Katja Funken, LL.M.

Institute of International Law

University of Munich, School of Law
Veterinaerstr. 5
80802 Munich

"Alternative Dispute Resolution in Japan"

This paper can be downloaded without charge from the

Social Science Research Network Electronic Paper Collection at:
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 Outline

A. Introduction

B. The Lack of Litigiousness in Japanese Society

I. Traditionalist Theory
II. Revisionist Theory
III. Rationalist Theory
IV. Informalist Theory

C. Historical and Cultural Background

D. ADR Methods in Japan

I. Conciliation (Chotei)
1. The Concept
2. Statutory Basis
3. Initiation
4. Procedure
5. The Chotei Agreement
6. Analysis of Chotei

II. Compromise (Wakai)

1. The Concept
2. Statutory Basis
3. Initiation
4. Procedure
5. The Wakai Settlement
6. Analysis of Wakai
7. Three Different Forms of Wakai
a) Kisozen No Wakai
b) Benron-ken Wakai
c) Shojo No Wakai

III. Arbitration (Chusai)

1. The Japanese System of Arbitration
a) Arbitration in the Construction Industry
b) Environmental Arbitration
c) Arbitration of Labour Disputes
d) Commercial Arbitration
2. Arbitration Agreements Governed by Foreign Law and Foreign Arbitral
Awards
3. Analysis of Arbitration in Japan

E. CONCLUSION

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 Alternative Dispute Resolution in Japan

A. Introduction
During the last decade, there has been a wide-spread trend in Germany and
internationally away from litigation towards Alternative Dispute Resolution (ADR)
procedures.1 These include compromise, conciliation, mediation and arbitration. ADR
is being used increasingly to resolve many types of disputes: commercial, civil and
family, on a domestic and international level. The reason for this is that ADR
remedies many problems experienced in litigation. It is usually faster, cheaper,
simpler and more flexible. As ADR is still developing in Germany, it could be helpful
for the purpose of improving the German system to look to other jurisdictions which
have mature ADR systems.
Japan has a tradition of ADR, as opposed to litigious processes. For centuries the
main procedures employed in Japan were conciliation, compromise and mediation.
Litigation was not known until Occidental countries introduced it in the late 1800s.
Up until today, Japan is often referred to as the non-litigious society. The Japanese
system has many advantages and some disadvantages from which Germany could
learn and obtain ideas on how to improve its own processes of dispute resolution. This
is especially true considering the similarities between the litigation systems of the two
civil law countries Japan and Germany. Japan's Code of Civil Procedure follows the
German system almost exactly and its bureaucratic judicial system resembles the one
2
in Germany. Accordingly, a look at the Land of the Rising Sun and its ADR
procedures promises fruitful inspirations for the German ADR movement.
This paper analyses three major types of ADR procedures used in Japan today and
their strengths and shortcomings in the context of the modern Japanese legal system
and contemporary Japanese society. It will first look at four theories that attempt to
explain the Japanese reluctance to litigate. Then, the paper will briefly analyse the
cultural and historical roots of ADR in Japanese society. Against this background, the
three ADR methods chotei, wakai and chusai will be examined and evaluated.

1
The ADR movement in the United States, however, emerged as early as in the 1980s, see Duve C,
'Alternative Dispute Resolution (ADR) - die aussergerichtliche Streitbeilegung in den USA', (1998)
Betriebs-Berater, Beilage 10, at 10.
2
See Noda Y, (Angelo AH trans), Introduction to Japanese Law, University of Tokyo Press, Tokyo,
1976 at 55; Tanaka H, The Japanese Legal System, University of Tokyo Press, 1976 at 444 ff.

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B. The Lack of Litigiousness in Japanese Society
Port has identified four separate theories that attempt to explain the Japanese lack of
litigiousness. He labels those theories the "traditionalist theory", the "revisionist
theory", the "rationalist theory" and the "informalist theory".3

I. Traditionalist Theory
Based on the work by Kawashima4, the traditionalist theory contends that acceptance
of old Chinese Confucian doctrines in Japanese culture has led to a reluctance to
litigate.5 Kawashima regarded social relationships in Japan as defined by harmony,
resulting in strong expectations that disputes would not arise. If they did, social norms
would demand that they be resolved by mutual understanding.6 However, Kawashima
also held the view that the transformation of Japanese family life and the weakening
of social controls in the family had already led to, and would continue to lead to,
changes in the attitudes of Japanese people to dispute resolution.7 His prediction has
not eventuated thus far. Compared with other countries, the Japanese litigation rate
has remained very low.8

II. Revisionist Theory

As a representative of the revisionist theory, Haley rejects the traditional hypothesis
and sees institutional barriers to litigation as responsible for the low litigation rate.9
As examples he cites the delays in court, caused by civil procedural rules and a
shortage of judges, the cost of court proceedings, the lack of effective enforcement

3
Port KL, 'The Case For Teaching Japanese Law at American Law Schools', (1994) 43 DePaul L. Rev.
643 at 661 ff; Port KL, Law and the Legal Process in Japan, Carolina Academic Press, Durham/NC,
1996 at 10 ff.
4
Kawashima T, 'Dispute Resolution in Contemporary Japan', in: von Mehren A (ed), Law in Japan:
The Legal Order in a Changing Society, 1963, reprinted in Dean M, Japanese Legal System: Text and
Materials, Cavendish, London, 1997 at 452; Kawashima, Nihonjin no ho ishiki (Legal Consciousness
of the Japanese), Iwanami Publishing Co, Tokyo, 1967, partially translated under the title 'The Legal
Consciousness of Contract in Japan' in (1974) Law in Japan 1.
5
Noda Y, op cit at 181-182; Stevens C, 'Modern Japanese Law as an Instrument of Comparison' (1979)
19 American Journal of Comparative Law 665.
6
Kawashima T, 'Dispute Resolution in Contemporary Japan', op cit at 44.
7
Ibid at 57-59.
8
See Tanase T, 'The Management of Disputes: Automobile Accident Compensation in Japan' (1990)
24 Law and Society Review 651; Baum H, 'Rechtsdenken, Rechtssystem und Rechtswirklichkeit in
Japan' (Legal Thought, Legal System and Legal Reality in Japan - Comparisons with Japan), (1995)
RabelsZ 258 at 279.
9
Haley JO, 'The Myth of the Reluctant Litigant' (1978) 4 Journal of Japanese Studies 359.

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powers, and the government restrictions on the number of lawyers admitted to the
Legal Research and Training Institute.10

III. Rationalist Theory

The rationalist theory argues that "the rational litigant" will pursue a settlement out of
court, because he fully understands the likely outcome of the litigation and is
confident that he would not fare substantially better if he litigated the case to
judgment.11 According to this theory, the Japanese know their system too well and
would rather choose a wealth-maximising settlement than waste time and energy
litigating.12

IV. Informalist Theory

Followers of this theory believe that the role of law in Japan is an informal one.13
Because of this characteristic, the infomalists believe that law is used to suppress
people and to disperse social tension.14 The informalists see ADR as a subterfuge,
used by the ruling LDP only to appease the populace and maintain the LDP's power.15

It is likely that each theory is accurate to a certain degree, in explaining the forces
which govern the resolution of disputes in Japan. Rather than exploring the tenability
of each of those theories in more depth, this paper analyses the ADR methods used by
the Japanese and scrutinises their strengths and shortcomings.

