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March 2007 Number 18

[News]ADR Law

The Law Concerning the Promotion of the Use ofAlternative Dispute Resolution Procedures (the “ADRLaw”)1, which was promulgated on December 1,2004, will come into force on April 1, 2007. The pur-pose of the ADR Law is to facilitate citizens’ selectionof private means suitable to resolution of disputesand to allow citizens to protect their rights and inter-ests.

In Japan, there are three types of ADR providers;courts, administrative agencies, and private institu-tions. Of these, private ADR is the least popular. TheJudicial System Department (“JSD”; part of the Minis-ter's Secretariat, Ministry of Justice) points to two rea-sons why private ADR has not been able to firmlytake root and function effectively. Firstly, citizens areworried about using private ADR because of insuffi-cient information on these institutions. Secondly,inadequacies in the private ADR system discouragecitizens from using it.

Taking these concerns into consideration, as wellas the necessity of ADR in general, and the State’sresponsibility for promotion of its use, the ADR Lawprovides for the accreditation system for private ADRproceedings excluding arbitration. The aim of theaccreditation system is to exclude private ADRproviders incapable of administering ADR proceed-ings properly and to ensure the quality of privateADR.

The accreditation system is intended mainly forconciliation or mediation in various types of ADR. In

order to be accredited by the Ministry of Justice, aprivate ADR provider must fulfill sixteen require-ments enumerated in Art. 6 and certify that it has theknowledge, ability and financial base required forconducting administration of ADR proceedings.

The accredited ADR proceedings enjoys the fol-lowing privileges:

a. Commencement of the accredited ADR proceed-ings shall give rise to an interruption of limita-tion (Art. 25).

b. Based on the joint request of parties to the dis-pute, the court may suspend the proceedings ofthe civil action (Art. 26).

c. The accredited ADR proceedings can be alterna-tive to court-annexed conciliation mandatorybefore commencing civil actions of disputes ondivorce and rent (Art.27).

d. The accredited ADR provider and the personconducting the process such as conciliator andmediator are entitled to receive remuneration(Art. 28).

The ADR Law does not expressly provide legalrequirements for the conciliator or mediator. Whilethe Lawyers Law allows only lawyers to act as a con-ciliator or mediator, under the ADR Law any personwithout a lawyer’s license can act as a conciliator ormediator for the purpose of obtaining fees as long ashe or she can get advice from a lawyer as may benecessary.

[Articles]A New Dawn: Investment Arbitration and Japan Dominic Roughton*

Wednesday, 18th July 2001 was a momentous dayin Japanese legal history. While the press reportedbreaches by China of the World Trade Organisation(WTO) Rules, the merger of Furukawa Electric withFujikura and high level discussions for security withthe Government of Vietnam, thousands of milesaway, an UNCITRAL Notice of Arbitration was being

served in Europe.In and of itself, this was not particularly unusual.

Nor was the amount claimed, notwithstanding thatthe damages sought were large (about Euro 1.4 bil-lion). Even the identity of respondent – the CzechRepublic – was not entirely unusual, it having beensued on at least two previous occasions.

1 The JSD is working on an English translation of the ADR Law. It is to be published by the end of March 2007.* Partner, Herbert Smith, Tokyo and Official Representative of the LCIA in Japan.

2

1 No investment treaty currently exists with India, although an EPA has been under negotiation since July 2005.2 Bahrain, Oman, Qatar, Saudi Arabia, UAE and Kuwait.

The real significance of the arbitration was that itwas commenced by Saluka Invesments B.V.("Saluka"). Saluka is a Dutch subsidiary company ofNomura, the Japanese investment bank. Its claimwas filed under a bilateral investment treaty or "BIT"between its country of incorporation (The Nether-lands) and the Czech Republic.

As such, this was the first known example of aJapanese investor bringing a BIT claim against a sov-ereign State. Against a deteriorating political andeconomic climate around the world, the likelihood ofother Japanese investors bringing similar claims canonly increase – not least as Japan expands her portfo-lio of bilateral, regional and multilateral investmenttreaties, Free Trade Agreements (FTAs) and EconomicPartnership Agreements (EPAs).

Japan's Foreign Investment Treaty ProgrammeBy contrast to many other developed nations,

Japan has historically been slow to adopt investmenttreaties.

Its first treaty was with Egypt, ratified 30 years agoon 28 January 1977. There were then a number oftreaties ratified sporadically with the Indian sub-con-tinent (Sri Lanka 1982, Bangladesh and Pakistan(1998))1 and with China (1988), Hong Kong (1997)and Russia (1998), before a more systematic policywas adopted in 2002.

This policy was set out in a document entitledJapan's FTA Strategies, issued by the Ministry of For-eign Affairs in October 2002. It recognised that"entering into FTAs is a highly useful way of broadeningthe scope of Japan's economic relationships with othercountries". In that connection, it saw an FTA pro-gramme as being "important to maintain and strengthenthe free trade system". This was in part to improveJapan's bargaining position within the WTO but alsowith the more specific goal of lowering tariff rates onJapanese products in Malaysia and elsewhere in EastAsia. Finally, given the political and economic turbu-lence that followed in the wake of the Russian Finan-cial Crisis of the late 1990s and its impact on Japan-ese investments specifically, it was considered thatFTAs would "help reduce the likelihood of economicfrictions becoming political issues" – no doubt with halfan eye on the recent negotiations between the Japan-ese and Russian governments in relation to protectingif not restoring various Japanese investments innumerous Russian oil, gas, coal, gold and other pro-jects.

