\ ' Id . 1 1 . so 7 1111, i ! l ! I 3 hltcrnatives 9.5

1 S P E C I A L S U P P L E M E N T Bridgmg Cultures

In Business Transactions of Cotn,nm-inl I.aru and Dpan. Fletchm School of Law and Difilomnq, 7'iilt.s I 'ti izmsily. 77wir insightJU Commentaq &- sm'bps how inriniim ot'tlir inisinrss community tend to slip into one or mot? tnislaken assiim@ons aboiit cdture. It also offers .su~geestion.s (ibo11t zutiys io civoid such prrszimptions in future c.ross-dtum1 nqotintions.

For pmclical (idvicp cibo21t rt=pre.senting clients in Japan, r+r to the piece Oy Charles R. Ragan. During the past several years, illr. Rngan and his laruJim, Pillshity Madison HSutro i n .$an Francisco, have bvvn involved in stwral disputes involv- i ng tiist rihi lion or joint z m i turf a g r e m ts between U.S. multi- nationals und Japanusr corporations. (TheJ im has represated 00th. ) 7ioo of'tliesr rlispu&r.s have bpm arbitrated; two others have lieen rpsoIv~(I !tirough , W R . , l lr . Ragan :r article recounting rmiozis cisprcts ofthesr rxpmiuncrs. miiy hrlp guide other layers doing hi si n m i 1 1 . Jclpa n .

C 0 MMENTARY Culture and International Negotiation:

Lessons for Business By Jeffrey 2. Rubin and Jeswald W. Salacwe

111 tertiatioiial business transactioiis notoiilvcross national l~orindaries, they also cross cultures. (hlture is a powerful liictor shaping how people think, perceive. communicate, ;itid behave. I t also atttcts how thev negotiate.

Differeiices in crilture are ;in irnportant consider- ation in the conduct of virtually a l l international negotia- tions; even a negotiation between a U.S. executive arid a (hiadian manager involves cultural differences. Yet mem- hers o f the business community have tended to slip into one or niore mistaken assumptions about culture. These ;issumptioris include the following:

Culture is everything. According to this view, culture has an overdetermining ef€ect on negotiation. Armed with the stereotvpes that Americans are impatient and Latins are volatile, for example, negotiators think they can function more effectivelv. The problem with stereotypes such as these is that, even though they may contain an element of truth, the exceptionsare often as or more compelling than the rule. Il'ithout much difficulty at all, one can find patient Americans and calm Latins. Clearly, factors other than culture have an effect on what transpires in negotia- tion-for example, the structure of issues, the personality of the parties, and the organization of the companies involved.

Culturnis nothing. Culture really doesn't matter at all, is the contrary argument. It only makes adifference when a host

o f other tiictors (siich ;is those mentioned above) are c.qilal. Xot so . C :illtiire xl'fects communication. pcrcep

n. ; t i id lx+a~ioi~-iii short the tiiridainencil tools that wcritivc.s rcblv o t i i i i iicgotiating biisii!ess transactions.

Itctilt\u.c truly is ;in impoi-tant tlitnciisioii of ititerna- ) i i i i I I)iisiiicss iiegotiatiori, m d i t ' ;i series of niistiikeii

milliptioils d)out the wlatioiiship between culture x i c l tiegotiatioti really do get i t i the wa!.. tfien this leads to the central question: How . shmtkl one proceed to negotiate with pcoplc t'rom different ciilturcs? I i i the reniaitider of this article. lve will argue for the plausibilit) of five related ;iiiswers to this question.

Remember that we are all prisoners of our own culture.

The w:iv~wc think about culture and conflict are informed by the culture of' which we are a part. .American social scientists tcnd to think in ternis ofdichotomies. continua: straight lines. Would a cultural analyst from an Asian state categorize the world in similar ways, or would a circle or spiral perhaps he ;i inore appropriate metaphor?

Ifvoii live in ;in environment in which there is snow on the ground for ten rnon ths out ofthe year. there is even reason to believe that snow-in al l i t s inany \.ariatiom o f wetness, g'anulation. color, etc.-will be an important part ofyourworld, leading you to develop differentqtions that someone from a Caribbean island will find fhr 'less

iierestirig. X 1.ehanese contributor to a volume tGi cul- ture arid negotiation was asked to analyze the conflict over the Euphrates among Turkev, . . Svria, and Iraq, arid in doing so proceeded to describe the imperialistic ambi-

tions of the Turks. Surelv a Turkish author would have characteri/ed the situation a bit differtwtlv.

