INDEX:

I.   Introduction
II.  Compromise Outside the Court
     1. Its Effect as a Contract and a Conclusive Evidence
     2. Its Notarization
     3. Its Pros and Cons of a Compromise Outside the Court as an ADR
III. Compromise Before the Court
     1. Its Procedure
     2. Its Effect as a Final and Binding Judgment
     3. Its Pros and Cons of a Compromise Before the Court as an ADR
IV.  Conciliation Outside the Court
     1. Ad-hoc Conciliation
     2. Institutional Conciliation
     3. Its Pros and Cons of a Conciliation Outside the Court as an ADR
V.   Conciliation Before the court
     1. The Civil Conciliation Act (CCA)
     2. Its Process
     3. Its Effects
     4. Its Pros and Cons of a Conciliation Before the Court as an ADR
VI.  Conclusion

Introduction

ADR is not used as the title of this paper, since all aspects of ADR in Japan are not discussed in this paper and arbitration is excluded.

Many Japanese parties to commercial disputes have mainly resolved their international disputes by arbitration in New York or in London, but they seldom have referred their disputes to arbitration in Japan. Generally speaking arbitration of domestic commercial disputes is not popular in Japan. Only a small number of domestic commercial disputes has been referred to arbitration.

Most of domestic commercial disputes are not brought into courts but also not into arbitration. They are usually resolved by reconciliation, which means ADR except arbitration.

Legal information on Japanese reconciliation therefore is important not only for Japanese businessmen and lawyers but also for foreign businessmen and lawyers who are involved in business transactions in Japan.

Although some information has been available for private arbitration in Japan, other parts of Japanese ADR have not been discussed so much and their information written in English is quite limited.

This paper's purpose is to fill this information gap by explaining the outline of ADR other than arbitration in Japan.




Compromise Outside the Court

When a commercial dispute arises, the usual first step is a direct negotiation between the parties to the dispute. If the parties' negotiation can successfully come to an agreement for resolving the dispute voluntarily, this agreement is called a compromise outside the court and has some legal effects under the Civil Code.




Its Effect as a Contract and a Conclusive Evidence

Under art.695 of the Civil Code the compromise outside the court has a legal effect as a contract which is effective unless its content is against the public order or good morals or the mandatory provisions of Japanese law. No special formula is required for the compromise outside the court, but a writing is usually made between the parties to the compromise.

Under art.696 of the Civil Code the compromise outside the court also has another legal effect as a conclusive evidence on the legal relation between the parties, since a Japanese court can not accept an evidence which disprove the factual correctness of such compromise. Other contracts can not have such a determinative effect.




Its Notarization

If the parties to the compromise appear in the office of a notary public and state before the notary public the content of the compromise and their consent to the fact that their obligations shall be subject to immediate and compulsory execution, a notarized document of the compromise is available.

The notarized compromise is enforceable by the court under art.22 item 5 of the Civil Execution Act(Law No.4, 1979), if the parties' obligation is the payment of a certain money or delivery of a certain quantity of negotiable instruments or other fungible things.




Its Pros and Cons of a Compromise Outside the Court as an ADR

A compromise outside the court is simple, speedy and cheap. The parties can flexibly adopt appropriate and practical resolution according to the individual nature of the dispute.

On the other hand a court litigation is necessary if any of the parties to the compromise does not voluntarily perform its obligation under the compromise unless the compromise has been notarized.




Compromise Before the Court

Its Procedure

If the parties to the dispute can not agree to a compromise through their direct negotiation, either party can apply for a compromise to a summary court having jurisdiction over the other party under art.356 of the Code of the Civil Procedure (C.C.P.). This application for a compromise could be submitted to a summary court even without the prior negotiation between the parties.

The moving party can make either orally or in writing a statement on its claim, the ground of its claim and the circumstances of the dispute to the court. Then the court fix the date and inform the parties of the date to appear in the court.

If both of the parties appear in the court on the date, a judge recommends for both of the parties to make their best efforts for a compromise and mediates the claims of both parties if necessary.

If both of the parties succeed in making a compromise, the compromise is registered on the court's record, and this recorded compromise is called a compromise before the court.

In case where any of the parties does not appear in the court on the date, or where the parties fails to make a compromise, the compromise procedure ends and a court litigation automatically starts.




Its Effect as a Final and Binding Judgment

A compromise before the court has the same legal effect as a final and binding judgment under art.203 of the C.C.P., and is enforceable by the court under art.22 item 1 of the Civil Execution Act.

Accordingly in case of a compromise before the court a compulsory execution by the court includes but is not limited to the delivery of a specific thing, surrender of an immovable or application for registration of an immovable. In contrast these kinds of execution are not available for the notarized compromise outside the court.