Japanese policy was to be further refined in 2004with the publication of the "Basic Policy towards Fur-ther Promotion of Economic Partnership Agree-ments". This enshrined the primary aim of Japan'sinvestment treaty programme as the promotion of

economic partnerships primarily in East Asia. OutsideEast Asia, the Japanese government made clear itsintention to study the possibility of negotiating withother countries or regions, including those specifical-ly comprising APEC as well as ASEAN. In the broadscheme of global contacts, the government decidedto "review possible alternative measures of economicpartnership to Free Trade Agreements (FTAs)" such asinvestment agreements, mutual recognition agree-ments and the rather loosely worded goal of an"improvement of investment environment".

Today, these broad aims have been translated intofive priority issues according to the Diplomatic Blue-book 2006. In the chapter entitled "Efforts Aimed atRealising Prosperity in the International Community",those issues are described as:-

1. "Maintaining and strengthening the multilateraltrading system… mainly under the World TradeOrganisation (WTO), and creating rules in order topromote economic partnership at the regional andbilateral levels to compliment the multilateral trad-ing system;

2. Active participation in international efforts to copeeffectively with global issues such as world econom-ic growth and sustainable development;

3. Reinforcing frameworks for interregional coopera-tion such as the Asian Pacific Economic Coopera-tion (APEC) and the Asia-Europe Meeting(ASEM)…;

4. Strengthening economic security…; and5. Support for Japanese companies overseas… ".In practical terms, this policy has translated into a

spate of new investment treaties, including FTAs andEPAs with investment protection chapters. Theseinclude two further BITs, one with South Korea(2002) and the other with Vietnam (2003), making atotal of 11 BITs ratified in total since 1977.

In addition, FTAs and EPAs have been ratified withSingapore (2002), Mexico and Malaysia (2005) andthe Philippines (2006). Others are under negotiationwith ASEAN, Indonesia, Vietnam, Brunei, SouthKorea as well as India, Chile, Australia, Switzerlandand the GCC 2.

Of perhaps equal significance is Japan's ratificationon 23 July 2002 of the Energy Charter Treaty. Thefundamental aim of this is described as being "tostrengthen the rule of law on energy issues, by creating alevel playing field of rules to be observed by all partici-pating governments, thereby mitigating risks associatedwith energy related investments and trades". In additionto Japan, the Energy Charter Treaty has been ratifiedby most European and CIS States. Significantly, it isprovisionally applied by Russia.

3 Hong Kong/Japan BIT, article 2(3); Russia/Japan BIT, article 3(3).4 Largely as a result of the decision in SGS v Pakistan (ICSID Case No. ARB/01/13), Decision on Jurisdiction, 6th August 2003.5 Emilio Agustín Maffezini v. Kingdom of Spain (Case No. ARB/97/7).6 See Herbert Smith Dispute Avoidance Newsletter, May 2006 for further discussion. 3

General trends in modern Japanese Investment Pro-tection Chapters

To say that Japan has ratified 11 BITs, 4 EPAs andthe Energy Charter Treaty is all very well. However,the statistics need to be understood in terms of thepractical effects for Japanese investors abroad.

Most Japanese investment protection provisionstend to include a very wide definition of "investor" aswell as of "investment". These provisions are of theutmost importance in deciding whether or not an"investor" and/or his "investment" are protected by anyone or more treaties.

As a general principal, a qualifying "investor" is anyperson who is a citizen or "national" of Japan. It alsoincludes a broad range of "legal persons" includingcompanies and similar entities constituted under thelaws of Japan. These definitions tend not to excludeshell companies – an important concession whenconsidering how to structure an investment in a diffi-cult foreign jurisdiction.

Similarly, the definition of "investments" in Japan'sinvestment treaties is very widely defined. Most ofJapan's investment treaties define "investments" verygenerally to include shares, concessions (for exam-ple, under an oil and gas agreement), IP rights, move-able and immovable property as well as "claims tomoney and any performance under contracts having afinancial value".

Of particular significance in investment protectionis the existence of the so-called "umbrella clause"found for example in two of Japan's BITs3 and theEnergy Charter Treaty. Its effect is arguably to elevatecertain contractual obligations of the host State toobligations under public international law protectedby the investment treaty containing the umbrellaclause. Whilst the true meaning and effect of umbrel-la clauses has for some time been unsettled,4 the pre-vailing view amongst leading international lawyers isthat where there is an investment treaty containing anumbrella clause, the host State's contractual obliga-tions are elevated to obligations under internationallaw protected by the investment treaty. In otherwords, an investor may be able to use an investmenttreaty to sue a host State for breach of a contract inaccordance with the dispute resolution provisionscontained in the investment treaty; these are typicallymuch more favourable to the investor than the usualdispute resolution found in contracts (as will be dis-cussed below).

