Arbitration procedures and practice in Japan: overview

A Q&A guide to arbitration law and practice in Japan.

The country-specific Q&A guide provides a structured overview of the key practical issues concerning arbitration in this jurisdiction, including any mandatory provisions and default rules applicable under local law, confidentiality, local courts' willingness to assist arbitration, enforcement of awards and the available remedies, both final and interim.

To compare answers across multiple jurisdictions visit the Arbitration procedures and practice Country Q&A Tool.

This Q&A is part of the multi-jurisdictional guide to arbitration. For a full list of jurisdictional Q&As visit www.practicallaw.com/arbitration-mjg.

Peter Godwin, Herbert Smith LLP
Contents

Use of arbitration and recent trends

1. How is commercial arbitration used in your jurisdiction? What proportion of large commercial disputes is settled through arbitration? What are the recent trends? What are the general advantages and disadvantages of arbitration compared to court litigation in your jurisdiction?

Use of commercial arbitration

Arbitration has historically struggled to attain prominence in Japan. There are many reasons for this, but a general dislike of confrontational proceedings, trust in the court system (when proceedings are unavoidable) and hesitation over the use of jurisdiction and arbitration clauses, are the most likely causes. Arbitration was further impeded by a lack of interest from foreign companies, who were deterred from arbitrating disputes in Japan by rules providing for Japanese as the language of the arbitration and the exclusion of foreign counsel.

However, the position has improved since the 2003 Arbitration Law (Arbitration Law), largely based on the 1985 UNCITRAL Model Law (Model Law), came into effect in 2004. The Arbitration law modernised arbitration in Japan by streamlining procedure, eliminating the language requirements and easing the restrictions on the selection of arbitrators. In addition, foreign lawyer representation is now accepted. Thus, currently the arbitration process in Japan is broadly what one would expect to encounter in any other arbitration-friendly jurisdiction.

Recent trends

Despite the positive effects of the Arbitration Law, and an increase in awareness and understanding of arbitration, much still needs to be done before arbitration becomes as commonplace in Japan as it is in many other jurisdictions.

This is reflected in statistics from the Japan Commercial Arbitration Association (JCAA). Following the introduction of the Arbitration Law, the number of arbitrations conducted under the auspices of the JCAA has increased, although the overall number still remains low. For example, the JCAA administered nine arbitrations in 2005, with the number rising to 12 and 19 in 2008 and 2011, respectively. The number of Japanese companies opting for International Chamber of Commerce (ICC) arbitration has, however, dropped over a similar period. Thus, while the number of Japanese parties in ICC arbitrations was 27 in 2005, it has been decreasing every year to 2010 when it was only 21.

Japan is still building up a body of arbitration and (arbitration-related) judicial experience, so specialist advice from a firm experienced in international arbitration is essential.

Advantages/disadvantages

Feedback from Japanese corporate clients suggests that the foremost advantages of arbitration are perceived to be the ease of enforcement of arbitration awards, thanks to the New York Convention, and confidentiality, in contrast to litigation proceedings, which are generally open to the public in Japan. In addition, evidentiary documents may not need to be translated into Japanese, while this is necessary for litigation in domestic courts.

 

Legislative framework

Applicable legislation

2. What legislation applies to arbitration in your jurisdiction? To what extent has your jurisdiction adopted the UNCITRAL Model Law on International Commercial Arbitration 1985 (UNCITRAL Model Law)?

The applicable law is the Arbitration Law, which came into effect from 1 March 2004. The Arbitration Law is available online at www.kantei.go.jp/foreign/policy/sihou/arbitrationlaw.pdf.

The Arbitration Law broadly adopts the Model Law, with certain modifications, including the following:

  • The Arbitration Law applies to both commercial and non-commercial civil arbitration, provided the place of arbitration is in Japan. By contrast, the Model Law only applies to international commercial arbitration.

  • The local district court (chihou saiban-sho) is given the exclusive authority to appoint the tribunal in default cases (Articles 5 and 17), whereas under the Model Law a "competent authority" can be designated.

  • The Arbitration Law recognises that arbitrators can have a role as mediators in amicable settlements (Article 38(4)).

  • The Arbitration Law has included provisions which give special treatment to consumers and individuals that are involved in arbitration agreements (Supplementary Provisions, Articles 3 and 4).

