Contributed By Herbert Smith Freehills
Historically, companies in Japan have preferred litigation as their dispute resolution mechanism. Generally speaking, Japanese corporations are renowned for being relatively dispute-averse. That is slowly changing, however, not least because recent global economic conditions have left some Japanese parties with no choice but to resort to formal dispute proceedings, including arbitration. Japanese corporations have also learned lessons from bad experiences in local courts and/or with trying to enforce judgments in difficult jurisdictions.
Accordingly, in the last few decades international arbitration has increasingly been chosen as a dispute resolution mechanism by larger, more internationally focused Japanese corporations who are steadily carrying out more international projects and also engaging in more foreign investment. However, Japan is not commonly chosen as a seat for arbitrations and the Japanese arbitral institutions are used relatively infrequently compared to the major international institutions.
Arbitration is less well known amongst mid-sized and smaller Japanese companies and is rarely used domestically within Japan.
The Japan Commercial Arbitration Association (JCAA) handles most Japan-seated international arbitrations. The JCAA's incoming caseload has decreased slightly in the last few years, while the ongoing caseload reduced noticeably in 2018, having previously been quite consistent.
Perhaps unsurprisingly, the data for the last few years shows that JCAA arbitrations involve more Japanese parties than any other nationality (both as claimant and respondent). In 2018, approximately two thirds of claimants were Japanese and around half of respondents. There have been more Japanese claimants than respondents in JCAA arbitrations every year since 2015, corresponding with the increasing willingness to arbitrate the disputes mentioned above.
Around half of JCAA arbitrations from 2016 to 2018 were valued between JPY100 million to JPY1 billion (approximately USD900,000 to USD9 million). There have been only four or five high-value arbitrations worth more than JPY10 billion each year (approximately USD90 million).
Data is not so readily available for the other main Japanese arbitration institution, the Tokyo Maritime Arbitration Commission of the Japan Shipping Exchange (TOMAC). However, the available information suggests that TOMAC handled an average of around 15 arbitrations per year between 1996 and 2000, whereas recently that number is thought to have fallen to around ten arbitrations per year.
The drop in the number of arbitrations administered by the Japanese institutions in recent years matches the overall decline in Tokyo’s popularity as a preferred seat of international arbitration. According to a survey of arbitration practitioners conducted by Queen Mary University of London and White & Case, Tokyo was the third most preferred seat of arbitration in 2010 (after London and Geneva, and tied with Paris and Singapore). However, in the 2015 and 2018 surveys, Tokyo no longer appears in the list of the top seven most preferred seats.
There are a number of possible explanations for Japan not being a more popular seat for international arbitration. First, foreign companies are reluctant to agree to Japan as the seat for the arbitration and location for any hearings (not least due to geographic inconvenience, but also due to the need to submit arguments and evidence in Japanese, should it be necessary to apply to the Japanese court). Second, Japanese corporations tend to agree readily to a neutral seat. Third, Japan is a relatively expensive place to hold an arbitration hearing and is only now starting to provide the sorts of facilities that have been available in Singapore and Hong Kong for some years (such as the Japan International Dispute Resolution Centre (JIDRC) in Osaka, which opened in May 2018 and hosted its first arbitral hearing in March 2019). Finally, the Japanese government has not promoted Japan as a seat for arbitration as actively as its rivals in Asia. For example, as discussed in section 15 below, Japanese legislators have yet to confirm the situation regarding third-party funding in Japan, whereas Singapore and Hong Kong have both enacted legislation to the same effect in recent years.
As mentioned above, international arbitration is increasing in popularity in Japan and the number of experienced arbitration practitioners is rising at both Japanese and international law firms. It is also understood that the JIRDC plans to open a facility in Tokyo in the near future.
International arbitration is most popular with energy and construction companies in Japan. It is also increasingly the preferred dispute resolution mechanism of the major trading houses, which operate in numerous different industries. In recent years, an uptake in automotive and telecommunications companies choosing international arbitration has also been noticed.
As previously mentioned, there are two main institutions for international commercial arbitration in Japan: the JCAA and the TOMAC.
