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The Japan Commercial Arbitration Association

March 1999 JCA Newsletter Number 4

Settlement in International Commercial Arbitration

by Yasuhei Taniguchi1

Mr. Reinhard Neumann, a popular foreign arbitrator residing in Japan, wrote an article in the previous issue of this Newsletter which inspired me to pen this short essay. Mr. Neumann congratulates the activities of JCAA and argues, in essence, that a way to attract more international commercial arbitration to JCAA is to provide for a better settlement during the course of arbitration proceedings.2 It is true that in JCAA arbitration an arbitrator often will pursue a settlement by holding special settlement session or sessions and proposing appropriate settlement terms. In fact, the number of arbitration cases brought to JCAA in 1997 was doubled over 1996 and even more cases have been brought in 1998. If this is a result of the JCAA arbitrators' longtime efforts to bring about amicable settlements, Mr. Neumann's suggestion has already been realized. But I do not think so.
It has been pointed out, often with a critical tone, that international commercial arbitration has become overly litigious. As a result, it has become almost fashionable to discuss the possibility of introducing a mechanism of mediation into arbitration. Mr. Neumann certainly shares the latter view. As far as international commercial arbitration is concerned, however, I think that there may be a serious dilemma between the two things, namely the phenomenon of litigiousness and the conceived need for mediation.
Almost ten years ago, the practice of JCAA arbitration was severely criticized by Mr. Charles Ragan, an American lawyer who had had a JCAA case in Tokyo.3 Among others, he took issue with the time limit for appointing an arbitrator, language and translation, representation by foreign counsel, hearing schedule, etc. Some of the problems he quite justifiably pointed out have since been solved either by amendment of the Rules of JCAA or the relevant law. Now, for example, English may be designated as the language of arbitration and a foreign lawyer may represent a foreign client before an arbitration in Japan.4
One of the features of Japanese arbitration mentioned by Mr. Ragan was the Japanese practice of settlement. He described it as follows:

"JCAA tribunals appear positively to commend settlement. The general practice in JCAA arbitrations may not be unique in current arbitral practice, but it is certainly different from Western arbitration or litigation practices. Basically, after the evidence-taking and briefing is concluded, but before the preparation of an award, the arbitrator serves as a conciliator/mediator in an effort to broker a settlement. In this capacity, the arbitrator may meet ex parte with the opposing sides and discuss case values and the merits. If the parties fail to reach a settlement, he will then proceed to decide the case. With the Japanese party especially, however, the arbitrator's recommendation of an amicable settlement will carry great force."