  • The Arbitration Law imposes criminal sanctions for bribery and corruption (Articles 50 to 55).

All legal references in this article are to the Arbitration Law, unless stated otherwise.

Mandatory legislative provisions

3. Are there any mandatory legislative provisions? What is their effect?

The Arbitration Law contains certain mandatory provisions, including the following:

  • The tribunal can rule on its own jurisdiction and on the existence or validity of an arbitration agreement (Article 23(1)).

  • Parties must be treated equally and be given full opportunity to present their case (Article 25).

  • Parties must be given sufficient advance notice in respect of hearings (Article 32(3)).

  • Parties must be given access to written statements and evidence (Article 32(4)).

  • The form of awards (although the parties may agree that the tribunal need not supply reasons) (Article 39).

  • The termination of arbitral proceedings (Article 40).

  • Grounds and procedure to set aside arbitral awards (Article 44).

Divorce and separation are specifically excluded from the scope of arbitrable disputes (Article 13(1)). It is generally considered that other family law disputes are similarly excluded.

The law of limitation

4. Does the law of limitation apply to arbitration proceedings?

If Japanese law is the substantive law of the arbitration, Japanese domestic laws on limitation will apply to the proceedings.

The author has been previously advised by Japanese counsel that the limitation period for commercial transactions in Japan is five years under the Commercial Code. The limitation period starts from the moment the relevant right is capable of being exercised, irrespective of the subjective knowledge of the claimant. Commercial transactions comprise transactions:

  • That involve a company or any other merchant.

  • Enumerated in the Commercial Code.

While the general limitation period under the Civil Code is ten years, certain types of claims are subject to a shorter limitation period, for example, claims against persons engaged in design, execution or supervision of construction works, which are extinguished after two years from the completion of the work.

A limitation period can be interrupted by:

  • The initiation of arbitration.

  • An acknowledgement of the right in question by the obligor.

  • By provisional measures such as attachment or provisional seizure.

The author has been advised by Japanese counsel that it is likely that an additional claim made during the course of arbitral proceedings would also interrupt the limitation period in respect of that additional claim, as would be the case in Japanese court proceedings.

 

Arbitration organisations

5. Which arbitration organisations are commonly used to resolve large commercial disputes in your jurisdiction?

The following institutions are regularly used to resolve large commercial disputes in Japan:

ICC arbitration is also popular in Japan (www.iccwbo.org).

 

Arbitration agreements

Validity requirements

6. What are the requirements for an arbitration agreement to be enforceable?

Substantive/formal requirements

An arbitration agreement must be in writing. This can be evidenced in the form of a document signed by all parties, or by an exchange of letters, telegrams or facsimiles or "other communication devices for physically separated parties and which provide the recipient with a written record of the content so transmitted" (Article 13(2)). In addition, the arbitration agreement can be recorded in electromagnetic form, for example, by email (Article 13(4)).

Separate arbitration agreement

A separate arbitration agreement is not required; an arbitration clause in the main contract is sufficient to evidence an agreement in writing.

 
7. Are unilateral or optional clauses, where one party has the right to choose arbitration, enforceable?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Separability

8. Does the applicable legislation recognise the separability of arbitration agreements?

The separability of arbitration agreements has long been recognised in practice. The Arbitration Law expressly confirms this (in Article 13(6)).

 
9. What remedies are available where a party starts court proceedings in breach of an arbitration agreement, or initiates arbitration in breach of a valid jurisdiction clause?

Court proceedings in breach of an arbitration agreement

On application by a party, the court must dismiss litigation which is started in breach of an arbitration agreement, unless (Article 14(1)):

  • The arbitration agreement is null and void, cancelled, or for other reasons invalid.

  • The arbitration agreement is inoperative or incapable of being performed.

  • The respondent's request for a stay was made after the respondent's plea on the substance of the dispute.

An arbitral tribunal can commence or continue arbitral proceedings and make an arbitral award while any application for dismissal is pending before court (Article 14(2)).

Arbitration in breach of a valid jurisdiction clause

Where a tribunal is formed in breach of a valid jurisdiction clause, a party can challenge, and the tribunal can rule on, the tribunal's jurisdiction (see Question 22).

 
10. Will the local courts grant an injunction to restrain proceedings started overseas in breach of an arbitration agreement?

