Arbitration is a formal dispute resolution process governed by legislation107 in which two or more parties refer their dispute to an independent third person (the arbitrator) for determination. The aim of arbitration is to obtain a final and enforceable result without the costs, delays and formalities of litigation. Arbitration proceedings are private and can be held at a mutually convenient time. The actual proceedings are less complex than litigation and the arbitrator can be a person who is able to provide technical expertise relevant to the contract.
It is, nevertheless, an adversarial procedure with the possibility that neither party will be satisfied with the outcome,and it may be costly. Other possible drawbacks that should be considered before entering into arbitration include: the difficulty in selecting an agreed arbitrator; the expertise of the arbitrator for the particular case; uncertain appeal rights; and the lack of legal precedence.
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107 That is, the Commercial Arbitration Act 1984 NSW (or the equivalent in other states).