JSE-The Japan Shipping Exchange, Inc.

GUIDE to TOMAC ARBITRATION

(3) Settlement Contract

SETTLEMENT CONTRACT (Sample)

[Claimant] Muromachi 2-3-16, Nihon Bashi, Chuo-Ku, Tokyo
[Shipowner] Kofuku Shipping Co., Ltd.: Representative: Namio Umino, Representative Director
[Respondent] No. 32 Akashi machi, Chuo-Ku, Kobe-Shi, Hyogo-Ken
[Charterer] Kaisan Bussan Co., Ltd.: Representative: Sakae Hirano, Representative Director; Legal Representative: Morio Yamakawa, Attorney-at-law

On this date, in accordance with the terms below, the parties hereby conclude a settlement contract in accordance with the recommendations of the arbitrators appointed by virtue of the TOMAC Rules, with regard to the dispute arising from the time charter for the S.S. Heisei Maru dated 20 October, 1990, in connection with which the Claimant, Kofuku Shipping Co., Ltd., on 5 May, 1994 filed an arbitration application with TOMAC of the JSE against the Respondent, Kaisan Busan Co., Ltd.

1. The Respondent hereby agrees to pay according to the following schedule of installments Yen65,000,000 of the Yen219,000,000 demanded by the Claimant in connection with this arbitration dispute. The payments shall be made by wire transfer into the Claimant's bank account (Bank Name_____________________ , Branch Name_____________________ , Account No. _______________). Wire transfer costs are to be borne by the Respondent.

31 November 1994 Yen15,000,000

25 January 1995 Yen10,000,000

31 March 1995 Yen10,000,000

31 May 1995 Yen10,000,000

31 July 1995 Yen10,000,000

31 September 1995 Yen10,000,000

2. If the Respondent is late with even one payment, they forfeit the right to make extended payments and the Claimant has the right to demand accelerated payment of the total amount due.

In such a case, the Respondent must pay the Claimant interest in the sum of 10% per annum for the period beginning the day after the loss of the right to make installment payments and continuing until the day the amount due is completely paid.

3. Both the Claimant and the Respondent hereby agree that, apart from that detailed in this settlement contract, they have no other sums due or owed in relation to the S.S. Heisei Maru.

4. The arbitration costs in connection with this settlement*1 are Yen (including consumption tax). This amount is to be borne equally by the Claimant and the Respondent. All other costs are to be borne by the party that incurred them, and shall be charged to no other.

5. The Claimant and the Respondent must, within 10 days of the conclusion of this settlement contract, retain a notary to draft a notarial deed that confirms the Respondent's acknowledgment of their debt and repayment obligations under this settlement contract and of compulsory execution as well.*2

The notary fees are to be halved by the Claimant and the Respondent.

6. Subsequent to the drafting of the notarial deed described in the previous paragraph, the Claimant shall within one week withdraw this arbitration.*3

7. It is hereby agreed that the Tokyo District Court shall have exclusive jurisdiction to settle any disputes with regard to this settlement contract.

In order to establish the fact of the above-mentioned settlement contract, we hereby make three copies of the settlement contract; after being signed by the Claimant, the Respondent and the Arbitrators, the Claimant and the Respondent each holds one authentic copy, and The Japan Shipping Exchange, Inc. keeps the original.

20 October, 1995


Claimant: Kofuku Shipping: Representative: Rep. Dir. Namio Umino (Signature)
Respondent: Kaisan Busan Co., Ltd.: Attorney Representative: Morio Yamakawa (Signature)

Attended by:: TOMAC of the JSE; Arbitrator: Zento Suzuki (Signature); Arbitrator: Eihei Garamori (Signature); Arbitrator: Daikichi Sato (Signature)

Explanation of the Settlement Contract

The terms of this settlement contract may be considered rather strict by the paying party because of the requirement for a notarial deed enabling compulsory execution.

The paying party (The Respondent in this example) who has agreed to pay in the course of settlement discussions may be offended if this is taken as an indication of a lack of trust. The settlement agreement may even fall apart if this settlement contract is presented and the paying party takes offense.

In consideration of these circumstances, some may think that there is no need to go to the trouble of obtaining the notarial deed, because the delivery of the arbitration award without reasons goes more smoothly than the settlement contract.

However, from the point of view of the creditor's relations with the different parties, particularly from the perspective of the winning party in the arbitration, they may not even be willing to consider withdrawing the arbitration until they have a settlement contract that provides for compulsory execution in the event that the conditions of the settlement are breached. Although this may be an unusual case there are cases such as this where there is no other alternative. Of course, the contract of this sort is nothing but a result of co-operation from a paying party that understands the circumstances in which the creditor is placed.

1.(Note 1.) It is customary to allot the total amount of the arbitration fees and then write it down here. With regard to the character and breakdown of the arbitration fees please refer to Note 1 on t he Settlement Agreement.

2.(Note 2.) This stipulation requires both parties to make a notarial deed in accordance with the conditions of the settlement contract.

Although the purpose of compulsory execution is viewed as being to realize the Claimant's right through national authority, in order to realize a speedy and certain execution without an investigation into the possibility of the execution, every time an execution agency undertakes the execution of a claim, it is convenient if there is a document establishing the existence and scope of the claim ripe for execution. This sort of document is called a notarial deed and, when given the power of compulsory execution by law, it is called a title of debt.

The credit amount is clearly established in the first clause of this settlement contract. When the debtor (the Respondent) admits that obligation and they state to the notary that in the event they breach their obligation compulsory execution is unavoidable, and to the extent that the notary drafts the notarial deed on the basis of this statement, it is recognized as having the same binding executory force as a judicial decision or other titles of debt.

From the above it can be seen that the creation of the notarial deed is sufficiently important to influence the efficacy of the settlement agreement.

3.(Note 3.) Because of the sort of circumstances described above, until the creation of the notarial deed has been confirmed, the rules provide that in order to toll the time bar from running, the Claimant may not withdraw the arbitration application.