First, we should understand that both processes (litigation and arbitration) are similar in that third parties impose decisions on disputants by court judgments or arbitral awards. A major difference is that litigations are publicly conducted while arbitrations are private and confidential processes.

The arbitration agreement, signed by both parties in a contract, sets forth the limits of authority they are granting the arbitrator while presiding over their disputes. The arbitrator cannot act beyond this authority, however, if the parties agree, the authority may be expanded as they deem necessary.