Although the breadth and scope of treaty provi-sions will vary from treaty to treaty, there are a num-ber of common protections contained in most Japan-ese investment treaties and these form the basis of thediscussion that follows. However, careful analysis ofthe particular provision in question is essential to

determine the availability and scope of such protec-tions available in any particular case and under anyparticular treaty.

National treatmentThe host State promises to treat the investments

covered by the investment treaty in a manner no lessfavourable than the way in which it treats the invest-ments of its own nationals.

This guarantee may however, be of little comfort inStates that do not treat their own investors fairly. Fur-ther, this standard is often subject to a number ofexceptions because many States reserve certainindustrial sectors for their own nationals such as forexample, national security and political activities.

Most favoured nation treatment ("MFN")An MFN guarantee provides that the host State

(say, Russia) will treat investments belonging toJapanese investors in a manner no less favourablethan that accorded to comparable investments ofnationals of third States (such as the US).

The scope of application of the MFN clause hasbeen the subject of some debate since the high-watermark of the Maffezini decision.5 However, the prevail-ing view is that an MFN clause should not apply togrant investors rights to which they are not otherwiseentitled under their applicable investment treaty; itmay only be invoked to improve the terms uponwhich they enjoy the substantive rights already grant-ed to them under their investment treaty. For exam-ple, it should not allow an investor to invoke the ben-efit of an umbrella clause where none exists in thetreaty under which he is claiming; on the other hand,if his treaty contained an umbrella clause, and a sep-arate treaty also contained an umbrella clause but onbetter terms, the investor may be able to claim thebenefit of the second umbrella clause.6

Fair and equitable treatmentThere is some debate as to the true meaning and

scope of a guarantee of "fair and equitable treatment"and whether it extends further than merely codifyingthe minimum international standard of treatment dueto all foreign investors under customary internationallaw.

Nevertheless, it is reasonably settled that this stan-dard of treatment should guarantee transparency indealings with investors and protects against bad faith,wilful neglect and clear unreasonableness.

Protection against illegal expropriationJapan's investment treaties also typically protect

against illegal expropriation. Often this guarantee willalso protect against "indirect" or creeping expropria-

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tion and "measures having equivalent effect". Typical-ly, these broader protections apply when licences orincentives are gradually eroded or completelyrevoked, thus diminishing the value to the investor ofhis investment, rather than a straightforward national-isation in the classical sense.

Expropriation may be legal in some circumstances.Typically, a host State may expropriate an asset legal-ly, provided it does so according to law, and theexpropriation is in the public interest, is not discrimi-natory and is accompanied by prompt, adequate andeffective compensation.

Guarantee of the free transfer of fundsOf particular concern to Japanese investors will be

the ability to expatriate the profits derived from theirinvestments in the host country. Japan's investmenttreaties typically guarantee the free transfer of fundsfrom the host State back to Japan for this purpose.

Subrogation rights for insurersMany of Japan's investment treaties provide subro-

gation rights for insurers. This means that in caseswhere investors have acquired political risk insurance(say, through NEXI or MIGA), the insurers will beable to bring claims against the host State directly inplace of the investor.

Constant protection and securityThis guarantee is often understood to refer to prin-

ciples of international law requiring a minimum levelof police protection for foreign property. Conse-quently, if a Japanese-owned factory is burned downin a riot whilst the local police stand idly by, theinvestor may have a claim against the host Stateunder the investment treaty.

Dispute Resolution under Japanese investmenttreaties

Having such a wide range of protections and guar-antees is one thing, but enforcing them is quiteanother. With the famous exception of the Philip-pines/Japan FTA, all the investment treaties ratified byJapan contain dispute resolution mechanismsenabling the investor to bring claims for breach of thetreaty directly against the host State.

Generally, the investor has the choice of any oneof a number of different options. These include anypre-agreed dispute resolution mechanisms (e.g. a

contractual jurisdiction or arbitration clause), orUNCITRAL arbitration in a neutral venue.7 Typicallysuch UNCITRAL arbitrations are heard in New YorkConvention countries and are administered if not bythe PCA in The Hague, then by one of the leadingarbitral institutions, whether the SCC, ICC or LCIA.There is no reason in principle why Japan, as a NewYork Convention country could not be the seat of aninvestment treaty arbitration, with the JCAA acting asthe administering authority. This would be an excep-tionally welcome development in the context ofdeveloping Japan as an Asian regional arbitrationcentre.

In addition, a Japanese investor may have theoption of referring a breach of the investment treatyto ICSID arbitration.8 Little is known about ICSIDarbitration in Japan. It is a specialist form of arbitra-tion only available against States which have ratifiedthe Washington Convention 1965 (the "WashingtonConvention").9

In broad terms, an investor may only submit a dis-pute with a host State to ICSID arbitration if both thehost State and the investor's home State have ratifiedthe Washington Convention 1965.10 To date, 143States from Afghanistan to Zimbabwe have ratifiedthe Convention, including Japan. As such, ICSIDarbitration is available to Japanese investors providedthat the host State has itself ratified the WashingtonConvention and has given its consent to ICSID arbi-tration.

