Need for a new international commercial dispute resolution system

As the so-called globalization progresses, commodities, labor force and capital markets of each country are increasingly interconnected and the movements toward regional economic integration become more active. The examples of such movements include the One Belt, One Road Policy promoted by China, TPP led by the USA, and establishment of ASEAN Economic Community. If economic activities might have taken place across borders, arising of commercial disputes across borders (hereinafter, “international commercial disputes”) should be obviously inevitable.

The law of each jurisdiction to respond to commercial disputes must be designed to mainly resolve domestic issues. Thus, it appears inefficient as means for resolving international commercial disputes. If a domestic law in detail is applicable and enforceable to international commercial disputes, it would be costly to comply with the law. Furthermore, it requires additional costs to deal with issues under a legal system that has been developed in completely different legal culture. Additional costs also include a need to find a legal profession to know unfamiliar legal system and enforceability of court judgment.

Experiences in international commercial arbitration

Under the circumstances, it is the international commercial arbitration (hereinafter, “international arbitration”) that has been aiming to rationally address international commercial disputes beyond the differences of legal culture. International arbitration requires less cost and time, and allows more flexible response under the principle of party autonomy rather than the traditional judicial proceedings. Furthermore, it is guaranteed by the “Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter, “New York Convention”)” that an arbitral award can be enforced in a foreign jurisdiction. In the field of international arbitration, various measures have been innovated and developed especially by legal practitioners to solve international commercial disputes appropriately. For example, International Bar Association (IBA) announced guidelines concerning arbitral practices (e.g., IBA Guidelines for Drafting International Arbitration Clauses 2010, etc.) and the task force to draft the guidelines is composed of prestigious professions who are specialized in both Civil law and Common Law. This indicates a potential to integrate best practices beyond the differences of legal culture.

On the other hand, problems with international arbitration have also been pointed out. For example, the arbitration procedures are too formalistic and cumbersome, leading to delay of dispute resolution and increase of cost. Other issues include inconsistent reasoning in arbitral awards, denial of appeal, and no device for multi parties dispute such as joinder. Instead, international commercial mediation has been suggested. While judicial proceedings and arbitrations appear a formal and adversary style with a panel and an independent umpire, in case of commercial mediation, a mediator functions as a neutral consensus builder who can form solutions that are acceptable by the parties through their direct initiative.

Establishment of the Singapore International Commercial Court

As described above, although the proceedings in international arbitration is flexible, it is sometimes questionable to manage in fair. As a reform to judiciary system to provide more specialized and flexible responses and help save time and cost, the Singapore International Commercial Court (SICC) was established as a part of the Singapore High Court in January 2015.

With a written agreement on choice of court by parties involved, SICC can adjudicate claims of an international and commercial nature under its jurisdiction. International judges who are specialized in international commercial disputes join the panel to ensure appropriate ruling beyond legal culture differences. According to the SICC web-site, they have currently 8 international judges, out of whom 3 have a background of Civil Law (Austria, France, and Japan).

Since the establishment of SICC, there have been seen 11 cases with final judgment: 2 cases concerning oilfield development by Bechtel Corporation, 3 cases concerning BNP Paribas’s request to perform guarantee obligation, and 2 cases concerning buildings development in the Shenzhen area. It is difficult to say that SICC becomes popular for international commercial dispute resolution depending on its figure of cases. It is also true that SICC might have not yet proven the predictability by those cases and no one could foresee its impact on the future international commercial disputes. We should keep our eyes on it.

Allow me to add my personal experience here. The author visited the Supreme Court of Singapore on February 23, 2017, and had an opportunity to exchange opinions with SICC staffers. They had a keen interest in the enforceability of SICC’s judgment in Japan. It is not clear to say something about this, because there is no actual case yet. However, one can assume that enforcement of SICC’s judgment may be difficult to some extent that the Supreme Court of Japan held that so-called punitive damages were contrary to public policy (Code of Civil Procedure Article 118 Para 3). Meanwhile according to the Hague Convention on Choice of Court Agreements (Concluded in 2005; hereinafter, “the Hague Convention on Choice of Court), which was also ratified by Singapore in 2015, the contracting States must approve and enforce the judgments by foreign courts that are appointed by the agreement on choice of court (Article 8 of the Hague Convention on Choice of Law). This seems to make it possible to immediately start enforcement proceedings by avoiding examination of so-called indirect international jurisdiction issue. Although it is uncertain to determine at this point whether the resolutions by the Hague Convention on Choice of Court are something that cross-border lawsuits can rely on and whether they can be dispute resolution measures in replacement of international arbitration, it will certainly influence Japanese companies that engage in global businesses. However, it is not sure whether this may lead to conclusion and ratification of the Hague Convention on Choice of Law in the near future.

