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The Japan Commercial Arbitration Association
Settlement in International Commercial Arbitration
by Yasuhei Taniguchi1Mr. 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.
New Cooperation Agreement Signed
On April 16, 1998, JCAA concluded a cooperation agreement with the Chamber of National and International Arbitration of Milan (Italy).
JCAA International Commercial Arbitration Forum Held in Osaka
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.
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.
APEC ADR EEP Osaka Workshop Participants
Law Applicable to Formation and Effect of Arbitration Agreement
Supreme Court, September 4, 1997
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: