According to a 2019 survey commissioned by the Ministry of Justice (MOJ), 85% of the Japanese companies involved in international transactions responded that they have an arbitration clause in their contracts. While Japanese companies recognise the importance of international arbitration for the resolution of cross-border disputes, they are not frequent users of international arbitration. The Japan Commercial Arbitration Association (JCAA) received only 18 international arbitration cases in 2020. Based on statistics of arbitral institutions disclosing the nationality of the parties (JCAA, ICC and SIAC), the number of Japanese companies that have participated in international arbitration as parties at these institutions in 2019 is only 52 in total. Since 2017, the Japanese government has taken initiatives to promote international arbitration in Japan along with Japanese practitioners in the arbitration community.
Due to the COVID-19 pandemic, almost all arbitral proceedings have become virtual. Statistics at the JCAA indicate that between April 2020 and March 2021, 16 out of 17 hearing dates and 18 out of 22 preliminary conference dates were conducted online.
While there is no publicly available data to demonstrate whether any industry has experienced significant changes in its international arbitration activity, the majority of arbitration cases handled by the JCAA involve disputes arising from sales or distributor contracts.
The JCAA is the arbitral institution most used in Japan to resolve business-related disputes. The Tokyo Maritime Arbitration Commission of the Japan Shipping Exchange Inc. is used to handle maritime arbitrations.
Currently there are no specific courts in Japan designated to hear disputes related to arbitration, whether domestic or international. Japan’s Arbitration Act (Act No 138 of 2003) (“Arbitration Act”) provides exclusive jurisdiction to the following three district courts with respect to any court procedures contemplated under the Act: (i) the court agreed by the parties, (ii) the court presiding over the place of arbitration, and (iii) the court having jurisdiction over the location of the general venue of the respondent (such as residence or headquarter office). However, to establish courts specialised in handling disputes related to international arbitration, the MOJ is currently discussing a proposal to grant concurrent jurisdiction over such disputes to the district courts in Tokyo and Osaka.
The law governing international arbitration seated in Japan is the Arbitration Act, which is based on the UNCITRAL Model Arbitration Law on International Commercial Arbitration (“Model Law”) of 1985. However, compared with the Model Law, the following provisions are unique to Japan.
In 2017, the Japanese government adopted a policy to revitalise international arbitration in Japan and develop the judicial infrastructure necessary for its promotion. As part of this policy, the MOJ established the Arbitration Act Subcommittee of the Legislative Council in October 2020 in an effort to align the Arbitration Act with the Model Law, as amended in 2006. On 5 March 2021, the MOJ published an “Interim Proposal for the Revision of the Arbitration Act” (“Interim Proposal”). The Interim Proposal offers amendments to the rules regarding interim measures (see 6.1 Types of Relief) and relaxing the “in writing” requirement of an arbitration agreement (see 3.1 Enforceability). In addition, the Interim Proposal offers changes to the rules on arbitration-related case procedures by (i) granting concurrent jurisdictions to the district courts in Tokyo and Osaka to concentrate expertise to handle arbitration-related cases, and (ii) allowing the court to exempt the parties from submitting a translation of the arbitral award in certain cases to reduce their burden.
An arbitration agreement shall be in writing, such as in the form of a document signed by all the parties, or letters or telegrams exchanged between the parties (including those sent by facsimile device or other communication measures for parties at a distance which provide the recipient with a written record of the communicated content).
If an arbitration agreement is made in an electromagnetic record recording the contents thereof, such arbitration agreement shall be deemed to be in writing.
The Legislative Council is considering adding the following provision to the Arbitration Act to ease the documentation requirement, in line with Article 7(3) of Option I of the Model Law, as amended in 2006: “An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.”
An arbitration agreement shall be effective only when the subject thereof is a civil dispute (excluding disputes concerning divorce or the dissolution of an adoptive relation) which can be settled between the parties.
