non-binding arbitration.

Good company and good discourse are the very sinews of virtue”
Izaak Walton

Non-binding arbitration is a type of arbitration in which the arbitrator still makes a decision on the outcome of the dispute, but this decision is not binding, and no enforceable award is issued. In non-binding arbitration, each disputing party is at liberty to reject the decision of the arbitrator and instead request a formal trial.

But why invest time and money into a non-binding arbitration? There are still multiple benefits to non-binding arbitration, as even though it may not lead to a full settlement, it can help create guidelines for parties to follow or that can help them avoid conflict in their future dealings, thus preserving a healthy and positive working relationship that might otherwise further deteriorate in an all-out court battle. Parties may also treat non-binding decisions as an assessment of the strengths and weaknesses of potential court proceedings, but with the ultimate aim of reaching a mutually acceptable settlement.

Non-binding arbitration is most common in the United States and Canada, but is a useful alternative to binding arbitration for disputes which are less complex or in cases where parties simply require some guidance.

Both binding and non-binding arbitration have their merits, and it will depend on the specifics of the case as to which route is the most appropriate.

Expert Evidence is a professional firm concentrating on the four main areas of dispute resolution; acting as expert witnesses in financial litigation, mediation, arbitration and adjudication. The firm has a civil, criminal and international practice and has advised in many recent cases. Areas of specialisation include banking, lending, regulation, investment, and tax.

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Disclaimer – Please confirm any of the above views with your solicitor. Expert Evidence takes no responsibility or provides any guarantee that the views above are correct for your particular case or jurisdiction.