Arbitration award: Overview, definition, and example
What is an arbitration award?
An arbitration award is the final decision or ruling issued by an arbitrator or a panel of arbitrators following the resolution of a dispute through arbitration. Arbitration is a form of alternative dispute resolution (ADR) where parties agree to resolve their conflict outside of a traditional courtroom by submitting their dispute to one or more neutral arbitrators. The arbitrators review the evidence, hear the arguments from both parties, and issue a binding decision, known as the arbitration award.
The arbitration award typically includes the findings of fact, conclusions of law, and the specific relief granted to the prevailing party, which could involve compensation, specific performance, or other remedies. Once the award is issued, it is enforceable by law, and the parties must comply with the terms outlined in the decision, subject to limited grounds for appeal or challenge.
Why is an arbitration award important?
An arbitration award is important because it provides a formal, legally binding resolution to disputes that have been resolved through arbitration. This ensures that both parties have a clear understanding of their obligations and rights following the dispute, and it offers a final, enforceable decision. Arbitration is often chosen for its speed, cost-effectiveness, and confidentiality compared to traditional litigation.
For businesses and individuals, the arbitration award provides certainty and closure, as the decision can be enforced through the courts if necessary. It also offers a more private and streamlined process than a public trial, which can help maintain business relationships and avoid lengthy litigation.
Understanding arbitration award through an example
Imagine two companies, ABC Corp. and XYZ Ltd., enter into a contract to supply goods. A dispute arises when ABC Corp. alleges that XYZ Ltd. failed to deliver the goods as agreed, while XYZ Ltd. argues that the contract terms were not fulfilled by ABC Corp. Instead of going to court, the parties agree to resolve the dispute through arbitration.
After reviewing the evidence and hearing both sides, the arbitrator issues an arbitration award, ruling in favor of ABC Corp. The award requires XYZ Ltd. to pay ABC Corp. $500,000 for breach of contract. The award also specifies that XYZ Ltd. must deliver the goods within 30 days or face additional penalties.
The arbitration award is final, and XYZ Ltd. must comply with the terms of the award. If XYZ Ltd. fails to comply, ABC Corp. can seek enforcement through the court.
In another example, a consumer files a complaint against a business regarding a faulty product. Both parties agree to resolve the issue through arbitration. The arbitrator reviews the facts, determines that the product was indeed defective, and orders the business to refund the consumer’s money and pay for damages. The arbitration award is legally binding, and the business is required to fulfill the terms.
An example of an "arbitration award" clause
Here’s how an "arbitration award" clause might appear in a contract:
“In the event of any dispute or claim arising out of or relating to this Agreement, the matter shall be resolved through binding arbitration. The arbitration award rendered by the arbitrator(s) shall be final and binding on both parties. The prevailing party in the arbitration shall be entitled to recover reasonable attorneys' fees and any costs associated with the arbitration process, as determined by the arbitrator(s).”
Conclusion
An arbitration award is the official decision rendered by an arbitrator or arbitration panel in a dispute resolution process. It is legally binding and enforceable, offering a final resolution to the conflict without the need for a traditional court trial. Arbitration awards are important for ensuring that parties understand and comply with the decision, providing closure to disputes while offering a faster, more private, and cost-effective alternative to litigation.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.