Generally speaking, Japanese corporations have traditionally preferred settling disputes without resorting to formal dispute resolution proceedings such as litigation or international arbitration. If they resort to such formal proceedings, they have generally preferred litigation to international arbitration, mainly because of the relatively lower costs for court proceedings as well as the reliability and high quality of Japanese judges. Having said that, the number of international arbitration cases in Japan is slowly but gradually increasing as more and more Japanese corporations have started to realise the effectiveness of international arbitration in resolving disputes. In recent years, the Japan Commercial Arbitration Association (explained in 1.4 Arbitral Institutions) administers approximately ten to 20 cases per year.
The Japan International Mediation Center in Kyoto (JIMC-Kyoto) was established and started its operation in 2018. The JIMC-Kyoto offers a dispute resolution mechanism in conjunction with both mediation and arbitration by providing parties with options such as (i) filing for mediation, but if the parties fail to reach a settlement in mediation, then moving on to an arbitration proceeding (Med-Arb) and (ii) filing for arbitration, moving to a mediation proceeding, but if the parties fail to reach a settlement, then moving back to the arbitration proceeding (Arb-Med (-Arb)), etc.
In mid-2017, the government of Japan stated in its “Basic Policy on Economic and Fiscal Management and Reform 2017” that it would promote the development of total legal support and reliable judicial systems, including a foundation to stimulate international arbitration. Following this, the Japan International Dispute Resolution Centre (JIDRC) was established in February 2018. Subsequently, in May 2018, the JIDRC-Osaka opened as the first facility specialised for international arbitration hearings or other types of ADR proceedings in Japan. The JIDRC-Tokyo opened a hearing facility in Tokyo in March 2020.
From 1 June 2020, the JIDRC-Tokyo and the JIDRC-Osaka resumed their operation after temporary closure due to the COVID-19 pandemic. They are equipped with video-conference systems for virtual hearings. While civil cases at courts in Japan cancelled most case-management conferences and hearing dates due to the COVID-19 pandemic, based on experience, it appears that arbitration proceedings in Japan have been conducted without significant delay, with due care about the health of the relevant persons involved.
More trading companies have started to resort to international arbitration in recent years. There has also been a gradually increasing trend for energy- and construction-related disputes to be resolved through international arbitration in Japan.
The main arbitral institutions are the Japan Commercial Arbitration Association (JCAA) for commercial arbitrations and the Tokyo Maritime Arbitration Commission of the Japan Shipping Exchange Inc. for maritime arbitrations.
The JCAA offers three sets of arbitration rules:
The JCAA Interactive Rules adopt “a more civil law approach” and have some unique features. For example, under the JCAA interactive Rules, the arbitral tribunal shall disclose its “preliminary views” of factual and legal issues of the case before witness hearings. In addition, the amount of arbitrator(s)’ remuneration under the JCAA Interactive Rules is fixed depending on the amount or economic value of claim, and that fixed remuneration is at a lower cost compared to a limit of hourly charge-based remuneration under the JCAA Rules.
The Arbitration Act (Act No 138 of 2003) governs international arbitration seated in Japan.
The Arbitration Act broadly adopts the UNCITRAL Model Law (prior to its 2006 amendment), but there are some deviations from the UNCITRAL Model Law. Below are some notable examples of such deviations:
There have not been any significant changes to the Arbitration Act in the past year and there is no pending legislation that may change the arbitration landscape in Japan. As for recent legislation regarding expansion of representation of international arbitration cases by foreign lawyers, see 7.4 Legal Representatives.
An enforceable arbitration agreement must be in writing. This may be evidenced in the form of a document signed by all parties, or by an exchange of letters, telegrams, facsimiles, etc. In addition, an arbitration agreement may be recorded in electromagnetic form.
Under the Arbitration Act, an arbitration agreement can be made only for a civil dispute (excluding disputes of divorce or the dissolution of an adoptive relationship) which can be settled by the parties, except as otherwise provided for in laws and regulations. In addition, individual labour disputes are not arbitrable.
Japanese courts are generally considered pro-arbitration and will enforce valid arbitration agreements. Under the Arbitration Act, if a case is filed with the court of Japan for a dispute which is subject to an arbitration agreement, the court shall dismiss the case unless: (i) the arbitration agreement is not valid due to nullity, rescission or for any other reasons; (ii) it is impossible to carry out an arbitration procedure based on the arbitration agreement; or (iii) the defendant’s request for a dismissal was made after it provided argument on the merits in the court proceedings in which a dismissal has been sought.
Under Article 13, paragraph (6) of the Arbitration Act, an arbitration clause is not invalid per se, even if other provisions in the contract containing that arbitration clause are invalid due to nullity, rescission or for any other reasons.
Under the Arbitration Act, there are no citizenship, residency or professional requirements or limitation on the parties’ autonomy to select arbitrators. Although in practice most appointed arbitrators are legal professionals (such as professors of law, former judges, or attorneys), no such qualification is required under the Arbitration Act. However, in the event that the parties have agreed on specific requirements for arbitrators in the arbitration agreement, those requirements must be complied with.
The Arbitration Act provides the following default procedures for selecting arbitrators in the absence of the parties’ agreement on arbitrators.