Beware of the effects of the (al l too human) tendency

to oversimplify.

\\'e are constantly bombarded !\itti infomiation .in our daily lives, a i d share a need to siniplifi.. Sometimes these simplifications lead us to develop caricatured impressions of other people, or .s/mot@s. These stereotypes, while helping us t o simplifi. our cognitive environment, tend to distort, robbing others o f their iiiclivicluality. To under- stand how the tendency toward o\.t.rsiIliplification through stereonping can uiidern1ine our elfkctiveness in cross- cultural negotiations. consider the following illustration:

Imagine that yoii enter into ;i negotiation with an- other person (call hini.Jack), proceeding from the (stereo- epic) tiew thatJack conies from ;i culture that is known to be fiir arid trustworthy. If, during the ensuing negotia- tions, Jack should insist that he can mike no further concessions because he is close to his bottom line, you are likely to accept .Jack's assertion a s ;i simple statement of fact. Hence, you will probablv iieltl ii bit i l l order to close the gap henveer! your posi tions. Siiiiilal!~. ;\ssiiine thatJack makes a series of concessions during the exchange. You are likely to interpret these inovvs ;is signs of a genuine desire to converge upon some point of overlap, and will probably wish to reciprocate. Given either concessions or intransigence by Jack, y o u are likely to respond with concessions, making agreement inore likelv.

Now imagine that the other person (call her Alice) comes from a culture whose negotiators are stereotypically regarded, among other things, a s sneakv and untrustwor- thy. Intransigence by dice, coupledivith her assertion that she is close to her bottom line and can go no further, is likely to lead you to regard Alice a s disingenuous. Alice's intransigence seems feigned in an effort to bully you into !lelding. Rather than yield. !mi \\.ill probably want to respond lvi th intransigence of !,our own. Similarly, if Alice at some point makes a series o f concessions, you are unlikely to Iiew these as signs of genuine interest in moving toward agreement. Either .Ute is conceding because she is trying to deceive )OCI or because she has no choice but to concede in the face of your superior negoti- ating skill. Either way, your response is likely to be one of intransigence. So whether ;Uice makes concessions or refuses to do so, your selective. stereonpic perceptions of her are likely to lead you to take ;i tough and resistant stance, reducing the likelihood of agreement.

In short, cultural stereoepes are likely to structure our interpretations of other people's negotiating behav- ior, often in ways that interfere with effective negotiation.

How Culture Affects Business Negotiation A conceptual framework can help organize your under- stantling o f another culture, and sensitize you to its niiances. The following check-list, for example, identi- lies ten important ways in rvhich differences in culture may affect ;in international business negotiation. It can he used as ;I tool in preparing for an upcoining negotia- tion with ;I coilliterpart from a clifferent culture.

1. Negotiating Goal: Contract v. Relationship. Different cultures may \Iew the very purpose of negotiation differ- ently. Is the goal to reach a contract or to develop a wlationship? For instance, American negotiators may prcfcr to push for ;i contract, while their Japanese coiintcrparts rnav prefer to develop a relationship first.

2. Negotiating Attitude: Win/Lme v. Win/Win. Is the approach negotiators take governed by the view that one can only do well ;it the other’s expense, or is it possible for both t o do well together? For example, the proverbial American (reared on a steady diet of John CZlayne westerns) may regard negotiation as a winilose contest, whereas a Thai (brought up in a Buddhist society stressing harmony for all) may instead have a winiwin attitude toward negotiation.

3. Personal Style: Informal v. Formal. Every culture has particular forms that are used in personal interaction. In some cultures. these forms are highly elaborate, while in other cultures they are fairly simple. The differences can create friction in intercultural negotia- tion. For the French, Japanese, or Egyptians, for ex- ample, the use of a first name at an initial meeting may be seen as an act of disrespect: in the United States and elsewhere, informality is a sign of friendship.

4. Communication: Direct v. Indirect. Do the negotiators convey their concerns directly (at the risk of being confrontational) or do thev rely instead on more subtle, nuancedways of letting the other side know its concerns and inten tions? Israelis, for example, tend toward blun t- ness, while Egyptians are more elliptical and indirect in their communication style. As a result, in prekious rounds of Israeli-Egyptian negotiation, the Egyptians tended to regard Israelis as rude, while the Israelis, in turn, regarded Egyptians as insincere.

5. Sensitivity to Time: High v. Low. Is time and timing a nlajor concern, or is it regarded as a more secondary conkideration in negotiations? For example Germans are regarded as punctual, Japanese as slow negotiators, Americans as quick to make a deal, Iatins and Africans

. .

differences to be aware of since, among other things, thev will facilitate planning and scheduling negotiat- ing sessions.