The issue of consent is said to be the cornerstoneof ICSID arbitration. Consent may manifest itself indifferent ways. The classical approach was toinclude an ICSID arbitration clause in a contractbetween the investor and the host State. Alternative-ly, and unlike conventional arbitration, no arbitrationclause is strictly necessary: consent is also deemed tohave been given by any host State that has agreed toICSID arbitration in the dispute resolution provisionsof an investment treaty – as is the case with manyJapanese investment treaties.

The beauty of ICSID arbitrations is that an awardrendered under ICSID against a host State is automat-ically enforceable as though it were a final judgmentof the court of that host State.11 Moreover, the exis-tence of an ICSID arbitration is made public andawards are generally published on the ICSID web-site.12 This means that there is some political stigmaattached to a State that finds itself on the ICSID list.

7 The Malaysia/Japan FTA also enables investors to bring claims before the KLRCA8 Many investment treaties also provide for State to State arbitration. In Japanese investment treaties, this tends to be ad hoc or under UNCITRAL rules.Such dispute resolution mechanisms tend to be reserved for disputes between the two contracting States regarding the "interpretation or application" ofthe investment treaty.

9 Convention on the Settlement of Investment Disputes between States and Nationals of Other States done at Washington on March 18, 1965. It is alsoknown as the ICSID Convention.

10 Where either the host State or the investor's State is not a member of ICSID (or where the dispute does not arise directly out of an investment), a claimmay be brought under the ICSID Additional Facility Rules. Awards rendered under this Additional Facility are not enforceable under the WashingtonConvention.

11 Washington Convention 1965, Article 54.12 See http://www.worldbank.org/icsid/cases/cases.htm

5

Moreover, where a country fails to comply with anaward it may find itself less likely to receive financialassistance from the World Bank and other institutionssuch as the IMF. Even the threat of an ICSID arbitra-tion against a host State can therefore provide a pow-erful tool when negotiating a settlement with its gov-ernment. Indeed, with one known exception13, everyknown ICSID award has been voluntarily honouredby the respondent host State. This is an enviablerecord compared with enforcement of commercialarbitral awards under the New York Convention.

The success of ICSID arbitration is reflected by itsincreasing popularity. The first ICSID case was regis-tered on 13 January 1972.14 For many years, thenumber of registered ICSID arbitrations rarelyexceeded 4 new cases a year. Since 1996, however,the number of cases has been steadily increasing witha record of over 30 new cases in 2003. In 2006,ICSID administered 118 cases, reflecting the philoso-phy of many European and North American investorsthat the ability to resort to ICSID arbitration is essen-tial as a means of doing business with difficult hostStates. No ICSID arbitration is yet known to havebeen brought by a Japanese investor or against Japan.

The future for Japanese companiesThat said, the traditional reluctance of Japanese

investors to take advantage of investment treaties ischanging. Part of this change may be attributed tothe Government of Japan's policy of broadening thereach of its investment treaties and thereby increasingthe range of host States against which Japaneseinvestors can claim protection in respect of theirinvestments. Even so, the relatively limited territorial

scope of Japanese investment treaties can be offset bystructuring investments to take advantage of invest-ment treaties entered into between the host State anda third country – as was the case in Saluka.15 Indeed,it is said by leading European jurists that failure toadvise in relation to how to structure investments totake advantage of BITs is professional negligence:Saluka's advisers could no doubt afford to sleep easy.Part of the change may also be to do with a growingacceptance by Japanese companies that to competewith their European and North American peers effec-tively, they must be prepared to take the same stepsto protect their rights and investment as their princi-pal competitors. Saluka was the first known examplewhere this took place (although arguably not the bestas the claim was made through a subsidiary managedin Europe rather than directly out of Japan).Even so, the signs are there. As Japanese companiesare made aware of their rights under investmenttreaties, they are becoming increasingly open tousing them to negotiate a settlement with problemgovernments. From water purification plants in Pak-istan to gas fields in Kazakhstan, the Japanese arerightly making – indeed have made – their presencefelt and have achieved commendable results. Onlyin the last 6 months, a number of Japanese compa-nies have taken advice under the Russia/Japan BITand the Energy Charter Treaty in relation to the cur-rent problems at Sakhalin Island. With this increas-ing acceptance that investment treaties are there fortheir benefit, the legacy of Saluka will endure: it willnot be long before the first claim against a host Stateis made by a Japanese investor directly under aJapanese investment treaty.

13 Burundi – which could not afford to pay. A settlement was however reached. Goetz and others v. Burundi, ICSID Case No. ARB/95/3 (Belgium-Luxembourg Economic Union/Burundi BIT).

14 Holiday Inns S.A. and others v. Morocco (Case No. ARB/72/1).15 It will be recalled that Saluka claimed against the Czech Republic under the BIT between the Czech Republic and The Netherlands. The absence of a

Japanese investment treaty was irrelevant.

＊ Junya Naito is a Partner in the law firm of Momo-o, Matsuo & Namba, Tokyo, Japan. He is admitted in Japan and the State of New York.1 Arbitration Law, Law No. 138 of 2003.2 The Code of Civil Procedure, Law No. 109 of 1996.