Its Pros and Cons of a Compromise Before the Court as ADR

In addition to such pros of a compromise outside the court as simple, speedy, cheap, flexible and practical resolution, a compromise before the court has the same enforceability as a final and binding judgment of a court.

It is as similar as in a case of a compromise outside the court that a compromise before the court can not be attained without the parties' agreement on the compromise, which agreement is quite difficult to be made between the parties to the dispute.

Therefore a compromise before the court is seldom used as a means for settling a dispute but usually used as a means to give enforceability to a compromise outside the court. After having reached a compromise outside the court the parties apply a compromise before the court to obtain a court's record of their compromise for establishing a strong enforceability, since the court fee for a compromise before the court is less than the fee for notarization of a compromise outside the court.




Conciliation Outside the Court

If parties to a dispute fails to resolve their dispute by compromise outside the court or before the court, the usual next step is conciliation. Two kinds of conciliation is available in Japan. One is conciliation outside the court and the other is conciliation before the court, and conciliation outside the court is further divided into ad-hoc conciliation and institutional conciliation.

Ad-hoc Conciliation

A conciliator(s) is appointed by the parties' agreement and mediates between the parties with or without showing its own idea for settlement.

If the parties success to agree a amicable settlement, it legally becomes a compromise outside the court. If the parties fails, they are free to refer their dispute to arbitration or to court litigation.

An ad-hoc conciliation has been not popular for resolution of commercial disputes in Japan, since it is not easy for the conciliator or the parties to manage the conciliation procedure.




Institutional Conciliation

The Japan Shipping Exchange, Inc.(JSE), The Japan Commercial Arbitration Association(JCAA) and I.C.C. are offering necessary service for managing conciliation of international or domestic business disputes under their Conciliation Rules.

These institutions are offering an important assistance to the parties in the appointment of conciliator(s). Under I.C.C.'s Conciliation Rules the conciliator is always appointed by I.C.C. and the parties can not appoint their conciliator by their agreement. On the contrary, in case of JSE or JCAA the parties can appoint the conciliator(s) by their agreement, and the institution can appoint the conciliator(s) only if the parties request it or fail to appoint the conciliator(s) by their agreement.

The conciliator's function and the legal result of conciliation are almost same to those of an ad-hoc conciliation, but there are some differences. Under Conciliation Rules of both JSE and I.C.C. the parties are prohibited to introduce in any judicial or arbitration proceeding as evidence or in any manner whatsoever (a) any views expressed or suggestions made by any party with regard to the possible settlement of the dispute, (b) any proposals put forward by the conciliator,and (c) the fact that a party had indicated that it was ready to accept some proposal for a settlement put forward by the conciliator. This prohibition is intended to stimulate the parties to refer their dispute to conciliation before going to arbitration or court litigation.

Under JSE's conciliation Rules the amicable settlement of the dispute can be converted from a compromise outside the court into an arbitral award which is enforceable by court, if the parties request it. Just after successful finish of the conciliation proceeding, the parties start an arbitration proceeding by appointing the conciliator(s) to arbitrator(s), and the arbitrator(s) ends the arbitration proceeding at once to make an award incorporating the content of the amicable settlement.




Its Pros and Cons of a Conciliation Outside the Court as an ADR

An amicable settlement which comes out form a conciliation outside the court is a compromise outside the court and has the similar legal effect as a conclusive evidence on the legal relation between the parties.

Further conciliation outside the court is a simple, speedy, not open and cheap method of ADR. The conciliator can flexibly adopt appropriate and practical resolution according to the individual nature of the dispute, since the conciliator has no obligation to apply any law to the substance of the dispute and to follow any procedural law in the conciliation process.

On the other hand the conciliator can not expect any assistance from the court, even if a person concerned refuses to submit evidence to the conciliator or to appear before the conciliator as a witness. A court litigation is also necessary if any of the parties to the conciliation does not voluntarily perform its obligation under the amicable settlement if it is not converted into an award.




Conciliation Before the Court

The Civil Conciliation Act (CCA)

In 1951 CCA (Law No.222, 1951) was enacted to integrate several similar statutes relating to conciliation of civil and commercial disputes. The earliest statute was enacted in 1922 for conciliating disputes arising out of continuous relationship such as land-lease, house-lease or farm tenancy.

Art.1 of the CCA stipulates that its purpose is to settle amicably a civil or commercial dispute not by strictly applying law but by applying the general justice and fairness and befitting to actual circumstances of the dispute.

A conciliation under the CCA is called a conciliation before the court since the conciliation is conducted by a conciliation committee organized by the court. In this regard it is distinguished from a conciliation outside the court which is carried out by the conciliator(s) appointed by the parties or by a conciliation institute.




Its Process

Conciliation before the court is commenced either on application by a disputing party or by a court's order if the court finds the dispute brought into the court is suitable for conciliation.

