Arbitration is a type of ADR: Alternative Dispute Resolution. The contracting parties agree in advance to make the dispute resolution by means of arbitration and include the arbitration clause in the contract.
If a dispute arises, apply for arbitration to the arbitration institution. The Awards issued by Arbitrators have an international force.
For example, it will be possible for Japanese companies to enforce on Chinese companies' assets in China based on arbitration decisions issued by the Japan Commercial Arbitration Association.
It cannot be said that this is a final decision of a trial. It is not possible to force a Chinese company's assets in China based on a final decision issued by a Japanese court. Also, from the beginning, it is necessary to bring a trial in China to win. The reverse is also true.
The benefits of arbitration are several.
1. Choosing an arbitrator
In a trial, basically, you cannot choose a judge. On the other hand, in arbitration, the parties can select an arbitrator.
The number of arbitrators is usually three. If it is an even number, it will not be possible to make a majority decision when the arbitration decision is divided. It is unreliable if alone and it is not always the case that the company can choose the arbitrator. If there are three people, one person for Japanese company, one person for Chinese company and the last one can be appointed in the discussion.
Of course, it can be 5 or 7 people, but it costs more. The rewards to the arbitrators will increase with the number of people.
2. You can save time and money because of one trial system
In Japan and the United States, trials are a three-trial system, in China, it is a two-trail system. On the other hand, arbitration only deliberates once.
There are no initial appeals or appeals and a short deliberation period saves time and money. On the other hand, there is also the risk that there is only one chance of getting an arbitration decision in favour of the company.
3. Can keep company secret because it is private
Unlike the trial which is open to the public, the arbitration is basically private. Due to this, it is said that it is suitable for dispute resolution for business secrets and intellectual property rights that the rival company should not know.
Arbitration is such an advantage but the problem is the selection of the arbitration institution and the place of arbitration.
Japanese companies will insist that they want the Japan Commercial Arbitration Association to act as an arbitration institution in Tokyo, etc. On the other hand, foreign companies often insist on doing, so at their home country arbitration institution.
A compromise against this is to adopt a defendant principle. In other words, if a Japanese company sues a US company, the American Arbitration Association will be the arbitration institution. On the contrary, if a US company sues a Japanese company, it will use the Japan Commercial Arbitration Association.
In this way, both parties have their advantages and disadvantages.