C. Historical and Cultural Background of ADR in Japan

Tokugawa Japan (1603-1867) was divided into four social classes. Their hierarchy
was (1) the samurai-bureaucrats; (2) the peasants; (3) artisans and (4) merchants.16

10
Ibid at 381-387 and Haley JO, Authority without Power: Law and the Japanese Paradox, Oxford
University Press, Oxford, 1991 at pp 83-119.
11
Ramseyer JM, 'Reluctant Litigant Revisited: Rationality and Disputes in Japan' (1988) 14 Journal of
Japanese Studies 111; Ramseyer JM, Nakazato M, 'The Rational Litigant: Settlement Amounts and
Verdict Rates in Japan' (1989) 18 Journal of Legal Studies 262.
12
See Port KL, Law and the Legal Process in Japan, op cit at 12.
13
Upham FK, Law and Social Change in Postwar Japan, Harvard University Press, Cambridge/Mass.,
1987 at 47.
14
Ibid at 28-30.
15
Port KL, 'The Case for Teaching Japanese Law at American Schools', op cit at 669.
16
Reischauer EO, The Japanese Today: Change and Continuity, Belknap Press, London 1988 at 71.

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The samurai were the masters of the four classes.17 Peasants, artisans and merchants
owed the samurai a duty of loyalty and were not allowed to behave in a rude manner
towards samurai.18 In contemporary Japan, the class-based hierarchy has been
replaced by a vertical structure based on the relative status of any two individuals.19
The concept of vertical society, tate shakai, permeates all interactions among the
Japanese.20 Each individual's positions relative to others, based on age, sex, education,
and occupation, is determinative.21 This social hierarchy is rooted in Confucianism
and Buddhism, with its emphasis on duty and social harmony.22 Disputes were to be
resolved in such a way as to preserve "harmonious relationships".23 This is ensured by
means of compromise and methods of ADR, rather than by the win/lose outcomes of
litigation.24
Although the number of civil suits formally adjudicated has increased steadily since
198325, ADR continues to play a predominant role. Common to modern Japanese
ADR procedures is an attempt to resolve conflict through the use of normative values
of an authority quite apart from objective legal standards.26 In doing so, the
procedures continue to foster social ordering and hierarchy within Japanese society.27
The main methods of ADR in contemporary Japan are conciliation (chotei),
compromise (wakai) and arbitration (chusai). They are elaborated on below.

I. Conciliation (Chotei)

1. The Concept
Conciliation ("chotei") is based on an agreement between the parties' that is facilitated
by the intervention of a summary or a district court.28

17
See H, 'The Judiciary and Dispute Resolution in Japan: A Survey', (1982) 10 Fla. State U. L. Rev.
339 at 351.
18
Henderson DF, 'Some Aspects of Tokugawa Law', (1952) 27 Wash. L. Rev. 85 at 105.
19
Nakane C, Japanese Society, University of California Press, Berkeley, 1970 at 26-27, 42-66.
20
Pardieck AM, 'Virtuous Ways and Beautiful Customs: The Role of Alternative Dispute Resolution in
Japan', (1997) 11 Temp. Int'l & Comp. L. J. 31 op cit at 34.
21
See Nakane C, op cit at 26-66.
22
See Gibbons DJ, 'Law and the Group Ethos in Japan', (1990) 3 Int'l Legal Persp. 98 at 103.
23
Wren HG, ' The Legal System of Pre-Western Japan', (1968) 20 Hastings L.J. 217 at 221.
24
See also Ohta T, Hozumi T, 'Compromise in the Course of Litigation' (1973) 6 Law in Japan 99-102,
reprinted in: Dean M, op cit at 478-479.
25
Tanase T, 'The Management of Disputes: Automobile Accident Compensation in Japan', in:
Japanese Law and Legal Theory, op cit at 667.
26
Pardieck AM, op cit at 37.
27
Ibid.
28
Ibid at 41.

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However, the term is used in at least five different technical senses in the Japanese
legal material:

1. The institution or whole system of conciliation.

2. The conciliation procedure.
3. The act of conciliating itself.
4. The substance of the agreement or compromise embodied in writing.
5. The 'meeting of the minds' in making agreement.29

This paper uses the term chotei to indicate the entire institution, as in number one
listed above. Accordingly, chotei denotes a prelitigation procedure conducted through
the regular summary and district courts. For this a dispute is settled through
negotiation between all parties with the aid of a number of impartial facilitators who
help the parties to discuss the conflict and devise their own solution. The court
appoints a committee,30 which is usually composed of a presiding judge and one or
two more lay conciliators or commissioners, or rarely, a judge only.31 The non-judges
are appointed by the Supreme Court as court staff and are trained accordingly.32 A
conciliation commissioner must be between 40 and 70 years of age, qualified as a
lawyer, have expert knowledge and experience useful for settling disputes and/or have
rich experience in public life.33 Conciliation commissioners will serve for two years
and can be reappointed by the Supreme Court for additional terms.34 The Supreme
Court maintains a list of 12,000 of such commissioners.35 The Japanese government
strongly encourages conciliation and supports the education and training of
conciliators.36

In Japan there are several types of judicial conciliation - family (kaji chotei) and civil
(minji chotei). These are regulated by the following statutes: (1) the Civil Conciliation

29
Henderson DF, Conciliation and Japanese Law: Tokugawa and Modern, University of Tokyo Press,
Tokyo, 1965 at 235.
30
Civil Conciliation Act, Art. 5(1).
31
Ibid, Arts. 6,7.
32
Pardieck AM, op cit at 42.
33
Davis JWS, op cit at 310; Pardieck AM, op cit at 42.
34
Ibid.
35
Ibid.
36
Berat L, 'The Role of Conciliation in the Japanese Legal System', (1992) Am. U.J. Int'l L. & Pol'y
133, reprinted in Port KL, Law and the Legal Process in Japan, op cit at 488.

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Act (1951), (2) the Law for the Determination of Family Affairs (1947), (3) the
Labour Union Law (1949), (4) the Labour Relations Adjustment Law (1946), (5) the
Pollution Dispute Settlement Law (1970) and (6) the Construction Business Law
(1949). In this paper only civil conciliation under the Civil Conciliation Act will be
examined.

Generally, conciliation of civil matters is not mandatory prior to judicial recourse.37

However, a 1991 amendment to the Civil Conciliation Act now requires disputes in
certain designated industries to go through conciliation procedures.38

Unless otherwise provided, general jurisdiction for all conciliation cases, apart from
those which concern family disputes, is in one of the summary courts located
throughout Japan.39 The Civil Conciliation Act provides exclusive jurisdiction for a
summary court to conciliate disputes with respect to residential land or buildings40,
traffic accidents41, environmental pollution and infringement of interests, such as
access to sunlight and wind.42

2. Statutory Basis

Article 1 of the Civil Conciliation Act, characterising the nature of "chotei", provides:

"This Act aims at effecting a settlement of dispute consistent with reason and befitting
actual circumstances by mutual concession of the parties concerned, with respect to
disputes relating to civil affairs."

"Mutual concession" is a central feature of judicial conciliation in Japan, be it civil or

family. In modern western ADR theory, concession is thought to be less desirable
than a creative solution that satisfies the needs and underlying interests of both parties

37
Pardieck AM, op cit at 42.
38
Civil Conciliation Act, Art. 24, 32, 32, 33. Residential and land building, agricultural affairs,
commercial affairs, and mining damages are now subject to mandatory, although not binding,
conciliation.
39
Ibid, Art. 3.
40
Ibid, Art. 24.
41
Ibid, Art. 33.
42
Ibid.

