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INTERNATIONAL COMMERCIAL ARBITRATION UNDER THE NEW ARBITRATION LAW OF JAPAN

Shunichiro Nakano* (* Professor of Law, Graduate School of Law, Kobe University)

. Introduction

Japan's new Arbitration Law

( 1)

entered into effect on the March 1, 2004.

( 2)

T his is a

once-in-a-hundred-years major reform, since the old law

was enacted in 1890 as

Section 8 of the Japanese Civil Procedure Law based on the German Civil Procedure Law of that time. The new law adopted several provisions regard ing international commercial arbitration to eliminate the uncertainty under the old law, which had no express provisions in it. For example, arbitration procedure shall be governed by the

( 1)

Arbitration Law ( Chusai Ho : 2003 Act No.138). An English translation of the

text by the Arbitration Law Follow-up Research Group is available at

http://www.kantei.go.jp/foreign/policy/sihou/law032004_e.html or http://www.jcaa.or.jp/e/arbitration-e/kisoku-e/kaiketsu-e/civil.html . See also Masaaki

Kondo/Takeshi Goto/Kotatsu Uchibori/Hiroshi Maeda/Tomomi Kataoka, Arbitration Law of Japan (Shoji Homu, 2004); Tatsuya Nakamura, Salient Features of the New Japanese Arbitration Law Based upon the UNCITRAL Model Law on International Commercial Arbitration, Mealey's International Arbitration Report, Vol.18, No.9 (2003) p. 1; Masato Dogauchi, Litigation and Arbitration in International Business Disputes in Japan, available at: http://www.soc.nii.ac.jp/jaie/ ;Toshiro Nishimura/Hiroyuki Tezuka, Japan, Arbitration World 2004, p. 209.

( 2)

When in 1998 Japan's Civil Procedure Law was significantly revised, Section 7

(Public Peremptory Notice Procedures) and Section 8 were excluded from the scope of revision and were separated from the Civil Procedure Law. While the article numbering from the previous law was retained, the law was renamed Koji Saikoku

Tetsuzuki oyobi Chusai Tetsuzuki ni kansuru Horitsu [The Law concerning

Procedure for Public Peremptory Notice and Arbitration Procedure ](hereafter referred to as the "old law"). An English translation is available at:

http://www.jcaa.or.jp/e/arbitration-e/kaiketsu-e/civil.html and http://www.gsid.nagoya-u.ac.jp/project/apec/lawdb/japan/dispute/civil-en.html .

1

new arbitration law and assisted by the Japanese courts, when the place of arbitration is in Japan. The parties' autonomy in determining the applicable law on an arbitration agreement or the substance of a dispute is duly recognized. The requirements for the recognition of foreign arbitral awards are specified following the New York Convention, and new proceedings are introduced for more prompt enforcement of arbitral awards. The new law, while conforming for the most part to the UNCITRAL Model Law on International Commercial Arbitration

( 3)

, provides certain original rules in order to

adapt it to Japan's specific needs. For instance, special provisions were created for arbitration agreements in consumer contracts and individual employment contracts, which will be discussed later in this paper. What follows below is some of the background of the law reform, an overview of the rules of international commercial arbitration in the new Arbitration Law and basic comments on how they should be interpreted in future practice.

. Background and Developments in the Law Reform

Japan has entered into most of the important multilateral conventions on international commercial arbitration

( 4)

and has further concluded a number of

bilateral treaties that contain certain provisions on mutual recognition and enforcement of arbitration agreements and foreign arbitral awards

( 5)

. Nevertheless,

the former domestic law of Japan was apparently behind the times, considering the fact, for example, that it prescribed nothing about international arbitration, or that the number of arbitrators as a default rule was set at two, etc. In Japan, some international arbitration institutions with history and experience exist, such as the Japan Commercial Arbitration Association (JCAA, founded in

( 3)

UNCITRAL Model Law on International Commercial Arbitration, adopted by th e

United Nations Commission on International Trade Law on 21 June 1985 [ http://www.uncitral.org/en-index.htm ].

( 4)

Japan ratified the Geneva Protocol of 1923, the Geneva Convention of 1927, the

New York Convention of 1958 and the ICSID (International Center for Settlement of Investment Disputes) Convention of 1966.

( 5)

Japan concluded these bilateral treaties with the U.S., China and twelve other

countries. 2

1950) and the Tokyo Maritime Arbitration Commission of the Japan Shipping Exchange (TOMAC, founded in 1921). Nevertheless, it may safely be said that the number of international commercial arbitration cases conducted in Japan is far too small, considering its trade volume. For example, the number of new applications for international commercial arbitration filed at the JCAA annually is approximately ten to twenty. Whereas arbitration clauses are nowadays quite commonly incorporated into international contracts between Japanese and foreign companies, this fact implies that Japan has not been duly recognized as a site for arbitration. Among

other things, the antiquated former arbitration law was deemed to be one of the key factors which contributed to this. Since the UNCITRAL Model Law was enacted in 1985, basic research in a variety of formats has been aggressively undertaken in Japan, aiming to adopt it and to reform the arbitration law

( 6)

.

For various practical reasons, the official preparation

work for law reform did not start until December 2001, when the Consultation Group on Arbitration

( 7)

was established under the auspices of the Office for Promotion of

Justice System Reform of the Cabinet Office. The Consultation Group, chaired by Professor Yoshimitsu Aoyama, met purposefully for approximately one year between February 2002 and March 2003, and, after considering comments from the public, presented a preparatory draft. Based on this draft, the Arbitration Bill was drafted by the Office for Promotion of Judicial System Reform and was passed by the Diet on July 25, 2003, and was enacted into law on August 1. Arbitration institutions such as the JCAA and the TOMAC also revised their arbitration rules following the enactment of the new law

( 8)

.

. Territorial Scope of Application of the Law and the Governing Law on Arbitration Procedures

( 6)

Inter alia, in 1989, the Arbitration Law Study Group published the Draft Text of

the Law of Arbitration, which contributed significantly to the preparation process f or the new law. English, German, and French translations of this Draft Text are contained in NBL separate volume No. 25 (1989), p. 9.

( 7)

A member list and records of the Consultation Group are available only in

Japanese at: http://www.kantei.go.jp/jp/singi/sihou/kentoukai/04tyusai.html .

( 8)

See the JCAA homepage: http://www.jcaa.or.jp/e/arbitration-e/kisoku-e/kisoku-

e.html and the TOMAC homepage: http://www.jseinc.org/index_e.htm .

3

1. No Distinction between International and Domestic Arbitration

According to Article 1(1) of the UNCITRAL Model Law, the law "applies to international commercial arbitration." An arbitration proceeding is "international" in this sense, for instance, if the parties to an arbitration agreement have their places of business in different countries, or if the place of arbitration or the place of performance of the contractual duties is situated outside the State in which the parties have their places of business (Article 1(3)). However, to differentiate international arbitration from domestic in legislation is not only theoretically difficult but also impractical, since these two have so many rules in common. Article 1 of the Arbitration Law thus stipulates as a purpose of the law, without distinguishing between domestic and international arbitration, that arbitration proceedings shall follow its provisions "where the place of arbitration is in the territory of Japan." While in purely domestic arbitration cases the application of foreign law does not become an issue, it might be needed in arbitration cases with certain foreign elements, as noted below, where the rules of private international law so require. While some private international law theories current in Japan do not regard the existence of foreign elements to be a prerequisite for the application of private international law

( 9)

, the prevailing view demands this as an indispensable prerequisite .( 10 ) In the

latter view, the distinction between a domestic c ase and, in this sense, an "international" case is thought to be an implied prerequisite for the application of conflict-of-law rules in the new arbitration law.