Examination of Witnesses in Court for Arbitration Proceedings in JapanJunya Naito*

I. Introduction1. New Arbitration Law and Court Assistance in Tak-ing Evidence

Article 35.1 of the new Arbitration Law1 (“Law”) ofJapan effective March 1, 2004 allows an arbitral tri-bunal and a party to an arbitration proceeding toapply to a court for assistance in taking evidence byany means that the arbitral tribunal considers neces-sary. Such means, enumerated in Article 35.1, areentrustment of investigation, examination of witness-

es, expert testimony, investigation of documentaryevidence or inspection prescribed in the Code ofCivil Procedure of Japan2 (“Code”). It is reported thatin 2005, an examination of a witness held for theassistance of an arbitration proceeding was conduct-ed at the Tokyo District Court. To my knowledge,this is the first case of the examination of witnessesunder the new Law. This article is a brief explanationof the procedural issues surrounding examination ofwitnesses in court for the assistance of an arbitration

proceeding in Japan.3

2. Purpose of Court Assistance in Taking EvidenceThe authority of arbitration as a method of dispute

resolution derives from an arbitration agreementbetween parties. It seems natural therefore that theparties are responsible for their own collection andsubmission of evidence.

On the other hand, an arbitration agreement givesan arbitration tribunal exclusive jurisdiction over adispute concerning the subject of the arbitrationagreement.4 In addition, an arbitral award has finaland binding effect under Article 45.1 of the Law andis equivalent to a court’s final and conclusive judg-ment. Fact finding by evidence submitted to the arbi-tral tribunal provides the basis for an arbitral award,and hence is as important in an arbitration proceed-ing as it is in a civil lawsuit in court.

3. Weaknesses of Examination of Witnesses in Arbi-tration Proceeding

The examination of witnesses is one of the mostimportant and powerful measures in providing evi-dence to the arbitral tribunal. However, compared tothe examination in court, there are some weaknessesinvolved in the examination of witnesses in an arbi-tration proceeding. For example, the arbitral tribunalcannot legally force a potential witness to testify,while a court can do so with compulsory sanctions(See, e.g., Articles 192.1, 193.1 and 194.1 of theCode). In an arbitral proceeding, no sanction existseven if a witness refuses to appear before the arbitraltribunal. And even if a witness testifies at an arbitra-tion proceeding, the witness is not subject to thepenalty of perjury.5 In recognition of such weakness-es regarding the examination of witnesses before anarbitral tribunal, the Law allows the arbitral tribunalor a party to the arbitration to apply to the court forassistance in the examination of witnesses.

4. Key Points of Examination of Witnesses in CourtBefore elaborating on the issues, it is worth noting

several key points of the examination of witnesses incourt for assistance of an arbitral proceeding.

First, there are two steps in the procedure: anapplication to the court for the examination of wit-nesses; and the examination of witnesses in court.Second, it should be noted that the examination ofwitnesses in court is a court proceeding. It is man-aged and administered by the court. Third, theexamination of witnesses is governed by the Code.The language in Article 35.1 of the Law, “prescribedin the Code of Civil Procedure,” is interpreted to

mean that not only are the enumerated methods oftaking evidence (including the examination of wit-nesses) taken from the Code, but also that the proce-dures implementing the methods should comply withthe Code.6

II. Requirements for Application1. Who Can Apply

Article 35.1 of the Law allows application by eitherthe arbitral tribunal or a party to the arbitration pro-ceeding.

2. Necessity for ExaminationThe application can be made only when the arbi-

tral tribunal considers it necessary (Article 35.1 of theLaw). The arbitral tribunal, not the court, decideswhether it is necessary to examine the witness or not.The court may not take into consideration whetherthe examination of the witness is necessary or notwhen issuing its decision to admit or deny the appli-cation.7

3. Consent of Arbitral TribunalIn case of an application by a party, the applying

party must obtain the consent of the arbitral tribunalbefore making the application (Article 35.2 of theLaw).

III. Application for Examination of Witnesses andDecision of Court1. Method of Application

An application must be made in writing and mustinclude the items enumerated in Articles 2.1 to 2.3 ofthe Rules for Procedure of Matters Concerning Arbi-tration (Rules of the Supreme Court No. 27 of 2003,“Procedural Rules”).

2. VenueThe following courts have exclusive jurisdiction

over the application: (i) the district court having juris-diction over the place of arbitration, (ii) the districtcourt having jurisdiction over the domicile or placeof residence of the person to be examined, or (iii) thedistrict court having jurisdiction over the generalforum of the applicant or respondent but only if thereis no court described in the preceding two items(Article 35.3 of the Law).

3. Attorney for Applicant and RespondentOnly bengoshi (a licensed attorney of Japan) can

act on behalf of an applicant or respondent in thecase of such application, and in the examination ofwitnesses as well.

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3 For further discussion, see Junya Naito and Tsuyoshi Suzuki, Examination of Witnesses in Court for the Assistance of an Arbitration Proceeding, 53-12JCA Journal 12 (2006).

4 See Article 14.1 of the Law.5 See Article 209.1 of the Code and Article 169 of the Criminal Code, Law No. 45 of 1907.6 See Masaaki Kondo, et al., Arbitration Law of Japan, 189-190 (2004).7 Id. at 187.

