Arbitration is an alternative dispute resolution (ADR) method where parties submit their disagreements to a neutral third party, known as an arbitrator or panel of arbitrators, rather than going to court. The arbitrator acts as a private judge, evaluating evidence and arguments presented by both parties and rendering a binding or non-binding decision. This flexibility results in a more efficient and streamlined resolution compared to lengthy and costly court proceedings.

Arbitration is also known for its confidentiality, as hearings and awards are kept private, maintaining sensitive business information and avoiding adverse publicity. It is particularly valuable in cross-border transactions, as many international commercial contracts include an arbitration clause to ensure a fair and impartial resolution process.

However, arbitration has limitations, such as limited appeal scope, lack of legal scrutiny and accountability, and substantial costs. Despite these, arbitration remains a popular and effective means of dispute resolution, offering quicker and more satisfactory resolutions.