2. No Party Autonomy as to the Determination of Governing Law of Arbitration Procedure

Following Article 1(2) of the UNCITRAL Model Law, Article 3 of the Arbitration Law prescribes that the provision of the law shall, with some exceptions, be

( 9)

Masato Dogauchi, Point Kokusai Shiho, Soron [The Points in Conflict of Laws,

General Part](Yuhikaku, 1999), p. 8 et seq .

( 10 )

Yoshio Tameike, Kokusai Shiho Kogi [Conflict of Laws](2nd ed., Yuhikaku, 1999),

p. 18; Yoshiaki Sakurada, Kokusai Shiho [Conflict of Laws](3rd ed., Yuhikaku, 2000), p. 30. 4

"applicable when the place of arbitration is in the territory of Japan." From the perspective of conflict of laws, this means that the various issues relating to arbitration procedures such as the appointment of arbitrators, grounds for challenge, commencement and termination of arbitration proceedings, etc., are connected to the law of the place at which the arbitration proceeding takes place. Although the old Japanese law did not set forth any provisions in this regard, the majority opinion recognized the autonomy of the parties with regard to the determination of the governing procedural law, arguing that an arbitration proceeding was to be characterized as a private dispute resolution system based on the parties' agreement. ( 11 ) On the other hand, the applicability of lex loci arbitrii has also been advocated by some influential literature .( 12 ) The authors of such literature pay due attention to the fact that the governing law of the arbitration proceedings is rarely agreed upon by the parties. They also point out that the application of the

mandatory procedural rules of the place of arbitration should not be evaded by the agreement of the parties, so that the parties' autonomy in this regard should strictly be denied. Article I (1) of the New York Convention assumes "arbitral awards made in the territory of a State other than the State where the recogni tion and enforcement of such awards are sought" to be a foreign arbitral award, to which the Convention is applied. On the other hand, according to the same provision, the Convention also

applies to "arbitral awards not considered as domestic awards in th e State where their recognition and enforcement are sought," which permits the enforcing State to decide the nationality of the award based on the theory of party autonomy. This reflected the strong influence of the party autonomy principle at the time the Convention was adopted. However, most of the countries which adopted the UNCITRAL Model Law since 1985 tend to connect the issue to the law of the place of arbitration following Article 1(1) of the Model Law. ( 13 ) Even in Germany, where the influence of the party autonomy doctrine traditionally had been strong, Article 1025

( 11 )

Noboru Koyama, Chusai Ho [Arbitration Law](new ed., Yuhikaku, 1983), p.

154; Takeshi Kojima, Chusai Ho [Arbitration Law](Seirin Shoin, 2000), p. 418.

( 12 )

Akira Takakuwa, Kokusai Shoji Chusai Ho no Kenkyu [Study on the Law of

International Commercial Arbitration](Shinzansha, 2000), p. 122.

( 13 )

Still, some national laws like the Egyptian Arbitration Law of 1994 (Article 1)

and the French Code of Civil Procedure (Article 1494(1)) permit party autonomy in this regard. 5

of the Civil Procedure Law was revised to clarify the territorial application of arbitration law. Taking the global trend and simplicity of the territorial principle into consideration, Article 3 of Japan's new arbitration law rejects the party autonomy principle as well and sets forth the intention to apply the law "when the place of arbitration is in the territory of Japan."

3. Determination of "Place of Arbitration"

What is referred to as the place of arbitration is generally understood to be the place where the arbitral award is made or the place where a major portion of the arbitral proceedings are undertaken. However, the arbitral tribunal itself is not fixed to one stable location like a national judicial court; in practice, it is not unusual for the hearings to be undertaken in a number of locations. Thus, it is not an easy task to define objectively the notion of "place of arbitration." Consequently, taking its lead from Article 20 of the Model Law, Article 28 of the new Arbitration Law stipulated that the place of arbitration may be determined by the parties or, absent such an agreement, it shall be decided by the arbitration tribunal. On the other hand, as the arbitral tribunal may proceed in a location other than the place of arbitration (Article 28(3)), the "place of arbitration" may differ from the "place of the hearing." In other words, even if the hearings are held entirely in country A, the place of arbitration may be, based on the agreement of the parties, set in country B. In fact, as regards the arbitration procedure at the Court of Arbitration of Sport (CAS), which is frequently used for recent international sports competitions such as the Olympic Games, the seat of arbitration is fixed in Lausanne, where the head of the organization is located, regardless of the place of the hearing. ( 14 ) In this sense, "the

( 14 )

Procedural Rules of CAS, R28: "The seat of the CAS and of each Arbitration Panel

("Panel") is in Lausanne, Switzerland. However, should circumstances so warrant, and after consultation with all parties, the President of the Panel or, if he has not yet been appointed,the President of the relevant Division may decide to hold a hearing in another place and issue the appropriate directions related to such hearing." Article 7 of Arbitration Rules for the Olympic Games at: http://www.tasSee also

cas.org/en/code/frmco.htm .

It should be noted, however, that the CAS arbitration

rules can be applied to a wide range of sports-related disputes, which include "any activity related or connected to sport" (R27), whereas the Arbitration Act is merely 6

place of arbitration" may, as it were, be fictitious. By choosing a country as the place of arbitration that is different from the location of the hearings, the parties are virtually free to designate the governing law of the proceedings. Consequently, there will be no practical difference to the recognition of the parties' autonomy as regards the governing law of the arbitral proceedings.

4. International Jurisdiction of Japanese Courts regarding Arbitration

The legislative deviation from the party autonomy principle with respect to the determination of the applicable law on arbitration proceedings impacts the distinction between domestic and foreign arbitral awards, as well as the determination of the court jurisdiction regarding the arbitration procedures. For example, while the provisions of Chapter 8 of the Arbitration Law prescribing the recognition and enforcement of the arbitral award are to be applied even when the place of arbitration is not in Japan, the provisions of Chapter 7 of the Arbitration Law relating to the setting aside of the arbitral award shall "apply only if the place of arbitration is in the territory of Japan" (Article 3(1)(3)). This implies that the legal distinction between a domestic and a foreign arbitral award is to be made in accordance with the existence of the place of arbitration in the forum State. An arbitral award made at the place of arbitration in another State is to be regarded as a foreign award, which shall not be subject to Japanese court jurisdiction for setting aside of the award (Article 44). The arbitration tribunal or the parties may apply to a court for assistance in taking evidence (Article 35(1)). This provision applies as well when the place of arbitration is in the territory of Japan (Article 3); thus, on the contrary, such an application cannot be made if the place of arbitration is not in Japan. However, as the parties to the arbitral agreement are free to choose the place of arbitration, which may differ from the place of the hearings (see 3), it is highly conceivable, for example, that the hearings of the Swiss arbitration will be held in Japan. If we were to reject the application for court assistance in taking evidence in this case, a circuitous procedure would be needed; first, the application has to be made in the place of arbitration, Switzerland, which then turns to Japan, through diplomatic channels, for judicial cooperation in gathering evidence. To evade the serious inconvenience caused by such

applied to legal disputes. 7

official proceedings to both the parties and the arbitration tribunal, it seems more appropriate to affirm the court jurisdiction for assistance in the arbitral proceedings, if the arbitration hearings take place in Japan. Interim measures of protection (Article 15) may be requested from a Japanese court, regardless of whether the place of arbitration is within Japan or not (Article 3(2)); with regard to the appointment or the challenge of arbitrators, parties may apply for the court's assistance, which may be required even prior to the deter mination of the place of arbitration, if the parties' general forum is located in Japan, and there is a possibility that the place of arbitration will be in Japan (Article 8).