6. Emotionalism: Htgh v. Low. Do the negotiators easily show whatever emotions they are experiencing or do they mask these emotions in some way? For example, Ia t inher icans may show theiremotionsmore readily than theJapanese. Thaiswill smile wisely, keeping their feelings to themselves, while Americans are more likely to show their emotions.

7. Form of Agreement: General v. Sped@. Is the goal to reach a general agreement on principles or to detail all possible contingencies that may arise? For example, Americans may prefer very detailed contracts, antici- pating all possible circumstances, no matter how un- likely-because the “deal”is the contract itself (Boeing Aircraft is legendary for presenting a contract that is several hundred pages in length, detailing every pos- sible contingency that might arise). In other cultures, such as China, a contract typicallv takes the form of general principles rather than detailed rules. U p r o b lems arise, the parties look to their relationship rather than the contract to solve the problems.

8. BuiMing the Agreement: Bottom Up v. Top Down. How is an agreement constructed, inductively or deduc- tively? By first developing a general formula and then moving to details, or by beginning with details, and then inferring a broader set of principles? For ex- ample, Americans tend to seek agreement first on specifics (bottom up), while for the French the essence of an agreement is an understanding on fundamental principles (top down). These principles become the framework within which the contract is understood.

9. Team Organiration: One Leader v. Group Gmsensus. Who is responsible for making decisions, a single leader or a collectivity? For example, Americans tend toward the rugged individualist model, by which a supreme leader is responsible for making necessary decisions. In more collectivist societies, such as those commonly found in Asia. there isa premium placedon loyalty to the group, and decisions are made based on consensus.

10. Risk Taking: High v. Low. Are the negotiators inclined to take chances or not? TheJapanese like to have great quantities of information before making decisions; hence, thev tend to be risk averse. Ameri-

as relatively iridifferent to time. These are important - cans, in comparison, tend to enjoy taking risks.

- Jeswald W. Salacuse

.-\l-mect Ivirh stcrcotspic \iews, tve tcwd to see exactly (and

Try to gather as much information as you can about

the other person's culture.

the other side's ciilture ;dlows !'oii to

interpret correctly the other negotiator's meaning from spoken : ind unspoken comniiiiiicatioli. For example, when a Thai looks upward, or a.Japanese savs "it is difi- cult," thev niay really be signalling "iio." Similarly, .Japa- nese silence or eyes closed mav reflect thoughtfiulness, not rudeness. Being sensi tive to cultural differences also helps you to coinmutiicate and persuade the other side effec- tively-tor instance, knowing svhen and when not to discuss biisincss in a social situation.

11 it is iiriporcint t o know ;is much a s possible about the other side's culture, how can yoti gain this knot%4edge?

Make use of tlie growing number of books and articles

Suggestions for Further Reading Faiire. G. 0.. ,y1 Rubin..]. Z. ( 1993). (:iilfiirennd nqptinfiotz. Sewbiiry Park. (A: Sage.

Rubin, , I . Z.. Pniitt , D. G., &- Kiln. S. H. (1993). Son'nl (,oti/lict: kkcilntion. .stnkincite, niid .trttlrmpnt (second ecti- tion). S e w York McCraw-Hill. -.

I$'. ( 1991). i ~ l n k i n ~ ~ l ~ D n l r i P n l : , V e ~ o f i n t i n ~ i n fhe '

W. ( 1993). Culture and negotiation: Lessons

t i f m n f i o n n l mnrketplnre. Boston: Houghton Mifflin.

torthe practitioner. I n G . 0 . Faureai1dJ.Z. Rubin (Eds.). O'iilture nnd nqotzntion. Newbury Park, a. Sage.

about other cultures. These are not the slick collections of how-to athice. but the niore thoiightful, non-evalua- tive accoiints ot' lift> in other cult\ir-es.

Hire consiilr;ints mid atltisors from tlie culture with which y o u are. currently uw-king, o r turn to other experts who happen t o know about that culture. Often experts that you hire for other reasons. such as lawyers, xcoiintiiiits. anti interpreters. can pro\ide useful infor- ination about the local ciilture x i d its potential impact on business negotiations.

Stud\,otlier languages arid cultures, or spend time living in another ciiltiire. If time and resources permit, direct coiitxt is often the best wa!' 101- negotiators to increase knowledge about, aiitl sciisiti\iF to. the iiilances of a culture with \\.liicli they are about to u.ork.