It is true that the amicable settlement of disputes has a long tradition in Japan. The tradition has been carried over into the judicial practice of modern civil litigation. Japanese judges put a great amount of energy in order to bring about a settlement in the course of litigation. In fact, good timing is found just after the both parties have fully presented their respective evidence because they are now aware of their strengths as well as their weaknesses and prone to accept a reasonable compromise solution. A Japanese judge will hold as many as several special sessions to work out a settlement. The judicial practice in a country is usually taken into the arbitral practice of that country because the arbitrators and lawyers are usually from the same country. Thus, it is likely that as pointed out by Mr. Ragan, "With the Japanese party, especially, the arbitrator's recommendation of an amicable settlement will carry great force," just as a judge's recommendation does in court.
The Japanese tradition of amicable settlement in court as well as in arbitration seems to be shared by other East Asian countries. The more widespread the recognition of importance of amicable settlement and the better known the Asian practice of settlement in international commercial arbitration becomes, certain suspicions have arisen in the Western world. For example, the abovementioned practice of the arbitrator's ex parte meeting with the opposing sides has been condemned as unfair because the arbitrator may obtain relevant information from one party without the presence of the other and use it in deciding the case after settlement has failed, thereby depriving the other party of an opportunity to rebut.5 Recent rules of some Asian arbitration institutions as well as arbitration acts have come to provide expressly for certain safeguards to protect their system from such a suspicion.6
JCAA Rules have not incorporated an express provision to the similar effect, but it is generally understood that an ex parte meeting for mediation should be conducted only with consent of both parties. Such consent will be invariably given by a Japanese party. Indeed, the parties and their lawyers as well as the judge until recently have never questioned the legitimacy of the ex parte meeting in the civil litigation context. So, it is no wonder that the same held true in arbitration. The important implication of this is the fact that the judicial or arbitral practice depends largely on the culture of the country in which litigation or an arbitration is to be held.
There are many distinctive cultures in the world. Within an overall culture, there is what we can call the "dispute resolution culture" with which we are particularly concerned here. A particular culture may be unique to a nation or shared by many countries. We can assume that the nations belonging to the so-called Western world share a more or less similar culture under the common Judeo-Christian tradition. We tend to think that the dispute resolution culture is uniform throughout the Western world. But we know that Europeans regard the American legal culture very different from theirs. Even within Western Europe, as an eminent legal sociologist has pointed out, the Dutch are legal-culturally very different from the German although they border each other and share similar economic life styles and beliefs.7
This observation leads us to think that the use of mediation in international commercial arbitration is not an easy task. Compared with deciding a case by applying rules of substantive law, the terms of settlement are amorphous. Mr. Neumann presents a list of elements to be considered in making a recommendation of settlement. But no such list can be exhaustive and, moreover, a list would vary considerably according to the culture of the respective participants in an arbitration. If the arbitrator's culture differs from that of one of the parties, an effort of the arbitrator to induce an settlement would have little effect on such a party although the other party is susceptible to it. The above quoted remark by Mr. Ragan seems to suggest exactly that. Since an international commercial arbitration generally involves parties/counsel and arbitrator(s) from different cultures, the process of mediation becomes more difficult than when it is conducted within a context of a single culture.
In contrast, the same problem exists in deciding a case by application of legal norms but in a much less degree, because, by definition, the law must be expressed in general and simplified terms in order to make its universal application possible. There are good reasons why the modern development of international commercial arbitration has been accompanied by an increasing dependence on the application of law and an ever increasing liti-giousness.
Firstly, by having the known rules of substantive law applied, the parties can secure an objective standard for judging what they should do to win a case. Suppose that a foreign party must subject herself to an arbitrator's decision whose value judgment of an unknown nature serves as the only guide for decision. She cannot know what allegations and evidence would most impress the arbitrator and lead to a favorable decision. If the other party shares the same value system as the arbitrator, every effort she makes would be easily defeated. It is exactly this kind of fear that the parties seek to avoid by resorting to an established system of substantive law. Secondly, if a particular system of substantive law is relied upon, an adversarial process of submission of allegations and evidence would be most appropriate for guaranteeing fairness. Then, the lawyers have a role to play and a litigious arbitration necessarily results.
The essential and only requirement for a settlement is the parties' agreement. Each party strives to win favorable settlement terms, but unless both of the parties share the same value system an agreement is difficult to reach. What one party considers a generous offer of concession may be simply regarded by the other to be an arrogant assertion. A mediator in this situation must know well how each party would feel and think in particular circumstances. Where the arbitrator shares the same dispute resolution culture with the parties before him, he knows better what to suggest, including when and how, because he understands the subtleties of human psychology and behavioral patterns in that particular culture. Thus, a mediation will be more effectively conducted where both the mediator and the parties (and their counsel) are from the same dispute resolution culture.
It has become clear that international commercial arbitration faces a dilemma. On the one hand, it is a forum where no national culture should be dominant. The place of arbitration should not mean that the arbitration is conducted under the culture of such place. Although it need not be free of all possible cultures, it should be at least bi-cultural, equally representing that of both parties, or tri-cultural including an arbitrator from a third culture. On the other hand, in such an arbitration, a mediation becomes more difficult. Perhaps, this dilemma does not exist within Europe so much as it does within Asia where many distinctive cultures co-exist or between Europe/America and Asia.
Mr. Neumann mentions an arbitration clause by which the party who initiates an arbitration must come to the respondent's country. Such a clause is used often in the trade between Japan and United States or China.8 I was shocked to learn that it was unheard of in Europe. My interpretation of this difference is that within the European continent it makes little difference whether an arbitration is held in Switzerland or in France or even in Sweden, while it apparently makes a great difference in the other parts of the world. The reason is the distance, not only physical but also cultural and psychological. When the distance is large, it seems to satisfy a certain sense of fairness to require the claimant to come to the place of the defendant. This arrangement represents a compromise between the necessity of dispute resolution and a mutual reluctance to go to the other's forum. When such a feeling dominates from the beginning of arbitration, an effort to mediate must require a great amount of knowledge, understanding and skill on the part of the mediator and faith in the mediator on the part of the parties and their counsel.
There seems to be plenty of optimism about mediation or conciliation in international commercial arbitration. My own experience as arbitrator has led me to doubt how much it can actually be accomplished. Many arbitration institutions including JCAA have a separate set of Rules of Conciliation, but the number of cases brought under this category is not at all impressive. This essay represents my theoretical reflection on the reasons for it.9
However, we should not be too pessimistic. What we must do is look for the means to make mediation-in-arbitration more successful in international commercial arbitration. One such means surely is proper training and education of arbitrators to make them more aware of the problem. Without awareness, no solution is possible. In this connection, I fully support the leadership that the President of JCAA, Mr. Norihiko Maeda, has shown in organizing a training program of commercial arbitrators under the auspices of APEC (Asian Pacific Economic Cooperation). The first organizing meeting was held in November, 1998 in Osaka in conjunction with JCAA's "Arbitration Forum." About 10 countries from the Asia-Pacific region were represented there. One of the goals of such a program must be to focus on the cross-cultural problems of mediation in arbitration.

