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Arbitration , in the law, is a legal alternative to the courts whereby the parties to a dispute agree to submit their respective positions to a neutral third party, the arbitrator, for resolution.

Generally, arbitration is used in a business-related dispute and usually entails a fraction of the time and money of litigation. Both parties agree to recognize an arbitration panel as a legal authority, and agree that the decision is legally binding. If the losing party fails to pay the award amount, the winner can transfer the decision to a court, which will enforce the award judicially. Arbitration procedures are usually closed to the public.

Either party to an arbitration may appeal the arbitrator's decision to a court, however the court will generally not change the arbitrator's findings of fact but will decide only whether the arbitrator was guilty of malfeasance, or whether the arbitrator exceeded the limits of his or her authority in the arbitral award or whether the award conflicts with positive law. Some jurisdictions have instituted a limited grace period during which an arbitral decision may be appealed, but after which there can be no appeal.

Some domestic jurisdictions have stipulated that judges may require either arbitration or mediation of certain disputes as a first step toward resolution. This is often the case in family law, particularly child custody cases.

To ensure effective arbitration and to increase the general credibility of the arbitral process, arbitrators will sometimes sit as a panel, usually consisting of three arbitrators. Often the three consist of an expert in the legal area within which the dispute falls (such as contract law in the case of a dispute over the terms and conditions of a contract), an expert in the industry within which the dispute falls (such as the construction industry, in the case of a dispute between a homeowner and his general contractor), and an experienced arbitrator.

Arbitrators have wide latitude in crafting remedies in the arbitral decision, with the only real limitation being that they may not exceed the limits of their authority in their award. An example of exceeding arbitral authority might be awarding one party to a dispute the personal automobile of the other party when the dispute concerns the specific performance of a business-related contract.

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