. Applicable Law on Arbitration Agreement

1. Determination of the Governing Law on Arbitration Agreement (1) The Provisions of the New Arbitration Law and the Principle of Party Autonomy The formation, validity, and effect of an arbitration agreement may be contested in several contexts, for instance: (i) in examining the defense of an arbitration agreement in court; (ii) in deciding the jurisdiction of the arbitration tribunal; (iii) in giving courts assistance in the arbitration proceedings (taking evidence, service of documents, etc.), or (iv) in setting aside or executing arbitral awards. Among them, the Arbitration Law dealt only with the last situation, (iv), and provided the governing law of the arbitration agreement, following the New York Convent ion and the Model Law. Thus, according to Article 44(1)(ii) and 45(2)(ii) of the Arbitration Law, the law agreed to by the parties and, failing such an agreement, the law of the place of arbitration shall apply. Whereas the old law contained no provision as to the determination of the governing law of arbitration agreement, case law and the majority of academic opinion consistently held, based on the analogical application of Article 7 of the Horei

( 15 ) ( 15 )

Article 7 of the Horei (Law on the Application of Laws; 1898, Act No.10): "(1) The

governing law of the creation and effect of a legal transaction is determined according to the intention of the parties. (2) If the intention of the parties cannot be ascertained, the law of the contracting place shall be applied." Regarding the

English translation of the Horei , see Okuda/Anderson," Horei , Act on the Application of Laws" 3 Asian Pacific Law & Policy Journal (2001),available at:

www.hawaii.edu/aplpj .

8

stipulating the determination of the governing law of contract, that the parties were free to agree on the governing law of the arbitration agreement (the principle of party autonomy). Emphasis is placed on the following points

( 16 )

: (i) allowing parties'

freedom in choosing governing law matches the function of arbitration, as a private dispute resolution mechanism based on the parties' agreement; (ii) from the perspective of comparative law, not to mention the New York Convention and the UNCITRAL Model Law, the tendency to allow the parties' autonomy in this regard is quite apparent. ( 17 ) The arbitration agreement is usually agreed to as a clause in the main contract, such as a contract for international sale of goods or a contract for carriage of goods by sea, etc., where the governing law of the arbitration agreement is rarely designated differently and independently from the governing law of the main contract. However, such an agreement by the parties is theoretically not excluded; from the perspective of conflict of laws, the contract and the arbitration agreement constitute mutually independent units for designation of governing law. In the meantime, the objective connection to the law of the place of arbitration is also advocated in some of the literature. ( 18 ) Considering these debates, the adoption

( 16 )

In the past, legal characterization of the arbitral agreement was emphasized in

order to give a theoretical basis for acknowledging parties' autonomy in deciding the applicable law. The arbitration agreement was not an agreement based on civil procedure law, which was deemed to fall under the scope of application of lex fori , but an agreement based on the substantive civil law. However, in recent academic arguments, the legal nature of an arbitration agreement tends to recede to the background. See Shunichiro Nakano," Chusai Keiyaku no Junkyo Ho "[Applicable

Law on Arbitration Agreement], in: Chusai Ho Shian Kaiteian ni kansuru Chosa

Kenkyu [Study on the Revision of the Draft Text of the Law of Arbitration](Sangyo

Kenkyusho, 2002), pp. 29-32; Kojima, supra note 11, p. 411.

( 17 )

Takao Sawaki," Chusai Keiyaku no Junkyo Ho " [Applicable Law on Arbitration

Agreement], in: Kojima/Takakuwa (eds.),Chukai Chusai Ho [Commentary Arbitration Law](Seirin Shoin, 1988), p. 217; Aoyama Yoshimitsu, " Chusai Keiyaku " [Arbitration Agreement], in: Takakuwa/Dogauchi (eds.), Kokusai Minji Sosho Ho [International Civil Procedure Law](Seirin Shoin, 2002), pp. 423-425.

( 18 )

According to this view, the parties' autonomy in this regard is to be rejected,

since (i) the governing law of the arbitration agreement is rarely agreed to 9

of the party autonomy principle in the Arbitration Law has significant meaning.

(2) The Law of the Place of Arbitration If there is no agreement between the parties with regard to the applicable law on the arbitration agreement, the law of the place of arbitration shall apply (Article 44(1)(ii) and 45(2)(ii) of the Arbitration Law). Under the old law, the place of

arbitration also played a significant role to ascertain an "implied agreement" of the applicable law on arbitration agreement

( 19 )

.

However, in the case of the "cross-

style" agreement on the place of arbitration, which is often used in recent practice, the application of lex loci arbitrii raises some doubts, as illustrated in the Supreme Court decision of 1997 (Ringling Bros. Circus Case). ( 20 ) In this case, X Company of Japan, based on a contract with A Company of the United States, invited A Company's circus to Japan to perform. However, as the performances were not successful, X Company filed a civil lawsuit in a Japanese court, claiming that it had suffered damages due to the fraudulent conduct of A Company's representative, Y (a U.S. citizen). In response to this, Y asserted that the case should be referred to arbitration at the arbitration institute in New York, since the contractual clause stipulated that all disputes, including the interpretation and

specifically by the parties, (ii) an arbitration agreement without any legal effect in the place of arbitration is virtually meaningless, and (iii) an arbitral award can only be set aside by the national court in the place of arbitration. Takakuwa, supra note 12, pp. 102-105.

( 19 )

With regard to the governing law of a contract, when there is no clear agreement

between the parties, Article 7(2) of the Horei stipulates that the law of the contracting place shall apply. However, in current international transaction practice, there are often cases in which the contracting place does not have a sufficiently close connection to the contract itself. As a result, the general method heretofore was to give consideration to the various circumstances surrounding the contract and to seek an implied agreement concerning the governing law of the contract. With regard to the governing law of the arbitration agreement, most opinions held that an implied agreement needed to be sought particularly taking account of the place of arbitration. The Supreme Court decision discussed below followed this argument.

( 20 )

Supreme Court Judgment of September 4, 1997, Minshu [Supreme Court

Reports (Civil Cases)] Vol. 51, No. 8, p. 3657; JAIL No. 41 (1998), p. 109. 10

application of the contract, were to be resolved through arbitration by the arbitration institute in the seat of the respondent. ( 21 ) Under New York law, the effect of the arbitration agreement between X and A would have extended to the president of A, i.e., Y. However, as this interpretation would not have been followed under Japanese law, determining the governing law, to judge the scope of the arbitration agreement's effect, became an issue. The Supreme Court of Japan, recognizing the defense of the arbitration agreement by Y and dismissing X's motion, held as follows: "The applicable law on the formation and effect of the arbitration agreement is, based on Article 7 (1) of the Horei , primarily determined in accordance with the intention of the parties." However, if there is no clear agreement, the court must seek the implied intention of the parties by "considering various circumstances surrounding the contract, inter alia whether there was or was not an agreement between the parties with respect to the place of arbitration, details of the main contract, etc." Accordingly, in this case, "with regard to the arbitration requested by X, the court recognizes the implied agreement of the parties that the governing law of the arbitration agreement is the law as applied in the City of New York, the place of arbitration" and, as a conclusion, "the effect of the arbitration agreement extends to X's claim for damages against Y." In the case of a "cross-style" agreement like this, the place of arbitration should inevitably be different if the other party applies for arbitration first. Since this

would result in a divergence of the applicable law to the arbitration agreement as well, it is argued that the governing law of the main contract should also be applied to the arbitration agreement between the parties in this case, instead of lex loci

arbitrii . ( 22) As a matter of fact, it is hard to tell whether the governing law of the

main contract determined by the parties' "implied" agreement or the place of arbitration has closer connection with this type of arbitration agreement. Nevertheless, divergence of applicable law by the claimant is to be justified

( 21 )

In this case, the arbitration agreement contained an agreement on the place of

arbitration that reads: "any arbitration proceeding initiated by Y shall take place in Tokyo and any arbitration proceeding initiated by X shall take place in New York City."