Kefer to ;i conceptiial f~imen.ork that helps to organize your uiiderstiiiiding o f aiiother clilture. and sensitizes yo11 to its nuances (see p. 97). Kather than impose some evaluative sense o f right and Ivrongways to negotiate, or suggest five easy tricks to kill back on, such a framework can help y o u be niore ope11 to the m a n y ways in which negotiators go about making a deal.

Remember that culture can function as a bridge-

not just a barrier.

Too often, negotiators regard culture as an obstacle to reaching agreement. Instead. try to find ways in which culture can senre ;is a wiv to build a relationship with the other side. How can these bridging opportunities be created?

First, try to show genuine interest in the culture of the other side. Asking questions about the history and customs of the country from which the other negotiator comes is not onlv a sign of respect and interest, but a way of gathering \aluable information that can onlv help you be a more efiective negotiator. Ifyou have done some reading about the culture. s o that your questions and comments are knowledgeable. that will help you gain the respect of the other side.

Second, look for cultural experiences that vou and the other negotiator have in common. President Anwar Sadat of Egypt. when negotiating with the Sudanese, would apparentlv begin bv observing that his mother came from the Sudan. African-Americans, in their dealings with African business execii tives, will often stress their common cultural heritage as awav of building a bridge, and Italian- Americans often use the same approach in Italy. President Jimmy Carter used religion as a shared value system binding together Sadat, Israel's Menachem Begin, and himself at Camp David in 1978. Such appeals to common

\.<>I. I I . so. 7 1l11\ I!W Alicmativm 99

experierices. Iiistor-v. orvalues can help to remind negotia- tors that while they m a y be di\ided over the issues between liein. the\, arc Aso joiiied in \\.ays that transcend the

current coiiflict. Thircl. search 101- :i third ciiltiire that is of shared

iiitcrest t o h ) t h o f \ . o t i . For tximple, a Thai arid an

!.ouare negotiatingwith..&id that, in tuii,wiIl makeit more likelv that voii will be able to get the a<greement vou want.

Try to avoid becoming overconfident in yow cultural judgments. .-ltiiericaii txisiiirss negotiator i i i m discover their com-

We are all prone to o\.ersimplification. stereotyping, and ;in oven\.eening sense thatwe know more than we actuallv do. I n negotiations across cultural boundaries, try to give vourself time to reflect on ivhat vou have already learned iiboiit y o u r coiinterp;irt, aiid give yourself an opportunity to make necessary acljustments along the way. Remain \igilant about your tendency t o slip into quick and mis- taken assumptions about the other negotiator. The cul- tural wisdom and insight that you acquire can onlv make you more effective.

PRACTICE N O T E S Using ADR in Japan to Resolve Disputes

Between Japanese and American Companies By Charles R. Ragan

0111. tirst .Japanese ;irbitratioii, begun i i i 1985, took five \.CXI.S t o coniplctc. ciitiiilcd niore than 3 0 hearings aiid cost i i iore than S 100,000 1 0 1 translation and interpreta- tioii alone. (The original claim was for low seven figures.) 111 ;i published critique of the process, we noted several pro bleni areas:

Selection of arbitrators: because of a rules interpreta- tion. the parties had vei-v little time aiid virtuallv no opport i in i ty for meaniiigtiil input in the selection ot‘the presictiiig arbitrator.

Trial counsel: r+.hile we \vere the client’s long-time and preferred hnierican coiiiisel. the thenrurrent rules of the. Japan (:onimercial Arbitration Association ( “JCAA”) , >tiid local custom ( i f not law) in .Japan. precluded us li-om appearing ;is counsel of record: we “ghost” wrote \irtually every paper and prepared all examinations of lvitriesses. only to hand them off to ajapanese bengoshi (attorney)-another inefficient and costly process.

Procedures: here. there ivere several complain_ts. First,

significance for the later, evideritiary stage. Second, the taking of e\idence follo\ved traditionalJapanese proce- dure: the arbitrator heard evidence from one witness (orat mosttwo) forat most threedaysata time,andthen adjourned the arbitration, usually for a month or more to allow preparation for crossuxarnination-all of this where there was no official record ofthe hearing and no real evidentiay rules applied. Third, the tribunal pre- ferred to have the parties agree o i i a l l matters but, when they did not, following the Japanese norm or tradition o f seelung to build a consensus, the tribunal was reluc- tant to enter an “order” or “direction” that might have expedited matters. Finallv. after all the evidence was in (and onlv then) but before dehberdting over it, the tribunal conducted settlement negotiations among the parties and made it clear that settlementwas the course strongly preferred bv the tribunal.