In addition, arbitration agreements covering individual labour-related disputes are currently considered invalid. Furthermore, currently, from the point of view of consumer protection, consumers may cancel consumer arbitration agreements concluded with a business entity.
The governing law of the arbitration agreement shall be determined by agreement of the parties and, in the absence of agreement of the parties, the law of the place of arbitration.
Japanese courts can be said to be “pro-arbitration”. For example, in its decision of 1 August 2018, the Tokyo High Court stated: “In interpreting the Arbitration Act... we should bear in mind an interpretation common to the arbitration laws of other countries, an interpretation that is internationally accepted.” In the case of a request to set aside an arbitral award, it is not permissible to conduct a substantive review of the arbitral award. The national court of the place of arbitration may not intervene in an arbitral award and set it aside merely based on erroneous fact-finding or legal judgment (which does not constitute grounds to set aside an arbitral award).
Statistics between 2004 and 2016 indicate that out of 34 cases filed at the Tokyo District Court, approximately 70% were granted an execution order. The proceedings at the Tokyo District Court required less than six months for approximately 50% of the cases, and less than a year for an additional 25%.
Furthermore, statistics during the same period indicate that of 23 petitions to set aside an arbitral award in the Tokyo District Court, only one case was granted, while 17 other cases were either denied, dismissed or withdrawn (four cases were still pending at the time, and one case settled).
Even if clauses of the contract other than the arbitration clause are invalid due to nullity, rescission or for any other reasons, it does not render the arbitration clause invalid. The Arbitration Act recognises the doctrine of separability of arbitration clauses.
The Arbitration Act does not require any specific qualifications for an arbitrator to be selected by the parties.
In Japanese practice, academic experts who are not qualified as lawyers have acted as arbitrators in areas such as commercial arbitration, maritime arbitration and construction arbitration.
Where the parties to an arbitration agreement have agreed on qualifications required of the arbitrators (eg, lawyers, industrial experts or former judges), such requirements will be upheld.
Under the Arbitration Act, if there are two parties, and an agreement on the number of arbitrators has not been reached, there shall be three arbitrators. If there are two parties and three arbitrators, and the procedure to appoint an arbitrator has not been agreed, the parties shall each appoint one arbitrator, and the two arbitrators appointed by the parties shall appoint the third arbitrator.
In either of the following cases where there will be three arbitrators, the court will appoint the arbitrator upon the petition of one of the parties:
If the parties agreed to have one arbitrator but are unable to reach an agreement for the appointment, the court shall appoint the arbitrator, upon the petition of one of the parties.
If there are three or more parties, and the number of arbitrators has not been agreed, the court will decide the number of arbitrators, upon the petition of a party.
In this case, if the procedure for the appointment of arbitrators has also not been agreed, the court will appoint the arbitrator, upon the petition of a party.
If it is no longer possible to appoint arbitrators in accordance with the procedure agreed by the parties (for example, a third party entrusted by the parties to appoint the arbitrators passes away before making the appointment), then one of the parties may file a petition to have the court appoint the arbitrator.
Please refer to 4.2 Default Procedures for cases where the court appoints an arbitrator.
In appointing an arbitrator, the court must consider the following:
However, it is not possible to appeal against the court's appointment decision.
A party may challenge the appointment of an arbitrator if the arbitrator fails to satisfy the requirements provided by the agreement of the parties, or there are reasonable grounds to doubt the impartiality or independence of the arbitrator.
A party may file a petition to the court to dismiss an arbitrator if the arbitrator has become de jure or de facto unable to perform his or her duties, or the arbitrator unjustly delays the performance of his or her duties.
A person who has been requested to become an arbitrator must disclose all facts that would be likely to give rise to doubts as to his or her impartiality or independence before accepting the nomination.
Furthermore, during the arbitration proceedings, an arbitrator must, without delay, disclose to the parties all facts that would be likely to give rise to doubts as to his or her impartiality or independence.