This issue remains uncertain; the author is unaware of a Japanese court granting such an injunction to date.

Joinder of third parties

11. In what circumstances can a third party be joined to an arbitration, or otherwise be bound by an arbitration award?

The Japanese law is silent in relation to this issue. As such, where Japanese law is the substantive law of the dispute, the ability to join third parties depends on the parties' arbitration agreement, and the rules of the chosen arbitral institution. If a third party is joined to the arbitral proceedings and an arbitral award is rendered against it, this third party will be bound by the award so long as the usual requirements for enforcement of an arbitral award are met (Article 45(2)) (see Question 28).

 

Arbitrators

Number and qualifications/characteristics

12. Are there any default provisions in the legislation relating to the number and qualifications/characteristics of arbitrators?

The parties can agree on the number and method of appointment of arbitrators (Articles 16(1) and 17(1)). Should the parties fail to agree on the number of arbitrators then the following procedure applies:

  • The number of arbitrators is three if the total number of parties to the arbitration is two (Article 16(2)).

  • The number of arbitrators is determined by the court, on the request of a party, if the total number of parties to the arbitration is three or more (Article 16(3)).

The Arbitration Law does not provide any specific qualifications or characteristics that an arbitrator should possess, and there are no restrictions on the nationality or residence of arbitrators either.

Independence/impartiality

13. Are there any requirements relating to independence and/or impartiality of arbitrators?

Several provisions of the Arbitration Law require impartiality and independence from arbitrators, as well as full disclosure of any interest that they may have in the proceedings. An arbitrator can be challenged if there are justifiable doubts as to his impartiality (Article 18).

Appointment/removal

14. Does the applicable legislation contain default provisions relating to the appointment and/or removal of arbitrators?

Appointment of arbitrators

In the absence of the parties' agreement, the following procedures apply:

  • In two-party disputes with three arbitrators, each party appoints one arbitrator and the appointed arbitrators appoint a third arbitrator. Where either party or the arbitrators fail to make an appointment within the prescribed period of 30 days, the appointment must be made by the court on a party's request (Article 17(2)).

  • In two-party disputes with a sole arbitrator, or in multi-party arbitrations, appointments must be made by the court on a party's request (Articles 17(3) and (4)).

When considering the appointment of a sole arbitrator or the chairman of a tribunal, the court may decide to take into account the nationality of the arbitrator, and whether he should be from a country other than those of the parties to the arbitration (Article 17(6) (iii)).

Removal of arbitrators

The Arbitration Law provides the following default grounds for challenging arbitrators:

  • The arbitrator does not possess the necessary qualifications agreed by the parties.

  • Circumstances exist that give rise to justifiable doubts as to the arbitrator's impartiality or independence (Article 18(1)).

A party can only challenge an arbitrator appointed or recommended by that party if it becomes aware of the relevant factors after the appointment (Article 18(2)).

The parties are free to agree the procedure by which a challenge to an arbitrator is made. Failing such agreement, the tribunal will hear the challenge, provided that the objecting party applies to the tribunal within 15 days of either (Articles 19(1) to (3)):

  • The constitution of the tribunal.

  • Discovering the circumstances giving rise to the challenge.

The tribunal's decision is appealable to the court within 30 days (Article 19(4)).

 

Procedure

Commencement of arbitral proceedings

15. Does the applicable legislation provide default rules governing the commencement of arbitral proceedings?

Unless otherwise agreed by the parties, arbitral proceedings commence on the date on which one party gives the other notice of referring the dispute to arbitration (Article 29(1)). Thereafter, within a time period determined by the tribunal, the claimant must state the relief or remedies sought, the facts supporting its claim and the points at issue, and submit or refer to the relevant documentary evidence (Article 31(1)). The respondent must comply with similar provisions in respect of its defence (Article 31(2)). (These provisions can be modified by the parties' agreement (Article 31(4)).)

Applicable rules

16. What procedural rules are arbitrators likely to follow? Can the parties determine the procedural rules that apply? Does the legislation provide any default rules governing procedure?

Applicable procedural rules

Parties are free to set their own arbitral procedures, subject to the mandatory public policy provisions contained in the Arbitration Law (see Question 3).