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8 Articles 5-3 and 58-2 of the Special Measures Law Concerning the Handling of Legal Business by Foreign Lawyers, Law No. 66 of 1986.9 See Article 4.1 of the Procedural Rules.10 Id.11 Only the receipt of the decision on behalf of its client should not be regarded as a violation of Bengoshi ho.

The general rule under the relevant laws of Japanincluding Bengoshi ho (the Law of Attorneys of Japan.Law No. 205 of 1949) is that only bengoshi can han-dle legal business in Japan (Article 72 of Bengoshi ho).Such exclusivity is expressly mitigated for internation-al arbitration cases, in which both gaikokuho jimu ben-goshi and gaikoku bengoshi may be engaged.8

However, neither an application for court assis-tance nor the actual examination of a witness is con-sidered to be an “international arbitration case.”Accordingly bengoshi should be separately retainedfor an application for court assistance and the exami-nation of a witness in court.

Furthermore, bengoshi, acting on behalf of a partyto the arbitration proceeding, should be retainedanew for an application for court assistance and theexamination of a witness in court.

4. Examination of Application by Court and its Deci-sion

An applicant must submit a document to court set-ting out the matters in relation to which the witness isto be questioned pursuant to Article 107.1 of theRules for the Code of Civil Procedure (Rules of theSupreme Court No. 5 of 1996, “Code Rules”). Inaddition, the application should state the likely dura-tion of the examination (Article 106 of the CodeRules). As the court will have no knowledge of thesubject matter of the dispute, it is practically impossi-ble for it to limit the matters to be questioned or theduration of the examination.

5. Date of Examination of WitnessesIn international arbitration proceedings, arbitrators,

parties and attorneys are often located in manyplaces, including foreign countries. Scheduling isoften very difficult. Therefore, it is common that thehearing, including the evidential hearing, occurs onconsecutive days. It is convenient if the examinationin court be held on a day that falls between suchconsecutive evidential hearing days. For that pur-pose, it is advisable that the applicant explain to thecourt the schedule of the arbitration proceeding andrequest that the examination be held on a certaindate that falls in between the evidential hearing datesof arbitration.9

6. Place of ExaminationThe hearings of an arbitration proceeding usually

occur in a hearing room of the arbitration institution(or another location as agreed by the parties). Theexamination of a witness in court can be held outsideof the court if the court considers it appropriate (Arti-cle 185.1 of the Code). It is convenient for the arbi-

tral tribunal and the parties that the examination incourt also be held in the hearing room or anotherlocation the arbitral proceeding has to date beenheld. Considering, however, that the examination isa court procedure, it is advisable that an applicantconfer with the court about the place of the examina-tion after the submission of the application.10

7. Notification of DecisionA decision by the court (kettei) for the examination

of a witness is effective upon notification as the courtdeems appropriate (Article 119 of the Code). While ajudgment (hanketsu) is effective upon pronouncement(Article 250 of the Code) and must be served on theparties (Article 255.1 of the Code), such “service” isnot required for a decision.

The date when the parties receives a decision isimportant, as the parties have two weeks from thereceipt in which to file an appeal. Difficulty ariseswhen the respondent resides in a foreign country andhas not retained a bengoshi for the examination incourt. As a decision need not be “served,” the appli-cant’s attorney should ask the court to notify therespondent via regular mail or facsimile, or may askthe attorney of the respondent in the arbitration pro-ceeding to submit a Power of Attorney to the courtfor the notification of the decision.11

8. Appealing the Court’s DecisionThe decision of the court is appealable (Article

35.4 of the Law). An appeal must be made withintwo weeks from the time of notification of the deci-sion (Article 7 of the Law).

An appeal will suspend enforcement of the deci-sion (Article 334.1 of the Code). This means thateven if the decision for the applicant is issued, therespondent can suspend the examination by anappeal for a certain period of time. Moreover, thecourt will usually designate as the date of the exami-nation a date which is more than two weeks ahead ofthe decision, as the suspension by appeal may affectthe fixed date of the examination if it was set withinsuch two weeks. On the other hand, it is convenientto schedule the examination in court in between theevidential hearing dates of the arbitration proceeding.Therefore, an applicant should be careful of its timemanagement, considering the time for an appeal andthe suspension effect of an appeal.

9. ConfidentialityOne of the merits of arbitration is that the proceed-

ings are not open to the public. This confidentialityis protected in the examination of witnesses in courtas well. The court records are confidential and only

8

12 Article 74 of the Law of Court of Japan, Law No. 59 of 1947.13 See http://www.courts.co.jp/saiban/zinbutu/tuyakunin.html.14 See Article 30.4 of the Law.

interested parties may access the records (Article 9 ofthe Law). In addition, the examination of a witness isonly open to interested parties. The examination of awitness in court, including its application, is thereforeas confidential as the arbitration proceeding.

IV. Preparation of Examination of Witnesses1. Interpreter

While the language to be used in an arbitrationproceeding is decided by the agreement of parties orthe arbitral tribunal (Articles 30.1 and 30.2 of theLaw), Japanese must be used in the courts of Japan.12

If an arbitrator(s), parties or witness is not fluent inJapanese, an interpreter should be retained (Article154 of the Code). Usually, an interpreter is appoint-ed by reference to the list of interpreters prepared bythe Supreme Court.13 However, it is more efficient ifthe interpreter retained at the arbitration proceedingis appointed in court as well, because the interpreteralready has an understanding of the dispute. Theapplicant may want to consult with the court regard-ing the appointment of that interpreter.

