The Role of the Arbiter Located in Harmondale

1) He will return most lost quest items.   For instance, if you misplace a golem piece, you may visit him, say "I lost it", and if indeed you have lost it, he will return it to you.

2) Judge Grey (the first arbiter) plays a role during the Human-Elf War that breaks out shortly after you rescue the stoned dwarves from the Red Dwarf Mines in the Bracada Desert.

3) Judge Grey's resulting death 4 months after said war breaks out will be the factor for a choice you will need to make.

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