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ACCA Applied Skills · Corporate and Business Law (Global) · Alternative dispute resolution mechanisms

Altura Ltd and Brenner GmbH signed a supply contract containing a clause that any dispute must be referred to arbitration. A dispute arises over late delivery. Which statement best describes the effect of the arbitration clause?

An arbitration clause means the parties have agreed to submit disputes to a privately appointed arbitrator, and the resulting award is normally binding on them. It is not mere negotiation or non-binding mediation, because the parties have contractually given up the right to go straight to court.

  1. AThe parties have agreed to have the dispute decided by a privately appointed arbitrator, whose award will normally be binding on themCorrect
  2. BThe parties have agreed only to try to negotiate, and either may still go straight to court if they prefer
  3. CThe parties have agreed that a mediator will propose a settlement which neither side is bound to accept

Explanation

Arbitration is a private, consensual process in which the parties agree to submit disputes to an arbitrator whose decision (the award) is normally final and binding. Option B describes negotiation and option C describes mediation, where the outcome is not binding unless the parties agree.

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