2. Submission of Documents to be Used in Examina-tion of Witnesses

A party can examine a witness using documentswith the permission of the presiding judge (Article116.1 of the Code Rules). If such documents havenot been examined by court, the other party must beprovided a chance to read the documents in advance(unless the other party has no objection) (Article116.2 of the Code Rules). As the examination incourt is officially a new court case, the documents tobe used in the examination must be shown to theother party in advance, even if the documents havealready been submitted at the arbitration proceeding.

V. Examination of WitnessesThe examination of the witness should be conduct-

ed under the relevant rules for witness examinationsin the Code. For example, the examination shouldtake place in the order of the applicant, the respon-dent and the presiding judge (Article 113.1 of theCode Rules). However, there are several differencesthat separate this process from a civil court case.

First, an arbitrator(s) is expected to be present atthe examination and may ask questions to the witnesswith the permission of the presiding judge (Article35.5 of the Law). The judge has basically no infor-mation as to the dispute other than the materials sub-

mitted with the application. The judge cannot there-fore be expected to raise appropriate questions or topreside over the examination with an understandingof the dispute. Accordingly, in practice, the arbitra-tor(s) will control and manage the examination ofwitnesses.

VI. Post Examination1. Entry in Record of Examination of Witnesses

The Law establishes that the court clerk shall enterin the record matters concerning the examination(Article 35.6 of the Law). The record shall be writtenin Japanese. One issue is whether it is permissible forthe arbitral tribunal to make its own record of theexamination of witnesses in court. This may be nec-essary when the language of the arbitration is notJapanese, in which case the arbitral tribunal mayrequest that the applicant party submit a re-transla-tion of the official record of the court into the foreignlanguage used in the arbitration.14

2. How Results of Examination are Presented to Arbi-tration Proceeding

The Law does not set out how the results of theexamination in court are to be presented to the arbi-tration proceeding. There is no definite legal processfor the court to send the record to the arbitral tri-bunal. Both the parties and the arbitral tribunal canmake a copy of the official record (Article 9 of theLaw) and such copy can be submitted to the arbitralproceeding.

It should also be noted that there is no problemfrom a legal perspective if the arbitral tribunal grantsan award (or solicits a settlement award), based uponthe witness testimony in court, without having therecord itself as evidence, as the arbitrator(s) was actu-ally present at the examination in court.

VII. ConclusionTo date, neither parties nor arbitrators have been

active in utilizing any of the methods of court assis-tance under the Law including examination of wit-nesses. However, it can be a useful and powerfultool in the fact-finding process. It is the author’shope that this article contributes to further attentionto and usage of court assistance under the new Law.

Acknowledgements: I thank Tsuyoshi Suzuki, PeterTyksinski and Dr. Richard Small for their invaluableassistance.

9

FactsOn October 1, 2002, Plaintiff and Defendant both

of which are Japanese companies entered into apatent license agreement by which Plaintiff grantsDefendant a non-exclusive license of its patents andDefendant pays to Plaintiff the running royalties forthe sale of the licensed products by Defendant and itssublicensee. Some two years later, a dispute arosebetween the parties about the amount of the royaltiespayable by Defendant and then Plaintiff sought thepayment of the unpaid royalties before the TokyoDistrict Court, alleging that Defendant underreportedthe amount of the sale of the licensed products andthat as a result Defendant underpaid the amount ofthe royalties to Plaintiff, In response, Defendantrequested the Court to dismiss the Plaintiff’s actionunder Article 14 of the Arbitration Law, alleging thatArticle 15 of the license agreement provides an arbi-tration agreement to refer to arbitration under the ICCRules the disputes arising between the parties in rela-tion to the license agreement. On the other hand,Plaintiff argued, inter alia, that it terminated thelicense agreement by reason of Defendant’s nonpay-ment of the royalties and that Defendant, violatingthe provision of Article 15 of the said agreement, didnot go through the arbitral procedure but insteadsought before the Patent Office invalidation judgmentof Plaintiff’s two patents out of those licensed hereun-der.

The Tokyo District Court dismissed the plaintiff'saction, reasoning as follows.

Excerpt“…the arbitration agreement between the parties in

this case can be considered an arbitration agreementset forth in Article 2 (1) of the Arbitration Lawbecause it is an agreement to submit to one or morearbitrators the resolution of all or certain civil dis-putes which have arisen or which may arise inrespect of a defined legal relationship and to abide bytheir award. The said agreement is valid under Article13(1) of the Arbitration Law because its subject mat-ter is considered a civil dispute which may beresolved by settlement between the parties.”

“It is evident that the action in this case wasbrought in a matter which is subject of the arbitrationagreement between the parties and also we cannotfind the existence of the instances set forth in eachitem of Article 14(1) of the Arbitration Law. As a

result, the action must be dismissed under the saidparagraph.”