Under Article 16 of the Arbitration Act, in the case that the parties fail to agree on the number of arbitrators:
Under Article 17 of the Arbitration Act, in the case that the parties fail to agree on the appointment of the arbitrators:
The Arbitration Act provides that the courts shall have the power to intervene in arbitration proceedings only when they are permitted to do so under the Act.
Specifically, the court may, on the request of one or more of the parties, intervene to determine the number of arbitrators to be appointed in an arbitration involving three or more parties if the parties fail to do so, or appoint a sole arbitrator or co-arbitrator if one or more parties fail to do so, or a third arbitrator if the two arbitrators appointed by the parties fail to do so.
The court may, on the request of one or more of the parties, determine an unsuccessful challenge by a party to the arbitral tribunal as to whether grounds exist to challenge the arbitrator.
Under the Arbitration Act, the parties may challenge an arbitrator if:
Under the Arbitration Act, a person who has been requested to become an arbitrator and intends to accept that request is required to disclose to the person who made that request all facts that would likely give rise to doubts as to his or her impartiality or independence. Further, during the course of the arbitration procedure, an arbitrator is required to disclose to the parties all the facts that would likely give rise to doubts as to his or her impartiality or independence (excluding those which have already been disclosed).
The parties may challenge an arbitrator if there are reasonable grounds to doubt the impartiality or independence of the arbitrator.
The JCAA Rules provide for rigid disclosure rules for an arbitrator or an applicant for arbitrator.
See 13.2 Ethical Codes for information on the Supreme Court’s decision dated 12 December 2017 regarding an alleged conflict of interest of an arbitrator, as well as the JCAA Rules regarding disclosure.
Under Article 13, paragraph (1) of the Arbitration Act, disputes of divorce or dissolution of an adoptive relationship may not be referred to arbitration.
In addition, there are two special rules for arbitrability:
Under Article 23, paragraph (1) of the Arbitration Act, an arbitral tribunal may rule on its own jurisdiction.
The courts may address the issues of jurisdiction of an arbitral tribunal (i) when a party petitions a court to rule on whether an arbitral tribunal has jurisdiction after an arbitral tribunal has ruled that it has jurisdiction by its interim decision (Article 23, paragraph (5)) or (ii) when a party petitions to set aside the arbitral award for the reason of the non-existence of the arbitral tribunal’s jurisdiction.
Such a petition is permitted only for the decision affirming jurisdiction of the arbitral tribunal, while courts do not review rulings denying jurisdiction by the arbitral tribunal.
Under the Arbitration Act, if an arbitral tribunal has ruled that it has jurisdiction by its interim decision made before an arbitral award, parties have the right to challenge the jurisdiction of the arbitral tribunal in court within 30 days of receipt of notice of that decision (Article 23, paragraph (5)). In the case that an arbitral tribunal denied its jurisdiction, parties do not have the right to challenge the arbitral tribunal’s decision in court.
In addition, parties may file a petition with the court to set aside the arbitral award, if:
In the case of judicial review over jurisdiction, the courts will apply a de novo standard. It should be noted that, if an arbitral tribunal denied its jurisdiction, a party does not have the right to challenge the arbitral tribunal’s decision at court.
Under the Arbitration Act, if a party has filed an action at court which is subject to an arbitration agreement, the court must dismiss the action without prejudice, upon the petition of the counterparty (Article 14, paragraph (1)).
Courts, however, will not dismiss the action if:
The Arbitration Act does not stipulate under what circumstances individuals or entities that are neither party to an arbitration agreement nor signatories would be bound by the agreement.
It is, however, considered that a general successor of rights and obligations of a dispute under an arbitration agreement (whether it is an individual or an entity) shall be bound by the arbitration agreement made by predecessors of the rights or obligations (see 13.5 Third Parties).
There is some debate as to whether the representative director or other directors of a company are bound by an arbitration agreement to which the company is a party (see 13.5 Third Parties).
Under the Arbitration Act, unless otherwise agreed by the parties, an arbitral tribunal may order a party to take interim measures or provisional measures, upon the petition of another party (Article 24, paragraph (1)).
Such interim measures, however, are not enforceable at court.
Under the Arbitration Act, parties to an arbitration agreement may file a petition for provisional order with the court (Article 15). Parties may file such a petition even if the place of arbitration is outside Japan (Article 3, paragraph (2)). Provisional orders include provisional seizure and provisional disposition.
The Arbitration Act is silent on the use of emergency arbitrators and courts will not intervene in the emergency arbitrator’s proceeding. The JCAA Rules allow the appointment of emergency arbitrators, who are entitled to take interim measures. Emergency arbitrators’ interim measures are not enforceable at court.
Both courts and arbitral tribunals may order a party to provide appropriate security in connection with interim or provisional measures (Article 24, paragraph (2) of the Arbitration Act, and Article 14, paragraph (1) of the Civil Provisional Remedies Act (Act No 91 of 1989)).
Parties are free to agree on the rules of an arbitration procedure which the arbitral tribunal should observe, unless such rules violate the provisions concerning public order provided in the Arbitration Act (Article 26, paragraph (1)). If any such agreement has not been reached, the arbitral tribunal may carry out the arbitration procedure in such a manner as it finds appropriate, unless that manner violates the provisions of the Arbitration Act.