I. Experiences with Other Formats 1 .

the arbitration did not reallv get going for two years. During that “Fvarm-up,” the parties exchanged numer- oiis briefs or position papers. which had very little

A. Minitrial in Japan supported by video witness statements. - Shortlv before the completion of mv firstJCAAarbitration inl990. one of my partners asked whether there was anv (.‘ltfi r ia K. K(zgfin is II pfirlncr r c d i l k i m i / i n n OJ Pil ls lnc~ hlfirlison

L- Siitra in .%in I.).rrncisco. . -

reason he sho~ild he concerIied aboiit arbitration in Japan. €Ie \\.:is adiising a client about a potential $100 .iillion tlispiite. Tlie coiitract in issiie pi-ocided for two cvels ( ) t' d is pu te i n ( ) I I I t.ic )i i c I fi )r ts- first, senior manage-

nit'nt \<is committed t o meeting in a good faith effort to ~-csolvc the dispute and, it ' thcv tiiiled, the matter would then be iirbitlated t inder the LlN(;ITR;\L, rules.

,.\I'tt'i. coiisiilt;itioiis Ivitli the client, and in the hope this \voi i l ( t hc*i$ite11 rlic prospcct~ for ;i successful resolu- t ion ot tht . rn:ittcrsliort of ;ii-I)itr.ation, 1l.e invited opposing coIiiiscl t o cx)ti\'crt tlit, incctiiig ot'scnior managers into a ininitrial \vhich corild bt' Iiel(1 in Tokw.

. \ \ I ( - i n ( )mi i ( t I t i n ( ) t ' C ' I i( 1 crstalid ing for ;i mini trial \\';is Ii ; ini i i ic i .ct l o i i t . I t provi(1ed for a scheduled exchange 01' tlct;iilt.d wi-irtcli \ t : i t (w1cs l1 t s i l l advance of a Tokvo 1nc.c.t i t ~ g x ' t t i tig tor th c;ic.li siclc's legal theories, asummary ot' t l i c . c. \ ictc . i ic . t* ~ipoii wliicli t.;icli intended to relv. ii

coinplctc. \tateineiii oI the ix.1ic.f t o which each clainied to

be c'iititltd. i i i i d ;I s t in i i i i ; in . ot'aiiv coniproniise the pirtv \\.i shed tc ) pi.( )pose. E:i t her side could summarize testimony or other evidence a s i t chose ;it the millitrial. N o record was rnxlc of the ' T o k \ . o proceecliiigs, and contidentiali? WAS

rnaiiitairitd tor the matters clisclosed in connection with the .I'okvo proceediiigs. Finallv. t'ither side could terini- natc the ;igrrcinerit ;it a i i v tirnc. ;ind proceed with the ;irbitration contcni~~1;itc~d IN the parties' base agreement.

( hir c;ise was liiglilv tecliiiical-requiring two scien- tific a i i t l one It.gal espcrt to tcstifi.--aiid also dependent on crctli1)ly coiiiiiiiiiiic~itiiig ;i t0rinermecutive's personal conviction that he had not rcreived importlint iiiforma- t i o i i i i i a timely fiwhion. I t was obvious that transporting those important \vitntwcs to ,Japan and having them standby t0r up to thrtw days o f meetings would be expen- sive. There were also schcdiiliiig issues. We concluded to let technology help solve o i i r problems.

In particiilar,we decided to put on virtually our entire case through Lideotaped witness statements. I n the case of the tiwmer cscciitivc, the Lidcotape format allowed the \\.itnoss t o talk intiniatelywith his former partners through the c~inier:1, thereby avoiding :I tiii-ectcoiifrontation, which might have lieightciied delicate "fiice" presening issues. For the principal technical tvitness, the cideotape format inemit she could use video graphics to make complex points with force and effect approximating that of a television news docuruentan.. Finally, the video format illemit we corild put the Icgal expert on even though he u x s i n I.ondon, and have hiin available by telephone for ;inv fi)llow-iip questions that inight arise.

Froni production and impact standpoints, th; p e - wtation ~ v a s a huge success. The lawyers' role in Tokyo ;as limited: each side had three hours in which to present their ekidence as to the main claims asserted by our client, and. after two hours of open discussion on those claims, each side had one hour to discuss the opposition's coun-

terclaims. The balance of the meetings were reserved for discussion among the parties' representatives.