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to a dispute.43 However, in Japan the role of concession in effecting disputes is
considered so important that it is specifically provided for by law. This reflects the
cultural tradition of consensus in Japan, mutual concessions being one means by
which consensus is achieved. Statistically, one application for chotei is filed for every
two first instance proceedings.44

3. Initiation
Application for "chotei" may be made by one or both of the parties45 in writing or
orally to the court.46 Where civil matters are concerned, application can be made at
any time and is voluntary. Conciliation procedures may also be invoked by the judge
during a pending lawsuit, without the consent of the parties.47 However, the court can
only do this in the initial stage of the proceedings, after which it needs the parties'
consent.48

4. Procedure
The conciliation process is usually conducted by a "conciliation committee", although
a judge can conduct the process alone.49 However, if it is the parties who propose to
conciliate, only a committee can be used.50

The following comments pertaining to "conciliation committee" refer to a single

judge and a group of conciliators.51 The committee can, in consultation with the
parties, ask others to assist them.52 The procedure is not open to the public, and there
are penalties against disclosure by the conciliators.53

43
See, for instance, Fisher R, Ury W, Patton B, Getting to YES, 2nd edition, Random House, Sydney,
1999. The authors propose an alternative method of negotiation which they call interest-based
negotiation. The rationale for focusing on the parties' underlying interests is that for every interest there
usually exist several possible solutions that could satisfy it. It may be possible to find an alternative
solution that meets the interests of all parties.
44
Kitamura I, 'The Judiciary in Contemporary Society: Japan' (1993) 25 Case W. Res. J. Int'l L. 263, at
288. In 1990, 97, 355 law suits were brought to the summary courts while 59,120 new cases were
accepted for civil conciliation proceedings at the same level, see Oda H, Japanese Law, Butterworths,
London, 1992 at 83.
45
Civil Conciliation Act, Art. 2.
46
Civil Conciliation Rules 1956 (No 2), Art 3-2.
47
Civil Conciliation Act, Art. 20.
48
Ibid.
49
Civil Conciliation Act, Art. 5, s 1.
50
Ibid, Art. 5, s 2.
51
Ibid, Art. 15.
52
Ibid, Art. 8.
53
Civil Conciliation Act, Arts. 37, 38.

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When a party requests conciliation, a fee must be paid. The amount of this is decided
by the Supreme Court, within a given range. The legislation provides for a flat rate
when the amount cannot be determined otherwise.54
The committee fixes a date for conciliation and serves summons on the parties.55
Third parties that have an interest in the outcome of the conciliation may participate in
the procedure, with the committee's approval. Also, the committee itself may ask
interested persons to participate.56
The initial hearing serves to acquaint the parties with the procedure. Subsequent
hearings are often held with each party alternatively to identify the nature of the
dispute and the relevant issues.57 The committee may examine the person or places
involved, summon witnesses, or procure expert opinions.58 At subsequent hearings,
the parties are encouraged to make concessions.59
The committee may forbid parties to pursue certain conduct, if it is thought that the
conduct would make it "impossible or extremely difficult" to settle.60
The conciliation committee can declare a matter unsuitable for conciliation where it
would be improper to conciliate, or where a party has requested conciliation
unreasonably or with an improper purpose.61
Conciliation proceedings often extend over several months with either party or the
conciliation committee free to terminate the conciliation at any time.62
The committee may terminate the conciliation if there is no expectation of agreement
or where the agreement settled upon is inappropriate. This is as long as the committee
does not decide to pronounce a decision under Art 17 (discussed below).63

5. The Chotei Agreement

If the parties decide to settle, the outcome is registered in court, as long as it is not
contrary to law or public policy. Subsequently, a formal conciliation agreement

54
Ibid, Art. 10.
55
Pardieck AM, op cit at 42.
56
Civil Conciliation Act, Art. 11.
57
Iwai N, 'Alternative Dispute Resolution in Court: The Japanese Experience', op cit 458 at 468.
58
Ibid, at 468.
59
See Kusano Y, 'A Discussion of Compromise Techniques' (1991) Law in Japan 140-57, reprinted in
Dean M, op cit at 489 ff.
60
Civil Conciliation Act, Art. 12.
61
Ibid, Art. 12.
62
Ibid, Art. 14.
63
Ibid, Art 14.

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("chosho") is drawn up. Then, the conciliation is deemed to have been concluded and
the chosho has the same effect as an absolute judgment.64
In cases where the parties cannot come to an agreement, the court may on its own
motion make an "order of determination in lieu of conciliation" ("chotei ni kawaru
saiban" or "chotei ni kawaru kettei").65 In doing so, it will take into consideration the
opinions of the committee members and review the entire matter. The court only
makes a decision within the limits of the parties' own proposals. The court has the
authority to order payment of money, transfer of goods, and other dispositions of
property.66
Parties may appeal against a decision made in a conciliation procedure, following
67
Supreme Court regulations. They must do so within two weeks of receiving the
notice of the decision. If they do, the decision is void.68 If there is no objection the
decision will have the same effect as a compromise during trial, that is, it is binding.69
Where the parties cannot come to an agreement and the court does not render an order
of determination, the conciliation committee may terminate the proceedings as
unsuccessful.70 This is also the case where the parties come to an agreement the
content of which is illegal or lacking propriety.71
If a party files a suit where the committee decided the procedure would fail, or where
the court made a decision to which a party objected thus rendering it ineffective72, and
the filing is done within two weeks from the date of notice, the filing is back-dated to
the date of the proposal for conciliation.73
The Civil Conciliation Act contains several provisions including a fine for non-
appearance without good reason74; a fine for not complying with preconciliation
measures under the statute75; a fine for a current or former committee member who
discloses certain information about a conciliation without justification76; and a fine for

64
Ibid, Art. 16.
65
Ibid, Art. 17.
66
Ibid, Art. 17.
67
Ibid, Art. 21.
68
Ibid, Art. 18.
69
Ibid, Art. 18.
70
Ibid, Art. 14.
71
Ibid.
72
Ibid, Arts. 14 and 15, s 2, Art 18.
73
Ibid, Art. 19.
74
Ibid, Art. 34.
75
Ibid, Art 35.
76
Ibid, Art. 37.

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a current or former committee member who reveals secrets of others learnt in his
official capacity.77

6. Analysis of Chotei
Chotei is the most popular and effective ADR method in Japan.78 On average, every
third newly filed civil case goes to chotei.79 About 55 percent of the conciliations are
successfully settled. However, chotei has strengths and shortcomings.
A problem with chotei is that the legislatively enforceable rights are not necessarily
recognised, as the conciliation committee is not bound by law or formal weight of
evidence.80 Rather, the conciliators will look more to standards such as reason,
common sense, equity and morality.81

A survey conducted in the early 1990s shows that people are not always satisfied with
the present system of conciliation.82 While a majority of people who have not
experienced the conciliation process thought that conciliation was impartial and in
line with common sense, only 18 percent of those who have experienced it thought
that it was impartial.83
In addition, the procedural formalities of the Civil Conciliation Act are sometimes not
complied with. For instance, the judges are supposed to attend all chotei meetings, but
in practice only attend the initial meeting.84
Furthermore, it has been advocated that for chotei to work well, recourse to it should
be voluntary, it must be readily available, efficient and effective, and must be one of
several alternatives, freely chosen by the parties.85 However, judicial compulsion

