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Article: May 2019: Asia-Pacific Litigation Update

Business Litigation Reports

Developments over the past two years set the stage for Japan’s transformation into a more favored venue for alternative dispute resolution (“ADR”). These include:

  • The Japanese Government’s June 2017 announcement of its “Basic Policy on Economic and Fiscal Management and Reform,” which recognized the importance of arbitration to efficiently resolve disputes among multinational corporations and expressed the government’s commitment to expanding the country’s capability to host international arbitration, including by establishing new hearing facilities in Tokyo and Osaka in cooperation with private organizations.
  • The May 2018 opening of the Japan International Dispute Resolution Center in Osaka (“JIDRC-Osaka”)—the first of two state-of-the-art hearing facilities contemplated by the government’s 2017 policy announcement. JIDRC-Osaka may be reserved by private arbitration associations and private entities for arbitration proceedings. A second hearing facility, JIDRC-Tokyo, is still in the planning stages.
  • The September 2018 opening of the International Arbitration Center in Tokyo (“IACT”) as Asia’s first private arbitration association with an emphasis on intellectual-property disputes. The chair of the IACT’s governing board is former Chief Judge Randall Rader of the U.S. Court of Appeals for the Federal Circuit. The IACT has assembled an extensive roster of experienced arbitrators, including retired judges from Japan’s IP High Court and the U.S. Federal Circuit.
  • The November 2018 opening of the Japan International Mediation Center (“JIMC”) on the campus of Doshisha University in Kyoto in cooperation with the Japan Arbitration Association (“JAA”). The JIMC has an extensive panel of 48 participating domestic and foreign mediators from 13 jurisdictions around the world. The JIMC has a short set of default rules to facilitate mediations and ensure confidentiality. Parties are free to modify the rules by agreement. Parties to JIMC mediations may conduct their meetings on the Doshisha campus or elect to use facilities at the ancient Kodaiji Temple.
  • The January 2019 enactment of substantive amendments to the rules of the Japan Commercial Arbitration Association (“JCAA”). These amendments created procedures to facilitate ongoing interaction between the parties and arbitrators and to increase the certainty of arbitral awards. The JCAA has also emphasized its ability to offer qualified foreign arbitrators to conduct proceedings in English and other languages by, for the first time, publishing its list of more than 120 Japanese and foreign arbitrators. Tracing its roots back to 1953, the JCAA is one of Japan’s oldest arbitration associations and has cooperation agreements with over 40 sister organizations throughout the world.
  • The 130-year anniversary of the first maritime arbitration conducted in Japan by the predecessor to the Tokyo Maritime Arbitration Commission (“TOMAC”), which is administered by the Japan Shipping Exchange (“JSE”). Maritime arbitrations by TOMAC have become increasingly diverse over the years, expanding from disputes over ship purchases, building, and repair to insurance coverage, underwriting, and financing.

 

Although Japanese companies traditionally have consented to ADR in foreign jurisdictions, their demand for Japan-based arbitration is on the rise as arbitrations and mediations involving Japanese companies have increased both in number and value. Moreover, recent growth in foreign direct investment in Japan has vastly increased the number of foreign subsidiaries operating in Japan as well as the number of foreign stakeholders in Japanese companies. See, https://www.jetro.go.jp/en/invest/reports/report2018/ch3.html. The expanding ADR infrastructure in Japan as well as the availability of qualified foreign arbitrators and mediators makes Japan a more accommodating ADR venue not only for Japanese companies but also for foreign stakeholders who may prefer the efficiency of ADR for disputes involving their Japanese investments.

 

Japan’s Arbitration Treaties & Legislative Framework

Arbitration in Japan is conducted according to familiar international conventions. Since 1961, Japan has been a contracting state to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (New York Convention). Japan is also a signatory to the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927 and has bilateral treaties with fourteen countries concerning the mutual enforcement of arbitral awards.

Arbitration awards rendered in Japan, therefore, are generally enforceable outside of Japan as demonstrated by a recent affirmance by the courts in Hong Kong of a Japanese commercial arbitral award. See Paloma Co. v. Capxon Elec. Indus. Co., [2018] HKCFI 1147 (C.F.I.). Japanese courts likewise have been respectful of arbitration awards and have shown a willingness to enforce awards rendered outside of Japan with “the same effect as a final and conclusive judgment.” Japanese Arbitration Law, Law No. 138 of 2003 (hereinafter, “JAL”), art. 45, para. 1 (Japan).

Japan’s current Arbitration Law (the “JAL”), enacted in 2004, is based on the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (1985) (UNCITRAL Model Law). Notwithstanding enactment of the JAL, parties are generally free to agree upon their own procedural rules provided that they do not conflict with substantive provisions of the JAL. JAL, art. 26, para. 1. Arbitration associations such as TOMAC, IACT, and the JCAA generally have their own procedural rules, which, in many circumstances, may be modified by party agreement.