1Professor of Law, Teikyo University (Tokyo); Prof.Em., Kyoto University; Of Counsel, Matsuo & Kosugi (Tokyo); Council member of ICCA; currently Visiting Haynes Professor of Law at University of Richmond School of Law, Virginia, U.S.A.
2Reinhard Neumann, The Role of Arbitrator as Mediator in International Arbitration Cases in Japan, 3 JCA Newsletter 4 (1998).
3Charles Ragan, Preparing for the Pitfalls of Arbitration in Japan, East Asian Executive Reports, Jan., 1991, p.9.
4Charles Stevens, Foreign Lawyer Advocacy in International Arbitration in Japan, 2 JCA Newsletter 1 (1997). As a matter of fact, Mr. Stevens made a remark some years ago in a JCAA sponsored Arbitration Forum in Tokyo that once Japan liberalized the representation by a foreign lawyer in arbitration, the number of JCAA arbitration cases would be instantly doubled. Although the number has been doubled recently as mentioned in the text, it is not for that reason. Mr. Stevens' prediction will hopefully true later.
5This is the author's personal experience through various international conferences dealing with this practice. For the requirement of fairness in mediation or conciliation in conjunction with arbitration, see generally, CHRISTIAN BUEHRINGUHLE, ARBITRATION AND MEDIATION IN INTERNATIONAL BUSINESS (1996) p.343 et seq.
6Korean Commercial Arbitration Board, Article 18; China International Economic and Trade Arbitration Commission, Article 50; Hong Kong Arbitration Ordinance, Section 2B; Singapore International Arbitration Act 1994, Article 17. For these new Asian arbitration laws, see Peter Sanders, THE 1996 ALEXANDER LECTURE, Cross-Border Arbitration-A View on the Future, ARBITRATION (Chartered Institute of Arbitrators), August 1996, p.168, 172.
7Erhard Blankenburg & Freek Buinsma, Dutch Legal Culture 7 et seq. (Kluwer, 1991).
8An interesting choice of law problem arose from such an arbitration clause in Japan Education Co. v. Kenneth J.Feld, 1499 Hanrei jiho 68 (Tokyo High Ct., May 30, 1994), translated in 38 Japan Annual of International Law 146 (1995).
9A previous version of my thoughts is published already. Yasuhei Taniguchi, Mediation in Japan and Mediation's Cross-Cultural Viability, PROCEEDINGS OF THE BIENNIAL CONFERENCE OF THE INTERNATIONAL FEDERATION OF COMMERCIAL ARBITRATION INSTITUTIONS (IFCAI) ON THE INSTITUTIONAL RESPONSE TO CHANGING NEEDS OF USERS (WIPO Publication No. 759, 1998).