Under the Arbitration Act, civil disputes which can be settled between the parties are considered arbitrable, except as otherwise provided by law. Disputes concerning divorce or the dissolution of an adoptive relation cannot be referred to arbitration. In addition, for protection of employees, individual labour-related disputes arising in the future are also not arbitrable. Furthermore, to protect consumers, consumers may terminate an arbitration agreement for civil disputes which may arise in the future between the consumer and a business entity, even if the agreement has been already concluded between them.
An arbitral tribunal may rule on its own jurisdiction.
If the arbitral tribunal has ruled that it has jurisdiction in its independent decision made before an arbitral award, a party may petition a court to rule on whether the tribunal has jurisdiction without waiting for a final award. In addition, if the tribunal has made an arbitral award based on the assumption that it has jurisdiction, a party may file a petition with the court to set aside the award.
Among the published Japanese court precedents, none has set aside an arbitral award on the grounds that the arbitral tribunal lacked jurisdiction. In this sense, Japanese courts are generally reluctant to intervene in arbitral proceedings.
On the other hand, if the arbitral tribunal denies its own jurisdiction, whether in its “independent decision before an arbitral award” or as part of the final award, a party may not petition the court to challenge the tribunal’s ruling on its jurisdiction.
If a party files a petition with a court to challenge an “independent decision before an arbitral award” in which the arbitral tribunal affirmed its own jurisdiction, the party may file such a petition only within 30 days after receiving notice of the decision.
If a party requests the court to set aside an arbitral award, the party may file such a petition within three months from the date of notification of the award; provided, however, that the petition may not be filed after the execution order of the arbitral award has become final and binding.
The court will review the arbitral tribunal’s jurisdiction ruling de novo, without being bound by the arbitral award or the independent decision before the arbitral award.
If an action is filed for a civil dispute which is subject to an arbitration agreement, the court must dismiss the action without prejudice, upon the petition of the defendant. However, the action cannot be dismissed in the following cases:
The Arbitration Act does not provide under what circumstances a person or entity that is neither a party nor a signatory to an arbitration agreement is bound by the arbitration agreement. Please refer to 13.5 Third Parties.
Unless otherwise agreed by the parties, the Arbitration Act provides that an arbitral tribunal may, upon the petition of one party, order interim or provisional measures which the tribunal deems necessary with respect to the subject matter of the dispute. However, they are not enforceable under the current Arbitration Act. In addition, the current Arbitration Act does not specify the content of interim or provisional measures that the tribunal may issue, and they are left to the tribunal’s discretion.
The Interim Proposal offers to enable enforcement of the interim or provisional measures taken by the arbitral tribunal (regardless of the seat of arbitration) if a court orders enforcement upon confirming that there are no grounds for refusal (which are expected to be the same as the grounds to refuse recognition of an arbitral award). Interim or provisional measures contemplated under the Interim Proposal are: (i) maintenance or restoration of the status quo of the subject matter of the dispute, (ii) prevention or cessation of actual or imminent damage or interference with the smooth progress of arbitral proceedings, (iii) preservation of assets necessary to satisfy the arbitral award, and (iv) preservation of evidence necessary for the adjudication of arbitral proceedings.
In Japan, before the commencement of or during arbitral proceedings, parties to an arbitration agreement may petition a court to issue a provisional order. There are two kinds of provisional order: provisional seizure (an order to provisionally seize a debtor's property in order to preserve a monetary claim) and provisional disposition (an order to preserve the status quo of the subject matter in dispute or establish an interim relationship between the parties). A court may issue a provisional order even if the seat of arbitration is outside of Japan or undetermined, so long as the asset to be provisionally seized or the disputed subject matter is located in Japan.
The current Arbitration Act does not provide rules concerning emergency arbitrators, although the Act does not prohibit them from issuing provisional orders. The Interim Proposal does not offer any new rules with respect to emergency arbitrators. As with the interim measures ordered by the arbitral tribunal, interim or provisional measures by emergency arbitrators also cannot be enforced by the court.