( 22 )

E.g.,Yuko Nishitani,Comments on the Case, Hanrei Taimuzu [Law Times

Reports] No. 977 (1998), p. 31. 11

theoretically by the interpretation that the "cross-style" arbitration clause contains two arbitration agreements with differing places of arbitration depending upon the claimant. ( 23 ) (3) Some Other Issues of Interpretation As no general provision was laid down for determining the governing law of the arbitration agreement with regard to the other issues than setting aside or execution of arbitral awards, some supplemental interpretation will be required. This result is not totally satisfactory, as a clear-cut provision stating applicable law on an arbitration agreement would have been ideal. Still, if we take a straight look at the small number of cases where the governing law of an arbitration agreement became an issue, or at the scarce and divergent national legislation having general provisions regarding this such as those of Spain

( 23 ) ( 24 )

, Switzerland

( 25 )

,and Sweden

( 26 )

, it seems in

Masato Dogauchi, Comments on the Case, Hanrei Hyoron [Review of Cases] No.

480 (1999), p. 223.

( 24 )

Article 61 of the Spanish Arbitration Act: "The validity of the arbitration

agreement and its effects are governed by the Law expressly designated by the parties, provided that it has some connection with the law applicable to the underlying legal transaction or with the dispute; in the absence of such Law, by the law applicable to the relationship in which the dispute has arisen; in the absence of such Law, by the law of the place of where the award is to be rendered and, if such were not determined, by the law of the place where the arbitration agreement was entered into."

( 25 )

Article 178 of the Swiss Federal Statute on Private International Law: "(1) The

arbitration agreement must be made in writing, by telegram, telex, telecopier or any other means of communication which permits it to be evidenced by a text. (2) Furthermore, an arbitration agreement is valid if it conforms either to the law chosen by the parties, or to the law governing the subject-matter of the dispute, in particular the main contract, or to Swiss law."

( 26 )

Article 48 of the Swedish Arbitration Act of 1999: "Where an arbitration

agreement has an international connection, the agreement shall be governed by the law agreed upon by the parties. Where the parties have not reached such an agreement, the arbitration agreement shall be governed by the law of the country in which, by virtue of the agreement, the proceedings have taken place or shall take 12

a sense inevitable that the new Japanese Arbitration Law, like the domestic laws of many other countries adopting the Model Law, sets forth only a Model Law -type regulation regarding the governing law of the arbitration agreement. Then, if the governing law of the arbitration agreement becomes an issue in cases other than the setting aside of enforcement of the arbitral award, what kind of interpretation should be made under the new Arbitration Law? Article 3 of the Arbitration Law states the law applies "if the place of arbitration is in the territory of Japan." As this provision does not exclude Chapter 2 of the Arbitration Law

concerning the arbitration agreement, it could appear at first sight that the governing law of the arbitration agreement is likewise determined by the place of arbitration; however, this is not accurate. With respect to the setting aside or the enforcement of the arbitral award, Articles 44 and 45 of the Arbitration Law, as noted above, recognize the parties' autonomy as a first step, and then stipulate the

application of the law of the place of arbitration as a second step. Furthermore, if we consider this together with its consistency to the Supreme Court decision in the Ringling Bros. Circus case noted above, the same conflict-of-laws rule as in the Articles 44 and 45 must also apply here. The basis of this interpretation might be sought, just like before the reform, in Article 7 of the Horei . However, it seems more appropriate to base this consequence on the analogous application of Article s 44 and 45. ( 27 ) Similar interpretation is often advocated in regard to the relation between Article and Article V of the New York Convention. Specifically, Artic le of the Convention stipulates the recognition of the arbitration agreement, but as the governing law is not clearly stated there, many opinions hold that, based on the analogous application of Article V(1)(a) regarding the recognition/enforcement of the arbitral award, the governing law of the arbitration agreement should be decided in accordance with the parties' agreement first, and then, failing such agreement, with the place of arbitration as a connecting point. ( 28 ) place."

( 27 )

Shunichiro Nakano, " Chusai Keiyaku no Junkyo Ho to Chusai Ho " [Applicable

Law on Arbitration Agreements and the Arbitration Law], JCA Journal, Vol.51, No. 11 (2004), p. 69; Akira Takakuwa, " Aratana Chusai Ho to Shogai Chusai " [The New Arbitration Law and International Arbitration], Hoso Jiho [Bar Review], Vol.56, No. 7 (2004), p. 1598.

( 28 )

Schlosser, Das Recht der internationalen Schiedsgerichtsbarkeit, 2.Aufl., 1989, 13

Where the defense of the arbitration agreement is to be reviewed in court, it is also conceivable that the place of arbitration is not yet decided. In this case, as the third stage, the governing law must be determined by a supplementary interpretation. With regard to such circumstances, Article VI(2)(c) of the European Convention on International Commercial Arbitration establishes that the court seized shall decide the governing law by the rules of private international law of the forum state . ( 29 ) As an interpretation of domestic law in this case, it seems adequate to apply the governing law of the subject matter of arbitration (i.e., normally the governing law of the main contract) to determine the formation or effect of the arbitration agreement as well.

2. The Scope of Application of the Governing Law on an Arbitration Agreement

Whether an arbitration agreement is validly formed between the parties or the interpretation thereof is judged based on the governing law of the arbitration agreement. Other issues relating to the arbitration agreement, such as the duties laid on the parties, the objective and subjective scope of its effect, when it comes into or loses its effect, etc., will also be governed by the applicable law on the arbitration agreement. According to Article 13(6) of the Arbitration Law, the cancellation or nullity of the main contract does not necessarily affect the effect of the arbitration agreement ("separability" of the arbitration agreement). If viewed as a matter relating to the formation or the effect of the arbitration agreement, it could be deemed to be covered by the scope of the applicable law of the arbitration agreement. Under this view, Article 3 of the Arbitration Law, which, following Article 1 (2) of the UNCITRAL Model Law, set forth the application of this provision in the event the place of

Rz.229,240; Bertheau, Das New Yorker Abkommen vom 10.Juni 1958 über die Anerkennung und Vollstreckung ausländischer Schiesdssprüche, 1965, S.38; Schwab/Walter, Schiedsgerichtsbarkeit, 6.Aufl., 2000 Kap. 43 Rz. 2; van den Berg, The New York Arbitration Convention of 1958, 1981, p. 126.

( 29 )

"(c) failing any indication as to the law to which the parties have subjected the

agreement, and where at the time when the question is raised in court the country in which the award is to be made cannot be determined, under the competent law by virtue of the rules of conflict of the court seized of the dispute." 14

arbitration is Japan, might be based on an inappropriate legal characterization. On the other hand, the separability of the arbitration agreement can be deemed, along with the right of the arbitration tribunal to continue proceedings (Arbitration Law Article 14(2)) and the competence of the arbitral tribunal to rule on its jurisdiction (Article 23), as a system to prevent the party not seeking arbitration to stall the arbitral proceedings by claiming the invalidity of the main contract and to guarantee the speed and effectiveness of the arbitral proceedings. If considered this way, Article 13(6) can be classified as a special procedural provision, which is to be covered by the applicable scope of the governing law of the arbitral proceedings.