New Cooperation Agreement Signed

On April 16, 1998, JCAA concluded a cooperation agreement with the Chamber of National and International Arbitration of Milan (Italy).
Under the agreement, both institutions have agreed, among others, to cooperate in promoting arbitration and other ADR; exchanging information and publications; and providing administrative services or any other services necessary for conducting arbitration or other ADR proceedings.
So far, including the above, JCAA has entered into cooperation agreements with 38 arbitral institutions.

JCAA International Commercial Arbitration Forum Held in Osaka

Left to Right: Prof.Yasuhei Taniguchi, Ms.P.G.Lim, Mr.Fali S.Nariman, Mr.Peter S.Caldwell and Prof.Toshio Sawada

In an attempt to further promote understanding and accessibility of arbitration in Japan, JCAA held an international commercial arbitration forum on November 12, 1998 in Osaka with the support of the Ministry of International Trade and Industry, the Osaka Chamber of Commerce and Industry, and the Osaka Bar Association.
Under the theme of "the Recent Situation and Development in International Commercial Arbitration in Asia," JCAA invited four panelists from neighboring Asian countries and Japan: Ms. P. G. Lim(Malaysia), Mr. Fali S. Nariman(India), Mr. Peter S. Caldwell(Hong Kong), and Prof. Toshio Sawada(Japan). Prof. Yasuhei Taniguchi of Teikyo University (Tokyo); Professor Emeritus of Kyoto University; and Council member of ICCA served as the moderator.
Following an opening address by Mr. Norihiko Maeda, JCAA President, and a keynote address by Prof. Taniguchi, the four panelists reported on arbitration in their respective institutions and countries.
As the first speaker, Ms. Lim, Director of Kuala Lumpur Regional Centre for Arbitration, introduced the Centre's revised Arbitration Rules and its Rules for Conciliation/Mediation. She then explained the recent trend in Asia towards combining arbitration with mediation or conciliation, and stated that, as trade moves eastwards, efforts will have to be made to accommodate Eastern values of peaceful dispute resolution such as mediation or conciliation with arbitration.
This trend was also referred to in the next address delivered by Mr. Nariman, President of Bar Association of India, and President of ICCA. He introduced the new Indian Arbitration and Conciliation Act 1996, which has entirely altered the law of arbitration in India. He further explained that the law was designed to prevent arbitration from becoming overly litigious.
Next speaker, Mr. Caldwell, former Secretary General of Hong Kong International Arbitration Centre, reported on the recent situation in arbitration in Hong Kong, which has experienced the transition of sovereignty to mainland China. Introducing the Centre's practice of administrating arbitration not only under the UNCITRAL Arbitration Rules but also other institutions' rules such as ICC's and LCIA's, he stressed the importance of providing broad options to meet the needs of business circles.
As the last speaker, Prof. Toshio Sawada of Sophia University (Tokyo), and Vice Chairman of ICC International Court of Arbitration, reported on the recent situation in ICC arbitrations in Asian region. As to the Asian trend referred to in the preceding addresses, he, in spite of the widely accepted view in the Western world that arbitration procedures should be isolated from those of conciliation, supported the trend as an effective Asian approach to resolving disputes. He then pointed out that this mediation in arbitration is available under ICC Arbitration Rules.
During subsequent discussion, the participants raised various questions relating to the above Asian trend and other issues.
The forum, which brought together over 230 participants from the fields of business, law and academia, ended in a big success with Prof. Taniguchi's closing address.

