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The Japan Commercial Arbitration Association

March 1998 JCA Newsletter Number 3

Expedited Procedures Introduced by JCAA

Amendment of Commercial Arbitration Rules and Arbitration Fee Regulations

The amendment of JCAA's Commercial Arbitration Rules and Arbitration Fee Regulations were passed by its Board of Directors on May 28, 1997 and came into effect on October 1, 1997. The main purpose of the amendment is to expedite aribitral proceedings by setting up a special channel for disputes of relatively small amounts as one way to promote the use of commercial arbitration. For this amendment, in 1996 JCAA established the Working Party on Preparation for the Expedited Arbitration Rules, consisting of five experts. Prof. Yasuhei Taniguchi, Kyoto University chaired the Working Party, and Prof. Toshio Sawada, Sophia University and Vice President of ICC International Court of Arbitration participated as adviser. The working party met four times and deliberated issues based upon draft rules prepared by JCAA secretariat as the basis for its discussion. In preparing the draft rules, the secretariat studied such rules as the Expedited Procedures, both in the Commercial Arbitration Rules of American Arbitration Association and in the Arbitration Rules of Chamber of Commerce and Industry of Geneva, and the Rules for Expedited Arbitrations of the Arbitration Institute of The Stockholm Chamber of Commerce and WIPO Expedited Arbitration Rules.
Taking into account the results of the working party's deliberation, JCAA amended the Rules and the Regulations. The principal points of the amendment are summarized as follows:

1. Amended Points of the Commercial Arbitration Rules

(1)The Expedited Procedures were inserted as a separate chapter (Chapter V) in the Commercial Arbitration Rules.
(2)The Expedited Procedures shall, in principle, apply in any case where the amount and economic value of the claimant's claim are not more than ¥20,000,000.
(3) Notwithstanding the provisions of Rule 10, Paragraph 1, the "Basic Date" shall, under the Expedited Procedures, be the date after the lapse of one (1) week from the date on which the Association sends a notice of acceptance of the request for arbitration. Because of this shortening of the period of time, the Association will, in principle, send such notice via private courier service instead of registered airmail.
(4) Neither the claimant nor the counterclaimant may amend or supplement its claim and counterclaim.
(5)The arbitral tribunal shall consist of a sole arbitrator in any event.
(6)The arbitral tribunal may, in principle, hold a hearing for one (1) day only.
(7)The arbitral tribunal shall, in principle, make an arbitral award within three (3) months after its establishment.
(8)Under the former Rule, Rule 43, Paragraph 1, the clerk in charge prepares a draft of minutes for each hearing and completes the minutes after adjustments of various opinions of the arbitrator(s) and the parties. This adjustment work takes time and is troublesome, and such minutes are seldom seen in the rules of other arbitral institutions. Because of those reasons and the expected increase of arbitration cases, drawing up of minutes was abolished in usual procedures as well as in the Expedited Procedures, and a summary record will be prepared instead for internal use only. Further, the drawing up of minutes for the arbitral proceedings already initiated at the time of the amendment of the Commercial Arbitration Rules was determined to be also simplified due to the above reasons.

2. Amended Points of the Arbitration Fee Regulations

(1)With introduction of the Expedited Procedures, the administrative fee in a case where the amount and economic value of a claim are not more than ¥20,000,000 was reduced to lighten the burden of arbitration costs incurred by the parties.
(2)Article 4 of the Regulations, providing for the administrative fee in case of withdrawal of the request for arbitration, may not apply to the Expedited Procedures, and so, separate provisions were set forth in Article 5.

Ministry of Justice and Nichibenren Set up a Joint Study Group on International Arbitration

The Ministry of Justice of Japan and The Japan Federation of Bar Associations ("Nichibenren") jointly set up on December 25, 1997, a study group on international arbitration, whose main objective is to find measures to activate international arbitration in Japan.
The group, which is comprised of scholars, practicing lawyers, businessmen, officials of governmental agencies and representatives from arbitral institutions including the President of JCAA, is scheduled to conduct a research study on the current status of and problems of international arbitration in Japan.
The report on its research study is expected to be submitted to the Ministry of Justice and Nichibenren by March 1999.

Preparatory Work for Reviewing Japan's
Arbitration Law Under Way

As a first step in the review of Japan's century-old arbitration law, a study group established at the beginning of 1997 by the Ministry of Justice has been conducting a comparative study of arbitration laws of some 30 countries.
In the next step, for the coming year, the study group is to conduct a preparatory study aimed at amending Japan's arbitration law system, and is expected to work up the result of its research and deliberation into a report to be submitted by March 1999 to a subcommittee belonging to the Civil Procedure Law Committee of the Legislative Council, an advisory body to the Ministry of Justice.