The JCAA was founded in 1953 and manages both international and domestic commercial arbitrations. Following a consultation exercise, the JCAA recently updated its rules and procedures. Since 1 January 2019 the JCAA now offers three different sets of arbitration rules.
TOMAC was established as a branch of the Japan Shipping Exchange in 1926 and administers maritime disputes. It has a three-track system of arbitral rules depending on the value of the dispute.
In addition to the Japanese institutions, one sometimes sees arbitrations pursuant to the rules of the International Chamber of Commerce (ICC) seated in Japan. Japanese corporations also often include Singapore International Arbitration Centre (SIAC) or Hong Kong International Arbitration Centre (HKIAC) arbitration clauses in their international agreements, but any such arbitrations are usually seated outside of Japan.
Arbitration in Japan is governed by the Arbitration Act (Law No 138 of 2003), effective from 1 March 2004 (the Act).
The Act governs all arbitrations seated in Japan, both domestic and international, as well as any enforcement of foreign awards in Japan. Court proceedings related to arbitration are governed by the Supreme Court Rules on Procedures of Arbitration Related Cases (Supreme Court Rule No 27, 26 November 2003).
The Act is largely based on the UNCITRAL Model Law on International Commercial Arbitration (1985) (the Model Law), with a handful of exceptions.
One of the most notable differences is that, if an arbitration agreement does not expressly state the governing law of the dispute, Article 36 of the Act stipulates that it will be ‘the substantive law of the State with which the civil dispute subject to the arbitral proceedings is most closely connected’. Accordingly, the Act does not refer to any conflict of law rules, in contrast to the Model Law.
Another difference is that, unlike the Model Law, the Act contains no restriction on the period within which the arbitral tribunal may correct an error in an award on its own initiative (although, under Article 41 of the Act, any application for the correction of any non-substantive error in an award made by a party must be brought within 30 days of the issuance of the award).
There have not been any significant changes to the national arbitration law within the past year, nor is there any pending legislation which might change the arbitration landscape in Japan.
In Japan, arbitration agreements are only enforceable in respect of "a civil dispute that may be resolved by settlement between the parties (excluding that of divorce or separation)" (Article 13 of the Act).
The only requirement for an arbitration agreement to be valid in Japan is that it be in writing. For example, email correspondence can form a valid arbitration agreement in the absence of a formal contract (although in practice it is usual in Japan, as elsewhere, to include the arbitration agreement in the contract between the parties).
Matters relating to divorce or separation and individual labour disputes between employers and employees are not arbitrable (Article 13 of the Act and Article 4 of the Supplementary Provisions to the Act respectively). Similarly, arbitration agreements between a consumer and a business cannot be enforced against the consumer – but may be relied on by the consumer against the business (Article 3 of the Supplementary Provisions to the Act).
Generally speaking, the Japanese courts are regarded as pro-arbitration and arbitration agreements will therefore usually be upheld, provided that they are recorded in writing. The approach of the Japanese courts to litigation commenced in breach of an arbitration agreement is discussed further in 5.6 Breach of Arbitration Agreement below.
The Act recognises the separability of arbitration agreements. Article 13(6) states that, where contractual provisions other than the arbitration agreement are found to be invalid or void, this will not automatically result in the arbitration agreement being rendered void (even if all of the other terms of the contract have been invalidated).
Generally speaking, there are no limits on the parties' autonomy to select arbitrators. Accordingly, the number of arbitrators, and method of their appointment, will depend on the arbitration agreement. The parties are also free to agree a procedure for appointing the arbitrators under Article 17(1) of the Act.
If the parties have specified any qualifications that the arbitrators must possess within the arbitration agreement, the arbitrators should comply with those requirements; failure to do so will likely give the other party grounds to challenge the appointment under Article 18(1)(i) of the Act.
The appointment of arbitrators is predominantly governed by Article 17 of the Act which provides that, in any arbitration with a three-member tribunal, each party will appoint one arbitrator, following which the two party-nominated arbitrators will choose the third arbitrator (as is usual in international arbitration).
Article 17 of the Act states that the court will appoint arbitrators in the following situations:
Pursuant to Article 16, the default number of arbitrators for a standard two-party arbitration is three. The court also retains the power to determine the number of arbitrators where there are three or more parties to an arbitration and the parties cannot agree the number of arbitrators or a selection process.