“…Plaintiff argues that it notified Defendant of itstermination of the license agreement because ofDefendant’s nonpayment of the running royalties andthat as a result the license agreement was terminatedand also the arbitration agreement premising the exis-tence of the license agreement became invalid. How-ever, while Defendant does not dispute the formationof the arbitration agreement itself, in the first place, itis not evident at this moment whether Plaintiff validlyterminated the license agreement based on Defen-dant’s default. As Plaintiff argues, assuming that thelicense agreement was terminated by Plaintiff’s indi-cation of its intention on the ground of Defendant’sunpaid running royalties, under Article 13(6) of theArbitration Law, ‘even if in a particular contract con-taining an arbitration agreement, any or all of thecontractual provisions, excluding the arbitrationagreement, are found to be null and void, cancelledor for other reasons invalid, the validity of the arbitra-tion agreement shall not necessarily be affected,’ andtherefore the arbitration agreement will not retroac-tively be null and void by reason of the terminationof the license agreement and Plaintiff’s argument inthis respect is improper.”

“In addition, …while Plaintiff raises the issue ofDefendant’s application for the invalidation of Plain-tiff’s two patents out of those licensed under thelicense agreement, Article 6(2) thereof provides thatany provisions therein does not preclude Defendantfrom disputing the validity of each patent in this caseand therefore Defendant’s dispute on the validity ofsuch patent is not contrary to the license agreement.Furthermore, the patent invalidation judgment is theone as an administrative disposition to void the deci-sion to grant a patent if there exists a reason to voidthe patent and this is not ‘a dispute which may beresolved by settlement between the parties’ andtherefore it should be considered that Defendant’sapplication for invalidation judgment is not contraryto Article 15 of the license agreement. Assuming thatthis is an action contrary to Article 15 of the licenseagreement, it only follows that the said applicationwill be unlawful. There is no reason to conclude thatthe validity of the arbitration agreement itself willcease and that the application of Article 14(1) of theArbitration Law will be precluded in relation to thisaction and therefore Plaintiff’s argument in this

[Court Decision]The First Case Applying the New Japanese Arbitration LawTokyo District Court, October 21, 20051216 Hanrei Taimuzu 309; 1926 Hanrei Jiho 127

The Japan Commercial Arbitration AssociationURL: http://www.jcaa.or.jp

Tokyo office

Hibiya Sankei Bldg. 4F, 9-1, Yurakucho 1-chome, Chiyoda-ku, Tokyo 100-0006 Japan

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Notes to Contributors for Article SubmissionsThe Editor welcomes submissions of articles and essays on international arbitrations. Articles should not

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10

respect is improper.”“Thus, Plaintiff’s action is unlawful and we dismiss

it….”

Plaintiff further appealed to the High Court of Intel-

lectual Property, alleging, inter alia, that the period ofrequest for arbitration has expired by the operation ofthe contractual provisions, but this appeal was dis-missed on February 28, 2006. The court decision isavailable at website of the Supreme Court of Japan,www.courts.go.jp/.

[JCAA Activities]International Commercial Arbitration Forum 2006held in Osaka

JCAA held the International Commercial Arbitra-tion Forum 2006 on November 28, 2006 in Osaka.The forum was supported by the Ministry of Econo-my, Trade and Industry, the Osaka Chamber of Com-merce and Industry, the Osaka Bar Association andthe Osaka Branch of the Japan Association of Arbitra-tors and subsidized by the Japan Keirin Association.The main theme was “Prospects and Existing Prob-lems of International Commercial Arbitration inAsia”. The JCAA invited four lecturers: Mr. NozomuOhara, Attorney at Law, Executive Director of theJapan Association of Arbitrators, Mr. Lawrence Boo,Deputy Chairman of Singapore International Arbitra-tion Centre, Mr. Dato’ Syed Ahmad Idid, Director ofKuala Lumpur Regional Centre for Arbitration andMr. Philip Yang, Chairman of Hong Kong Internation-al Arbitration Centre.

International Commercial Arbitration Seminar heldin Tokyo

JCAA co-organised the International CommercialArbitration Seminar with the Japan Association ofArbitrators and Price Waterhouse Coopers onDecember 6, 2006 in Tokyo. The speaker was Profes-sor Dr. Loukas Mistelis, Clive M Schmitthoff Professor

of Transnational Law and Arbitration; Director,School of International Arbitration, Centre for Com-mercial Law Studies, Queen Mary, University of Lon-don. He introduced and analyzed the research intothe corporate attitudes and practices on internationalcommercial arbitration conducted in 2005 by theSchool of International Arbitration, Queen Mary,University of London (Its report is published onwww.pwc.com/arbitrationstudy). In addition, the dis-cussions in the UNCITRAL Arbitration WorkingGroup and the progress of arbitration in Europe werealso addressed. Prof. Yoshihisa Hayakawa of RikkyoUniversity served as the moderator.

Formation of the Commercial Arbitration AdvisoryCommittee

The Commercial Arbitration Advisory Committee(hereinafter the “Committee”) was set up by the JCAAwith the task of discussing, investigating and makingsuggestion on important matter of commercial arbi-tration for the JCAA to play an appropriate role as theonly permanent commercial arbitral institution inJapan. The Committee is chaired by ProfessorYasuhei Taniguchi and consists of 14 prominentscholars, practitioners and business persons. TheCommittee held its inaugural meeting on December15, 2006.