3. The Governing Law of the Formalities/Capacity of the Arbitration Agreement

As Article of the New York Convention obligated all signatory states to recognize arbitration agreements "in writing," Article 13 of the Arbitration Law also stipulates, as a general principle, that arbitration agreements must be concluded by a written instrument. However, considering that the UNCITRAL working group is moving toward a relaxation of arbitration agreement formalities, it was decided to not strictly require an agreement in writing. For example, Article 13(4) holds that an agreement made by way of "electromagnetic record (records produced by electronic, magnetic or any other means unrecognizable by natural sensory function and used for data processing by a computer)" shall also be considered in this sense an arbitration agreement in writing. According to the heretofore reigning theory

( 30 )

, formal requirements of the

arbitration agreement were, through the analogous application of Article 8 of the

Horei

( 31 )

, based on the selective application of the governing law of the arbitration

agreement and the law of the state where the arbitration agreement was made. The Arbitration Law does not contain a clear provision with respect to the determination of the governing law on the formalities of the arbitration agreement. However, Article

( 30 ) ( 31 )

Sawaki, supra note 17, p. 220; Kojima, supra note 11, p. 412. Article 8 of the Horei : "(1) The formalities of a juristic act shall be governed by

the law applicable to the effects of that act. (2) Notwithstanding the preceding paragraph, formalities that satisfy the requirements of the law of the place where the act was done (lex loci actus) shall be effective, unless the act is designed to establish or dispose of a right in rem or a right requiring registration." 15

3 which stipulates the applicable scope does not exclude Article 13, therefore, the provisions of Article 13 will apply in the event the place of arbitration is in the territory of Japan. When the place of arbitration is overseas, one might argue, based on Article 8 of the Horei , that the formal requirements should be determined by the governing law of the arbitration agreement, as has been the case up to now. On the other hand, it could also be asserted that the law of the place of arbitration should apply. Whether the parties have the capacity to enter into an arbitration agreement is judged, just as with an ordinary international contract, by personal law in the case of a natural person and in the case of a judicial person by the law under which it was incorporated.( 32 ) 4. The Governing Law of Arbitrability

Article 13(1) of the Arbitration Law, taking over the rule under the old law, stipulates that an arbitration agreement shall be valid "only when its subject matter is a civil dispute that may be resolved by settlement between the parties." As the stance on recognizing arbitrability varies from country to country, in cases where there is a foreign element, which country's law shall make the determination can become an issue. As the old law did not contain any provisions with regard to the governing law to determine arbitrability, scholarly opinions were divided over whether arbitrability should be determined by the applicable law on the substance of the dispute, the governing law of the arbitration agreement, the law of the place of the court ( lex fori ), or the law of the place of arbitration ( lex loci arbitrii ). ( 33 ) As national laws which lay

( 32 )

Supreme Court Judgment of 15 July 1975, Minshu [Supreme Court Reports

(Civil Cases)], Vol. 29, No.6, p. 1061; Sawaki, supra note 17, p.220; Kojima, supra note 11, p. 411.

( 33 )

See Takao Sawaki, " Chusai Keiyaku oyobi Chusai Kanosei no Junkyo Ho "

[Applicable Law on Arbitration Agreement and Arbitrability] in: Matsuura/Aoyama (eds.), Gendai Chusai Ho no Ronten [Issues of Modern Arbitration Law] (Yuhikaku, 1998), p. 371 et seq .; Takakuwa, supra note 12, p. 101; Shunichiro Nakano, " Kokusai

Chusai ni okeru Chusai Kanosei no Junkyo Ho" [Applicable Law on Arbitrability in

International Arbitration], Chusai Ho Shian Kaiteian ni kansuru Chosa Kenkyu 16

down general provisions with respect to this point are rare, Article s 34 and 36 of the UNCITRAL Model Law, mostly in accordance with Article V(2)(a) of the New York Convention, prescribe, only as one of the grounds for setting aside or rejecti ng the enforcement of an arbitral award, that "the subject matter of the disputes is not capable of settlement by arbitration under the law of this State." Articles 44 and 45 of the Arbitration Law, just as with the Model Law, stipulate the application of Japanese law only with regard to the circumstances in which the arbitrability becomes an issue at the stage of setting aside or enforcement of the arbitral award. In other circumstances where the governing law of arbitrability becomes an issue, the arbitrability will likely be determined based on Article 13(1) of the Japanese Arbitration Law, if the place of arbitration is in Japan (Article 3). If the place of arbitration is not in Japan, while it is also possible to assert that the governing law of the arbitration agreement or lex fori should apply, it would be more appropriate to determine the arbitrability in accordance with lex loci arbitrii , to the extent that would not be contrary to Japanese public policy.

5. Protections of Consumers and Employees

As to an arbitration agreement made between a company and consumers or individual employees, given the imbalance of power between the parties, protection of the economically weaker parties is at stake. The Consultation Group on Arbitration took this issue into deliberation, as numerous negative opinions were expressed against the full recognition of the validity of such arbitration agree ments.( 34 ) As a result, the new Arbitration Law provided, as a measure "for the time being until otherwise enacted" and from the perspective of protecting the weaker party, that a consumer should be entitled to cancel an arbitration agreement made between himself or herself and a business (Article 3 of the Supplementary Provisions). The new law also made arbitration agreements concerning individual labor -related disputes null and void (Article 4 of the Supplementary Provisions). By providing consumers the option of resorting to arbitration or litigation, Article 3 of the

[Study on the Revision of the Draft Text of Law of Arbitrati on](Sangyo Kenkyusho, 2000), p. 13 et seq .

( 34 )

See Yoshimitsu Aoyama, " Chusai Ho no Seitei o Furikaette " [Looking Back upon

the Making of the Arbitration Law], JCA Journal, Vol. 50, No. 10 (2003), p. 5. 17

Supplementary Provisions bears a certain resemblance to Article 17 of the Brussels I Regulation

( 35 )

with regard to the jurisdictional agreement in consumer contracts.

With regard to the applicable law clause in a consumer contract, Article 5 of the Rome Convention

( 36 )

stipulates that a consumer cannot be deprived of the protection

afforded to him by the law of his habitual residence. Here also, due attention is paid to the necessity of an option for the consumer. As Article 3 of the Arbitration Law, which defines its territorial scope of application, is to be interpreted to cover the Supplementary Provisions as well, Articles 3 and 4 of the Supplementary Provisions are to be applied if the place of arbitration is in Japan. If the place of arbitration is not in Japan, several interpretations are possible. As a general rule, the effect of an arbitration agreement should be judged applying the law of the country where the arbitration takes place. However, in the exceptional cases where the law of the place of arbitration does not provide sufficient protection to the weaker party, its application should be excluded as being contrary to Japanese public policy, and Articles 3 and 4 of the Supplementary Provisions should thus apply.

. Applicable Law on the Substance of Disputes

1. Party Autonomy

(1) Applicability of Non-national Laws The arbitration tribunal must make an award with regard to the substance of a dispute applying the rules of law agreed to by the parties (Article 36(1) of the Arbitration Law). What is referred to here, as well as in Article 28(1) of the UNCITRAL Model Law, as the "rules of law" is a broad concept not limited to

( 35 )

Article 17 of the Council Regulation (EC) No 44/2001 of 22.12.2000 on

jurisdiction and the recognition and enforcement of judgments in civil and commercial matters: "The provision of this Section may be departed from only by an agreement: (1) which is entered into after the dispute has arisen; or (2) which allows the consumer to bring proceedings in courts other than those indicated in this Section ."

( 36 )

Article 5 of the Convention on the Law applicable to Contractual Obligations

(80/934/EEC): "a choice of law made by the parties shall not have the res ult of depriving the consumer of the protection afforded to him by the mandatory rules of the law of the country in which he has his habitual residence." 18

provisions of national laws. It also includes non-national laws including model laws and uniform rules created by private entities, treaties which have yet to come into effect, etc. Contrary to this, if there is no agreement between the parties, "the law of the State" with which the dispute is most closely connected will be applied based on paragraph 2. In this case, there is no room for the application of non -national laws.