Under Article 4, the court can only intervene where permitted by the Act. The Act permits the court to intervene in various situations, including regarding the appointment of arbitrators as mentioned above. The court may also be requested by a party to review and decide a challenge to the appointment of an arbitrator if the arbitral tribunal has already rejected the challenge (Article 19 of the Act). Otherwise, the court cannot generally intervene in the selection of arbitrators.
Article 18 of the Act stipulates the following grounds for challenging an arbitrator:
The Act does not expressly state that arbitrators are required to be independent and impartial. However, as previously explained, justifiable doubts as to independence and impartiality are grounds to challenge an arbitrator's appointment, hence independence and impartiality are implied requirements.
Under Article 18(3), a potential arbitrator who has been approached to act must disclose fully any circumstances likely to give rise to justifiable doubts as to their impartiality or independence. This duty continues throughout the arbitration, pursuant to Article 18(4). The court will itself also consider the impartiality and independence of candidates when appointing arbitrators, under Article 17(6) of the Act.
The JCAA Commercial Arbitration Rules (2019 edition, the JCAA Rules), however, do expressly provide that arbitrators must be, and remain at all times, impartial and independent (Rule 24). Rule 24 otherwise largely mirrors the terms of the Act, and also requires arbitrators to submit a 'Declaration of Impartiality and Independence'.
This requirement has been under the spotlight in recent years, due to a series of cases relating to an alleged potential conflict of interest arising in relation to the president of an arbitral tribunal (beginning in the Osaka District Court, 17 March 2015, 2014 (arb) No 3, 2270 Hanrei Jiho 74). In brief, the president was a lawyer in the Singapore office of a law firm. Around 18 months after the arbitration began, a new lawyer moved to the San Francisco office of the same law firm. The new lawyer had represented the sister company of the applicant in unrelated proceedings in California (and continued to represent the sister company following the move). It was unclear whether the presiding arbitrator had been aware of this fact before the award was rendered, but in any case the president failed to disclose this information to the parties.
The Osaka District Court found that the circumstances did not give rise to a justifiable doubt as to the president's independence and dismissed the challenge, notwithstanding the ongoing duty of disclosure on the arbitral tribunal. The applicant appealed to the Osaka High Court which took a strict approach and, to the surprise of many practitioners, allowed the appeal and set aside the award (Osaka High Court, 28 June 2016, 2015 (ra) No 547, 2319 Hanrei Jiho 32). It did so on the basis that, since the potential conflict could have been easily identified by the law firm's conflict-check procedures, it was irrelevant whether or not the potential conflict had been identified and/or identified but cleared – the president's failure to disclose the information equated to a serious procedural defect which justified setting aside the award.
At the time, this result was generally perceived as overly strict and somewhat out of line with the broadly pro-arbitration attitude of the Japanese courts. However, the Supreme Court ruled on the case at the end of 2017 and overturned the High Court's decision (Japan Supreme Court, 12 December 2017, 2016 Kyo No 43.), sending the case back to the High Court. General practice is that the High Court will follow the Supreme Court's decision and so it is not expected to set aside the award again. The Supreme Court focused on the fact that it was unclear whether the president had been aware of the facts, whether the law firm was similarly aware or what sort of conflict-check processes the law firm had in place. As such, it disagreed with the High Court that the president would definitely have become aware of the potential conflict if reasonable checks had been performed. However, the Supreme Court agreed with the High Court that the duty of disclosure was ongoing and that merely telling parties that a conflict could potentially arise, as the president had done in his declaration to the JCAA, did not constitute proper disclosure. Equally important was the Supreme Court's view that the disclosure obligation is not merely limited to facts of which an arbitrator is actually aware, but also includes facts which an arbitrator should be aware of if reasonable checks were conducted. This represents an important reminder to arbitrators, especially those operating in larger international law firms, to take care with regard to their ongoing duties (although this also represents a significant logistical challenge for larger international firms).
There are various matters which are not arbitrable in Japan. See 3.2 Arbitrability above for more information.