The Arbitration Act requires the arbitral tribunal to:
Arbitrators should treat the parties equally and give the parties a full opportunity to explain its case (Article 25, paragraph (1) and (2)). In addition, during the course of the arbitration procedure, an arbitrator shall, without delay, disclose to the parties all the facts that would be likely to give rise to doubts as to his or her impartiality or independence (Article 18, paragraph (4)). For details of such disclosure, see 13.2 Ethical Codes.
An arbitrator who accepts, solicits, or promises to accept a bribe in connection with his or her duties shall be punished by imprisonment.
An arbitral tribunal is empowered by the Arbitration Act to:
Bengoshi (registered lawyers in Japan) can provide representation in arbitration as well as in domestic litigation under the Bengoshi Hō (Attorney Act). The issue is whether foreign lawyers can provide representation in arbitration in Japan. On this issue, the Act on Special Measures Concerning the Handling of Legal Services by Foreign Lawyers (which was amended in May 2020, and the relevant amendments in the amended Act will take effect on 29 August 2020) (this Act is hereinafter referred to as the “Gaiben Hō” or “2020 Amended Gaiben Hō” in this Section) stipulates that gaikokuhō jimu bengoshi (registered foreign lawyers who have obtained approval from the Minister of Justice to be engaged in legal services in Japan, or “gaiben”) can provide representation in “International Arbitration Cases”. The Act also provides that gaikokubengoshi (defined in the Gaiben Hō as foreign lawyers admitted to practise in foreign jurisdictions and who are equivalent to bengoshi, or “gaikoku-bengoshi”) can provide representation in “International Arbitration Cases”.
One of the main amendments of the 2020 Amended Gaiben Hō regards the enlargement of the scope of “International Arbitration Case” which gaiben and gaikoku-bengoshi can handle.
First, prior to the 2020 Amended Gaiben Hō, gaiben and gaikoku-bengoshi could not provide representation in arbitration cases seated outside Japan, even if the procedures occurred in Japan. Under the 2020 Amended Gaiben Hō, an arbitration case seated in a foreign jurisdiction categorically falls within an “International Arbitration Case”, and thus gaiben and gaikoku-bengoshi can provide representation.
Second, a party in the definition of “International Arbitration Case” has been amended to include an entity of which more than 50% of the voting shares (or equivalent) are owned by a person whose address or principal office or head office is outside Japan. By this amendment, even if the parties to the case are in Japan, if the parent company of a party has an address or a principal office or head office outside Japan, gaiben and gaikoku-bengoshi can provide representation.
Third, under the 2020 Amended Gaiben Hō, gaiben and gaikoku-bengoshi can provide representation in a case whose governing law agreed upon by the parties is a foreign law.
Each party owes a responsibility to collect and submit evidence which supports its respective allegations. Unlike the court in litigation, in principle, even the tribunal does not have the power to force the parties to disclose documents against their will, although it may seek assistance from the court.
Under the Arbitration Act, the arbitral tribunal has discretion to manage the arbitration proceedings, including setting out evidence rules, as long as they are not against the parties’ agreement. In many cases, at the early stage of the arbitration proceedings, parties agree on the procedures of the arbitration, including the protocol of disclosure.
Rules of evidence under the Code of Civil Procedure (Act No 109 of 1996) are not applicable to arbitration proceedings seated in Japan, and the parties may agree on the applicable rules of evidence as long as they are not in violation of public policy. In the case that agreement is not reached, the power conferred upon the arbitral tribunal shall, with regard to evidence, include the power to determine its admissibility as evidence, necessity of examination, and its probative value.
The JCAA Rules do not adopt particular rules of evidence. In recent international arbitration cases in Japan, the parties often agree to use the IBA Rules on the Taking of Evidence in International Arbitration as a guideline.
The arbitral tribunal does not have the power to force the parties or third parties to produce documents or to compel witnesses to testify in front of the arbitral tribunal. Since the tribunal has discretion to evaluate the value of evidence, usually the tribunal instructs the parties to submit documents and to present witnesses at the hearing by suggesting that non-compliance with the tribunal’s suggestion may lead to an adverse influence on the tribunal’s final determination.
Under the Arbitration Act, the tribunal may seek the court’s assistance on taking evidence if the tribunal determines it necessary. Upon request, the court asks the relevant authorities to conduct an inspection, hold hearings for examination of witnesses, etc. There are no differences between parties and non-parties in this regard.
The Arbitration Act does not have particular regulations on confidentiality. Thus, the parties are not prohibited by the Arbitration Act itself from disclosing the contents of the arbitration proceedings.
In practice, however, the parties normally agree on the confidentiality of the proceedings or agree to obey the institutional rules which usually set forth the duty of confidentiality. For example, Article 42 of the JCAA Rules sets forth that arbitration proceedings and documents related to the case shall not be open to the public. It also obliges the arbitrators, officials of the institution, parties, counsels of the parties, etc, not to divulge the facts related to or learned through the arbitration case and not to express any views as to those facts unless disclosure is required under the laws, court proceedings or unless there are other justifiable reasons.
The arbitral award must be in writing with the signature(s) of the arbitrator(s) involved. However, if the arbitral tribunal is a panel, it will be sufficient that the written arbitral award is signed by the majority of the arbitrators and the reason(s) for the omitted signature(s) of other arbitrator(s) is stated. The reasons for the award must be described unless otherwise agreed by the parties. Finally, the date of issuance of the award and place of arbitration must be written in the award.