Default rules

Failing any agreement between the parties, the tribunal can decide on the applicable procedure at its discretion, subject to the default rules set out in the Arbitration Law (Article 26(2)). In particular, the tribunal has the following powers:

  • The tribunal can decide on the place and language of the arbitration (Articles 28(2) and 30(2)), and whether to hold oral hearings (Article 32(1)).

  • The tribunal can waive a party's right to object to non-compliance with procedure or law (Article 27).

  • The tribunal can set the commencement date of the proceedings and deadlines for statements (Article 29(1)) (see Question 15).

  • The tribunal has a discretion as to how to treat the claimant's failure to set out its case in the time allocated by the tribunal (Article 33).

  • The tribunal can appoint experts and request the court's assistance in taking evidence (Articles 34 and 35).

Arbitrator's powers

17. What procedural powers does the arbitrator have? If there is no express agreement, can the arbitrator order disclosure of documents and attendance of witnesses (factual or expert)?

The parties to the arbitration can freely agree the rules of procedure in the arbitration agreement (Article 26(1)). Failing any agreement, the tribunal can conduct the proceedings in such a manner as it considers appropriate. In particular, the tribunal can:

  • Determine the place of arbitration, having regard to the circumstances of the case and the convenience of the parties (Article 28(2)).

  • Determine the language of the arbitration (Article 30(2)).

  • Appoint experts (Article 34).

  • Apply to court for assistance in taking evidence (Article 35).

There are no prohibitions on ordering the disclosure of documents or requesting the attendance of witnesses of fact, however:

  • While the tribunal can compel disclosure in theory, it is unlikely to do so in practice (see Question 18).

  • The tribunal requires the assistance of the court to compel a witness to attend (Article 35).

 

Evidence

18. What documents must the parties disclose to the other parties and/or the arbitrator(s)? How, in practice, does the scope of disclosure compare with disclosure in litigation? Can the parties determine the rules on disclosure?

Scope of disclosure

The parties can freely agree the rules of procedure, including the scope of disclosure obligations (see Question 17). The tribunal's default powers include the power to determine the admissibility, relevance, materiality and weight of any evidence.

There is no provision for full pre-trial discovery of documents in Japanese litigation, unlike in many common law jurisdictions. However, a party which had given notice of its intention to commence legal proceedings can make an inquiry in writing on matters of evidential relevance. Once a complaint is submitted, the Japanese court is under an obligation to assist the parties in collecting evidence before the trial, including by requesting documentation from the party in possession. Parties to litigation can also apply for an order requiring the counterparty to produce documents, and Japan also has a system of written interrogatories.

Unless otherwise agreed by the parties, arbitration in Japan, particularly in front of Japanese arbitrators, tends to follow a similar procedure: the tribunal will request that the parties produce specific documents that are relevant to the issues in dispute.

Parties' choice

The parties can freely determine the rules on disclosure in their arbitration agreement.

 

Confidentiality

19. Is arbitration confidential?

The Arbitration Law is silent on the issue of confidentiality. However, like in many other jurisdictions, the general principle that arbitration proceedings should be confidential is followed.

Under the JCAA rules, arbitral proceedings are private, and the JCAA, the arbitrators and the parties must maintain the confidentiality of the proceedings unless required by law to disclose them.

 

Courts and arbitration

20. Will the local courts intervene to assist arbitration proceedings?

The Japanese courts can, at a party's request, do the following to assist arbitration proceedings:

 
21. What is the risk of a local court intervening to frustrate the arbitration? Can a party delay proceedings by frequent court applications?

Risk of court intervention

The courts only intervene in arbitration proceedings in limited circumstances and only on the application of a party (see Question 20). There is therefore a relatively narrow scope for proceedings to be delayed or frustrated, particularly given that pending any challenge to proceedings or an arbitrator:

  • Arbitral proceedings can commence or continue.

  • A tribunal can issue an award.

Delaying proceedings

As noted above, there is very limited scope for frustrating arbitration proceedings by court applications.

 
22. What remedies are available where one party denies that the tribunal has jurisdiction to determine the dispute(s)? Does your jurisdiction recognise the concept of kompetenz-kompetenz? Does the tribunal or the local court determine issues of jurisdiction?