Article 23(1) of the Act specifically allows an arbitral tribunal to rule on its own jurisdiction, including ruling on allegations as to the existence or validity of the arbitration agreement under which it is appointed (ie, applying the kompetenz-kompetenz principle).
As mentioned above, the Japanese courts’ jurisdiction over arbitral proceedings is restricted to the matters expressly set out within the Act (Article 4). As mentioned in 4.3 Court Intervention above, other than the appointment of arbitrators in certain situations and ruling on a challenge to the appointment of an arbitrator (after the arbitral tribunal has itself ruled), the court has limited powers to address issues concerning the jurisdiction of an arbitral tribunal (which has jurisdiction to rule on its own competence, as explained above). The Japanese courts also have a generally pro-arbitration attitude in line with the Act and are usually slow to intervene in arbitration proceedings.
As explained above, in the first instance, challenge to the jurisdiction of an arbitral tribunal should be raised with the tribunal itself rather than with the court.
Under Article 23(2) of the Act, a challenge to the jurisdiction of an arbitral tribunal must be made before the first written statement on the substance of the dispute is submitted (or oral submission made at a hearing, if sooner), or 'promptly' where the grounds for the challenge arise during the arbitration. However, the same provision also says that an arbitral tribunal may admit a challenge later if it considers the delay justified.
Where the arbitral tribunal has ruled that it has jurisdiction, a party can apply to the court within 30 days for a decision as to whether the tribunal has jurisdiction, although the arbitral proceedings can continue while such a request is pending (Article 23(5)). If an arbitral tribunal rules that it does not have jurisdiction, however, the Act does not permit a party to appeal to the court.
If an arbitral tribunal renders an award which includes decisions on matters beyond the scope of the arbitration agreement or the claims made in the proceedings, a party may apply to the court to set aside the arbitral award (Article 44(1)(v) of the Act).
When deciding on an application under Article 23(5), following an arbitral tribunal's affirmation of its own jurisdiction, the court will have unfettered discretion to rule as it sees fit (ie, a de novo review) and will not necessarily defer to the tribunal's decision. However, that is set against the backdrop of a generally pro-arbitration attitude, and Japanese judges tend to give weight to the tribunal’s decision even in a de novo review.
If a claim is commenced in the Japanese courts in breach of an arbitration agreement, the court will usually dismiss the proceedings unless it finds either that the arbitration agreement is void or the arbitration proceedings are incapable of being performed on the basis of the arbitration agreement. However, Article 14 of the Act provides that the defendant must file an application to dismiss the court proceedings before it advances any case on the merits of the dispute. The application is normally made in writing and the parties may be requested to make further written submissions.
The Act is silent on the potential jurisdiction of an arbitral tribunal over third parties. Accordingly, an arbitration agreement will not usually apply to any party that is not a direct signatory to the contract containing the arbitration agreement (or the arbitration agreement itself). It may be possible for a company's signature to an arbitration agreement to bind both its assignees/successors and a representative director of the company, for example, but there is some debate over this, since the relevant case precedents pre-date the Act.
Article 24(1) provides that the arbitral tribunal may, unless the parties agree otherwise, order a party to take such interim or provisional measures as the tribunal considers necessary. The Act does not specify or otherwise limit the types of remedies that an arbitral tribunal may order.
However, although the Act empowers an arbitral tribunal to make a broad range of interim orders, such as for security for costs or the preservation of assets or evidence, such orders are not enforceable by the court.
Article 71 of the JCAA Rules also empowers an arbitral tribunal to grant interim measures, for example, to maintain the status quo, provided that the tribunal is satisfied that harm not reparable by a damages award would occur in the absence of such an order and that the applicant has a reasonable possibility of succeeding on the merits. The same provision expressly states that the parties will be bound by and required to carry out any interim measure ordered by an arbitral tribunal. Although such an order cannot be enforced by the court, in practice such orders are commonly obeyed by parties, due to the fear of the arbitral tribunal forming a negative opinion of a non-compliant party.
Article 15 of the Act allows parties to request an 'interim measure of protection' from the court in relation to any civil dispute which is the subject of an arbitration agreement. This is in line with Article 9 of the Model Law, which states that applying to a court for an interim measure is not incompatible with an arbitration agreement. The Act does not specify or otherwise limit the types of remedies that the court may order, which are instead governed by the Civil Provisional Remedies Act (Act No 91 of 22 December 1989).