JCAA Seminar Held in Tokyo

JCAA held an international arbitration seminar on February 2, 1998 in Tokyo. The speaker was Mr. Richard H. Kreindler, a partner with Jones, Day, Reavis & Pogue in Frankfurt and Mr. Masatami Otsuka, a partner with the firm's Tokyo office made the Japanese interpretation in summary.
Under the theme of "Arbitration versus Litigation in Transnational contracts: Recent Trends in the United States Relevant to Japanese Parties", Mr. Kreindler took up seven up-to-date and interesting issues on an international arbitration in the United States, that is, "Arbitrability", "Taking of Evidence under Section 1782 U.S. Code", "Confidentiality of Proceedings and Result", "Multiparty Proceedings", "Interim and Conservatory Relief", "Damages in Litigation and Arbitration", and "Enforcement of Judgements and Awards" and delivered a fruitful lecture, introducing the recent interesting cases such as Mastrobuono v. Shearson Lehmann Hutton, Inc., 115 S. Ct. 1212(1995) and Chromalloy Aeroservices v. Arab Republic of Egypt, 939 F. Supp. 907 (D.D.C. 1996). About 80 people, mostly those from the legal and international business divisions of Japanese companies, attended this seminar.

APEC ADR EEP Osaka Workshop

Since its establishment in 1989, the Asia Pacific Economic Cooperation (APEC) has played an important role in the development of the APEC region. With no secretariat of its own, APEC started working on various fields in addition to providing a forum for promoting discussion for trade liberalization at the ministerial level. Ten working groups were established in the early days of APEC. The Human Resources Development Working Group (HRD WG) was formed as early as in 1990. It created three sub-groups called 'networks'. The Business Management Network (BMN) has always been most active among them with its mission to contribute to the development of managerial resources in APEC region.
Having its own secretariat in 1993, APEC added other bodies to WGs, among which was the Committee on Trade and Investment (CTI). It also created its sub-groups including the Dispute Mediation Experts' Group (DMEG), whose mission is to prevent and resolve various disputes that become obstacle to international transactions. In April 1998 in Bangkok, CTI-DMEG together with the Thai Government successfully organized a symposium called 'Alternative Mechanism for the Settlement of Transnational Commercial Disputes'. The symposium discussed, among other things, about various aspects and possibilities of Alternative Dispute Resolution (ADR). ADR is an acronym used to describe a variety of methods to resolve conflicts without bringing them to the judicial court. Typical examples are mediation, conciliation and arbitration. Through discussions with legal professionals and government officials who attended the symposium, we were convinced that education of business executives would be indispensable for the promotion of ADR in the region, because these business people are the ones who actually use such methods.
For many Asian people, keeping harmony is a virtue and disputing is vice. This attitude would apply to commercial conflicts. Thus mechanisms of dispute resolution have neither properly recognized nor widely utilized in this region. However, due to the increase of international trade and investment and the corresponding increase of disputes, the necessity of wider and more proper use of various dispute resolution mechanisms would inevitably increase.
Based upon such recognition, Japan submitted to BMN Taipei Meeting in June 1998 a pre-proposal titled Alternative Dispute Resolution Executive Education Project (ADR EEP). It was so much widely supported that it was turned into a proposal. It was approved and became a HRD BMN project with the title of ADR EEP 98. The official organization representing Japan at BMN is the Institute for International Studies and Training (IIST) but JCAA has been playing the key role in this ADR EEP 98 since its early stage.
After conducting preparatory research, IIST and JCAA jointly held a workshop in Osaka in November 1998 with the Sanwa Research Institute Corporation (SRIC) as secretariat of the workshop. The twenty-six participants of the workshop, many of whom were the most prominent ADR leaders in the region, came from 10 APEC countries and included senior executives of international dispute resolution institutions, ICC International Court Vice-Chairmen, lawyers and government officials. Each participant had special expertise in dispute resolution or human resource development. (Their names are shown with the photograph.)
This Osaka Workshop began with stocktaking of the ADR activities and ADR education that were taking place within their respective countries, followed by discussion on the cause and effect of such ADR developments of a wide variety. Although the focus of the workshop was on using ADR for international commercial disputes and providing business executives with appropriate education and training, the discussion was not limited only to international matters nor to education and training of executives. In fact, it also included non-commercial use and domestic use of ADR and covered ADR education in lower schools.
At the workshop discussed was the possible future action to be taken in order to improve cross cultural negotiation and dispute resolution. It reached a general agreement that the more often business people have successful ADR experience in their domestic business transactions and the more popular ADR become throughout a country, the more likely it is that business people will use ADR for international trade and investment disputes. It was suggested to initiate joint production of ADR promotional materials and to organize education and training programs to increase the awareness, skills and use of ADR among business people and their professional advisors. Finally, the workshop drafted a statement to express what the participants thought APEC could consider to be included in an ADR EEP.
In January 1999, BMN held its General Meeting in Chile, which was followed by the 19th APEC HRD WG meeting. At those meetings, ADR EEP was once more widely supported by the members. The next step for the ADR EEP is to prepare a more concrete plan to achieve its objectives with a possible participation by CTI-DMEG members. To design an ADR EEP which leads to improving international negotiations and making more effective use of ADR, we want to bring together the strength of two APEC fora, i.e. CTI DMEG and HRD BMN. The sharing of their knowledge, experience and resources first between them and eventually with the business communities would certainly bring forth a strong synergy to ensure ADR promotion and facilitation of trade and investment.

