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Binding arbitration is defined as a contractual agreement to settle disputes out of court using a neutral third party called an arbitrator. The decisions of arbitrators are final and parties are required to adhere to the decision.

Example 1. Arbitration. All claims and disputes arising under or relating to this Agreement are to be settled by binding arbitration in the state of [insert state in which parties agree to arbitrate] or another location mutually agreeable to the parties.

In turn, the standard LCIA arbitration clause reads as follows: ?Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be ...

In the alternative, the arbitration clause should include a minimum set of rules providing for the composition and appointment of the tribunal. An appointing authority provision should also be included should the parties fail to appoint an arbitrator.

Binding arbitration means that the parties waive their right to a trial and agree to accept the arbitrator's decision as final. Generally, there is no right to appeal an arbitrator's decision. Non-binding arbitration means that the parties are free to request a trial if they do not accept the arbitrator's decision.

An arbitration clause forms the basis of the consent between investors and States that certain disputes are to be determined by arbitration. This consent is what gives rise to the jurisdiction of the arbitral tribunal. See also Jurisdiction of arbitral tribunals.