The fimnal meetings ofthe senior executives failed to resolve the matter. I n addition to the formal meetings, however, as one might expect in ,Japan. there were after- business-hours dinners and informal contacts between responsible but more junior executives. Progress was not immediate, but within three months of the minitrial- with no substantial additional investment in IiGgators' time-the parties had an agreement in principle. Nine months later (and after very substantial investment in business layers' time and some distraction of manage- ment time to negotiate detailed agreements unwinding the earlier venture), the parties closed the book on their dispute, and our client, on a substantial settlement.

The dispute had taken less than 16 months to resolve, from the consultations concerning the pitfalls ofarbitrat- ing injapan t o a final closing; litigators had made onlyone trip tojapan. our witnesses had made none: confidential- ity was preserved; and loss o f face was minimized because no third par? was called upon to render any decision about prior conduct. Our client was also satisfied with the economics of resolving the dispute.

B. Arbitration in Tokyo under American Arbitration Association rules. Another recent case involved it distribution agreement between a.Japanese supplier and an American distributor, as to which we had no frontend involvement. The agree- ment designated California law as the applicable govern- ing law. Disputes were to be arbitrated under the rules of the American Arbitration Association, either in Tokyo, if the American party initiated proceedings, or in San Fran- cisco, if theJapanese party initiated proceedings.

After a decade of performance under the agreement, ;i dispute arose about whether the agreement had been renewed for an additional term. M'e represented the American party and, as in the prior case, thought it would be more cost-effective to try to reach a solution through negotiations or an ADR method other than arbitration. The ADR approach, however, was not accepted. Accord- ingly, we commenced an iwA arbitration in January 1992.

The comparative results between the early JW proceeding and the AAA arbitration in Tokyo-which we believe to have been the first Xr\A-administered arbitra- tion in Tokyo-are remarkable.

Pursuant to the contract, each side chose one arbitra- tor, and those two individuals selected a mutually agree- able chairman. The result was a group of individuals who could and did work well together. A unanimous award was

-rendered. Instead of exchanging pre-hearing pleadings for

several years, the preliminary hearing to set the ground

rules for the arbitration WLS completed in a single (albeit five-hour-plus) international telephone conference call. The sa\itigs in travel and counsel feesfrom thisevent alone ivere considerable.

The parties txxchaiiged a single pre-hearing plead- ing. \\hich set lorth all the theories and, in principle. the cliief'aiittiorities upon which each side intended to relv.

.-I11 testimotiial eiidence \t;is received at A single, t hrt.e<lav Iic;iriiig scssiori. Here again, some basic tele- ptioiic confkreiicitig techiiolo<gv ~vas employed to receive die testiiiiotiy ot'oiie expert who could not have attended the Iicaritig otlienvise.

Fi-om the fimpirig. y o u inightconclude that ttiiswas ;in easv xbitration. with no difficult or interesting issues. h i t \ . o i i w o t i l d be inistaketi: the matter was \igorously coiitt.sted. and iniportrint issues received serious consider- i i t ioi i ;it the highcst levels of the ;tv\ administration. and i i i the hliiiisty ol',Justice in.]apiti and the Department of Jtistice I J I the L'nited States.

The first dit'ficult issue to siirtiice was that ofrepresen- tation: i\hether mir small, California client ~vould be rcquirctl to retain tux) sets of laicers-us to work up the fkts a i i c l the governing <:alifornia law, and a Japanese twigoshi to present the case to the tribunal. M'e raised the qwstiori. in :icI\.anc.e 01' the preliminary hearing, because we did not w m t towin ;in arbitral award for o u r client, then Iiaive the award \acated in enforcement proceedings on the ground that \ve were not authorized to conduct a n arbitration in Japan as lead counsel.

During the teleconference, the opposition confirmed that they would oppose any representation of- our client that did not comply with the letter and spirit ofJapanese law. I n tact, they even went so far as to contend that our iriere participation in the teleconference was abdation of Japanese criminal law.

We noted, without substantial effect, that New E'ork L'niversitv School of1.aw Professor Andreas Lowenfeld, an rxperienced in ternational arbitrator, has concluded that there is ;I "custoniarv law of international arbitration" which includes "the right of parties to a contract contain- ing an arbitration clause to choose their lawers to repre- sent them in a controversv growing out of the contract." Instead. respondent took the \iew-which is not unique among Japanese counsel-that foreign counsel mav not represent foreign clients in a Japanese arbitration et.en if foreign law &overns the dispute. The law upon which respondent primarilv relied was Article 7 2 of the Japanese Lawyer's Law which provides in pertinent part:

''.A person other than a practicing attorney (By which is meantafullvlicensedJapanese Bengoshi) shall not, for payment, and as an occupation, engagein the practiceoflawbvgivinglegaladvice, providing legal representation, arbitrating, set-

.

tling disputes amicably or performing like acts in respect of lawsuits.