JCAA International Commercial Arbitration
Forum Held in Tokyo

On November 26, 1997, the International Commercial Arbitration Forum was held at the Tokyo Chamber of Commerce and Industry in Tokyo. The forum was supported by the Ministry of International Trade and Industry, the Japan Chamber of Commerce and Industry and the Tokyo Chamber of Commerce and Industry. The main theme was "Guidance on International Arbitral Proceedings for Users and Arbitrators." JCAA invited as speakers two prominent experts from the Chartered Institute of Arbitrators: Mr. Arthur D. Harverd, Chairman and Senior Vice President and Prof. Dr. Neal G. Bunni, Vice President of the Institute. The moderator was Prof. Yasuhei Taniguchi, Kyoto University.
Most of the estimated 140 participants in the forum were business persons in charge of legal and international affairs, while others were lawyers and professors of law. The opening addresses were given by JCAA President N. Maeda and N. Miyazawa, Director for International Commercial Arbitration, Ministry of International Trade and Industry.
Following Prof. Taniguchi's introduction, Mr. Harverd's address focused on the perspective of user and explained well how the parties, taking the initiative, proceed effectively with the arbitral proceedings. On the other hand, Prof. Bunni focused on the perspective of arbitrator and specifically and effectively explained, by using his own lap-top computer connected to an overhead projector, how arbitrator(s) should proceed with international arbitral proceedings, from the first stage of the appointment of an arbitrator to the final stage of rendering an arbitral award, including but not limited to the matter of duties of arbitrators and the effective conduct of the proceedings.
Following the speeches, a discussion was held based on questions from participants on the arbitral proceedings in the international case as well as English Arbitration Act 1996. Among them, the issue of liability of arbitrators and arbitral institution to the parties was raised by Prof. Toshio Sawada of Sophia University, Vice President of ICC International Court of Arbitration, and a fruitful discussion on this issue was shared by the participants, the speakers and the moderator.

Seminar on International Arbitration in China

On July 7, 1997, JCAA held a seminar in Tokyo on the theme "Dispute Resolution in Chinese Business -- Practice on International Commercial Arbitration in China." The speaker was Mr. Fang Xin, a Chinese lawyer who has considerable experience as a representative for both the Japanese and Chinese enterprises in CIETAC arbitral proceedings as well as a great store of knowledge about Chinese arbitration and litigation.
In this seminar, firstly introducing the recent reform of Chinese arbitration systems, he explained in detail the actual practice of CIETAC arbitral proceedings, especially what the parties should care about, which is not well specified in its arbitration rules. For instance, a little bit surprisingly, while in JCAA's arbitral proceedings several hearings are ordinarily held in which the parties represent their arguments and witnesses are examined, in the case of CIETAC the hearing is normally held once or twice before the examination proceedings are concluded, and the arbitral tribunal will then go into an arbitral decision. For Japanese parties who have not experienced CIETAC arbitration, they are not accustomed to such proceedings, and so that practice should be kept in mind when drafting a contract with a Chinese enterprise as well as being so actually involved. After explaining CIETAC arbitration, he moved to the issues of the annulment and enforcement of domestic arbitral awards as well as the recognition and enforcement of foreign arbitral awards. Especially, with regard to CIETAC and foreign arbitral awards, he pointed out that there had been local protectionism against actual enforcement of those awards that has been seriously criticized by foreign parties, and stated that the Supreme Court issued to all of China's Higher Courts a Notice on August 28, 1995, entitled "Concerning the handling by the People's Court of issues regarding foreign-related arbitration and foreign arbitration matters." The Notice demands from the People's Courts to report, if they intend to refuse an application filed with them for the enforcement of CIETAC or foreign arbitral award, the matter to the relevant Higher Court for review before rendering a decision of such refusal. As well, if the Higher Court agrees with the lower court's decision, it must report its views to the Supreme Court and no decision is to be made by the lower court unless approved by the Supreme Court.
Finally, he concluded by emphasizing that since there is no bilateral agreement between China and Japan regarding the recognition and enforcement of Judgements rendered by law courts of the other county, and since the Chinese Supreme Court recently rejected the recognition and enforcement of a Japanese judgement due to no reciprocal relationship thereon, arbitration is the only practical and best selection to resolve commercial disputes between Chinese and Japanese enterprises.