In relation to the choice of law in court proceedings, there is an argument in the field of private international law whether non-national law or the legal rules often referred to as lex mercatoria can be agreed to as the governing law in the same fashion as ordinary national laws.( 37 ) The prevailing theory on private international law in Japan holds that an agreement between the parties which designates the law of non-national origin as the governing law has, in court proceedings, no effect as a "conflict-of-laws type designation" ( kollisionsrechtliche Verweisung), but only as an effect as a "substantive law type designation" ( materiellrechtliche Verweisung). ( 38 ) In other words, this kind of agreement cannot be deemed as a fully effective agreement of the governing law, but should be understood to have only the effect of incorporating these rules into the parties' contract. In the past, the contents of nonnational laws or lex mercatoria were in many cases vague and ambiguous, such as "general principles of law." Furthermore, most of the non-national rules, which exceptionally have clear and concrete contents like INCOTERMS, were merely discretionary provisions. On the other hand, it should be pointed out that other types of non-national laws have recently emerged; they have certain systematic structures, are equipped with some mandatory provisions and purport to be applied primarily in international contractual disputes, like UNIDROIT Principles of International Commercial Contracts. ( 39 ) Parties to an international trade contract will have

sufficient interests in designating those non-national legal rules as applicable to their contract, considering the fact that the national laws are in many cases enacted primarily to cope with domestic cases, and therefore are not suitable to resolve crossborder transaction disputes. Accordingly, even in relation to the choice of law in

court proceedings, there seems to be sufficient reason for the recognition of an

( 37 )

Naoshi Takasugi, " Kokusai Kaihatsu Keiyaku to Kokusai Shiho" [International

Development Agreement and Conflict of Laws], Handai Hogaku [Osaka University Law Review], Vol. 53 (2002), p. 1007 et seq .

( 38 ) ( 39 )

Tameike, supra note 10, p. 346; Sakurada, supra note 10, p. 214. See http://www.unidroit.org/english/home.htm . 19

agreement that non-national law shall be applicable as a "conflict-of-laws type designation." ( 40 ) It is hoped that Article 36(1) will be, in respect to court proceedings as well, one turning point which will lead to further development in the same direction.

(2) Agreement of Applicable Law on Tort Claims, etc. Parties' autonomy under Article 36 (1) is not unlimited. According to the prevailing view, even if the parties agree to apply a certain country,,s law as the governing law to the whole dispute, an arbitrator is required to apply this law only to the contractual claims; the parties are not free to choose applicable law on the issues such as capacity of executives of a company, right in rem as mortgage, etc. ( 41 ) On the other hand, whether the parties may agree on the applicable law on tort claims is controversial.( 42 ) If we consider the global tendency to allows parties' agreement of applicable law on tort claims in the general private internation al law field ( 43 ) , it

( 40 )

Juenger, Lex mercatoria und Eingriffsnormen, in: FS Rittner, 1991, S. 233 ff.;

Kappus,"Lex mercatoria" als Geschäftsstatut vor staatlichen Gerichten im deutschen internationalen Schuldrecht, IPRax 1993,139; Boele-Woelki, Principles and Private International Law, ULR 1996, p. 652,666; Wichard, Die Anwendung der UNIDROITPrinzipien für internationale Handelsverträge durch Schiedsgerichte und staatliche Gerichte, RabelsZ 1996,269,283 ff. See also Shunichiro Nakano," Hi Kokkaho no

Junkyoho Tekikakusei Kokusaishiho teki Sokumen kara mita Lex Mercatoria "

[Non-national Law as an Applicable Law Lex Mercatoria from the perspective of Private International Law], CDAMS Discussion Paper 04/6J (2004) [ http://www.cdams.kobe-u.ac.jp/archive/dp04-6.pdf ].

( 41 ) ( 42 )

Dogauchi, supra note 1, at 2; Takakuwa, supra note 27, pp. 1608-1609. Parties' autonomy is denied by Takakuwa, supra note 27, p. 1608. This opinion

reflects the prevailing view in the general private international law field in Japan, which denies the effect of parties' agreement on applicable law on tort claims. On the contrary, in view of the parties' interest, the effect of such an agreement is recognized by some of the literature. See, e.g.,Shunichiro Nakano, " Fuho Koi ni kansuru Junkyo

Ho Sentaku no Goi " [Agreement on the Applicable Law on Tort Claims], Min Sho Ho Zasshi [Journal of Civil and Commercial Law], Vol. 102, No. 6 (1990) p. 768 et seq .

( 43 )

See, e.g., Article 132 of the Swiss PIL, Article 11 of the Austrian PIL, Article 42

of the German PIL and Article 33 of the Korean PIL. 20

seems to be not only possible but also necessary to recognize parties' autonomy also in the context of international commercial arbitration.

2. Applicable Law Failing Designation by the Parties

As to the choice of law by the arbitration tribunal in the event that there is no agreement between the parties, the attitudes of the domestic laws are quite divergent.( 44 ) Article 28(2) of the UNCITRAL Model Law and some domestic laws

following the Model Law

( 45 )

stipulate that an arbitration tribunal should apply "the

law determined by the conflict of laws rules which it considers applicable. " Based on this, the arbitration tribunal will have certain discretion in determining the applicable conflict-of-laws rules. In contrast to this, Article 1496 of the French CPC prescribes that the "arbitrator shall decide the dispute in accordance with the rules of the law chosen by the parties or, in the absence of such choice, in accordance with the rules of law he considers appropriate." ( 46 ) This is understood to give the arbitrator an even wider degree of discretion regarding the determination of the governing law. Article 36(2) of Japan's Arbitration Law, following such national law provisions as Article 1051(2) of the German CPC, Article 187(1) of the Swi ss Federal Statute on Private International Law, Article 834 of the Italian CPC, Article 29 of the Korean Arbitration Act, etc., stipulated the application of "the law of the state with which the dispute has its closest connection." ( 47 ) Furthermore, various theories can

( 44 )

Chukwumerije, Choice of Law in International Commercial Arbitration, 1994, p.

126; Wortmann, Choice of Law by Arbitrators: The Applicable Conflict of Laws System, 14 Arbitration International (1998), p. 106.

( 45 )

E.g.,1996 UK Arbitration Act Article 46(3), Canadian Commercial Arbitration

Act Article 28(2), Australian International Arbitration Amendment Act Article 28 (2), etc.

( 46 ) ( 47 )

See further Article 1054(2) of the Netherlands Arbitration Act. See further Article 1445(2) of the Mexican Commercial Code and Article 62 of

the Spanish Arbitration Act. Similarly, Article 28(1)(b)(iii) of the Indian Arbitration and Conciliation Ordinance and Article 28(3) of the International Commercial Arbitration Act of British Columbia prescribe the application of the "rules of law it considers to be appropriate given all the circumstances surrounding the dispute." 21

be observed in the relevant literature and arbitral awards, such as the application of substantive laws of the place of arbitration, the application of private international law of the place of arbitration, or the cumulative application of t he conflict of law rules of the countries related to the case, etc. ( 48 ) The diversity of attitudes described above seems to indicate the fact that a global consensus has yet to be formed with regard to the choice-of-laws methodology in arbitral proceedings. With respect to the determination of the governing law, it is not appropriate to give arbitrators a complete free hand, but conversely it is difficult to oblige arbitrators to strictly apply the private international law rules of the place of arbitration. The road we should take seems to be between these two. On the other hand, this issue needs to be studied in conjunction with the problem of whether a misapplication of the law by an arbitrator will lead to the setting aside of the arbitral award. In principle, the arbitrator's failure in determining applicable law should no t be deemed to constitute direct grounds for the setting aside; the arbitral award will only be set aside based on a serious and arbitrary misapplication, for instance, if an arbitrator ignores the parties choice-of-law agreement in determining the governing law.( 49 )

3. Decision ex aequo et bono , Terms of Contract and Usages

In the last part of Article 36, there's no fundamental deviation from Article 28 (3)(4) of the Model Law. Paragraph (3) of Article 36 gives effect to the agreement Although such

of the parties to have the arbitral tribunal decide ex aequo et bono.