Generally speaking, the Act only applies to arbitrations seated in Japan but, pursuant to Article 3(2) of the Act, Article 15 also applies when the place of the arbitration is outside of Japan (or not specified). Accordingly, the Japanese court is able to grant interim relief in aid of foreign-seated arbitrations.
The Act does not provide for the use of emergency arbitrators, although the JCAA Rules do contain provisions allowing the appointment of an emergency arbitrator (Articles 75 to 79). Under Article 78 of the JCAA Rules, any decision of an emergency arbitrator is expressly not binding on the arbitral tribunal. As mentioned elsewhere, the ability of the court to intervene in arbitrations, including the appointment of emergency arbitrators, is restricted to the powers given to it under the Act, pursuant to Article 4. Since the Act does not mention emergency arbitrators, it is unlikely that the court would be able to intervene.
In addition to the court's ability to order security for costs under the Civil Provisional Remedies Act, as previously mentioned, Article 24(2) of the Act provides that the arbitral tribunal may also order any party to provide appropriate security in connection with any interim or provisional measures ordered pursuant to Article 24(1).
The parties are free to agree the procedure for the arbitration, provided that any such procedure does not violate the Act or public policy (Article 26(1) of the Act). In the absence of such an agreement, the arbitral tribunal can conduct the proceedings in any manner that it deems appropriate pursuant to Article 26(2), again, unless that manner violates the Act. If the parties cannot agree on the procedure for the arbitration, the tribunal is authorised to determine the admissibility of evidence, necessity of examination of evidence and weight of evidence (see Article 26(3) of the Act).
Article 25 of the Act also states expressly that the parties shall be treated equally and be given a full opportunity to present their cases.
There are relatively few procedural steps required by the Act, which gives the parties or the arbitral tribunal a broad discretion to decide the procedure of the arbitration (as mentioned above). In practice, the majority of arbitrations seated in Japan are governed by the rules of one of the major arbitration institutions, which will invariably provide for the initial procedural steps of the arbitration to be followed by more detailed procedural guidance from the arbitral tribunal (usually after consultation with the parties).
As mentioned above, the arbitrators are under a duty to treat the parties equally and permit them a full opportunity to present their case. In addition, as described in 4.5Arbitrator Requirements, Article 18 of the Act also imposes an ongoing obligation on arbitrators to disclose all facts that could give rise to doubts as to their impartiality and independence.
There are various powers given to arbitrators under the Act, including in certain circumstances the power to:
In any international arbitration seated in Japan, parties generally have free choice as to whether they prefer to be represented by Japanese lawyers, foreign lawyers practising outside of Japan, or registered foreign lawyers practising within Japan (or a combination of the foregoing, which is quite common).
Under the current provisions, however, only Japanese lawyers may act on behalf of the parties in the case of domestic Japanese arbitrations.
An 'international arbitration' is defined in Article 2(xi) of the the Act on Special Measures concerning the Handling of Legal Services by Foreign Lawyers (Law No 66 of 1986) (as amended in 2003) as "a civil arbitration case which is conducted in Japan and in which all or part of the parties are persons who have an address or a principal office or head office in a foreign state". This has been argued to mean that an arbitration between two wholly owned Japanese subsidiaries of foreign parent companies is not truly an 'international arbitration' for the purposes of Japanese law, and that foreign counsel are therefore prohibited from acting.
It is understood that the Japanese Ministry of Justice has been considering this problem recently and that reform of the relevant laws may soon be forthcoming. It is expected that any future reform will reflect the content of the "Report of the Review Committee for Representation in International Arbitration, etc. by Registered Foreign Lawyers or Foreign Lawyers" (issued on 25 September 2018) by easing the regulations and broadening the scope of what is considered to be 'international arbitration' under the relevant provisions.
The Act does not discuss document disclosure expressly. The parties may either agree on whether there will be any document disclosure in the arbitration (and if so, the rules for disclosure), or the arbitral tribunal may determine those questions pursuant to the broad discretion given to the tribunal to determine procedural matters.