The Arbitration Law recognises the concept of kompetenz-kompetenz. The tribunal can rule on claims made in respect of its own jurisdiction (Article 23(1)). However, the tribunal has a discretion to refuse a claim that is:

  • Raised after the first written statement on substance.

  • Not raised "promptly" (in the tribunal's judgment), where grounds arise during the proceedings (Article 23(2)).

The tribunal can make a preliminary ruling where it considers it has jurisdiction (Article 23(4)). A dissatisfied party can, within 30 days, request the court to decide the matter (Article 23(5)).

 

Remedies

23. What interim remedies are available from the tribunal?

Security for costs

If requested by a party, a tribunal can order interim measures and security for those measures (Article 24). In addition, unless otherwise agreed, a tribunal can order the parties to deposit an amount equivalent to the estimated costs of the arbitration (Article 48(1)).

Security or other interim measures

Unless otherwise agreed by the parties, the tribunal can order any party to take such interim measure of protection as the tribunal may consider necessary (Article 24(1)).

Other

Not applicable.

 
24. What final remedies are available from the tribunal?

The tribunal can order:

  • Damages.

  • Declarative relief.

  • Injunctive relief.

  • Interest (6% under the Commercial Code and 5% under the Civil Code).

 

Appeals

25. Can arbitration proceedings and awards be appealed or challenged in the local courts? What are the grounds and procedure? Can the parties effectively exclude any rights of appeal?

Rights of appeal/challenge

Arbitral awards can only be appealed if the parties have expressly so agreed.

Grounds and procedure

The Arbitration Law sets out the limited grounds on which parties can set aside or challenge arbitral awards. These grounds are similar to those found in Article 34(2) of the Model Law and Article 5 of the New York Convention. Thus, an award can be set aside if (Article 44(1)):

  • The arbitration agreement was invalid.

  • The applicant was not given notice to appoint an arbitrator or was unable to present its case in the arbitral proceedings.

  • The arbitral award contains decisions on matters beyond the scope of the arbitration agreement or the claims in the arbitral proceedings.

  • The composition of the tribunal or the conduct of the proceedings were not in accordance with the laws of Japan.

  • The claims relate to an unarbitrable dispute.

  • The arbitral award is in conflict with the public policy or good morals of Japan.

An application to set aside an award must be made within three months of receipt of an arbitral award (Article 44(2), Arbitration Law). A court cannot set aside an award without first holding an oral hearing which the parties can attend (Article 44(5)). The court's decision is subject to an "immediate appeal" by a non-satisfied party (Article 44(8)), which in practice means that the non-satisfied party must appeal to a higher court within one week of receipt of the court's decision.

Japanese courts have been generally reluctant to set aside arbitral awards. For example, in a 2009 decision the court found that a party's claim that it was unable to present a case should be construed as limited to "a serious breach of procedural guarantees". This could apply, for example, where either:

  • A party was not present for certain procedures.

  • An award was rendered based on documentation of which a party was not aware.

The court also held that the fact that the tribunal "simply awarded a large amount of damages" was not contrary to public policy or good morals.

However, in June 2011 the Tokyo District court set aside an award rendered in a JCAA arbitration. This is the first recorded instance of an award being set aside in Japan. The case turned on whether or not a technical service fee was a royalty for a certain patented technology. The court found that the sole JCAA arbitrator had treated a fundamental matter in dispute as an undisputed fact. The court held that the effect of this error of fact-finding was that the applicant was deprived of its rights of due process, meaning that the award thereby violated Japanese public policy.

Although generating considerable controversy, this decision is hopefully a one-off, which does not herald the start of a more interventionist stance from Japanese courts.

Excluding rights of appeal

The parties cannot exclude the mandatory provisions of the Arbitration Law in relation to setting aside or challenging awards.

 

Costs

26. What legal fee structures can be used? Are fees fixed by law?

Contingency or conditional fee arrangements are permitted in Japan, although they are rare in major international disputes, where lawyers tend to charge on the usual time-cost basis.

Arbitrators can receive remuneration in accordance with the agreement of the parties (Article 47(1)). Where no such agreement is reached, the tribunal determines the remuneration of the arbitrators on the basis of an appropriate amount (Article 47(2)). In practice, this issue is often covered by the rules of the chosen arbitral institution.

 
27. Does the unsuccessful party have to pay the successful party's costs? How does the tribunal usually calculate any costs award and what factors does it consider?