77
Ibid, Art. 38.
78
See Iwasaki K, 'ADR: Japanese Experience with Conciliation' (1994) 10 Arbitration International
91, reprinted in Dean M, op cit at 460; Iwasaki K, 'Japan', Dispute Resolution in Asia, Pryles M (ed),
Kluwer Law International, The Hague et al., 1997 at 134.
79
Ibid.
80
Iwai N, 'Alternative Dispute Resolution in Court: The Japanese Experience', op cit at 468.
81
Haley JO, 'The Politics of Informal Justice: The Japanese Experience, 1922-1942', in Abel R (ed),
The Politics of Informal Justice, Volume 2, Academic Press, New York, 1982 at 231; Iwai N,
'Alternative Dispute Resolution in Court: The Japanese Experience', op cit at 468.
82
See Oda H, op cit at 84.
83
Japan Federation of Bar Associations ed., Shimin to Horitsu-mondai (Citizens and Legal Problems),
Tokyo, 1986 at 175-77, as referenced in Oda H, op cit, at 84 (Fn 6).
84
Tanaka H, Smith MDH, The Japanese Legal System, University of Tokyo Press, Tokyo, 1987 at 497.
85
Henderson DF, Conciliation and Japanese Law: Tokugawa and Modern, University of Tokyo Press,
Tokyo, 1965 at 235.

12
arises where a case has already gone to court and the judge admonishes the parties to
use chotei instead.86 If forced, parties are less likely to reach an agreement.87

On the other hand, chotei also has many strengths. One advantage is that it promotes
the continuing of relationships. However, litigation which promotes animosity and
results in a winner and loser can ruin any chance the parties might have had of
reconciliation.
Chotei can further allow for the entire circumstances surrounding a dispute to be
taken into account. Litigation on the other hand, due to strict evidentiary rules, often
means that only part of the circumstances are admitted into court. The additional
information could mean that a more informed solution could be reached.
A chotei settlement can also be more creative, that is, adapted to suit the particular
circumstances of the case. A litigated outcome, on the other hand, has to fall within
what can often be the very narrow confines of the law.
Moreover, litigation is very expensive. The cost of filing fees, court costs and
attorneys, especially when dragged out over a long period of time, can be very high.
Chotei can cut down on these costs considerably. The fee of chotei, which is paid to
the court, is determined according to the amount in dispute, but roughly speaking is
about 60 percent of a court litigation fee.88
In addition, chotei can achieve a result faster than litigation. The average duration of
conciliations before the court is eight to nine months, which is shorter than the
average 12 months duration of a district court litigation.89
In some cases, the Japanese judicial system even promises up to a ten year wait before
a controversy is resolved.90
As the parties have negotiated a settlement themselves, they are more likely to
observe it. Since the procedure is supervised by the court, which commands a degree
of respect, the parties might be more likely to follow the settlement than one worked
out privately. In addition, the court is able to look after weaker parties with unequal
bargaining power and ensure that a fair agreement is reached that both parties are able
to comply with.

86
Ibid, at 227.
87
Ibid, at 235.
88
Iwasaki K, op cit at 135.
89
Ibid, at 134.
90
Haley JO, 'The Reluctant Litigant', op cit at 381.

13
II. Compromise (Wakai)
1. The Concept
"Wakai" means "settlement-in court" or "compromise".91 It is a voluntary settlement
of a dispute based on a contractual agreement between the parties.92 No restrictions
are imposed on the contents of this contract nor the procedure used.93 As it is
voluntary, if one party does not want to settle in the manner, no compromise is
possible.94 Wakai is different from conciliation in that it is initiated by the judge
during a trial. The judge makes the suggestion at any stage of the trial.95 However,
disputants can apply to a summary court for a compromise without a lawsuit
pending.96 A compromise procedure can be changed back to a lawsuit at any stage of
the proceeding. This also has the full force of a binding judgment.97

Wakai involves a combination of litigation and mediation98: The process usually starts
with the case being heard in court up to a certain point, on which it is transferred to a
settlement procedure which uses a combination of mediation, negotiation and some
law.

2. Statutory Basis
Wakai is based upon two provisions of the Code of Civil Procedure which stipulate:

"Article 136(1): At any stage of the court procedure in the case, the court may
admonish the parties to join the process of arrangement for settlement-in-court
presided over by the judges.

Article 203: If entered in the court record in the presence of the judge, the registrar,
and both parties or their agents, the concluded settlement-in-court and conciliation-
in-court finally reached by both parties may be recognised as having the same
binding effect as that of a final court decision."

91
See Muto S, 'Concerning Trial Leadership in Civil Litigation: Focusing on the Judge's Inquiry and
Compromise' (1979) 12 Law in Japan 24-28, reprinted in Dean M, op cit at 479.
92
Port KL, Law and the Legal Process in Japan, op cit at 457.
93
Ibid at 457.
94
Ibid at 457.
95
Code of Civil Procedure, Art. 136.
96
Ibid, Art. 356.
97
Ibid, Art. 203.
98
See also Iwai N, 'Alternative Dispute Resolution in Court: The Japanese Experience', op cit at 463.

14
The two articles merely state that the process may occur, offering no guidance on how
it is to be achieved. Yet, the judges have refined the practice of wakai.99

3. Initiation
At some stage during the court trial the judge might suggest to the parties that the case
would be better suited to wakai. This usually occurs either after the first hearing date
or after the exchange of preliminary pleadings, or after the exchange of major
pleadings and entry of documentary evidence, or after the parties and main witnesses
have been heard.100
The parties are not allowed to refuse, but in practice the judge does not force reluctant
parties.101 The parties are not compelled to settle during the procedure, and if
unsuccessful, the case is returned to litigation. The parties may also ask the judge to
pursue this procedure at any time. The judge introduces the idea by asking the parties
what their intentions to settle are. The right time for introduction is determined by the
judge using discretion, rather than a legislative formula.102

4. Procedure
In a sole judge proceeding, the trial judge acts as the facilitator.103 If there is a three-
judge panel, the presiding judge or the right-hand judge because of his seniority and
experience conducts the discussions.104 The left-hand judge hardly ever is assigned
this task. This junior judge however may sit in on settlement discussions to learn how
the process works.105 Normally, the other two judges of a panel do not attend these
discussions and are kept up to date on the progress of these discussions by the judge
meeting with the parties.106
Once the parties have agreed to wakai, a date is set for the parties, their
representatives and the judge's first meeting.107 The judge coordinates the meeting
(unlike conciliation-in-court where the judge does this with a committee, and the

99
Ibid, at 462.
100
Ibid, at 462.
101
Ibid, at 459-460.
102
Ibid, at 460.
103
Davis JWS, op cit at 304.
104
Ibid.
105
Ibid.
106
Ibid, at 305.
107
Iwai N, 'Alternative Dispute Resolution in Court: The Japanese Experience', op cit at 460.