In ordering interim or provisional measures, an arbitral tribunal may order provision of reasonable security. Under the current Arbitration Act, the tribunal may order “any party” to provide appropriate security. To align with the 2006 amendment to the Model Law, the Interim Proposal offers to change that provision to: “An arbitral tribunal may order the party who has petitioned for interim or provisional measures to provide appropriate security.”
The court may also require a party to provide security when issuing a provisional order.
The Arbitration Act stipulates that the rules of the arbitral proceedings to be followed by the arbitral tribunal shall be agreed upon by the parties. However, the rules cannot violate the provisions of the Act concerning public policy. Provisions concerning public policy are construed to mean mandatory provisions. Whether a provision is considered mandatory is judged on a case-by-case basis according to the wording and purpose of each provision of the Act. For example, equal treatment of the parties and the guarantee to provide full opportunity for each party to present its case are considered mandatory.
In the absence of such agreement, the arbitral tribunal may conduct the arbitral proceedings in such manner as it considers appropriate, unless it is contrary to the provisions of the Act.
The Arbitration Act requires the following procedural steps to be taken:
With the exception of mandatory provisions, parties may agree otherwise regarding the above procedures (see 7.1 Governing Rules).
Powers of Arbitrators
The powers given to arbitrators under the Arbitration Act include the following.
Duties of Arbitrators
The main duties of arbitrators under the Arbitration Act include the following.
A bengoshi (a lawyer admitted to practice in Japan) is qualified to provide representation in arbitration, whether domestic or international. A certified judicial scrivener may also provide representation in an arbitration case if the amount in controversy is JPY1.4 million or less. In addition, a patent attorney is qualified to provide representation in certain arbitration cases involving intellectual property disputes conducted by an organisation designated by the Minister of Economy, Trade and Industry.
Foreign lawyers may provide representation in an “international arbitration case” as defined under the Act on Special Measures Concerning the Handling of Legal Services by Foreign Lawyers (the “Gaiben Act”).
In 1996, the Gaiben Act was amended to liberalise representation in international arbitration proceedings. However, “international arbitration case” was limited to cases where some or all of the parties had their address, principal office or head office in a foreign country. Therefore, foreign lawyers were unable to provide representation in an arbitration case where all of the parties had head offices in Japan, even if one party was a subsidiary wholly controlled by an entity outside of Japan.
As part of the policy to promote international arbitration in Japan, the Gaiben Law was amended in 2020 to expand the scope of an “international arbitration case”, which is now defined as a civil arbitration case which falls under any of the following cases:
It must be noted that even under the amended Gaiben Act, a foreign lawyer who is not a gaikokuho-jimu-bengoshi (registered foreign lawyer in Japan) is only permitted to represent an international arbitration case that he or she has been requested to undertake or undertook in a foreign country.
There are no specific provisions in the Arbitration Act concerning the collection and submission of evidence or the procedures to examine evidence. Accordingly, an arbitral tribunal is to observe any agreement of the parties concerning the above (which may not violate the public policy of Japan). In the absence of such an agreement, the tribunal has discretion to determine procedures concerning evidence in a manner it finds appropriate. The tribunal may determine the admissibility, relevance and probative value of evidence.
Therefore, although the Japanese legal system itself generally follows the civil law tradition, evidentiary issues in international arbitration, such as the scope of discovery or treatment of privileges, are greatly affected by the background of the parties and the arbitrators, as the procedures for collecting evidence are left to the agreement of the parties or the discretion of the arbitral tribunal. In practice, the parties and the tribunal often adopt the IBA Rules on the Taking of Evidence in International Arbitration as a guideline to resolve these matters.