APEC ADR EEP Osaka Workshop Participants

Front Row (L-R):
Mrs. Boosarach Saengargas, Head of Promotion Sector, The Arbitration Office (Thailand)
Mrs. Thantip Jongjakapun, Deputy Secretary-General, Office of the Judicial Affairs, The Arbitration Office (Thailand)
Ms. P. G. Lim, Director, Kuala Lumpur Regional Centre for Arbitration; former Ambassador to UN (Malaysia)
Mr. Fali S. Nariman, President of Bar Association of India; Chairman of ICCA (India)
Ms. Nieves Confesor, Professor, Asian Institute of Management; former Secretary of Labor and Employment (Philippines)
Ms. Etsu Inaba, Senior Researcher, Institute for International Studies and Training
Mr. Toshio Sawada, Vice President, the ICC International Court of Arbitration
Mr. Naomichi Miyazawa, Director for International Commercial Arbitration, International Trade Administration Bureau, Ministry of International Trade and Industry

Middle Row (L-R):
Mr. Atsutoshi Oshima, Senior Consultant, International Division, Sanwa Research Institute and Consulting (SRIC) Corporation
Mr. Keisuke Okamoto, JCAA staff member
Mr. Tatsuo Ikeda, Professor, Osaka University
Mr. John Barkai, Professor, University of Hawaii Law School (United States)
Mr. Masaharu Onuki, Secretary General, JCAA Osaka Office
Mr. Masahiro Kobayashi, JCAA General Manager, Planning and Consulting Department
Mr. Arthur P. Autea, Secretary General, Philippine Dispute Resolution Center, Inc. (Philippines)
Mr. Soonwoo Lee, President, The Korean Commercial Arbitration Board (Korea)
Mr. M. Husseyn Umar, Board Member, Indonesian National Board of Arbitration (Indonesia)
Mr. Kazuo Iwasaki, Professor, Nagoya University
Mr. Rodney J. Gates, International Consultant Arbitrator and Mediator, former New Zealand Ambassador to Japan (New Zealand)
Mr. Yasuhei Taniguchi, Professor, Teikyo University
Mr. Peter S. Caldwell, Former Secretary General of Hong Kong International Arbitration Centre (Hong Kong)
Mr. Hiroshi Hattori, JCAA Counsellor

Back Row (L-R):
Ms. Anita Dean, Consultant, International Division, Sanwa Research Institute and Consulting (SRIC) Corporation
Mr. Norihiko Maeda, JCAA President
Mr. Malcolm Smith, Professor, The University of Melbourne (Australia)
Mr. Masatoshi Ohara, Attorney at Law, Kikkawa Sogo Law Offices

[Court Decision]