15
judge is often not present). The meetings are held as frequently and for as long as is
necessary to reach a settlement.
To start the wakai-proceedings the judge gives an introductory session to explain how
the process works and its advantages. The judge then acts as a facilitator who allows
the parties what in Anglo-Saxon mediation circles is sometimes referred to as a
"controlled burn"108, that is, a venting of emotions.109 The judge might initially listen
to the parties separately, without the other party being present, if it is thought that they
would benefit from presenting their case in separate caucuses.110 These private
caucuses are quite open as the courts wants a litigant to "tell all" and not limit his
remarks to what is set forth in the pleadings. The judge is attempting as much as
possible to give the party an opportunity to explain in sufficient detail his side of the
story without restrictions on what is being communicated.111 The same process is
accomplished with the other party.112
After the private caucuses, the parties are brought together to negotiate. The judge
merely facilitates the negotiation proceedings, or mediates if appropriate. During this
initial stage the parties are given the opportunity to elaborate on the circumstances of
the dispute, the background to it, steps already taken in attempting to resolve the
conflict, and all their grievances.113 The judge must sit and listen sympathetically and
not interrupt.114 This enhances the parties' willingness to constructively set about
resolving the conflict.
It is during this time that the judge attempts to establish a relationship of trust with the
parties. This is achieved by listening patiently without judgment so that parties
consider that they have been sincerely heard and "handled with wisdom and kindness
by a sympathetic and merciful third party of authority".115 This corresponds to the
concept of active listening in Western ADR theory.116

108
See, e.g. Boulle L, Mediation: Principles, Process, Practice, Butterworths, Sydney et al., 1996 at
155.
109
Iwai N, 'Alternative Dispute Resolution in Court: The Japanese Experience', op cit at 462.
110
Ibid, at 460-461.
111
Ibid.
112
Ibid.
113
Ibid, at 461.
114
Ibid.
115
Ibid.
116
The concept of active listening denotes that good listening is not just a passive exercise. Rather, the
listener must be physically attentive, concentrate on and encourage the speaker, display an attitude of
interest and concern, be non-judgmental, not be preoccupied with responding, and not be distracted by
non-relevant matters; see Tillet G, Resolving Conflict - A Practical Approach, Sydney University

16
The judge is not bound to adhere to the law if it is not considered appropriate. In fact
whatever legal methods are necessary to bring the parties to agreement are applied
allowing for any settlement, as long as it is legal.117
At this point the judge will make constructive suggestions for a compromise solution
to the problem, with practical ways of carrying it out and ideas as to what parties
could relinquish in order to make gains.118

5. The Wakai Settlement

When the parties reach a solution, the judge urges them to settle, enumerating the
advantages of settlement instead of returning to litigation.119 The judge will
demonstrate an understanding of the entire factual circumstances of the case and all
the grievances of each party.120 The judge will also explain the legal issues, the weight
of the evidence, and that the solutions should benefit future relations.121
The judge has the challenging role in that in trying to persuade the parties to settle
through recommendations he must not leave the impression that if suggestions are
rejected, such reaction will affect the judge's ability to make a fair and equitable
decision.122 To accomplish this, the judge must have gained the trust of both parties.
They must both believe that the judge has their best interest in mind and does
understand their positions in the controversy.123
In creating a proposal, the court tends to seek some form of compromise and is not
interested in a winner or loser, as this result can have a negative impact on the
"losing" party.124
The settlement terms agreed upon by both parties are registered under Article 203 of
the Code of Civil Procedure. They have the effect of a final binding judgment. The
proceedings and final agreement are confidential, and thus are not subject to public
scrutiny.125 The compromise agreement represents a voluntary contract between the

Press, Sydney, 1991 at 27; Egan G, The Skilled Helper - A Problem Management Approach to Helping,
5th ed, Brooks/Cole Publishing, Pacific Grove, California, 1994 at 91.
117
Iwai N, 'Alternative Dispute Resolution in Court: The Japanese Experience', op cit at 462.
118
Ibid, at 461.
119
Ibid.
120
Ibid.
121
Ibid.
122
Davis JWS, op cit at 305.
123
Davis JWS, op cit at 305.
124
Ibid, at 306.
125
Obuchi T, op cit at 83.

17
parties.126 Because the agreement is contractual, it can be checked for its legitimacy.
To determine whether the negotiation process is fair, the settlement must be without
fraud, undue influence, or duress.127
Once a compromise is reached, under Article 696 of the Civil Code, neither a mistake
nor a subsequent determination of facts will invalidate the compromise agreement.128
The compromise terminates the dispute, unless it contravenes public order, good
morals, or mandatory provisions of law.129 Consequently, the agreement hammered
out under the often benign, but culturally laden auspices of the judge, is a firm one.130
If the parties cannot come to an agreement, or if the judge considers the parties will
not reach settlement during the proceedings, the case will be referred back to
litigation.131

6. Analysis of Wakai
It is important to note that wakai or compromise is different from chotei in that the
latter is a separate procedure from litigation, whereas the former blends the two.
Accordingly, wakai raises questions concerning judicial propriety when one judge
hears the initial part of the trial, and then organises a change to an ADR process, in
the course of which he or she will hear information that could be inadmissible in
litigation. 132 If the process fails and the case reverts to court, that same person will
hear the case in court, knowing the information divulged during wakai but maybe
having to ignore some of it.
However, as this is something that judges sometimes do in the ordinary course of
litigation, there is no reason why they should not do the same in the wakai process.
On the other hand, the argument can also be made that is sensible for the same judge
to continue to hear the matter after the parties themselves have decided to pursue a
compromise. This is so because the judge is already familiar with a least part of the
matter and could assist on the legal aspects, where appropriate.
However, in encouraging a settlement the judge has to draw a fine line between
informing the parties of the possible outcome if litigated, and not concretely stating it.

126
Ibid, at 94.
127
Ibid; see also Minpo (Civil Code) Law No. 89 of 1896 and Law No. 9 of 1898 Art. 695.
128
Art. 696 of the Civil Code.
129
Pardieck AM, op cit at 41.
130
Ibid.
131
Iwai N, 'Alternative Dispute Resolution in Court: The Japanese Experience', op cit at 462.
132
Henderson DF, Conciliation and Japanese Law: Tokugawa and Modern, op cit at 235.

18
Also, the judge's prediction could prove incorrect if the parties reverted to litigation.
This would jeopardise the credibility of the judge and the court.
Further, it is not certain whether a compromise will reflect a just resolution of the
conflict. A compromise may reflect a resolution based on preservation of social
harmony, and come at the expense of the legitimate expectations of one ore both
parties.133 Unlike a court of law, the judge in wakai proceedings is free to disregard
the legal merits and standing of the parties in order to settle the dispute equitable.134
An equitable settlement, however, is often ambiguous and laden with the values of the
persuading judge, who is most likely a male sitting at the pinnacle of Japanese
society.135 Without imputing impropriety or self-serving conduct, a judge might
attempt to restore order by relying on and preserving the order which personally
served the judge so well.136 Still, as a ruler under Confucian principles, the judge is
bound to act with compassion and benevolence.137 Yet, a ruling based on compassion
and benevolence requires acceptance of the normative values of an authoritative
figure rather than the use of an objective standard.138
However, Iwai139 has pointed out that wakai is more likely to lead to a solution that
meets the interests of both parties and that both parties can live with. A court decision,
Iwai notes, is limited to the specific issues in a dispute and there will be a winner and
a loser. In wakai, both parties make concessions and compromises and become
winners and losers to some degree. If a settlement is reached, Iwai states further, both
parties are also more cooperative in implementing the final resolution of the dispute,
compared to an imposed judgment in litigation. Because the court is involved, Iwai
concludes, the persuasive effect and the finality of the agreement are usually higher as
in mediation or private negotiation.140
However, when the parties have already gone through a mediation process before
going to court, and were unable to reach agreement, wakai may be a waste of time.141

133
Pardieck AM, op cit at 38.
134
Obuchi T, op cit at 83-85.
135
Pardieck AM, op cit at 39.
136
See Kawashima T, 'Dispute Resolution in Contemporary Japan', in: Law in Japan: The Legal Order
in a Changing Society, von Mehren AT (ed), 1963, 48-49, as reprinted in Dean M, op cit at 452.
137
Obuchi T, op cit at 89, 94.
138
See Pardieck AM, op cit at 40; Upham F, op cit at 208.
139
See Iwai N, 'Alternative Dispute Resolution in Court: The Japanese Experience', op cit at 462.
140
Ibid.
141
Davis JWS, op cit at 306.