,?irticle 77 of the Japanese h w e r ' s L A W makes violations ofkticie 72 (amongothers in the la\\.) punishable by not inore than nvo years imprisonment or a tine of not more than 50,000 yen. Worse yet, Article 801 of the Japanese Code of Civil Procedure permits a Japanese court to set aside an arbiual award, inter alia, " ( 3 ) where one of the parties was not represented in the arbitration procedure in accordance with the pro\isions of the law."

After a full debate of the issues and due consider- ation, the arbitrators concluded that they could not re- solve issues of Japanese criminal law. n o r how Japanese courts might rule on an application to enforce an award.. Near the end of the teleconference. however, the respon- dent stated that, if we could obtain a letter from the Japanese Jlinistry ofjustice to the etfect that our represen- tation of our client in the particular circunistances of our case-California law, non-Japanese arbitration procedural rules (&A), arid limited three-day hearing-the respon- dent would have no objection to our proceeding with the trial of the arbitration.

We prepared for the arbitration hearing along paral- lel paths: first, we prepared the case knowing thatwe might have to hand it off to a bengoshi to present it at the last minute: second, we attempted to obtiiin the kind of letter suggested by our opposition. Early the morning of the hearing, we received a copy ofa letter from the Embassy of Japan in Washington to the U.S. Department of Justice, reflecting the views of the Government ofJapan.

In essence, the letter stated the GovernmentofJapan's position as being: the Japanese Lawver's Law is concerned with unlicensed conduct of "legal business in Japan for payment and asan occupation" ("Syetoshite"inJapanese). But, the letter continued, it was not considered "gyo- toshite" for a foreign laiwer to enter Japan as a legal representative to deal on a temporary basis with a specific case when hired abroad for that purpose, even though the matter mav involve representing a party in an arbitration. I n short, the letter constituted the first time an authorita- tive Japanese entity had taken a clear position on the question. Thus, we had permission to try the case as lead counsel. I n point offact. wewentfonvardwith co-counsel- myself and my nativeJapanese parmer/bengoshi.

As contrasted with our earlier JW arbitration, the tribunalwas more willing to issue directives (which were in effect orders) that the parties take certain steps. For example, when respondent defended tort allegations on the ground that it had relied in good faith on the advice of prior California counsel, and produced some but not all documents relating to that advice, the tribunal issued a directive that allsuch documents be produced byfacsimile within 16 hours (so the hearing could go forward). When

-

rt.spoiitleii t rc.liiscci t o prodiice ttie relevant documents, tht. trihiiiiiil (miired that rcspoiident lindcrstood the pos-

‘t. m i t i likelv coiiscq~iei~ccs-iiicl~i~iiiig ttie drawing of :crsc~ iiili.1-t.iic.t.s-1,c.tOi.c proceeding with the hearing.

11. Changes in Local Japanese Law and Rules

X l i i ( , l i t i a ( ti;iiigc*tl h i i i ( c o i i r tirst arbitration experience. I t \ \ x h \ \ i t l ( . l \ . clisc iisscd i i i t l i c x iiiternational arbitration ( . o r i i i i i ~ i r i i t \ . - I ) i . o l ) ~ i t ) l v I)cc;~iise there \v;is so little prior c . s p c ’ i . i c , i ice. ; II i( 1 s( ) I i t I It. k:i 1% I isli-1;iiigi iage li tera tiire on the ~ L i l ) j c ~ ( ~ t . I t ;iho l ) c * ( x i i i t s soiiicwliat iiotorious. A s ;I result, ] a p ; i i i w i h tl;iggcd ;I \ ;I Iiostilc \ciiiic hv the iiitei-national arhiti i i t i o i i ( . o i i i i i i i i i i i t \ , . \ t ‘ i t l i i i i ,Japan, i n v published cr-i- t i q i i t s \ v ; I ~ i-c*c.ci\,c.ci I;ii-gc.l\. i i i tlic spirit iiitencted-as con- h t i - u c t i \ ( . ( . I i t i c i h i i i . (:Ii;iiigcs t i ) i . t l ic good have been made.