Under the JCAA Rules, (1) full names and street addresses of the parties, (2) names and street addresses of the counsels of the parties, (3) the determination on the relief and remedy sought, (4) the procedural history, (5) the reasons upon which the arbitral award is based (except when the parties agree otherwise or when the arbitral tribunal records a settlement in the form of an arbitral award, in which case the reason for the omission of those reasons shall be stated), (6) the date of the arbitral award, and (7) the place of arbitration must be described. Further, the arbitral tribunal must set out the total amount and apportionment of the costs of the arbitration. Finally, the arbitrators must sign the award.
Under the JCAA Rules, the arbitral tribunal shall use reasonable efforts to render an arbitral award within nine months from the date when it is constituted. If the proceeding is the expedited arbitration procedure, that period is three months.
The Arbitration Act does not limit the types of remedies the arbitral tribunal may render. At the stage of recognition or enforcement of the arbitral award, the court may refuse to recognise or enforce those elements of relief which are against public policy or do not comply with enforcement procedures (such as being too vague to enforce).
Under the Arbitration Act, the parties may agree on the calculation methodology of legal costs related to the arbitration procedure. In the absence of such an agreement, each party bears its own legal costs.
As for JCAA arbitration, Article 80, paragraph (1) of the JCAA Rules sets forth that the costs of the arbitration include the administrative fee, the arbitrators’ remuneration and expenses, and other reasonable expenses incurred with respect to the arbitration proceedings, and the fees and expenses of the counsels and other experts incurred by the parties to the extent that the arbitral tribunal determines that they are reasonable. The tribunal may then determine the proportion of the cost borne by the parties in consideration of any circumstances, including the process of the arbitration procedure and the nature of the arbitral award.
The rate of interest to be paid depends on the governing substantive law of the case. Extremely high rates of interest may be determined as null and void at the enforcement stage, based on public policy considerations.
The parties may not appeal the arbitral award; instead the parties may file a request to set aside the arbitral award with the court. The grounds for setting aside an arbitral award are restrictedly prescribed under the Arbitration Act. They are substantially the same as those set out in the UNCITRAL Model Law.
Most of the grounds are limited to the procedural defects of the arbitration proceedings such that the arbitration agreement is not valid, that the party was not given the chance to appear before the arbitral tribunal and that the composition of the arbitral tribunal or the arbitration proceedings were not in accordance with the provisions of the laws. In extreme circumstances where the defect of the substance of the case amounts to the equivalent of a procedural defect or is in violation of public policy, the defect of substance of the case may constitute grounds for setting aside the arbitral award.
For example, under the Arbitration Act, an arbitral award must contain the “reasons” thereof (provided that there has been no agreement otherwise by the parties). In litigation at court, it is generally understood that, although mere inadequate reasoning of the final judgment may not be valid grounds for retrial, if the final judgment omits the court’s determinations on the parties’ arguments and defences which would affect the conclusion of the main text of the judgment, the parties may file a petition for retrial. This ground for retrial could be analogically applied to the ground for the setting aside of an arbitral award on the grounds of the violation of Japanese laws regarding arbitral procedures or on the grounds of the violation of public policy.
Another example is that, if evidence was forged or witness statements/testimony was found to consist of perjury, and if this forged evidence or perjury formed the basis of the reason of the arbitral award, this issue could constitute grounds to set aside the arbitral award based on the violation of Japanese laws regarding arbitral procedures or on the violation of public policy in Japan as an analogical application of the equivalent articles under the Code of Civil Procedure.
The party must file a petition for setting aside the arbitral award to the court within three months from the date of the receipt of the copy of the arbitral award. The court must hold at least one hearing (an oral hearing or a more informal one) before rendering its decision. According to statistics, the period for the court’s review at the court of first instance in most cases is from six months to two years, although there are some exceptional cases. The other party is given the chance to submit its rebuttal, and the hearings are held, from one time to several times, depending on the court’s discretion.
The Arbitration Act does not prescribe the effect of the court’s order of setting aside the arbitral award. It is unclear whether the parties are still required to follow the arbitration agreement to resolve the case or if they can bring the case to the court. The court, even if it decides to set aside the arbitral award due to a defect with the arbitration agreement, will not directly order parties to take the case to litigation in court. The court simply cancels the arbitral award by its order and that is all it can do.
There are some academic debates on this point. For example, whether or not the party may add the “manifest disregard of the law” in the arbitral award as an additional ground for setting aside the arbitral award has been discussed.
The Arbitration Act is silent on whether the parties may make a valid agreement to exclude or expand the scope of the grounds for setting aside the arbitral award. There are no case precedents on this issue to date. Thus, it is unclear whether such an agreement is valid under Japanese law.
Japan is, similar to most countries, a pro-arbitration country. A defect in the arbitral award with respect to the merits of the case does not constitute grounds for the setting aside of the arbitral award unless it amounts to a violation of public policy. Even the incorrect application of substantive law or disregard of applicable law is not sufficient. Further, the court has discretion not to set aside the arbitral award even if grounds for setting it aside are found.
According to recent statistics disclosed by a former court clerk of the Tokyo District Court, in the period between 2004 (when the current Arbitration Act came into effect) and the end of 2016, the number of cases where the court ordered the arbitral award to be set aside is only one among 23 cases filed at the Tokyo District Court.