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Five Cooperation Agreements Signed

On June 12, 1997, JCAA signed the Japanese-Czech Commercial Arbitration Agreement with the Arbitration Court attached to the Economic Chamber of the Czech Republic and Agricultural Chamber of the Czech Republic, replacing its 1957 Agreement concluded between JCAA and the Chamber of Commerce of former Czechoslovakia. It is confirmed, under the memorandum attached to the new agreement, that if a request for arbitration is submitted to either institution under the arbitration clause recommended in the 1957 Agreement, such request shall be accepted by the respective institutions.
And on July 15, 1997, JCAA signed the Japanese-Slovenian
Commercial Arbitration Agreement with the Permanent Court of Arbitration attached to the Chamber of Commerce and Industry of Slovenia.
Under these new agreements, the institutions have agreed to cooperate in promoting international commercial arbitration through increased use of the facilities of their organizations, and to exchange all necessary information, materials or publications. Both agreements include a recommended arbitration clause stipulating that the place of arbitration, unless otherwise agreed, should be the country in which the respondent resides.
Besides these agreements, JCAA concluded three cooperation agreements with the following institutions:
- WIPO Arbitration and Mediation Center, on December 8, 1997
- The Chartered Institute of Arbitrators, on December 8, 1997
- The Arbitration Office, Ministry of Justice, Thailand, on December 12, 1997
Under these agreements, the institutions have agreed to cooperate in popularizing arbitration and other ADR, organizing seminars and conferences, exchanging information and publications, and providing facilities or administrative services necessary for conducting arbitration proceedings.