k:\.(.ii t)etoi.c, iiiv tirst,j( :.IA ;utitration WLS concluded, the ii~sociiiuoii‘s tlii-t.ctor. Hiroshi Hattori. organized a htiiti\.groiip to rc\Icw the I( ;LA rtilcs iind in’ ‘i k L 3 I - ccomnien- a

cliitioiis 1 0 1 - ;iiii(,iidiiiciits. lk . \ p i 1 1991, Xlr. Hattori ;in- i i o r i i i c . e t l sc.\~c.i.;il i icw policies. First. on laii<qiage, the.J(;M I N ) Ioiigcr ixqiiiix’s that ;L partv \vistiiiig to siibniiL ;i tlocu- i i ic i i t i i i Fiiglisli iilso s i i h i t ;i,]ap;iiicse translation. Xlorc- ovci . , i t tlic 1)artic.s agi-cc. t l ic . , ] ( LL-1 ivil l iiow permit ar-bitra-

I to l)c coiidiicted i i i khglisli, aiid 1i;Lstlone so on at least .lc occasioii. Lltjseiit iigreciiiciit, Iiowever, it appears h i t

tlic p x r ~ wtio i-cqiicsLs ;in interpreter will have to pay for it,

even wlieii die Ixise docunieiits are in English. Sccoiid, l l r . Hattori aiinouiiced support for both

i i i o d c i - i i i / ~ i t i o i i ot’ the .J:ipaiic.se (:ode of ( h i 1 Procedure with respect t o arbitration (the ciirrent articles stem from the 1808 ci\il code), and ;idoption of the UNCITRAL hlotlel Xr-bitration Law.

Third. he iirged further consideration be given to the rcprcscritation issue.

Effective October I , 1992 arid again under Director I lattori’s leadership, the J ( X 4 adopted detailed new iules. Lvtiicli, arnorig other things, seek to redress some o f tlie c d i e r idcn tified pithlls. 111 particular, the new rules provide:

Selection of arbitrators: ,\i-bitrntors need not be resi- dent iii.Japari, aiidarespondeiitniay now extendits time t o comment on arbitrator qualifications if its notice of the arbitration is dclaved. Indeed. an entire chapter containing 1 1 ofthe new rules is devoted to the appoint- ment of: arbitrators.

Trial counsel: The new rule prokides: “A party may be .xipresented or assisted by aiiv person of its choice in the proceedings under these Rules.” I t goes on, however, to add a potentially troubling caveat: ”Subsequent to such selection. the arbitral tribunal mav. for good cause, reject

\

;i party‘s selection of such representative or assistant.”

Procedures: The rides have detailed pro\isions for ex- amination proceedings. Some of these seem complex and different from the informality and flexibility that attend international arbitrations elsewhere. Time and experience will determine how they are implemented. One feature of these amendments is salutary: the stated objective for hearings is that, “[ i l f a hearing lasts more than one ( 1) day, it shall be held on consecutive days, to the extent possible.”

There is no doubt that these are positive developments. Until further progress is made, however. foreigners doing business in Japan would be \\..ell ad\ised to scrutinize dispute resolution proLisions suggested by business part- tiers. Foreigners should avoid ”finger-pointing” provi- sions. These may have a tirst-blush appearance of even- handedness but will likely result in a,Japanese proceeding: theJapanese tend to be less litigious than most Westerners; thev generally do not understand and therefore do not like Xmerican-style litigation. Xt the same time,Japanese business executives in general tend to be far more patient than their foreign counterparts. To the extent the Japa- nese party is aware of tactical tieliefits to be gained from or by the more tamiliar and timeconsuining procedures in arbitrations held in Japan, there mav actually be an incen- tive for the .Japanese party to wait for the foreigner to i 11 itiate the arbitration.

What do we suggest in lieu of the standard finger- pointing proiision? The ariswer is simple: a clause that setS at least two tiers or process levels for resohing any future dispute. The first level would require responsible persons from each side to meet and confer face-tdace within a defined period in an effort to resolve the dispute. Adefault mechanism should be provided for ultimate resolution of the dispute through mediation, arbitration or litigation in a specified forum. If it is determined that arbitration shall be the default mechanism, the clause should i d e n q a neutral site for the arbitration, which has an arbitration- friendly legal environment, and provide for asetofarbitra- tion niles that do not admit to excess delay.

111. Closing Thoughts

If our recent experiences in trying to resolve disputes behveenJapanese and American companies are not aber- rational-and I believe thev are not-they strongly sug- gest that the prospects for successfully resolving disputes economically improve when lawyers for both sides are familiar with a wide variety of dispute resolution tech- niques-not locked into anyone modality-andwilling to be flexible and adapt original concepts to particular cir-

fi cumstances.