A recent High Court decision (Decision of the Tokyo High Court dated 1 August 2018, the Financial and Business Law Precedents No 1551, Page 13) showed a cautious attitude towards the setting aside of arbitral awards. The Tokyo High Court held that an arbitral award may not be set aside, even if an arbitral tribunal’s application of substantive law is incorrect from the court’s perspective, as long as it does not constitute the grounds for setting aside the arbitral award prescribed in the Arbitration Act.
The Tokyo High Court held that the basic standard for the interpretation of the grounds for setting aside the arbitral award under the Arbitration Act should be whether or not equal treatment and assurance of full opportunity to explain under Article 25 of the Arbitration Act was warranted in the arbitration proceedings. It also stated that rigid theory and interpretation of civil procedure in the domestic court proceedings in Japan should not be applied.
Japan is a signatory to the 1958 New York Convention, subject to the reciprocity reservation. In addition, Japan is also a signatory to the Geneva Convention on the Execution of Foreign Arbitral Awards. Further, Japan also has bilateral treaties with multiple countries. These treaties guarantee the enforcement in Japan of arbitral awards made in other treaty countries.
The procedures, standards and grounds for the recognition and enforcement of the arbitral award are almost equivalent to those of setting aside the arbitral award. The grounds for recognition and enforcement are substantially the same as those set out in the UNCITRAL Model Law.
Under Article 45, paragraph (2) (vii) of the Arbitration Act, an arbitral award which was set aside by the court in the seat of arbitration is not enforceable in Japan.
The Act on the Civil Jurisdiction of Japan with respect to a Foreign State (Act No 24 of 2009) sets forth that foreign states and state entities are subject to the Japanese courts' jurisdiction with respect to commercial cases. However, judgments against states or state entities are not enforceable in Japan unless the foreign state or state entity gives consent to the enforcement.
Similar to the setting-aside procedure, courts take a pro-arbitration stance toward the recognition and enforcement of the arbitral award. Courts do not recognise an arbitral award which is contrary to public policy. There is scant precedent on awards that were deemed contrary to public policy. Therefore, it is difficult to say what kind of arbitral award would be contrary to public policy in Japan. In particular, there is some debate whether an arbitral award ordering payment of punitive damages is contrary to public policy. The standard for review and grounds of the enforcement is substantially the same as those set out in the UNCITRAL Model Law.
Although Japanese law provides a quasi-class-action proceeding in a limited area under the “Act on Special Measures Concerning Civil Court Proceedings for the Collective Redress for Property Damage Incurred by Consumers”, class action is not common, and class-action arbitration or group arbitration is not stipulated in the Arbitration Act. In fact, as far as is known, class-action arbitration or group arbitration has not occurred in Japan.
Under Article 18, paragraph (1) (ii) of the Arbitration Act, the parties may challenge the arbitrator if there are reasonable grounds to doubt the impartiality or independence of the arbitrator. Further, under Article 18, paragraph (4) of the Arbitration Act, during the course of the arbitration procedure, an arbitrator shall, without delay, disclose to the parties all the facts that would likely to give rise to doubts as to his or her impartiality or independence (excluding those which have already been disclosed).
The JCAA amended the JCAA Rules, effective on 1 January 2019, and the JCAA Rules apply to the arbitral proceedings initiated on or after that date. Under Article 24, paragraph (1), an arbitrator shall be, and remain at all times, impartial and independent during the arbitration proceedings. Pursuant to Article 24, paragraph (3) of the JCAA Rules, an appointed arbitrator is required to submit in writing to the parties and the JCAA his or her undertaking to disclose any circumstances which may give rise to justifiable doubts as to his or her impartiality or independence, or to declare that there are no such circumstances (the “Declaration of Impartiality and Independence”).
These JCAA Rules reflect a recent Supreme Court decision related to the arbitrator’s duty to implement the conflict check. In the Decision of the Supreme Court dated 12 December 2017, Minshu Vol 71, No 10, Page 2106, the Supreme Court remanded the case to the High Court, stating that it was not clear whether the chairperson was aware of the lateral transfer of the attorney before rendering the arbitral award and that the operation of the conflict-check system of the international law firm to which the chairperson belonged was also unclear.
This is the first Supreme Court decision in which the Court ruled on the interpretation of the arbitrator’s disclosure obligation under the Arbitration Act that came into force in 2004. This decision is important for practitioners who are involved in international commercial disputes and law firms which run conflict checks on a regular basis.
If a counsel is bengoshi or gaiben (see 7.4 Legal Representatives) registered in the Japan Federation of Bar Associations, the respective ethical rules for bengoshi or gaiben are applicable. There are no ethical codes which would be directly applicable to gaikoku-bengoshi (see 7.4 Legal Representatives) in the arbitration proceedings seated in Japan. The ethics and professional standards of gaikoku-bengoshi would be governed by the ethical codes and standards of the jurisdiction in which the gaikoku-bengoshi is qualified, and subject to the general discretion and authority of the arbitral tribunal (see Article 26 of the Arbitration Act).
There is no statute or regulation specifically prohibiting third-party funding in Japan. There is also no common law concept like champerty and maintenance, as Japan is a civil-law country.
