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

Eta Ltd and Theta Ltd have an arbitration clause in their contract. Which statement about the arbitration process is correct?

Arbitration depends on the parties' agreement to submit the dispute to an arbitrator. It is consensual in origin, but once the agreement exists the resulting award is binding and enforceable, unlike a non-binding recommendation from mediation.

  1. AArbitration is imposed on the parties by statute whenever a commercial dispute arises
  2. BArbitration depends on the parties' agreement to submit the dispute to an arbitratorCorrect
  3. CThe arbitrator's decision is only a recommendation that neither party need follow
  4. DThe arbitrator must be a practising judge appointed by the state

Explanation

Arbitration is consensual and based on an agreement to arbitrate. The resulting award is binding, unlike mediation outcomes, and the arbitrator is usually a private individual or panel, not a state judge.

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