Rules of evidence provided under the Code of Civil Procedure, which applies to litigation in Japan, do not apply to arbitral proceedings seated in Japan. As explained in 8.1 Collection and Submission of Evidence, there are no specific provisions in the Arbitration Act concerning the collection and submission of evidence or the procedures to examine evidence. The parties may agree on such procedures to be followed by the arbitration tribunal, and in the absence of such agreement, the tribunal has the power to determine the admissibility, relevance and probative value of evidence.
The Arbitration Act does not authorise an arbitral tribunal to compel submission of documents or appearance of witnesses.
However, unless the parties agree otherwise, the Act allows the tribunal (or the party that obtained the tribunal’s consent) to petition the court for its assistance to obtain evidence from a third party, if the arbitral tribunal finds it necessary. Evidence may be obtained through the commission of investigation, examination of witnesses, obtaining expert opinion or documentary evidence, and conducting inspection under the provisions of the Code of Civil Procedure; however, examination of a party is excluded from the scope of this assistance from the court.
The Arbitration Act does not stipulate the obligation of secrecy. If the arbitration rules referenced in the arbitration clause and adopted by the parties stipulate a confidentiality obligation, it will be binding upon the parties. However, even if such rules do not provide for a confidentiality obligation, the parties may agree to enter into a confidentiality agreement and the scope of the confidentiality obligation.
Article 42-2 of the Commercial Arbitration Rules (2019) of the JCAA and Article 42-2 of the Interactive Arbitration Rules (2019) are examples of arbitration rules providing a confidentiality obligation.
Under the Arbitration Act, an arbitral award shall (i) be made in writing, (ii) be signed by the arbitrator who rendered the arbitral award (if the arbitral tribunal is a panel, the award shall be signed by a majority of the arbitrators and shall state the reasons for the absence of the signatures of the other arbitrator(s)), (iii) state the reasons (except where the parties agree that this is unnecessary), (iv) state the date of preparation; and (v) state the seat of arbitration.
The Arbitration Act does not regulate the time limit for notifying the parties of an arbitral award, which is left to the agreement of the parties and the rules of the arbitral institution.
The Arbitration Act does not establish rules limiting the types of remedies that an arbitral tribunal may award. However, arbitral awards that are contrary to public policy in Japan may be set aside or refused recognition by the court.
For example, punitive damages are not allowed in Japan, and an arbitral award ordering excessive, punitive damages may be set aside or refused recognition by a court for violation of public policy for that part of the award.
In Japanese practice, it is normal for the claimant to request the other party to pay the statutory or agreed-upon delinquent interest until the payment is completed, and the Arbitration Act does not limit the request for delinquent interest. However, arbitration awards that allow excessive delinquent interest may be considered offensive to public policy, and may be set aside by the court or refused approval.
The Arbitration Act stipulates that the costs of arbitration proceedings shall be borne by the parties by agreement, if any, or by each party in the absence of agreement. If the parties agree, the arbitral tribunal may, in accordance with that agreement, determine how the costs must be shared between the parties or the amount to be reimbursed by one party to the other in an arbitral award or an independent decision.
The parties may not appeal against an arbitral award. Where the seat of arbitration is Japan, a party may apply to a court for the setting aside of an arbitral award in order to dispute the validity of the award, but as explained below, the grounds for setting aside an arbitral award are limited.
The grounds for setting aside an arbitral award in the Arbitration Act correspond to the grounds for refusal of recognition and enforcement in the Model Law and the New York Convention on which it is based. These grounds can be categorised into three major types.
The first type relates to arbitration agreements. Since the basis for the binding effect of an arbitral award lies in the arbitration agreement, it is permissible to set aside an arbitral award when this basis is lacking. Specifically, a court may set aside an arbitral award if (i) the arbitral agreement is not valid due to the limitations on the parties' capacity to act or other grounds pursuant to applicable laws, (ii) the arbitral award contains a decision on a matter beyond the scope of the arbitral agreement or the request in the arbitral proceedings, or (iii) the composition of the arbitral tribunal or arbitral proceedings violates the agreement between the parties.
