What is an Arbitration Clause?

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An arbitration clause is a clause in a contract that states that the parties will pursue arbitration in case of a breach of the agreement.  This arbitration can take place after good-faith negotiations between the parties have failed or can be mandatory immediately upon any breach.  Many businesses like to include arbitration clauses in their contracts because it simplifies the process of rectifying a breach.  Arbitration can be cheaper and more expedient than litigating the breach in court and for contracts between international parties, pursuing arbitration can be a fairer means of settling a dispute than resorting to local courts.

Arbitration clauses will often specify the specific arbitration organization that will handle the arbitration.  This is important because simply stating that the arbitration will take place in Japan does not make it clear whether the Japan Arbitration Association or the Japan Commercial Arbitration Association will handle the matter.

While not absolutely necessary, arbitration clauses in international agreements are often used in conjunction with a clause specifying the governing law to simplify the job of the arbitrators and relieve them of the burden of having to decide which country’s laws will apply.

If you have any questions about arbitration in Japan, please contact our office for a legal consultation.