A disputing party can make its application for conciliation either before starting a court litigation or even while a court litigation is pending. If the party's application or the court's order is made while the court litigation is pending, the pending court litigation is suspended until the termination of the conciliation process.

Upon the party's oral or written application for conciliation or the court's order submitting the case to conciliation, a conciliation committee is organized by the court. If the court considers it appropriate, the conciliation committee can be composed of a judge(s), but if the party requests it, a judge and not less than two commissioners are appointed from the outside of the court under art.5 of the CCA.

If the committee deems it necessary, the committee can order the party or any related person not to transfer the right or item(s) disputed or not to change its status quo under art. 12 of the CCA.

The committee fixes a date for conciliation and summons the parties and the person(s) concerned or having interest in the dispute. Where the summoned party or person fails to appear on the date without any justification, the court imposes a non-penal fine under art.34 of the CCA.

The conciliation process is usually held in the court, but the committee can select a suitable place outside the court if necessary, but in principle is not open to the public. The parties and interested person(s) can appear in the conciliation process in person with or without their counsel.

In addition to hearing the parties' statements the committee can, on its own authority, investigate facts and take evidence from the party, expert and administrative agency, and summon witness. The committee attempts to identify the true nature of the dispute, makes clear the points at issue and confers with the parties so as to lead the dispute toward an amicable settlement.




Its Effects

Where an amicable settlement is reached between the parties and the committee decides the settlement appropriate, the settlement is put on record by the court and becomes a compromise before the court.

If the committee deems the parties' settlement inappropriate, or if there is no possibility for the parties to reach an amicable settlement, the committee can terminate the conciliation process, unless the parties agree in advance and in writing to accept the committee's determination. If the said parties' agreement is available, the committee prepares the terms of conciliation, which terms are put on record by the court and become a compromise before the court, and the conciliation process is terminated.

Even where the conciliation process is terminated without successful result, the court can render upon its authority such an ruling which it thinks necessary for the settlement of the dispute after consultation with the committee members. Either party or any interested person(s) can file an objection to the court's ruling within two weeks from the date when the party has been notified the ruling by the court. If an objection is filed within the period, the ruling loses its effect, but if no objection is filed within the period, the ruling becomes final as a compromise before the court.

Where the conciliation process is terminated without the court's ruling or the court's ruling loses it effect, the pending court litigation will start again, and if the party brings an action with respect the dispute to the competent court, the action deems to have been brought to the court on the date when the conciliation process started.




Its Pros and Cons of a Conciliation Before the Court as an ADR

A conciliation before the court is a simple, speedy, not open and cheap method of ADR, and is the most popular and effective ADR in Japan.

The number of the newly filed cases of the conciliation before the court is about 74,000 in 1991, and this number has increased gradually in these 45 years after the World War II. Averagely speaking this number has been about 30% of the newly filed civil cases.

About 55% of the cases of the conciliation before the court has been successfully settled by the parties' compromise.

The average duration of the case of the conciliation before the court is 8 to 9 months, which is shorter than 12 months for the stage of a district court in case of a court litigation.

The fee of the conciliation before the court, which fee is paid to the court, is determined according to the amount of dispute, but roughly speaking is about 60% of the case in a court litigation.

A disadvantage of the conciliation before the court is that the parties can not appoint the conciliator(s) by their agreement, and the quality of a conciliation committee member is not always suitable for a commercial dispute since their fee is nominal and too small for appointing an able businessman or business lawyer to a conciliation committee member.




Conclusion

From the foregoing discussion it could be concluded that a compromise before the court and a conciliation before the court have been the most effective and practical means of ADR in Japan. At the same time a conciliation before the court turned out to be unable to satisfy completely all needs of the parties to commercial disputes.

Under the present Civil Conciliation Act the parties' wish to appoint a conciliator(s) who is most suitable for the nature of their dispute by their agreement can not be fulfilled.

Furthermore if it becomes necessary for the parties to enforce in a foreign jurisdiction the result of a compromise before the court or a conciliation before the court which is registered in a Japanese court's record, there is required an enforcement procedure for a foreign judgment, the requirements of which are not easy to be met by the parties.

In this connection it should be noted that the Japan Shipping Exchange Inc. which is the oldest arbitration institution in Japan has enacted its Conciliation Rules in this year so as to overcome these difficulties.

Under JSE's Conciliation Rules the parties can appoint a conciliator(s) by their agreement and the result of the conciliation can be converted into an arbitral award, which is easily enforceable in a foreign jurisdiction under the 1958 New York Convention.

It is too early to evaluate the JSE's conciliation at this stage, but could be predicted that more commercial disputes of not only domestic nature but also international nature will be resolved by a conciliation outside the court, and that both conciliation outside the court and conciliation before the court will increase their importance as ADR in Japan.

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