( 48 )

Shunichiro Nakano/Keiichi Nakabayashi," Kokusai Chusai ni okeru Jittai

Handan Kijun no Kettei to Kokusai Shiho" [Private International Law and Applicable

Law on the Substance in International Arbitration] in: Gendai Syakai ni okeru Minji

Tetsuzuki Ho no Tenkai [Evolution of the Civil Procedure Law in Modern Society]

(Shojiho Kenkyukai, 2002), p. 312-323.

( 49 )

Gottwald, Die sachliche Kontrolle internationaler Schiedssprüche durch

staatliche Gerichte, FS Nagel, 1987, S. 62; Shunichiro Nakano," Kokusai Chusai ni

okeru Jittai Handan Kijun no Kettei to Chusai Handan Torikeshi " [Determination of

Applicable Law on the Substance in International Arbitration and Setting Aside of an Arbitral Award], Kokusai Shoji Homu [Practice of International Business Law], Vol. 30, No. 10 (2002), p. 1347-1354. 22

an agreement is not common in the Japanese practice of international commercial arbitration, there is no theoretical grounds to exclude it. In this case, arbitrators

are allowed to depart from the constraints of national substantive law rules; they may rely on the fairness principles, which enable them to reach a more flexible and equitable solution in the case. Nevertheless, to ensure the predictability of the parties, their express authorization to do this is required. As regards contractual disputes, the arbitral tribunal shall decide each case in accordance with the terms of the contract and shall take into account the usages that may apply to the dispute (Article 36(4)). While Article 28 (4) of the Model Law use

the term "usages of the trade," Article 36 (4) of the Arbitration Law, in consideration of its broader field of application (i.e., not only "commercial" arbitration, but arbitration in general), provides to take into account the "usages" in general. Also, the phrase "in all cases" (Article 28 (4) of the Model Law) was deleted to make clear that the decision ex aequo et bono (Paragraph (3)) can, as the case may be, take precedence over the contractual terms. ( 50 ) . Recognition and Enforcement of Foreign Arbitral Awards

1. The Relation between the New York Convention and Domestic Japanese Law

The priority order of application between the two main legal sources regarding the recognition/enforcement of foreign arbitral awards in Japan, i.e., the New York Convention and domestic Japanese law, has been discussed in detail so far. While

Article (1) of the New York Convention stipulates "the provisions of the present Convention shall not ... deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon", the interpretation thereof is varied. The prevailing view in Japan, placing the emphasis on the purpose of this convention, i.e., global facilitation of the recognition and enforcement of foreig n arbitral awards, permits the application of other international conventions/treaties

( 50 )

Kondo et al., supra note 1, p. 197. However, whether the arbitrators can ignore

the contractual terms in deciding ex aequo et bono is rather doubtful. See Lew/Mistelis/Kröll, Comparative International Commercial Arbitration, 2003, p. 471. 23

and domestic Japanese law, to the extent that they provide less strict requirements for the recognition and enforcement than the New York Convention . ( 51 ) However, this interpretation, which is inconsistent with the text of Article (1), may cause difficulty in determining which law's recognition requirements are less strict. Therefore, Article (1) should rather be deemed to declare simply that the New York Convention does not always take precedence over other treaties or the provisions of domestic Japanese law. Parties seeking recognition/enforcement of foreign arbitral awards should be regarded as having the option of availing themselves of the New York Convention or of domestic Japanese law.( 52 ) In any event, as Article 45 of the new Arbitration Law which, in accordance with the Model Law, introduced provisions essentially incorporating untouched the New York Convention requirements for recognition, it is hardly expected t hat diversity of interpretations would be a significant issue. In effect, this would result in the withdrawal of the reciprocity reservation made by Japan under Article I(3) of the Convention.

2. The Notion of a Foreign Arbitral Award

Japanese academic opinion under the old law was divided into two camps; one recognized the parties' autonomy in determining the governing law of the arbitral proceedings and considered an arbitral award to be foreign if it was rendered in accordance with the foreign procedural law

( 53 )

; the other held lex loci arbitrii as the

( 51 )

Kaoru Matsuura, " Gaikoku Chusai Handan no Shonin to Shikko no Mondaiten"

[Some Issues Concerning Recognition and Enforcement of Foreign Arbitral Awards ], in: Minji Soshoho no Gendaiteki Kochiku [Modern Construction of Civil Procedure Law](Keiso Shobo, 1989), p. 223; Kiyomichi Agawa, " Gaikoku Chusai Handan no

Shonin oyobi Shikko ni kansuru Joyaku ni tsuite [Convention on the Recognition and

Enforcement of Foreign Arbitral Awards](2)," Jurisuto [Jurist] No. 232 (1961), p. 49.

( 52 ) ( 53 )

Takakuwa, supra note 12, p.170; Kojima, supra note 11, p. 434. Koyama, supra note 11, p. 154; Yoshimitsu Aoyama, " Chusai Ho Kaisei no

Kihonteki Shiten to Mondaiten" [Some Fundamental Viewpoints and Issues of the

Arbitration Law Reform], in: Minji Tetsuzuki Hogaku no Kakushin [Evolution of the Civil Procedure Law Theory], Vol.1 (Yuhikaku, 1991), p. 555; Kojima, supra note 11, 24

governing law of the arbitral proceedings and regarded an award to be non -domestic, if the place of arbitration was not in Japan.( 54 ) As noted above, the new Arbitration Law applies, as a general rule, when the place of arbitration is in Japan. Furthermore, an arbitral award could only be set aside if its place of arbitration was in Japan (see 2). Considering this, it seems to be consistent to interpret that the nationality of an arbitral award shall also be determined basically based on the place of arbitration. Nevertheless, Article 45 of the Arbitration Law prescribes, in line with Article 35 of the Model Law, that the arbitral award which meets set conditions will be recognized and enforced "irrespective of the country in which it was made." Thus, with respect to the recognition and enforcement of an arbitral award based on this provision, the nationality of the arbitral award should not become an issue. This provision has yet another implication: even a domestic arbitral award must be "recognized" in order to have the effect of a final and conclusive domestic judgment. However, a domestic arbitral award can be set aside in a domestic court (Article 44) and its requirements are fundamentally the same as the requirements for recognition of an arbitral award stipulated in Article 45. Thus, these theoretical problems

should be clarified in the future, such as the interrelation between recognition and setting aside, the possibility of an award being void ab initio which does not require a setting aside, etc.

3. Requirements for Recognition and Enforcement

As the old law did not set down clear provisions stipulating the requirements for the recognition/enforcement of foreign arbitral awards, academic opinion addressed this by analogous application of the provisions relating to the setting aside and

p. 418; Shunichiro Nakano, " Chusai Tetsuzuki no Junkyo Ho" [Applicable Law on Arbitration Procedure] in: Chusai Ho o meguru Saikin no Shomondai ni kansuru

Chosakenkyu [Study on the Recent Issues Concerning Arbitration Law](Sangyo

Kenkyusho, 2001), p. 70.