Law Applicable to Formation and Effect of Arbitration Agreement

Supreme Court, September 4, 1997
Hanrei Times, No.969 (1998), pp.138-145


On October 2, 1987, The Japan Educational Corporation (JEC), a Japanese company, entered into a contract with Ringling Bros. (RINGLING), an American circus company, in which RINGLING was to run a certain circus performance for JEC in Japan during two years from 1988 till 1989. JEC alleged that, for the first year, RINGLING had performed its obligation to run the performance, but for the second year, attendance had become much lower than in the first year, and JEC had suffered a large amount of loss thereby. JEC further alleged that Kenneth J. Feld, the representative and major shareholder of RINGLING, had fraudulently induced JEC to enter into the contract by expressing its intention to perform the highest level circus, and received from JEC an advanced payment for remuneration although Feld had planned from the beginning to omit part of the second year performance, and JEC claimed damages arising from a tort committed by Feld.
Feld submitted to the court, inter alia, a plea in abatement under the arbitration agreement included in the contract, alleging that the JEC's claim should be dismissed.
The contract had an arbitration clause reading:

In the event that any dispute involving the interpretation or application of the terms and conditions of this Agreement cannot be settled, such dispute, on written request of either party, shall be submitted to arbitration in accordance with the rules and procedures of the International Chamber of Commerce relating to the arbitration of commercial disputes. Any arbitration proceeding initiated by RINGLING shall take place in Tokyo and any arbitration proceeding initiated by JEC shall take place in New York.

The Tokyo District Court ruled in favor of Feld and dismissed the JEC's claims. JEC appealed to the Tokyo Court of Appeal.
The Tokyo Court of Appeal affirmed the judgement of the Tokyo District Court (reported in JCA Newsletter, February 1996, pp.3-5; Yearbook Comm. Arb'n XX(1995), pp.745-749.)
JEC further appealed against the decision of the Tokyo Court of Appeal to the Supreme Court, but the Supreme Court unanimously affirmed the said decision, reasoning as follows:


(1)In view of the substance of arbitration as a dispute resolution means based upon the agreement of the parties, it is properly found that the law governing the formation and effect of an arbitration agreement in international arbitration should be, in the first place, determined by the intention of the parties pursuant to the provision of Article 7, Paragraph 1 of the Act Concerning Applications of Laws (Horei). Even in the case where there is no express agreement to the said governing law in an arbitration agreement, if, in the light of the existence of the agreement with regard to the place of arbitration, its contents, the contents of the principal contract and other circumstances, there is considered to be an implied agreement with regard to the said governing law between the parties, this impliedly agreed law should apply. In this particular case, there is no express agreement with regard to the law governing the arbitration agreement. Nevertheless, judging from the fact that there is an agreement with regard to the place of arbitration between the parties to the effect that "Any arbitration proceeding initiated by RINGLING shall take place in Tokyo and any arbitration proceeding initiated by JEC (Appelant) shall take place in New York.", it is appropriately interpreted that the parties impliedly agreed that, for the arbitration to be initiated by JEC, the law applicable in New York City shall be the law governing the arbitration agreement.
(2)While the applicable law in the arbitration to be initiated by JEC pursuant to the arbitration agreement is interpreted to be the Federal Arbitration Act of the United States, it is properly found in the light of the interpretation and so forth about the scope (ad personam and in rem) of the effect of an arbitration agreement set forth by that act and the case law of the federal courts of the United States thereon, that the effect of the arbitration agreement extends to the damage claim made by JEC against Feld (Appellee). In addition, the scope of disputes to be referred to arbitration requested by a party should stand in a relation of two sides in the same coin to that for which the other party may, in the case where one of the parties initiates litigation, submit a plea in abatement because of the existence of an arbitration agreement. Accordingly, there should be a just reason for the plea in abatement submitted by Feld under the arbitration agreement, and the action taken by JEC is not exempted from dismissal as it has no interest of an action and is unlawful.
(3)It is justly affirmed, in the same view as the above, that the Tokyo Court of Appeal dismissed the action taken by JEC and it is found that there is no illegal view in that court proceedings. JEC alleges, in the different views from the above, and so its allegation that the said decision violates laws and regulations including the violation of the Constitution of Japan may not be adopted.

Recommended Arbitration Clause

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

"All disputes, controversies of 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 (name of city), 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.

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