That said, it has been pointed out that, depending on how third-party funding is structured or arranged, the Bengoshi Hō (Attorney Act) (requiring that only qualified lawyers can provide legal services or act in legal proceedings) and the Trust Act (prohibiting trusts for suits) could potentially be legal impediments for third-party funding.
So far, not much discussion has occurred with respect to the above issues and there are no court precedents. Therefore, there still remains a degree of uncertainty with respect to the legality of third-party funding in Japan.
Consolidation of arbitration proceedings is not stipulated in the Arbitration Act. It is, however, stipulated in Article 57 of the JCAA Rules, and the courts will not set aside an arbitral award because of such consolidation.
Under Article 57 of the JCAA Rules, an arbitral tribunal may consolidate arbitration proceedings in the case that:
(a) the same or a similar question of fact of law arises from the claims;
(b) the dispute is referred by the arbitration agreement to arbitration under the Rules or at the JCAA; and
(c) the arbitration proceedings are capable of being conducted in a single proceeding considering various factors.
The general rule is that an arbitration agreement binds the parties to an arbitration agreement, and an arbitral award binds the parties set out in the arbitral award.
As an exception to the general rule, a general successor (hōkatsu shōkeinin) to the rights and obligations of a dispute under an arbitration agreement, such as an heir to the party to an arbitration agreement or a company to which the party to the arbitration has been merged, shall be bound by the arbitration agreement. The same applies to an arbitral award, ie, an arbitral award binds any such general successors to the parties to the arbitration.
Another issue is whether the representative director or other directors of a company are bound by an arbitration agreement to which the company is a party, and one judgment of a lower court held that under certain circumstances the representative director and the director of a company shall be bound by the arbitration agreement to which the company is a party under the principle of reason (jōri). There is, however, some debate regarding this issue.
The above discussions may apply to foreign third parties as well, but there are other complicated issues, such as service of relevant documents to foreign third parties, acknowledgment and enforcement of the arbitral award in a foreign jurisdiction, and compliance with public policy of the foreign jurisdiction, etc.
As a general trend, in recent years, arbitration has gained increased importance globally as well as in Japan as a cross-border dispute resolution mechanism. As a result of this increased importance, there have been noteworthy progresses in the environment for international arbitration in Japan. The main advancements are introduced below.
Creation of the JIDRC
As background, in June 2017, the Cabinet of Japan published the "Basic Policy on Economics and Fiscal Management and Reform", which declared (among other things) that the Japanese government aims to "lay the foundation for promoting international arbitration". Following this declaration, the Japanese government established the Liaison Conference of Relevant Ministries and Agencies in September 2017, where a number of items have been discussed to date. The interim summaries of the Conference published in April 2018 named a number of urgent action items to be addressed through public-private collaborations. These items include the fostering of specialised professionals for arbitration, publicity efforts toward domestic and international businesses, and revision of the legal system for arbitration, and, importantly, securing advanced facilities for arbitration proceedings.
These developments led to the founding of the Japan International Dispute Resolution Center (JIDRC) in February 2018. The JIDRC led the efforts to create JIDRC-Osaka in Nakanoshima, Osaka, the first dedicated facility in Japan for international arbitration and alternative dispute resolution (ADR). JIDRC-Tokyo, a world-leading specialised facility for international arbitration and alternative dispute resolution, was opened in March 2020 in Toranomon, Tokyo. These facilities are available for conducting arbitration proceedings of various institutional arbitrations (eg, arbitrations under the rules of the ICC, the JCAA, the SIAC, the AAA/ICDR, the HKIAC, the LCIA, the KCAB and the ICSID) or ad hoc arbitrations, charging relatively inexpensive fees.
The JIDRC facilities are also equipped with all of the necessary hardware for arbitration hearings, such as wireless internet, video conference systems, simultaneous interpretation facilities, and real-time transcription capabilities.
Further, even though the COVID-19 pandemic makes it difficult to travel to hearing venues, JIDRC-Tokyo and JIDRC-Osaka have enabled virtual hearing (online hearing) services that connect the tribunal and parties by video conference systems. Parties and tribunal may also connect to either or both of JIDRC-Tokyo and JIDRC-Osaka’s Hearing Room or Breakout Room in order to avoid close contact among persons while conducting the hearing.
Amendment of the Foreign Lawyers Act
On 29 May 2020, the Amended Act on Special Measures concerning the Handling of Legal Services by Foreign Lawyers (Act No 66 of 1986, “Foreign Lawyers Act”) was promulgated. This Amendment, among other things, broadens the definition of an "International Arbitration Case" for purposes of foreign attorneys’ practice in Japan.
Registered Foreign Lawyers are allowed to represent their client in proceedings of the International Arbitration Case in Japan as defined in Article 2 of the Foreign Lawyers Act. “Registered Foreign Lawyer” means a person who has obtained approval from the Minister of Justice and has obtained registration in the Roll of Registered Foreign Lawyers. Further, a Foreign Lawyer who is not a “Registered Foreign Lawyer” but practises law in a foreign country based on qualifications in that foreign country (except where the lawyer is employed and provides services in Japan based on their knowledge concerning foreign laws) may represent a client in an International Arbitration Case if the attorney has been requested to undertake or undertook that arbitration case in the foreign jurisdiction. Foreign Lawyer means a person whose professional duties are to provide legal services as a professional practitioner in a foreign jurisdiction and who is equivalent to an attorney at law under the provisions of the Japanese Attorney Act (Act No 205 of 1949).