19
7. Three Different Forms of Wakai

a) Kisozen No Wakai
There are three different forms of wakai. The first, kisozen no wakai, consists solely
of judicial recognition of a compromise reached between the parties.142 It is in-court
compromise dealt with by a court in charge of adjudicating the case or a judge and
can result in a compromise before filing suit.143 Kisozen no wakai allows a party to
apply to the summary court of the opposing party's domicile for a hearing.144 After
agreement by both parties, the court issues an order containing the terms of the
settlement.145 This procedure can be used regardless of the monetary amount
involved.146 Should the parties disagree as to the terms during the hearing, the
applicant is "deemed to have initiated" a civil action.147 If the parties agree, the court
order functions as would an order issued as the result of formal litigation under
Article 203 of the Code of Civil Procedure.148

b) Benron-ken Wakai
In recent years a variation of wakai has been developed by judges in the Tokyo and
Osaka District Courts called "benron-ken wakai" or "pleading-and-settlement".149
Benron-ken-wakai has been promoted in other lower courts by the Secretary-
General's Office of the Supreme Court and it is now becoming very popular in courts
all over Japan.150 Its aim is to resolve the conflict at the beginning of the court
proceeding. After the first formal step in the litigation, the parties and counsel are
brought together before a judge.151 In a casual meeting the parties explain the nature
of the conflict and the judge examines the factual and legal issues. The judge will try
and control the flow of the discussions by asking questions, seeking replies from the
parties, and where possible obtain an agreement between the two parties on specific

142
Code of Civil Procedure, Art. 356
143
Obuchi T, 'Role of the Court in the Process of Informal Dispute Resolution in Japan: Traditional and
Modern Aspects With Special Emphasis on In-Court Compromise', (1987) 20 Law in Japan 74 at 75.
144
Code of Civil Procedure, Art. 356; Pardieck AM, op cit at 37.
145
Code of Civil Procedure, Art. 356; Pardieck AM, op cit at 37.
146
Code of Civil Procedure, Art. 356(1); Pardieck AM, op cit at 37.
147
Pardieck AM, op cit at 37.
148
Code of Civil Procedure, Art. 203; Pardieck AM, op cit at 37.
149
Iwai N, 'Alternative Dispute Resolution in Court: The Japanese Experience', op cit at 464.
150
Davis JWS, op cit at 309.
151
Ibid.

20
facts.152 He may also meet individually with each party in private caucuses to obtain
an insight to what issues the party may not wish to reveal in front of the other party.153
To comprehend what is at stake, the court may have witnesses appear in joint sessions
to inform the court and the parties as to what they would testify in a formal court
hearing.154
The goal of this procedure is to determine whether the parties are really willing to
hold settlement discussions.155 If there is such a possibility, the judge will commence
to make suggestions on possible solutions to this dispute.156 As in wakai, if the
settlement talks do not prove to be fruitful, the court can schedule hearings to start the
adjudicative process.157
The advantage of benron-ken-wakai is that it allows the court to circumvent the
formal classification of issues and the introduction of testimony and reach a quick
solution of the dispute.158
A disadvantage is that this proceeding is initiated at a very early point in the lawsuit.
The judge, who will be new to the dispute, will not be able to be that creative in
developing a viable solution at this juncture in the proceeding.159

c) Soshojo No Wakai
Soshojo no wakai is a compromise reached during litigation.160 This has the effect of a
final and binding judgment.161 The court may sua sponte recommend compromise
before the court at any time during the formal judicial proceedings, including appeals,
as a part of the court's judicial discretion.162 Some judges are willing to pursue
compromise at any stage of the proceedings.163 Others have limited the pursuit of

152
Ibid.
153
Ibid.
154
Ibid.
155
Ibid.
156
Ibid.
157
Ibid.
158
Ibid.
159
Davis JWS, op cit at 309.
160
Port KL, Law and the Legal Process in Japan op cit at 457.
161
Code of Civil Procedure, Art. 203.
162
Code of Civil Procedure, Art. 136.
163
Kusano Y, ' A Discussion of Compromise Techniques', (1991) 24 Law in Japan 138, reprinted in
Dean M, op cit at 484.

21
compromise to periods after the initial hearing, such as after the exchange of
pleadings, documentary evidence, or after the examination of all major witnesses.164

III. Arbitration (Chusai)

1. The Japanese System of Arbitration

The Japanese system of arbitration is a modern system very similar to arbitration in
Australia, Germany or the United States. In practice, Japanese arbitration (chusai) can
be divided into two categories: (1) arbitration conducted between two Japanese parties
and (2) arbitration conducted between a Japanese party and a foreign party.165 Chapter
8 (Arts. 786 to 805) of the Code of Civil Procedure166 provides for arbitration. These
provisions provide only a skeletal framework and suffer from several potential
inadequacies.167 As a result, most arbitration occurs under the auspices of one of
several organisations established within four distinct areas: construction, environment,
labour and commercial arbitration.168 Each of these is governed by its own rules and
guidelines which serve to supplement the Code of Civil Procedure. They are tailored
to the problems peculiar to the industry.

a) Arbitration in the Construction Industry

Arbitration in the construction industry is governed by the Construction Industry
Law.169 The Construction Industry Law supplements and refines the arbitration
scheme provided for in the Code of Civil Procedure and establishes two types of
examination boards: a central board run by the Ministry of Construction, and local
boards established by each prefecture.170 Arbitration panels are appointed by either
the central board or local boards. They consist of a lawyer and two construction

164
Iwai N, 'The Judge as Mediator: The Japanese Experience', 10 Civ. Just. Q. 108 at 115; Pardieck
AM, op cit at 38.
165
See Pardieck AM, op cit at 44.
166
Law No 29, 1890.
167
Pardieck AM, op cit at 46. An example of such an inadequacy are the default provisions Arts. 788,
789 which provide for two arbitrators in the absence of an "arbitrator selection "provision in the parties'
arbitration agreement.
168
Ibid.
169
Construction Industry Law (Kensetsugyo Ho), Law No. 100 of Japan, May 24, 1949 (as amended
1996).
170
Kojima T, Arbitration System in Japan in Perspective on Civil Justice and ADR: Japan and the
USA, Takeshi Kojima ed., 1990 at 91; Kawashima T, 'Dispute Resolution in Contemporary Japan', in
von Mehren AT (ed), Law in Japan: The Legal Order in a Changing Society, 1963, reprinted in Dean
M, op cit at 456; Pardieck AM, op cit at 46.