Practitioners from common-law jurisdictions should be aware that full common law-style disclosure is not a feature of Japanese litigation (or commonly used in domestic arbitration within Japan). If the parties do not agree on a procedure for document disclosure, an international arbitral tribunal including Japanese lawyers may therefore order limited document production only. However, it should be noted that Japanese practitioners are increasingly familiar with document production practices in international arbitration. In recent times, it has become quite usual to have document disclosure in Japan-seated arbitrations by way of an exchange of 'Redfern Schedules' (as is common in international arbitration).
Article 54 of the JCAA Rules states that parties have the burden of proving facts on which they rely and that the arbitral tribunal may order any party to produce documents in its possession that the tribunal considers necessary.
The Japanese approach to legal privilege differs from the common-law approach, but in international arbitration parties will commonly assert privilege where appropriate, following broad international arbitration norms (ie, parties will not disclose communications with legal counsel, etc). Occasionally parties also expressly agree a specific system of privilege that will be adopted.
In addition to being silent on document disclosure, the Act also makes few references to witness evidence, although witnesses are mentioned in various places (for example, in Article 28 the arbitral tribunal is given the power to hear the parties, experts or witnesses at any place it considers appropriate). As in most international arbitrations, in practice any witnesses are usually cross-examined at an oral hearing after submission of written statements (unless the other party elects not to cross-examine a witness). Article 50 of the JCAA Rules authorises the arbitral tribunal to determine whether or not there will be cross-examination of witnesses, which would be usual in all but the most simple or low-value cases.
Neither the Act nor the JCAA Rules contain detailed rules of evidence and the parties are free to agree the same, failing which the arbitral tribunal has a wide discretion to decide what rules should apply.
As mentioned in 7.1 Governing Rules above, the arbitral tribunal is authorised to determine the admissibility of evidence, necessity of examination of evidence and weight of evidence if the parties do not agree otherwise (Article 26(3)).
As elsewhere, one often sees the IBA Rules on the Taking of Evidence in International Arbitration incorporated into the arbitral procedure of arbitrations seated in Japan. Sometimes, this is provided for expressly in the arbitration agreement itself, but more commonly it is agreed by the parties or recommended by the arbitral tribunal and incorporated by reference in the procedural order.
Under the Act, an arbitral tribunal is generally considered to have the power to order the parties to produce documents or require the attendance of witnesses under its broad discretion to decide the procedure of the arbitration (unless otherwise agreed by the parties), but such orders are not enforceable by the court. An arbitral tribunal does not normally have any ability to compel directly non-parties to the arbitration to take any action (for example, to provide documents or appear as a witness).
However, under Article 35 of the Act, an arbitral tribunal (or parties to an arbitration with the approval of the tribunal) may apply to the court for assistance with the taking of evidence (in relation to the parties to the arbitration and also third parties). This may include, among other options, examination of witnesses, expert testimony and investigation of documentary evidence. Following such an application, the arbitral tribunal is entitled to examine documents etc, and, with permission of the presiding judge, put questions to witnesses.
The Act does not provide for the confidentiality of arbitral proceedings, although parties are free to agree that the proceedings should be confidential. Within Japan, arbitrations are usually regarded as confidential by arbitration practitioners and the parties they represent, unless the parties agree otherwise (which would be very unusual). In practice, where there is no express provision for confidentiality in the relevant contract or any institutional rules that may be applicable, parties will commonly agree expressly that the arbitration should be private and confidential.
In addition, Rule 42 of the JCAA Rules expressly imposes confidentiality obligations on the parties, the arbitral tribunal, the JCAA itself and any other persons involved in the proceedings. To the extent that confidentiality is important to a party to an arbitration agreement, the most cautious approach is to ensure that either confidentiality provisions are included in the arbitration agreement expressly, or institutional rules providing for confidentiality of the proceedings are chosen to govern the arbitration.
The formal requirements for a valid arbitral award are contained within Article 39 of the Act. In particular, an arbitral award is required to be made in writing and signed by the arbitrator who made it or, in the case of a multi-member arbitral tribunal, signed by a majority of the arbitrators, with an explanation of the absence of the signature of the rest. Unless the parties have agreed otherwise, in order to be validly issued an award must also include the reasons on which it is based (as well as the date and the place of arbitration). In practice, parties will almost always require the arbitral tribunal to include its reasoning in the award.