Before the amendment, Article 2 of the Foreign Lawyers Act defines "International Arbitration Case" as "a civil arbitration case which is conducted in Japan and in which all or some of the parties are persons who have an address or a principal office or head office in a foreign jurisdiction". This definition has been criticised for years as overly narrow. For example, where an arbitration is pending in Japan between wholly owned Japanese subsidiaries of foreign parent corporations, it does not fall under an "International Arbitration Case" under Article 2 because none of the parties has an address or a principal or head office in a foreign jurisdiction. This means that Registered Foreign Lawyers and Foreign Lawyers cannot act as counsel in Japan, and parties are required to retain Japanese lawyers as local counsel instead.
After the amendment, the definition of an "International Arbitration Case" was broadened to include a civil arbitration case in which:
Accordingly, Registered Foreign Lawyers and Foreign Lawyers will be able to act as arbitration counsel in Japan where (i) all or some of the parties are foreign entities (including Japanese subsidiaries of foreign parent corporations); (ii) the applicable law on the merits is foreign law; or (iii) the seat of arbitration is in a foreign jurisdiction.
These amendments are scheduled to come into effect on 29 August 2020, and from that day, Registered Foreign Lawyers and Foreign Lawyers may handle a broader range of arbitrations in Japan.
Amendment of JCAA Rules
On 1 January 2019, the Japan Commercial Arbitration Association (JCAA) revised two of its existing sets of rules, namely, its Commercial Arbitration Rules and Administrative Rules for UNCITRAL Arbitration, and promulgated a new set of rules, Interactive Arbitration Rules. There are no substantive changes to the Administrative Rules for UNCITRAL Arbitration, and therefore only Commercial Arbitration Rules and Interactive Arbitration Rules are discussed here.
Commercial Arbitration Rules
These are the rules most often adopted when parties agree to JCAA arbitration. The Commercial Arbitration Rules were amended to provide rules with attention to detail and to achieve the objective of a smooth resolution of disputes. For example, the following revisions were made.
Amendment of the Expedited Procedures: under the amended rules, when the amount of a claim is less than JPY50 million, in principle the arbitration will be conducted based on written submissions without a hearing under Expedited Procedures. (However, if parties agree on a three-arbitrator tribunal or if parties inform the JCAA within the prescribed period of time that they do not wish to proceed with the Expedited Procedures, the arbitration will proceed under the regular procedures. (See Articles 84 and 88.)
Revision of rules regarding arbitrators’ fees:
The amended rules maintained the system where the arbitrators’ compensation is regressively structured so that the hourly rate is reduced by 10% increments for every 50 hours (total reduction up to 50%) when the hours billed exceed the initial threshold; however, the initial threshold was increased from 60 hours to 150 hours. (Article 95.)
Interactive Arbitration Rules
To avoid the lengthiness and costs caused by unproductive exercises under a purely adversarial system, the Interactive Arbitration Rules were adopted to make it obligatory for the tribunal to engage in a “dialogue” with parties. Examples are explained below.
The Arbitral Tribunal’s Active Role in Clarifying Parties’ Positions and Ascertaining Issues: as early in the process as possible, the tribunal is required to inform the parties in writing of the tribunal’s summary of parties’ positions and to provide the parties with a provisional list of issues in controversy. (Article 48(1).) Within a time limit fixed by the arbitral tribunal, Parties can provide their input to the summary and issues above. (Article 48(2).)
Expressing Arbitral Tribunal’s Preliminary Views: before deciding whether to have a witness examination, the tribunal is required to summarise issues that it believes to be important and to provide the tribunal’s preliminary views on such issues. (Article 56(1).) Within a time limit fixed by the arbitral tribunal, parties can provide their input to these issues and the tribunal views (including whether or not a witness examination should be conducted). (Article 56(2) and (3).)
Reduction of fees and flat-fee structure: the arbitrator’s fees under the Interactive Arbitration Rules are flat fees set in accordance with the claim amount in an attempt to reduce the fees. No matter how high the amount of claim is, in a single-arbitrator scenario, the upper limit of the fees is set at JPY5 million (Article 94), in a three-arbitrator scenario, the upper limit of the fees for a party-appointed arbitrator is JPY4 million and for the presiding arbitrator it is JPY6 million. (Article 95)
Investment Treaty Arbitrations
Recently, the Japanese government has been very active in promoting signing bilateral investment treaties (BITs), economic partnership agreements (EPAs) and free-trade agreements (FTAs), and is now engaged in negotiations with several countries. As of 1 July 2020, Japan has signed bilateral investment treaties (BIT) with 35 countries. Further, Japan has entered into the 12 economic partnership (EPA) agreements and free-trade agreements (FTAs) that have sections addressing investment. Additionally, 12 Pacific Rim countries, including Japan, signed the Trans-Pacific Strategy Economic Partnership Agreement (TPP) on 4 February 2016. Although the United States withdrew its participation, the other signatories agreed in May 2017 to revive it and reached agreement in January 2018. In March 2018, the remaining 11 countries signed the revised version of the agreement, called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which is also known as TPP11. The CPTPP entered into force on 30 December 2018.