Cost allocation

The parties can freely agree the apportionment of costs in the proceedings; for example, that the unsuccessful party pays the other party's costs (Article 49(1)). However, the parties can also agree that it is the tribunal that should determine the division of costs incurred in the course of the arbitral proceedings. Failing any agreement by the parties, the Arbitration Law provides that each party bears its own costs (Article 49(2)). (Notably, each party generally bears its own costs in Japanese domestic court proceedings.)

Cost calculation

Costs are calculated in accordance with the rules of the relevant arbitral institution.

Factors considered

The default provisions of the JCAA Rules provide for the parties to bear administrative costs and arbitrator remuneration in equal shares. The tribunal is permitted to deviate from this allocation in its final award, should it so wish, and it can also make an order as to party legal expenses.

 

Enforcement of an award

28. To what extent is an arbitration award made in your jurisdiction enforceable in the local courts?

There is no distinction between domestic and international arbitration generally under the Arbitration Law; rather the focus is whether the seat of arbitration is in Japan or not.

As such, arbitral awards rendered in Japan have the same effect as a final and conclusive court judgment. Enforceability is guaranteed under the Arbitration Law, subject to the limitations in Article 45, which are similar to those under Article 5 of the New York Convention.

A party seeking enforcement of an arbitral award must apply to the court for an enforcement decision (Article 46(1)). In this context, the competent court is any of the following:

  • The district court designated by the agreement of the parties.

  • The district court that has jurisdiction over the venue of the arbitration.

  • The district court that has jurisdiction over the domicile (or the residence) of the respondent.

  • The district court that has jurisdiction over the location of the object of the claim or any seizable property of the respondent.

Once obtained, this decision can be enforced according to the Japanese Civil Execution Act.

 
29. To what extent is an arbitration award made in your jurisdiction enforceable in other jurisdictions? Is your jurisdiction party to international treaties relating to this issue such as the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention)?

Japan is a signatory to the New York Convention. As such, arbitral awards made in Japan are enforceable in New York Convention signatory countries, subject to the limitations contained in the New York Convention.

 
30. To what extent is a foreign arbitration award enforceable in your jurisdiction?

While Japan's accession to the New York Convention is subject to a reciprocity reservation, the Arbitration Law adopts the provisions of the Model Law on recognition and enforcement. As a result, Japan's New York Convention reciprocity reservation is now redundant.

An application must be accompanied by a certified copy of the award, together with a translation of the award into Japanese (if necessary). Otherwise, the procedure is the same as for domestic awards (Question 28).

Japanese courts have yet to refuse recognition and enforcement of a foreign arbitral award.

 
31. How long do enforcement proceedings in the local court take? Is there any expedited procedure?

It can take around six months to enforce an arbitral award rendered in Japan, assuming there is no appeal. For foreign awards, the period is generally a few weeks longer. However, these time lines may vary and cannot be estimated with great accuracy because not all court decisions in respect of arbitral award enforcement are made public in Japan.

 

Reform

32. Is the legal framework in relation to the above likely to change in the next decade?

The author is not aware of any planned changes to the Arbitration Law or the JCAA Rules, although discussions of possible changes are always ongoing.

 

Main arbitration organisations

Japan Commercial Arbitration Association (JCAA)

Main activities. As the most prominent commercial arbitral institution in Japan, the JCAA contributes to the resolution, by way of arbitration, mediation and conciliation, of disputes arising from international and domestic business transactions. The JCAA also provides assistance in respect of dispute avoidance, through its consultation and information services, and issues and guarantees ATA Carnets (official forms for customs clearances) under the ATA Convention on the temporary admission of goods.

W www.jcaa.or.jp/e/index-e.html

The Tokyo Maritime Arbitration Commission (TOMAC) of the Japan Shipping Exchange Inc.

Main activities. TOMAC is used to resolve shipping disputes, including those arising under bills of lading, charter parties, contracts relating to the sale and purchase of ships, shipbuilding, ship financing and manning.

W www.jseinc.org/index_en.html

The International Chamber of Commerce (ICC)

Main activities. The ICC is a world business organisation, making rules and setting standards in a number of fields. The ICC is arguably the world's leading commercial arbitral institution, helping numerous parties each year resolve disputes.

W www.iccwbo.org


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