1997.09.04

1994 (O) 1848

Judgment upon case concerning the governing law of the coming into existence and taking of effect of arbitration agreement

Judgment of the First Petty Bench, dismissed

Tokyo High Court Judgment of May 30, 1994

The governing Law of the coming into existence and taking of effect of arbitration agreement should be understood to be determined primarily by the intention of the parties.

Article 786 of the Code of Civil Procedure
An agreement to have a dispute settled by one or several arbitrators has an effect only when the parties have the right to reach a compromise on the subject matter of the dispute.

Article 7 of the Law on the Application of Laws

The governing law on the coming into existence and effect of juristic acts shall be determined in accordance with the intention of the parties
If the intention of the parties is not clear, it should be decided by lex loci actus.

The appeal in the present case is dismissed.
The Cost of appeal shall be borne by the appellant.

On the grounds of appeal by the representatives of the appeal, Hiroyuki Kawai, Hideshige Aoki, Shozaburo Yoshino, Akira Chihara, Toshiko Kubota, Minao Shimizu, Takeshi Haraguchi, Hiroka Kono, Yoriko Noma

1. The outline of the facts ascertained by the record is as follows:

1) The appellant is a Japanese juridical person (joint stock company) whose purposes are producing of education events, inviting of foreign artists and show business in general, and the appellee is the representative of the US juridical person Ringring Brothers and Barnum and Bailey Combined Shows Inc. (hereinafter, 'Ringring') which performs circuses in the United States.

2) The appellant and Ringring concluded a contract on October 2, 1987 in which the appellant obtained the right to invite the circus of Ringring in 1988 and 1989 to Japan and pay the price, while Ringring assumed an obligation to organise circus performances by its circus in these two years in Japan of the same scale and quality as the circus of Ringring performed at the Sports Arena of Sandiego, California on August 15, 1987 (hereinafter, 'the Contract').

3) The appellant and Ringring agreed at the time of the conclusion of the Contract that 'disputes including those on the interpretation or application of the clauses of the Contract shall be settled by arbitration in accordance with the rules and procedure on international commercial arbitration of the International Chamber of Commerce upon request in writing of one of the parties, if the dispute cannot be settled amicably; the arbitration proceedings initiated by the appellant will be conducted in New York City; each party bears its cost for arbitration, while the remuneration and cost of arbitrators will be jointly borne by both parties in an equal manner' (hereinafter, 'the Arbitration Agreement').

4) The present case involves an action by the appellant who asserts that at the time of the conclusion of the Contract, the appellee, who is the representative of Ringring, deceived the appellant on the distribution of sales profit of character goods and other products and also on the obligation to bear the cost of setting up tents for the animals etc. and caused loss to the appellant and therefore, claims damages based upon tort. The appellee asserts that the effect of the Arbitration Agreement between the appellant and Ringring extends to the present litigation between the appellant and the appellee, and asks for the dismissal of the claim.

2. Arbitration is a procedure in which the parties agree to delegate the settlement of a dispute between themselves to the arbitral award of a third party arbitrator and based upon this agreement, the parties are bound by the arbitral award and the dispute is settled without recourse to court. In the light of the nature of arbitration which is a means of dispute settlement based upon the agreement of the parties, it is appropriate to understand that concerning the coming into existence and the effect of arbitration agreement in international arbitration, in accordance with Article 7, para.1 of the Law on the Application of Laws, the governing law should be determined primarily by the intention of the parties. Even in cases where there is no explicit agreement on the governing law in the arbitration agreement, if it can be acknowledged that there is a tacit agreement by the parties on the governing law in the light of the existence of the agreement on the place of arbitration and its content, the conten t of the main contract, and other circumstances, this law should be applied.
In the present case, according to the above-mentioned facts, in the Arbitration Agreement, there is no agreement on the governing law, but there is an agreement on the place of arbitration to the effect that the arbitration proceedings initiated by Ringring shall be conducted in Tokyo, whereas proceedings initiated by the appellant will be conducted in New York City. Therefore, it is appropriate to acknowledge that there was a tacit agreement between the parties that in an arbitration initiated by the appellant, the law which is applicable in the place of arbitration, New York City, should be the governing law of the arbitration agreement.

3. While the law applicable to arbitration which is initiated by the appellant is understood to be the US Federal Arbitration Act, in the light of this Act and the interpretation of the US Federal courts on the scope of the effect of the arbitration agreement in terms of things and persons as indicated in the case law, it is appropriate to understand that the scope of the Arbitration Agreement extends to the claim of damages by the appellant vis a vis the appellee. The scope of the dispute which should be entrusted to arbitration based upon the claim of the party and the scope of the dispute to which party is entitled to present a defence based upon the existence of an arbitration agreement when the other party had initiated an action in court are two sides of the same matter, and therefore, the defence by the appellee based upon the existence of the Arbitration Agreement before the court entered into the examination of the case in substance has a ground and the present litigation cannot but be dismiss ed as unlawful in want of the interest for litigation.

4. The ruling of the original instance court which found that the claim should be dismissed on the same ground as above is justifiable, and there is no unlawfulness in its process as argued by the appellant. Arguments of the appellant, including the argument on unconstitutionality, merely asset that the original judgment was unlawful, based on the grounds different from above, and cannot be accepted.

Therefore, the justices unanimously rule as the main text of the judgment in accordance with articles 401, 95 and 89 of the Code of Civil Procedure.

Justice TAKAHASHI Hisako
Justice ONO Mikio
Justice ENDO Mitsuo
Justice IJIMA Kazutomo
Justice FUJII Masao