To date, Japanese businesses have initiated very few investment treaty arbitrations. It is expected, however, that as the number of BITs and FTAs (EPAs) involving Japan increases, Japanese companies will become increasingly involved in cases regarding investment treaty arbitration.
Recent Court Decisions on Arbitrators’ Duty to Disclose
Article 18(4) of the Arbitration Act of Japan (Act No 138 of 2003) provides that “[d]uring the course of the arbitration procedure, an arbitrator shall, without delay, disclose to the parties all the facts that would be likely to give rise to doubts as to his/her impartiality or independence (excluding those which have already been disclosed).” A recent decision (Osaka High Court Decision 11 March 2019) sheds light on the perennial disputes surrounding violation of this provision and related issues of vacating arbitral awards based on such a provision.
Summary of the proceedings
The matter was a JCAA arbitration between American entities X1, X2 and Japanese entity Y1 (which is a wholly owned subsidiary of Japanese company C) and Singaporean entity Y2, with an award rendered by a three-arbitrator panel. X1 and X2 challenged the award, pursuant to the grounds for vacating the award under Articles 44(1)(iv), 44(1)(vi) and 44(1)(viii) of the Arbitration Act, on the basis that one of the arbitrators, A, did not disclose that A was from the same law firm that had another attorney B representing an affiliate of a party to the arbitration procedure, in a US class action case.
Main issues in controversy
One of the arbitrators, A, was an attorney in the law firm D’s Singapore office, and another attorney of the law firm, B, was an attorney in the same firm’s San Francisco office and represented company E in a class action in a US federal district court. Like Y1, E is also a wholly owned subsidiary of Japanese company C. The question is firstly whether A should have disclosed the above fact under Article 18(4) of the Arbitration Act, and, if so, secondly whether A has violated the duty to disclose.
Court of First Instance: Osaka District Court’s decision on 17 March 2015 (Supreme Court Civil Case Decisions Vol 71, No 10, Page 2146) held that, even if the failure to disclose is a violation of duty to disclose (Article 18(4) of the Arbitration Act), the defect is minimal, and therefore the arbitration award is maintained.
Court of Appeal: on appeal, Osaka High Court’s decision on 28 June 2016 (Supreme Court Civil Case Decisions Vol 71, No 10, Page 2166) held that, because there were factual circumstances raising doubts about the impartiality and independence of the arbitrator A, disclosure is required under Article 18(4) of the Arbitration Act and Article 28(4) of the JCAA Commercial Arbitration Rules. The court noted that it is not difficult to conduct investigations through a conflict check within law firm D. Although whether such a conflict check had been conducted was not evident, regardless of whether the conflict check was actually conducted, the lack of disclosure of such circumstances that constitute a conflict of interest is a breach of the duty of the arbitrator A to disclose. Accordingly, the court vacated the arbitral award.
Supreme Court: the Supreme Court’s decision on 12 December 2017 (Civil Vol 71, No 10, Page 2106) held that, regarding a determination that an arbitrator has violated the duty to disclose facts relevant to Article 18(4) of the Arbitration Act by failing to disclose the conflict, it is necessary to find the facts, firstly that the arbitrator was aware of the conflict during the course of the arbitration, or secondly that the arbitrator could know of the conflict during the course of the arbitration based on reasonable investigation. Therefore, the Supreme Court remanded the case to determine whether:
On Remand: on remand, Osaka High Court’s decision of 11 March 2019 (Hanrei Taimuzu No 1468, Page 65) made the following conclusions regarding the relevant issues:
a) the law firm D is a large-scale international law firm with about 1,100 attorneys, and it has a conflict-check system to keep track of potential conflict between its attorneys. The arbitrator A’s use of the system would satisfy the requirement to conduct reasonable investigation;
b) B’s transfer to law firm D (and thereby creating a potential conflict) occurred after the arbitrator A’s conflict check using the system. As the arbitrator A had entered the appellant’s and Y1’s names into the database for the system, other attorneys at law firm D would be able to detect potential conflicts when they considered whether to accept engagement in matters that may create a conflict with the arbitrator A, as long as the system functioned correctly;
c) accordingly, the system can be deemed as a sufficient measure to ensure that facts casting doubt on arbitrator’s impartiality and independence do not occur;
d) the reason that the arbitral award was rendered without the arbitrator A being aware of the conflict was because the attorney B was involved in the class action when working at the previous firm and believed that the attorney B was no longer representing E after transferring to the law firm D, even though the attorney B had failed to file a notice of withdrawal and remained listed as an attorney in the class action case. Therefore, special circumstances existed in this matter because the relevant attorney B failed to inform the law firm D of the matter. As a result, the fact is difficult to discover by reasonable investigation, and the arbitrator A did not violate the duty to disclose under Article 18(4) of the Arbitration Act even though the arbitrator A did not disclose the conflict.
In this case, for purposes of determination of facts that should have been discovered by reasonable investigation, the court analysed, within the framework provided by the Supreme Court, the detailed factual circumstances surrounding the attorney B’s failure to inform the law firm D’s conflict-check system and found that special circumstances exist in this case because that failure was caused by the attorney B’s failure to submit a notice of withdrawal in the US class action case. As such, the court held that there was no violation of duty to disclose, and reversed the decision vacating the arbitral award. This case has an impact on the determination of the arbitrator’s duty to investigate and disclose potential conflicts.