The Role of Arbitrator as Mediator in International Arbitration Cases in Japan

Dr. Reinhard Neumann, LL.M. (Osaka University),
Dr. Neumann & Partner - Tokyo

International arbitration proceedings are not widespread in Japan and it is not often that claimants from non-Japanese countries decide on arbitration in this country. The main reason why arbitration is conducted in Japan is that one of the parties is Japanese, and that in the beginning of a transaction the Japanese party had insisted on the arbitration clause to refer to arbitration proceedings to be held in Japan. In this case of international arbitration taking place in Japan, the proceedings are normally conducted in accordance with the rules of The Japan Commercial Arbitration Association (JCAA). Another reason is that if the Japanese party was the respondent and the non-Japanese party the claimant, an arbitration clause stipulating that arbitration proceedings to be held in Japan was agreed to be added to the contract in dispute. The arbitration clause in this case usually reads as follows: "Any dispute, difference or controversy which may arise out of or in connection with this Agreement, or any breach thereof, shall, unless amicably settled, be referred to arbitration. The place of arbitration shall be the country where the respondent resides: In case (foreign company) is a respondent, arbitration shall be held in (foreign country). In case (Japanese company) is a respondent, arbitration shall be held in Japan ..."
This leads to the consequence, that, if the Japanese party, either as claimant or as respondent, is seeking arbitration in Japan, it is expecting that the arbitration proceedings through a tribunal consisting of a sole arbitrator or a panel of three arbitrators, will be conducted under the rules of JCAA. In this case, the sole arbitrator or the presiding arbitrator in a panel of three should be familiar with the rules of JCAA, the background of Japanese arbitration proceedings, the Japanese way of thinking and the Japanese way of achieving results. However, to achieve a result that is correct, and just, in international arbitration, you have to take into account the interests of both parties and the specifications that are laid down in the agreements between the parties prior to the beginning of the arbitration tribunal. This being the case, the arbitrator(s) also need(s) to know the background of the parties' agreements, orally and in writing, in order to come to an agreeable solution.
In case of a panel of three arbitrators, each party nominates one of the arbitrators. The third arbitrator should preside the proceedings, and should understand the laws of the countries of both parties. In case of a sole arbitrator, this is even more a must. My experience with being elected as sole arbitrator or as a neutral member of a three member panel was that I should neither be of the country of origin of either the claimant or respondent, should know enough about the basic concepts of the laws of the countries involved and -- for economical reasons -- should live in Japan. Knowledge of the Japanese language, orally and written, is essential to control translations and translators, to understand fully the explanations of witnesses or Japanese legal or technical experts, to draft and complete minutes, but also to grasp the internal debates between Japanese participants. This ability of an understanding of the Japanese language and the Japanese people involved, plus the command of other languages used in the arbitration proceedings, enables one to mediate between the parties, if a deadlock in the arbitration negotiations seems to be appearing.
Experience in recent cases has shown that legal theories and positions are discussed at length at the beginning of an arbitration proceeding between the respective lawyers representing the claimant and the respondent parties. However, the ultimate arbitration task is not to discuss theories and leave a case unsolved, but to come to a conclusion that is settling a case, and satisfying the parties. The aim of commercial arbitration is to settle the matter commercially, to satisfy the commercial needs of the parties, to terminate the matters unsolved so far, and, if possible, show a way for the parties to continue their business after the successful settling of an arbitration matter. The last, of course, is more difficult to achieve, as normally the beginning of proceedings, through court or through arbitration proceedings, usually mark the end of a relationship that has turned sour.
Many cases to be decided through arbitration deal with the termination of distributorship agreements, e.g. because the maker of the products involved is discontent with his present distributor and wishes to discontinue putting his economic faith in this distributor's hands, and perhaps to continue on his own. In this case the arbitrator must find a way to justly satisfy the vested interests of both parties. In order to achieve this he has to look at the length of the parties' relationship, the investments that the distributor has implemented so far which have not turned into profit, the interest of the maker to establish his own distributor network, and, the interest of the customers to have a strong aftersales service that they can rely upon. These and other points have to be weighed by an arbitrator before he/she can arrive at an appropriate conclusion. In the case of the termination of the distributor agreement, arbitration will normally not lead to the continuation of the present situation, but to the compensation of the old distributor for his services and investments made so far. If an arbitrator finds himself in the role of mediator between the parties, he will have to show his absolute skills in negotiating between the parties, and to come to true and just results which will maximize the interests of both parties involved. Non-depreciated investments of the distributor have to be balanced with the economic expectations of the maker. Redundant inventory has to be appraised and assessed and the most use of such inventory should be made. However, if the old distributor cannot make use of this stock, the maker or his new distributor will have to reimburse the outgoing distributor for his stock. Of course, depreciated stock will not necessarily have to be taken care for.
Experience has shown that negotiating a just economic result in arbitration is not easy to achieve if the expectations and aims of the parties are completely uncompromising. Here an arbitrator/mediator has to be patient and doggedly show the parties that they cannot hope to achieve 100 per cent of their options. "Meaningful compromise" is the keyword in such a situation. Mediating means to talk to each party separately -- probably more than once -- carefully listen to their respective arguments in the beginning of the hearing, try to assess what the lowest amount of compensation would be for the parties without their losing face, try and find out from the opposing party how far it would go to come to a final conclusion in the arbitration proceedings and not prolong it unnecessarily, as this could be rather time-consuming and costly -- and would in most cases be economically senseless -- and thereby come to an economically sound result with which both parties could live with in the long run. The mediator has to show the parties that they should not think only about a short term solution.
Normally a maker is basically in a stronger position if he wants to sever the ties with his distributor, for any reasons whatsoever. That is the reason the old distributor has mainly to fight the maker for financial compensation, but not for a reinstatement of his distributor's position. To achieve a satisfactory amount of compensation is therefore the main objective in case distributors are the claimant in arbitration. Here the arbitrator or mediator has to keep this objective clearly in his mind at all times in order to settle the case in a fashion that makes the parties mutually agreeable. This involves listening to the parties' arguments, leading them along a workable line of thought, playing with his/her own proposal for settlement, making appropriate suggestions for settlement, and reaching a compromise which both can live with to settle the current situation and to avoid future conflicts.
A settlement where a foreign party finds that arbitration in Japan can achieve satisfying results for him, will lead foreign parties into agreeing more freely to arbitration clauses setting up arbitration proceedings in Japan under the auspices of JCAA, with Japanese and foreign arbitration panel members elected by the parties and JCAA.

[Court Decision]

Enforcement of CIETAC Arbitral Award under
the New York Convention

Tokyo District Court, June 19, 1995
Hanrei Times, No.919 (1996), pp.252-255

Plaintiff is a Chinese State enterprise and Defendant is a Japanese trading company. Both parties entered into a joint venture agreement on February 21, 1989, to jointly manufacture bricks in China. A dispute arose between the parties in relation to performance of this agreement and on August 14, 1990, Plaintiff, based upon the arbitration clause therein, submitted a request for arbitration against Defendant to the China International Economic and Trade Arbitration Commission (CIETAC), claiming damages incurred by Plaintiff in the course of preparation of the joint venture project. In response to the request for arbitration, Defendent submitted its written answer, but thereafter, notwithstanding so requested from CIETAC, it failed to appear without any good cause at hearing and did not submit any further document and supplemental materials. On April 12, 1991, the arbitral tribunal rendered an arbitral award in which Plaintiff's claim was mostly admitted and the award was duly sent to Defendent.
Plaintiff sought its enforcement judgement at the Tokyo District Court under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter called "New York Convention").