22
experts.171 The panels are authorised to conduct hearings and to investigate the facts
of a dispute at the relevant construction site prior to adjudication.172

b) Environmental Arbitration
Arbitration involving public pollution is governed by the Public Pollution Dispute
Settlement Act.173 It supplements the Code of Civil Procedure and targets seven types
of pollution: air, water, ground, noise, odours, ground vibration and land sinking.174
The act creates a central and a local prefectural board.175 The panels have the
authority to order injunctive relief, as well as to compel the production of the
evidence.176

d) Arbitration of Labour Disputes

Arbitration of labour disputes between management and labour unions is governed by
the Labour Relations Adjustment Law.177 It creates commissions that are composed of
representatives from management, labour, and the public.178 Arbitration panels are
chosen from among the commission members and special adjustment members.179

e) Commercial Arbitration
International commercial arbitration is handled by the Japan Commercial Arbitration
Association (JCAA) and the Japan Shipping Exchange, which is also known as the
Tokyo Maritime Arbitration Commission.180
The Japan Shipping Exchange, as its name implies, specialises in the arbitration of
maritime disputes.181 It arbitrates maritime disputes pursuant to the Rules of Maritime
Arbitration of the Japan Shipping Exchange, which supplement the Code of Civil
Procedure.

171
Kojima T, op cit at 92, 94.
172
Ibid, at 92; Pardieck AM, op cit at 46.
173
Public Pollution Dispute Settlement Act (Kogai Funso Shori Ho), Law No. 108 of Japan, June 1,
1970 (as amended 1993).
174
Kojima T, op cit at 95.
175
Kojima T, at 95; Pardieck AM, op cit at 46.
176
Kojima T, at 96; Pardieck, op cit at 47.
177
Labour Relations Adjustment Law (Rodo Kankei Chosei Ho), Law No. 25 of Japan, Sept. 27, 1946
(as amended 1988).
178
Kojima T, op cit at 97; Pardieck AM, op cit at 47.
179
Ibid.
180
Sawada T, 'International Commercial Arbitration: Practice of Arbitral Institutions in Japan', The
Japanese Annual of International Law, No. 30, 1987 at 69 ff.
181
See Pardieck AM, op cit at 47.

23
The JCCA was founded in 1950 under the auspices of the Chamber of Commerce and
the Ministry of International Trade and Industry. It handles arbitration, conciliation
and mediation of commercial disputes.182 The JCCA has concluded treaties with
comparable associations in many other countries, including the American Arbitration
Association (AAA). The number of cases which it handles is rather small; from 1980
to 1990, 65 cases were filed with the Commission.183
The parties can choose their arbitrators from a list prepared by the Association.184
There are about 100 approved arbitrators on that list, including several Americans,
Germans, British, French, and other nationalities.185 However, over 90 percent of the
people on the list are Japanese.186 They are between 50 and 70 years of age and the
largest group are lawyers (60 percent).187 There are also law professors, some
business people and few retired judges.188
The proceedings are governed by the JCCA Commercial Arbitration Rules.189 Since
the JCCA has a good international reputation as a reliable arbitration association,
discussion of arbitration procedures will focus on the JCCA Commercial Arbitration
Rules.
Under the JCCA Commercial Arbitration Rules a proceeding can commence when a
claimant submits to the JCAA a written application. That application must include,
inter alia, a claim for arbitration under the rules of the JCCA, reference to the
arbitration agreement, the relief sought, a summary of the dispute, and the basis for
the party's claim and manner of proof.190Accompanying the request must be a power
of attorney signed by the parties authorising a specific attorney to represent him,
monies covering the request and administrative fees, and a copy of the arbitration
clause or a separate arbitration agreement designating the JCCA as the proper forum
for the resolution of the dispute.191 The JCCA notifies the parties of its acceptance of

182
Oda H, op cit at 85.
183
Ibid.
184
Ibid.
185
Davis JWS, op cit at 162.
186
Ibid.
187
Ibid.
188
Ibid.
189
See Pardiecki AM, op cit at 48.
190
JCCA Commercial Arbitration Rules, Rule 12.
191
Ibid.

24
the claim192, and the respondent then has up to seven weeks to file a response193, and
up to nine weeks to file counterclaims.194
Amendments are permitted prior to the establishment of the arbitral tribunal; after
that, however, permission to amend is at the discretion of the tribunal.195 The parties
may agree to appoint one or more arbitrators, or determine a method of
appointment.196 If the parties fail to agree or to notify the JCCA of their decision, the
JCCA will appoint an arbitrator.197
The parties may agree to have the proceeding conducted entirely by the submission of
documents.198 If not adjudicated by documentation only, the proceeding is conducted
in three phases: (1) delineation of facts and arguments; (2) examination of witnesses
and documentation; and (3) the writing of the opinion.199
If necessary, the tribunal can sua sponte examine evidence, although it is not
authorised to administer an oath or compel the production of evidence.200 Parties must
apply to present documentary evidence, examine witnesses, or request an expert
opinion.201 The tribunal is free to accept or reject such an application.202
At some point, the tribunal will make a serious effort to force a settlement of the
dispute.203 The arbitrator or arbitrators will act both as conciliator and mediator to
accomplish this task.204 They will meet with the parties ex parte as often as
necessary.205
Eventually, the tribunal declares the proceeding completed. Rule 48 provides that the
tribunal should make an award within four weeks of the termination of the formal
hearings unless the matter is too complex. In that case, the period is extended to eight
weeks. Under the JCCA Commercial Arbitration Rules, arbitrators can act as amiable
compositeurs, that is, they can base their decision on general notions of equity,

192
Ibid, Rule 13.
193
Ibid, Rule 15.
194
Ibid, Rule 16.
195
Ibid, Rule 17.
196
Ibid, Rules 21, 22.
197
Ibid, Rule 23.
198
Ibid, Rule 47.
199
Davis JWS, op cit at 167.
200
See JCCA Commercial Arbitration Rules, Rule 35.
201
Ibid, Rule 36.
202
Ibid.
203
Davis JWS, at 168.
204
Ibid.
205
Ibid.

25
fairness and justice, rather than on substantive law.206 The award shall include: (1) the
names and addresses of the parties and their representatives, (2) the declaration of the
award, and (3) the reasons for the award.207 As a general rule, proceedings in the
JCCA are private and no report is issued on how a specific dispute was finally
resolved.208
The arbitral award is final and cannot be appealed on its merits.209 It can only be
challenged and invalidated on limited procedural grounds such as no proper
representation of the parties, or where the parties were not heard in the arbitration
proceedings.210
Arbitration has not been favoured as a method of dispute resolution among the
Japanese.211 The Japanese allegedly reject it because like litigation, arbitration
involves the imposition of a settlement by a third party.212
In domestic transactions, arbitration is even less attractive than litigation for it lacks
the certainty and procedural controls available in the event of a lawsuit.213 Along
these lines, if a dispute must be settled by a third party, the Japanese are said to place
more confidence in public courts than in private deciders.214
Despite the general unpopularity of arbitration as a means of resolving domestic
disputes, arbitration has gained widespread acceptance as a means of resolving
disputes in international business transactions between Japanese and foreign
parties.215 Major Japanese corporations are becoming involved in arbitration
proceedings in Japan and overseas when they would never be willing to participate in
litigation.216 This is probably not happening by their choice, but as a result of
concessions made in entering contractual business arrangement with foreigners.217
The Japanese might believe that there is some advantage to this solution, in that

206
Hanlon MLD, 'The Japanese Commercial Arbitration Association: Arbitration with the Flavor of
Conciliation', (1991) 22 L. & Pol'y Int'l Bus. 603 at 619.
207
See See Davis JWS, op cit at 161.
208
Ibid.
209
Ibid.
210
For more grounds on which an arbitral award may be set aside by the courts see Article 801 of the
Code of Civil Procedure.
211
Hanlon MLD, op cit at 606.
212
Ibid; Pardieck AM, op cit at 45.
213
Haley JO, 'Dispute Resolution in Japan: Lessons in Autonomy', (1991) 17 Can.-U.S. L.J. 443,
reprinted in Port K, Comparative Law and the Legal Process in Japan, op cit at 487.
214
Hanlon MLD, op cit at 606.
215
Pardieck AM, op cit at 45.
216
Davis JWS, op cit at 173.
217
Ibid.

