Arbitration is a dispute resolution process which involves the resolution of the dispute by one or more independent third parties rather than by a court. These independent third parties, called arbitrators, are appointed by (or on behalf of) the parties in dispute.
The arbitration is conducted in accordance with the terms of the parties’ arbitration agreement which are usually found within the provisions of a commercial contract between the parties. Arbitration agreements are commonly included with in the terms and provisions of many commercial contracts. Basically, these arbitration agreements simply say that in the event of a dispute over the performance of the contact, the parties to the contact agree to resolve the dispute through arbitration rather than litigation.
In addition, arbitration is often used where the parties require a confidential process or where an arbitration award may be more easily enforced in a particular jurisdiction than a judgment from another jurisdiction's court.
As arbitration is a consensual process, an arbitrator has no power to determine a dispute unless the parties involved have agreed to this and the requirements of the arbitration agreement have been complied with. The disputing parties may agree to arbitrate before a dispute arises (most commonly by means of an arbitration clause included in a contract), or after a dispute has already arisen.