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In most jurisdictions, arbitration is considered part of Alternative Dispute Resolution family (ADR), however, in the United Kingdom it is not considered ADR due to its close links with litigation. Arbitration is a private method of dispute resolution, chosen by the parties themselves as an alternative to litigation. The process is facilitated by one or more third party (the arbitrators) who has the authority to make the decision (award).
The outcome of arbitration can either be binding or non-binding. In cases of alleged unfair dismissal or claims under flexible working legislation, the arbitration service Acas run an Arbitration Scheme. The parties can choose the arbitrators, the process, the governing law to be applied and the seat of the arbitration. The practice of resolving disputes by arbitration only works because it is held in place by a complex system of national laws and international treaties.
There are several differences and similarities between arbitration and mediation and perhaps the most important one is that in mediation the parties have the authority to make the decision. The mediator (third party) is there to facilitate the process. In arbitration the parties do not make the decision, this is why some theorists say arbitration is not ADR and is similar to litigation.
References Redfern, A. and Hunter, M., (2004), Law and Practice of International Commercial Arbitration, (4th Ed, student version), Sweet and Maxwell, London.