Thus, mirroring the UNCITRAL Model Law, arbitration in Japan enjoys substantial procedural flexibility. Parties are generally free to agree on the number and selection of arbitrators. JAL, art. 16, para. 1. If the parties fail to agree, the default is three arbitrators where there are two parties to the dispute, and the court determines the number of arbitrators where there are more than two parties. JAL, art. 16.

Aside from requiring impartiality and independence from the parties, the JAL does not impose any specific technical qualifications on arbitrators. However, where the court appoints arbitrators in the absence of party agreement, the court must determine whether the arbitrators should be of a different nationality from the parties themselves. JAL, art. 17, para. 6.

Reasonable doubt concerning arbitrator impartiality and independence is one of the few specified grounds for challenging an award. JAL, art. 18, para. 1. The JAL requires arbitrators to affirmatively disclose any facts that might raise questions about their impartiality or independence. JAL, art. 18, paras. 3 & 4. To further address these concerns, the JAA published a “Code of Ethics for Arbitrators” in 2008. As of January 2019, arbitrators have an ongoing duty to assess their potential conflicts and notify the parties of any changed circumstances. Commercial Arbitration Rules, Japan Comm. Arb. Assoc. (hereinafter, “JCAA”), art. 24, para. 4 (Jan. 1, 2019), http://www.jcaa.or.jp/e/arbitration/docs/Commercial_Arbitoration_Rules.pdf.

Absent an agreement between the parties, the JAL gives arbitrators broad discretion to determine the admissibility and probative value of evidence. JAL, art. 26, para. 3. Although arbitrators themselves have no authority to compel production of evidence, obtaining their consent is a prerequisite for a party wishing to seek court assistance to compel the production of documents or testimony. JAL, art. 35, para. 2.

The JAL generally requires that the arbitral award be reduced to writing and, at least, memorialize the date and location of the arbitration and provide a statement of the reasons and bases for the award. JAL, art. 39, para. 1. A majority of the arbitrators must sign the award. Id.

The JCAA’s amended rules now prohibit dissenting arbitrators from disclosing “dissenting or individual opinion in any manner.” JCAA, art. 63. While recognizing that “differing opinions are found in authoritative articles and textbooks on whether a dissenting opinion may be disclosed in an arbitral award,” the JCAA ultimately determined that barring dissenting opinions is in the best interest of “sound and stable” dispute resolution. JCAA notes to January 1, 2019 Rules Amendments.

The JAL similarly promotes certainty of settlement during arbitration by permitting party settlements to be reduced to the form of an enforceable arbitral award. JAL, art. 38. The JCAA’s recent rules amendments likewise promote settlement by introducing the concept of “interactive arbitration.” The new rules require arbitrators, at various stages of the proceeding, to disclose their preliminary—but non-binding—views to the parties on the factual and legal issues material to resolving the dispute. JCAA, art. 56. This procedure serves the dual purposes of focusing the issues and promoting settlement.

Finally, Japan’s Foreign Lawyer Law (“JFLL”) has cracked open the door to the participation of foreign lawyers in “an international arbitration case” conducted in Japan where one or more of the parties is not a Japanese entity. Act on Special Measures Concerning the Handling of Legal Services by Foreign Lawyers, Act No. 69 of 2014 (hereinafter, “JFLL”), art. 2(xi) (Japan). Although there are unresolved ambiguities in this exception, such as whether a Japanese subsidiary of a foreign corporation qualifies as a non-Japanese entity, the JFLL expressly permits two classes of foreign lawyers to represent clients in international arbitration proceedings and intervening settlement discussions. The permitted classes include: (1) Japan-resident foreign lawyers authorized by the Ministry of Justice to advise domestic clients on the laws of their home countries, JFLL, art. 5-3, and (2) non-resident, licensed foreign lawyers who are retained in their home countries to represent a party in the Japan-based arbitration. JFLL, art. 58-2.

Aside from these qualifications, the JFLL does not impose any additional visa or travel restrictions on foreign lawyers, court reporters, interpreters, or other support staff entering the country to participate in international arbitrations. Moreover, the statutory authorization for foreign lawyer representation in an international arbitration is available without restriction as to the substantive law to be applied (Japanese law or otherwise) in resolving the underlying dispute.

Through these many developments, the Japanese government and private ADR associations are building the legal and physical infrastructure necessary to encourage not only domestic but also international parties to resolve their disputes in Japan. Faced with disputes of growing complexity and the escalating cost of traditional litigation, the world’s corporations can now look to Japan as an attractive venue for resolving conflicts with their commercial partners.