The JCAA Rules contains more detailed requirements for the content and format of an award issued in a JCAA-governed arbitration (Rule 66).
The Act does not specify a particular time by which an award must be delivered, although the JCAA Rules require an arbitral tribunal to use reasonable efforts to issue its award within nine months from the date it is constituted (Rule 43).
There are no express limits contained within the Act as to the final remedies that an arbitral tribunal may award. As such, the arbitral tribunal can grant such remedies as are available under the substantive law of the dispute (for example, injunctions or declaratory relief), unless they are against public policy, which would be a ground to set the award aside under Article 44(1)(viii). In this regard, an arbitral tribunal seated in Japan is not permitted to grant punitive damages (which have been held previously to be against public policy by the Supreme Court).
The Act allows parties to agree the apportionment of costs. In the absence of such an agreement, the presumption under Article 49(2) of the Act is that each party will bear their own costs, regardless of the outcome of the proceedings (ie, the arbitral tribunal will not simply default to a ‘costs follow the event’ approach).
In practice, most Japan-seated international arbitrations are institutional arbitrations, with the relevant institutional rules normally giving arbitral tribunals a broad power to apportion costs. For example, the JCAA Rules, like most other institutional rules, give the arbitral tribunal the power to allocate costs, including legal fees and expenses, based on factors such as the parties’ conduct, the outcome on the merits of the dispute and a wide 'catch-all' of "any other relevant circumstances" (Article 80). However, pursuant to Article 80(1) of the JCAA Rules, the arbitral tribunal must be persuaded that the fees and expenses being claimed are reasonable in order for them to be recoverable.
The Act does not expressly address claims for interest. Neither do the JCAA Rules, although it appears to be assumed that interest is at least potentially recoverable (for example, any claim for interest is included in determining the overall amount of the claim for deciding the arbitrators' remuneration, Article 92(e)). The rate of interest recoverable will depend on the substantive law of the dispute and it is normal for interest of some sort to be awarded in Japanese-seated arbitrations (where appropriate).
Parties to an arbitral award are not permitted to appeal directly to the Japanese courts, but can apply for the award to be set aside if the award satisfies any of the grounds set out in Article 44 of the Act.
Article 44 contains limited grounds for setting aside an arbitral award, which are broadly in line with the Model Law. The majority of the possible grounds for setting aside an award are procedural, for example if the arbitration agreement is invalid due to a party not having had proper capacity to make such an agreement (Article 44(1)(i)). Others relate to jurisdiction, for example, if the arbitral tribunal has exceeded the proper scope of the arbitration agreement or if the issues in dispute include claims which are not properly arbitrable in Japan (see 3.2 Arbitrability). In addition, an award may be set aside if it conflicts with 'the public policy or good morals of Japan' (see 10.2 Types of Remedies).
An application to set aside an award must be made within three months of receipt of the award.
To date, it has been very rare for the Japanese court to set aside an arbitration award.
The broad consensus amongst practitioners is that parties are not able to waive the right to set aside an arbitral award on the limited grounds set out in the Act. This is because those grounds are considered to be indispensable for the administration of justice. However, the Act itself is silent on whether it is possible to extend or exclude the grounds to set aside an award.
Since parties are not entitled to appeal the award to the Japanese courts, the courts will not conduct any review of the merits other than to determine whether any of the grounds exist to set aside the award following an application from one of the parties. The nature of the review will therefore necessarily be a 'de novo' review, and not deferential to the arbitral tribunal's decision.
Japan is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the 'Convention'). The recognition and enforcement provisions of the Act closely mirror the recognition and enforcement provisions of the Convention and the Model Law. However, Japan's accession to the Convention is restricted to recognising and enforcing awards of other signatory states.
An arbitral award is treated as having the same binding effect as a final judgment of the Japanese courts, regardless of whether or not the arbitration is seated in Japan, provided that it satisfies the requirements of Article 45 of the Act.