( 54 )

Takakuwa, supra note 12, p. 122; Masato Dogauchi, " Kokusai Shoji Chusai

Kokka Ho Chitsujo tono Kankei" [International Commercial Arbitration Its

Relation to the State Legal Order] in: Nihon to Kokusai Ho no Hyakunen [100 Years of International Law and Japan] (Sanseido, 2001), p. 97. 25

enforcement of domestic arbitral awards. ( 55 ) Following the Model Law, the new Arbitration Law incorporated the grounds for refusal of recognition/enforcement of foreign arbitral awards stipulated in Article V of the New York Convention into Articles 45 and 46, as the grounds for refusal of recognition /enforcement of both domestic and foreign arbitral awards.

4. Enforcement Decision of a Foreign Arbitral Award

While independent judicial proceedings are not required with respect to the recognition of an arbitral award, fulfillment of the recognition r equirements must be duly investigated in order to execute arbitral awards through the sovereign power of the state. State execution organs are generally not well qualified to carry out this highly legal judgment. Thus, Article 46 of the Arbitration Law set s forth that a party seeking enforcement based on the arbitral award may apply to a court for an "enforcement decision," in which a compulsory execution based on the award is authorized (Article 46 of the Arbitration Law, Article 22(6)(ii) of the Civil Execution Act

( 56 )

). Under the old law, an enforcement judgment was required for the execution

of an arbitral award, which inevitably entailed time-consuming oral hearings. In order to facilitate and expedite the enforcement proceedings, the new law has transformed it into a "decision" procedure. However, a court may not make a decision unless an oral hearing or oral proceeding at which the parties can attend is held (Article 44(5), 46(10)). The court may dismiss the application when it finds any of the grounds for rejecting recognition, or else an enforcement decision shall be issued (Article 47(7)(8)). For recognition and enforcement of a foreign arbitral award in Japan, the foreign award is not required to accompany an exequatur rendered by the court of the p lace

( 55 )

Takashi Inomata, "Gaikoku Chusai Handan no Shikko" [The Enforcement of

Foreign Arbitral Awards], Hikakuho Zasshi [The Journal of Comparative Law] Vol. 23, No. 2 (1989), p. 43; Hideyuki Kobayashi, Kokusai Torihiki Funso [International Transaction Dispute] (3rd ed., Kobundo, 2003), p. 232.

( 56 )

Article 22 of the Civil Execution Act ( Minji Shikko Ho ; 1979 Act No.4):

"Compulsory execution shall be effected by virtue of any of the following (hereinafter referred to as 'obligation title'): ...(iv-2) an arbitral award accompanied by an enforcement decision which has become final and binding." 26

of arbitration. On the other hand, the exequatur may serve as proof that the arbitral award can no longer be set aside in the place of arbitration. Thus, a question is whether the execution can be authorized in Japan based on the foreign exequatur, which is rendered to the foreign arbitral award in the state of the place of arbitration. In a lower court decision

( 57 )

, an enforcement judgment

( 58 )

was rendered based on a

California court decision confirming an AAA arbitral award, after the deliberation o f the requirements for recognition of foreign judgments . ( 59 ) This method found support

( 57 )

Tokyo District Court, Decision, 6 September 1969, Hanrei Jiho [Law Case

Reports] No.586, p. 73.

( 58 )

Article 24 of the Civil Execution Act:

(1) An action for a judgment granting execution of a judgment of a foreign country shall be under the jurisdiction of the court of the general forum of the debtor or , in a case where there is no such general forum, it shall be under the juris diction of the district court where the matter subject to the claim or any attachable property of the debtor is located. (2) A judgment granting the execution shall be rendered without inquiring into the correctness of the adjudication. (3) An action under paragraph (1) shall be dismissed where the conclusiveness of the foreign judgment is not proved, or where it does not fulfill the conditions set forth in the subparagraphs of Article 118 of the Code of Civil Procedure. (4) In a judgment granting the execution, it shall be declared that an execution is granted under the judgment of a foreign court."

( 59 )

Article 118 of the Code of Civil Procedure ( Minji Sosho Ho ; 1996 Act No.109):

"A final and conclusive judgment of a foreign court shall have its effect on ly upon the fulfillment of all of the following conditions; (i) that the foreign court would have jurisdiction pursuant to the laws or treaties; (ii) that the unsuccessful defendant received service of summons or orders as required for the commencement of proceedings (except for services by publication of notice or any similar means), or appeared in the action without receiving service thereof: (iii) that the contents of the judgment of a foreign court and its proceedings are not contrary to public order or good morals of Japan; (iv) that reciprocity is assured." 27

in some scholarly comments.( 60 ) Nevertheless, from the perspective of the aim of the enforcement judgment (bestowing on the arbitral award territorial enforceability), ease and speed of the enforcement procedure, there seems to be no sufficient reason to enforce not a foreign arbitral award, but a foreign enforcement judgment.

. After the Reform: Towards a Vitalized Usage of International Commercial Arbitration

Japan's new Arbitration Law contains no revolutionary ideas. Instead, by following the UNCITRAL Model Law for the most part, the new law adapts itself to the global standard of international commercial arbitration. For companies engaged in international trade, the differences by country in arbitration law are not desirable as they make it difficult to predict the resolution of disputes. A stable and credible dispute resolution procedure, which has no essential divergences internationally, constitutes an infrastructure for the promotion of international trade. In this sense, Japan's adoption of the Model Law and reform of its arbitration law, albeit somewhat slower than other nations, does not lack significance. Several important issues concerning applicable law and international jurisdiction are duly clarified in the text, which will ensure the predictability of the parties and enhance the stability and the reliability of the dispute resolution through arbitration in Japan. Despite some residual issues, which should be dealt with by interpretation in future practice and research, the reform as a whole shuld be positively evaluated. As was noted at the beginning of this paper, the number of international commercial arbitration cases conducted in Japan is still small. In a sense, this fact shows the insufficiency of social cognition of this institution. Nevertheless, the number of foreign arbitration cases in which Japanese companies are involved is no doubt on the rise. The number of attorneys with excellent skills in international commercial arbitration is not small, and the arbitration institutions are all ready to provide reliable services. Now that the long-awaited reform of the arbitration law has taken place, vitalization of usage of international commercial arbitration is strongly anticipated. The establishment of the Japanese Academy for ADR (Alternative Dispute Resolution) and Arbitration, in which numerous researchers and arbitration practitioners will participate, can be a good opportunity to join forces for achieving

( 60 )

Masaru Nishi, Comments on the Case, Jurisuto [Jurist] No. 482 (1971), p. 214. 28

this goal. The teaching of arbitration and ADR in Japans new law school system, which started in April 2004, will also play a significant role in this process. Traditionally, legal education in Japanese law faculties has tended to regard courtroom dispute resolution as the ultimate path, and thus arbitration as an independent discipline was rarely part of the curriculum. The situation is beginning to change slowly and steadily, however. Some advanced law schools have just started offering lectures on

arbitration, while others have launched research projects on arbitration/ADR education. ( 61 ) The Intercollegiate Negotiation Competition organized by mo tivated legal professors has been held annually since 2002. ( 62 ) It is highly anticipated that these experimental attempts will take root and expand within the Japanese legal education system.

( 61 )

As an attempt of this kind, the Kobe University Center for Legal Dynamics of

Advanced Market Societies (CDAMS: funded by the 21st Century Center of Excellence Programme of the Ministry of Education, Culture, Sports, Science and Technology) has launched a research project on education program development of ADR. See http://www.cdams.kobe-u.ac.jp/index_e.htm .

( 62 )

See http://www2.osipp.osaka-u.ac.jp/~nomura/project/inter/ . 29

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