(1)Since both People's Republic of China and Japan are Contracting States of the New York Convention and since under Article III thereof, each Contracting State shall enforce arbitral awards in accordance with the rules of procedure of the territory which the award is relied upon, under the conditions laid down in the following articles, the Court will, in case of enforcement of this arbitral award, consider whether the conditions laid down in Article IV, and the following articles of the New York Convention suffice in the enforcement procedures under Article 802, Paragraph 1 of the Japanese Code of Civil Procedure.
(2) In the meanwhile, while Article VII, Paragraph 1 of the New York Convention provides that the provisions of the present Convention shall not affect the validity of multilateral or bilateral agreements concerning the recognition and enforcement of arbitral awards entered into by Contracting States, Article 8 of the Japan-China Trade Agreement, entered into by both countries on January 5, 1974, effective as of June 2, 1974, (hereinafter called "Trade Agreement") stipulates for dispute resolution arising out of or in relation to commercial contracts entered into by Japanese corporations or natural persons and foreign trade organizations of People's Republic of China, and further provides in Paragraph 4 of the same Article that both Contracting States assume the responsibility for enforcing arbitral awards by the relevant authorities under the conditions provided by the law of the country where the enforcement of such award is sought.
(3) However, the principal business purpose of Plaintiff is admitted to be technical services, technical consultation, giving expert opinions on, inter alia, construction items and information services (excluding an intermediary for important production materials) and so it is not readily determined that Plaintiff is considered to be "Foreign Trade Organization" of People's Republic of China.
(4)In addition, the preceding provisions of Article VII, Paragraph 1 of the New York Convention purport to provide the maximum limit to be demarcated concerning international recognition and enforcement of foreign arbitral awards, and so the parts of more restrictive conditions provided by multilateral or bilateral agreements than those of the New York Convention are considered to be not applicable.
(5)Under Article 8, Paragraph 4 of the Trade Agreement, more restrictive parts in the provisions of Article 802, Paragraph 2 and Article 801 of the Japanese Code of Civil Procedure than those of the New York Convention shall not apply to this case, and in any case, insofar as this arbitral award fulfills the conditions laid down in Article VI and the following articles of the New York Convention, its enforcement judgement shall be admitted.
(6)Defendent alleges that the enforcement of this award should be refused under the provisions of Article VI , Paragraph 1 (a) through (e) and Paragraph 2 (b), but there is no such fact admitted as refusing this arbitral award under those provisions.
(7)Conclusively, the Court admits Plaintiff's claim and grants the enforcement of this arbitral award.

Recommended Arbitration Clause

In drawing up contracts, parties are recommended to
include the following arbitration clause:

"All disputes, controversies or differences which may arise between the parties hereto, out of or in relation to or in connection with this Agreement shall be finally settled by arbitration in (for instance, Tokyo, Osaka, Kobe, Nagoya), Japan in accordance with the Commercial Arbitration Rules of The Japan Commercial Arbitration Association. The award rendered by the arbitrator(s) shall be final and binding upon the parties hereto."

If you need our Commercial Arbitration Rules,
please contact our arbitration department.

The JCA Newsletter is
published by:

The Japan Commercial Arbitration Association Taishoseimei Hibiya Bldg. 4F 9-1, Yurakucho 1-chome Chiyoda-ku, Tokyo 100, Japan
Tel: +81-3-3287-3061
Fax: +81-3-3287-3064

Osaka Office
The Osaka Chamber of Commerce & Industry Bldg.
2-8, Honmachi-bashi Chuo-ku, Osaka 540, Japan

Kobe Office
The Kobe Chamber of Commerce & Industry
1, Minatojima-Nakamachi 6-chome Chuo-ku, Kobe 650, Japan

Nagoya Office
The Nagoya Chamber of Commerce & Industry
10-19, Sakae 2-chome Naka-ku, Nagoya 460, Japan

Yokohama Office
The Yokohama Chamber of Commerce & Industry
2, Yamashita-cho Naka-ku, Yokohama 231, Japan

For further information, kindly address enquiries to any of the above offices.
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