Article 45 largely reproduces the provisions of the Convention and the Model Law in terms of the available grounds for refusing enforcement. Under Article 45.2(vii), if an arbitral award is set aside by the court of the seat of the arbitration then the award is not enforceable in Japan.
There are no statutory provisions providing for sovereign immunity of the state or state entities in Japan. The Act on the Civil Jurisdiction of Japan with respect to a foreign state (Act No 24 of 2009) provides that, generally speaking, foreign states and state entities are subject to the Japanese courts' jurisdiction in relation to a commercial transaction. However, the consent of the state or state entity would be required in order to enforce an award against a foreign state or state entity within Japan (separately from entering into the arbitration agreement).
The Japanese courts have generally taken a pro-arbitration approach to enforcement of both domestic and international arbitration awards. As mentioned above, the grounds for refusing recognition of an award are contained within Article 45 of the Act. We are not aware of any instances of the Japanese courts refusing to recognise or enforce an arbitral award (excluding the very rare instances where the courts have set aside arbitral awards following an application under Article 44).
Japanese law provides for collective litigation for consumers (see the Act on Special Provisions of Civil Court Procedure for Collective Recovery of Consumer Property Damage (Act No 96 of 2013)), which could be categorised as one type of class action. However, the legal framework is allowed only in specific situations and the only dispute resolution under the relevant act is domestic litigation. Accordingly, class-action arbitrations are not common in Japan.
See 3.2 Arbitrability above for more detail on types of claims which are not arbitrable in Japan generally.
There are various regulations governing the activities of Japanese lawyers and registered foreign lawyers in Japan. For example, the 'Basic Rules on the Duties of Registered Foreign Lawyers', issued by the Japan Federation of Bar Associations (or Nichibenren) governs basic ethics for registered foreign lawyers in Japan.
However, there are no such codes directly applicable to foreign counsel simply by virtue of them acting in a Japan-seated arbitration. The ethics and professional standards of foreign counsel acting in Japan-seated arbitrations would be governed by the ethical codes and standards of the jurisdiction in which the counsel is qualified.
For arbitrators, the Act imposes various obligations and duties regarding independence and impartiality and disclosure of facts that might give rise to justifiable doubts as to the same (as described in 4.5 Court Intervention above). In addition, the Japan Association of Arbitrators published a code of ethics for arbitrators in 2008, which contains similar requirements to the Act.
Third-party funding is not expressly prohibited in Japan, although nor is it expressly permitted. As such, concerns have been expressed regarding potential issues relating to the assignment of claims and the requirement under Japanese law that only qualified lawyers can provide legal services or act in legal proceedings. In reality, though, third-party funders do not usually seek to control the conduct of a claim and claims are not normally assigned to a third-party funder, so it may be that these issues would seldom arise in practice. However, since there is currently some uncertainty as to its legality, third-party funding is not widely used in Japan. Practitioners and parties to arbitration alike would benefit from clarification by the Japanese courts or legislators.
Consolidation is not provided for (or indeed mentioned at all) in the Act.
However, Article 57 of the JCAA Rules provides for consolidation where:
(i) the same or similar questions of fact or law arise from the claims;
(ii) the dispute is referred by the arbitration agreement to arbitration under the JCAA Rules; and
(iii) the arbitral proceedings are capable of being conducted in a single set of proceedings.
As mentioned in more detail in 5.7 Third Parties above, an arbitration agreement will not normally bind a third party. Similarly, an arbitral award will usually be enforceable only against the parties to the arbitration.
Pursuant to Article 1, the Act applies predominantly to arbitrations seated in Japan and related proceedings in the Japanese courts (for example, applications pursuant to Articles 3(2) and 15 of the Act for interim measures in support of a foreign-seated arbitration). Generally speaking, there are very few references to third parties (whether foreign or domestic) within the Act.
Accordingly, there are no express provisions on the joinder of third parties in the Act, although Article 56 of the JCAA Rules does provide for joinder. Under the JCAA Rules, a third party can join an arbitration (or be involved at the initiative of the parties) if either (i) all the parties agree to the joinder in writing, or (ii) all the claims are made under the same arbitration agreement. However, the third party's written consent will be required if a party seeks to join it as a respondent after the constitution of the arbitral tribunal.