26
arbitration will result in a compromise and the proceedings will be conducted on a
confidential basis.218

2. Arbitration Agreements Governed by Foreign Law and Foreign Arbitral Awards

The Code of Civil Procedure contains no special provisions on arbitration agreements
governed by foreign law and foreign arbitral awards. Moreover, there is no special
statute relating to such arbitration agreements and foreign arbitral awards.

Japan has signed and ratified the following international conventions:

(a) Protocol on Arbitration Clause drawn up at Geneva on September 1923 and

ratified on 4. June 1928 (Treaty No. 3, 1928)
(b) Convention on the Execution of Foreign Arbitral Awards adopted at Geneva on
26. September 1927 and ratified on 11. July 1952 (Treaty No. 11, 1952)
(c) Convention on the Recognition and Enforcement of Foreign Arbitral Awards
adopted at New York on 10. June 1958 and ratified on 20. June 1961 (Treaty No.
10, 1961)
(d) Convention on the Settlement of Investment Disputes between States and
Nationals of Other States, adopted at Washington on 18. March 1965 and ratified
on 17. August 1967 (Treaty No. 10, 1967)

Under Art. VII.2 of the New York Convention, the Geneva Protocol on Arbitration
Clauses of 1923 and the Geneva Convention on the Execution of Foreign Arbitral
Awards of 1979 have ceased to have effect between Japan and the other contracting
states.
Japan has also signed and ratified several bilateral treaties containing provisions on
reciprocal recognition and enforcement of arbitral awards.
Article 98(2) of the Constitution of Japan provides, inter alia, that treaties concluded
by Japan shall be faithfully observed. Article 73(3) of the Constitution requires that a
treaty shall be ratified by the National Diet before or after being concluded by the
Cabinet.

218
Ibid.

27
The prevailing opinion interprets these articles as giving an international convention
or bilateral treaty on conclusion the validity of a domestic statute without the
necessity of enacting any implementing legislation.219 Moreover they prevail over
domestic law where any inconsistency arises between the international convention or
bilateral treaty and domestic law.220 Accordingly, it is submitted that the above
mentioned international conventions and bilateral treaties prevail over the Civil
Procedure Law if there is any inconsistency between them.221

3. Analysis of Arbitration in Japan

There are advantages and disadvantages to arbitration in Japan.
An advantage is that the actual trial and all sessions are not open to the public. This is
especially important in the commercial context, as business secrets can be kept
confidential
Another strength is the potential flexibility of arbitration. The parties can nominate
the arbitrators, determine the procedure to follow, set the standards to be applied in
making a determination, and select what laws apply.222 The only problem with these
attributes is that it is rare for the parties to agree on these points.223
The fact that the arbitral awards is final can be both a plus and a minus.224 There is no
appeal on the merits of the dispute. Therefore, the disputants are not faced with
repeating the entire proceeding, as it is possible when using the courts. On the other
hand, a party may worry about the potential of an unfavourable decision because of
possible inadequacies of the arbitrators or the possibility that the pertinent law will
not be applied.225 Therefore, a party may wish to reserve an opportunity for a second
chance to have his claims heard.
In addition, the JCCA recognises the power of an arbitrator to make decisions
"regardless of the rule of law".226 Japanese arbitrators are not required to apply
substantive law to resolve a dispute, but they are expected to achieve a "fair" result.227

219
See Iwasaki K, op cit at 140.
220
Ibid, at 141.
221
Compare Ibid, at 141.
222
See Davis JWS, op cit at 171.
223
Ibid.
224
See Ibid.
225
See Ibid.
226
Hanlon MLD, op cit at 619.
227
Ibid.

28
When issued, an award must be accompanied by a "statement of reasons",228 but the
award need not be supported by legally valid reasoning.229 Although the reference to
fairness is theoretical desirable, especially foreign parties from Western backgrounds
may not expect an arbitrators deviation from the substantive legal rules and may
perceive this as a disadvantage of Japanese arbitration.
Many western legal commentators who have written on arbitration in Japan believe
that the disadvantages outweigh the advantages.230 The most common complaint is
that the tribunal is more interested in persuading the parties to settle than rendering an
award.231 Chusai, the Japanese word for arbitration also means "decide in the middle".
Often, the procedure becomes in fact a mixture of arbitration and conciliation or
compromise.232 This illustrates how the Japanese have adopted an adversarial dispute
resolution mechanism to meet the needs of a society dominated by social harmony
and reciprocal duties. Although this constitutes a disadvantage in the eyes of may
Western commentators, it clearly better suits the Japanese mentality.

A shortcoming of arbitration is that lengths and costs of the arbitration may be almost
the same as with litigation.233
Another disadvantage of arbitration, as opposed to litigation, is that the quality and
competence of the arbitrators is not comparable to the judges of Japan.234 The lawyers
and law professors who act as arbitrators may have an understanding of the applicable
Japanese laws, however they may not be decision-makers because this is an activity
they are seldom required to perform.
Another problem with arbitration is that arbitrators, except those in environmental
disputes falling under the Public Pollution Dispute Settlement Act,235 do not have the
capability of issuing provisional remedies. In litigation, the ability to enjoin certain
practices or force a party to take specific action while the dispute is being resolved
may act as a strong stimulus for resolving the dispute or even for obtaining a

228
Hanlon MLD, op cit at 624.
229
Pardieck AM, op cit at 50.
230
See Davis JWS, op cit at 171.
231
Ibid.
232
Ibid at 172.
233
Ibid.
234
Ibid.
235
See supra, III. 1.b) of this paper.

29
reasonable settlement. In arbitration, the tribunal has to wait until it hands down its
award before anything happens.236

E. CONCLUSION
Despite the alleged favouritism of Japanese arbitrators to persuade the parties rather
than to render an award, arbitration in Japan is very similar to Western arbitration
(including the German model). Thus, the "inspirational value" for Germany is low.
This is especially true with regard to the provisions on arbitration in the Japanese
Code of Civil Procedure, which stem from the German Code of Civil Procedure
("ZPO").
However, Germany might learn much from looking at the concepts of chotei and
wakai and their respective strengths and shortcomings. Both chotei and wakai lack
equivalents in the German system. German civil procedure focuses almost exclusively
on litigation. Mediation and conciliation are still in their infancy in Germany, while
Japan has a centuries-long tradition of non-adversarial methods of resolving conflict.
The non-adversarial ADR methods have been successfully incorporated into the
Japanese civil procedure system. As the Japanese Code of Civil Procedure follows its
German counterpart almost exactly, the Japanese integration of ADR methods into the
Code of Civil Procedure may provide valuable ideas for the planned reform of the
German ZPO.
However, despite those similarities, Germany is a Western and very individualistic
country. The Confucian values of social hierarchy, reciprocal duties and harmony
underpinning the Japanese system are alien to the German society and legal system. It
is therefore not appropriate to excessively and blindly transpose elements of
collectivism and societal duties into the German civil procedure.
Still, non-adversarial methods of dispute resolution can and do work well in other
Western countries, such as Australia and the United States. Accordingly, by closely
examining Japan's mature ADR procedures, their format, advantages and
disadvantages, Germany could learn much of value to its own ADR systems.

236
See Davis, JWS, op cit at 173.

30
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