Toward convergence at the substantive law level

In January 2016, the Singapore Academy of Law (SAL) which is attached to the Supreme Court of Singapore established its subsidiary research component, i.e., the Asian Business Law Institute (ABLI). At the same time, it hosted an international symposium on “Doing Business Across Asia - Legal Convergence in an Asian Century” on January 22 and 23, 2016. On the first day, a large venue was filled with lawyers, practitioners and business persons who were enthusiastically concerned about. The purposes of ABLI are to conduct and facilitate study on legal policy and practice, make proposals for the further convergence of commercial law (business law) in Asia, draft restatements or model rules, and undertake other extensive research activities concerning legal principles and rules which would be common sources in the region.

According to the survey targeting the CEO’s of transnational corporations, the obstacles to cross-border businesses are inconsistent criteria to apply laws and regulations, inefficient judicial systems, and uncertainty of enforceability of judgment. ABLI is aiming to be a forum for intellectual collaboration among legal professions, business society, academia, and policy makers, led by Sundaresh Menon, Chief Justice of the Supreme Court.

Another example is the conference on “Towards an Asian Legal Order: Conversations on Convergence” on December 8 and 9, 2016. It was hosted by Singapore Management University in partnership with the City University of Hong Kong.

Efforts have been made to develop and harmonize legal rules in international business at substantive law level. These include the Hague Convention on Choice of Court, UNCITRAL Model Law on International Commercial Arbitration, UNIDROIT Principles of International Commercial Contracts, and United Nations Convention on Contracts for the International Sale of Goods. Especially in the field of international commercial law, it is largely agreed that unification of substantive laws can be formed as seen in the Uniform Commercial Code in the USA and Common European Sales Law. Although the discussion concerning convergence of commercial laws in Asian is not yet matured, it is possible to invite more comprehensive debate without any significant influence by diversity of cultural values and legal tradition in transplant of law that are unique to Asia.

Some conclusion

As illustrated above, the Singapore way should be very interesting to Japan. Although the author does not have a definite opinion about what Japan should react, the following could be suggested for future discussion.

First, at the level of substantive law, it seems possible to start discussion on international convergence of contract rules because Japan ratified the United Nations Convention on Contracts for the International Sale of Goods in 2009 and amended the law of obligations this year. Just like the conference co-hosted by Singapore Management University and the City University of Hong Kong at the end of 2016, we can organize a number of such international conferences to provide research opportunities by multiple research institutions across multiple jurisdictions. However, it is uncertain how Japan can share its own idea with other jurisdiction, respond adequately to discussion developed by other jurisdictions, and contribute to build harmonized substantive law in Asia.

My second point is concerning interest in international arbitration. On March 1, 2017, the Japan Association of Arbitrators hosted a memorial seminar on “Collaboration with and Future of Arbitration Development in Japan,” inviting Chan Leng Sun, Chairperson of the Singapore Institute of Arbitrators. It was impressive to see strong interests and repeated enthusiastic discussions especially among young lawyers. In South Korea, on October 12 and 13, 2016, the fifth Asia Pacific ADR Symposium was organized where vigorous activities concerning international arbitration by the Korean government were introduced. It was memorable that emphasis was placed on efficiency by saving costs and time as well as harmonizing between Civil Law and Common Law to enhance the position of South Korea in the international arbitration market. In any case, the conventional alternative dispute resolution (ADR) including arbitration had been considered as a system to supplement the judicial system, while the Singaporean policies promote co-existence or competition of these systems. As for the function of justice system, it requires to do more theoretical and comprehensive researches of court system and ADR.

My last suggestion is regarding the initiative of Chief Justice Menon at the Supreme Court of Singapore. Almost all of the recent legal reforms in Singapore have been initiated energetically by CJ Menon. It is also interesting that the Supreme Courts of Hong Kong, Australia, and India have strong collaborative relationships as was seen at the founding general assembly to commemorate the launch of ABLI. They are showing common interests in and working together toward building international commercial dispute resolution system. Economic growth and expansion of legal market in Asia are certainly interlinked. They often discuss judicial policies that are rather closer to industrial policies in which fruits of legal service competition could be distributed among those jurisdictions in Asia. Although one of the purposes of close collaboration among Singapore, Hong Kong, Australia and India is undeniably to share distribution of growth, they seem to recognize that establishment of rule of law in the field of commercial law is more concern of their task, as CJ Menon stressed in his opening remarks at the ABLI conference. We should not have a superficial understanding of this as just a reunion of common law countries or competing with TPP and One Belt, One Road Policy. Instead, Japan should explore how it can contribute to them as the first country in Asia that initiated comparative law studies and has been accumulating a variety of rich experiences and works.

Hisaei Ito
Professor of Chuo Law School, Director at the Institute of Comparative Law in Japan
Areas of Specialization: Commercial law, Law of Negotiable Instruments, Comparative Law

Hisaei Ito was born in Akita Prefecture. He graduated from the Chuo University Faculty of Law in 1980. He earned LL.M at Chuo University Graduate School of Law in 1982. He completed the required courses for LL.D at Chuo University Graduate School of Law in 1990. He took up the current position in 2004, after serving as a Full-time Lecturer and an Associate Professor of Takasaki City University of Economics and as an Associate Professor and a Professor of the Chuo University Faculty of Law. His current research is focused on legal theory for market-oriented indirect finance and its impact on corporate governance.