The second type concerns the procedural guarantees of the parties in arbitral proceedings. Where procedural safeguards are lacking, the arbitral award will not be recognised as legitimate and it will be permissible to set aside the arbitral award. Specifically, a court may set aside an arbitral award if (i) the party making the application to set aside did not receive the notice required by Japanese law or the agreement between the parties in the appointment of the arbitrators or in the arbitral proceedings, or (ii) it was impossible for such party to defend itself in the arbitral proceedings.
The third category relates to Japanese law and public policy: (i) where the composition of the arbitral tribunal or the arbitral proceedings violates Japanese law; (ii) where the request in the arbitral proceedings relates to a dispute that, according to Japanese law, cannot be the subject of an arbitration agreement; and (iii) where the content of the arbitral award is contrary to public policy in Japan.
Even where these grounds exist, the court may, at its discretion, dismiss the request to set aside the arbitral award.
Turning to the procedure, in order to seek the setting aside of an arbitral award, the parties need to file a petition with the court within three months from the date of receipt of a copy of the arbitral award. The court must set at least one hearing date before reaching a conclusion. How long the hearing lasts is on a case-by-case basis, and statistics show that the court's review period in the court of first instance ranges from six months to two years. A party dissatisfied with the decision of the court of first instance may appeal to a higher court and then to the Supreme Court.
These hearings are held in private. Only the parties or interested persons may access the court records.
As explained in 11.1 Grounds for Appeal, the grounds for setting aside an arbitral award under Japanese law are limited, but the law does not make any provision as to whether or not grounds for set-aside can be added or excluded by agreement between the parties.
Some legal scholars argue that it is possible to add grounds for set-aside by agreement between the parties, or that an appeal against an arbitral award can be filed with the court based on such agreement. However, no court has ever ruled on whether such an agreement is valid or not. Thus, it is safe to assume that, at least in practice, such an agreement cannot be made between the parties.
As explained in 11.1 Grounds for Appeal, the grounds for setting aside arbitral awards under Japanese law are in line with international standards and are limited to cases where the arbitral award lacks the basic requirements of arbitral proceedings. The basic idea of the Japanese courts is that there should be no substantive re-examination of arbitral awards. Therefore, even if there is an error in the decision on the merits, the arbitral award will not be set aside unless it amounts to being against public policy.
Japanese courts have expressed repeatedly that courts must respect the judgment of the arbitral tribunal on the merits. For example, the decision of the Tokyo District Court on 28 July 2009 explains that setting aside an arbitral award by a court is not permitted if the factual finding or legal judgment by the arbitral tribunal is merely found to be unreasonable. Recently, a decision of the Tokyo High Court on 1 August 2018 reaffirmed that, other than the international standard of basic principles to be observed in arbitral proceedings, precise interpretations of the Code of Civil Procedure and court precedents of the seat of arbitration (ie, Japan) relating to domestic civil litigation proceedings will not be taken into account in whether to set aside an arbitral award.
In general, it is extremely rare for a Japanese court to set aside an arbitral award. Looking at the statistics, between 2004 and 2016, there were 23 petitions to set aside arbitral awards filed with the Tokyo District Court, of which only one petition was granted (see 3.3 National Courts' Approach).
Japan ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1961. When Japan ratified the Convention, it made a reservation of reciprocity to the effect that the Convention would apply only to arbitral awards rendered in countries that are parties to the Convention (Article 1(3) of the Convention), but since Articles 45 and 46 of the Arbitration Act permit the recognition and enforcement of all foreign arbitral awards under almost identical conditions to those of the New York Convention, this reservation has effectively been withdrawn.
Prior to that, Japan had already ratified the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927. In addition, Japan has ratified the ICSID Convention and has concluded bilateral treaties individually with about 20 other countries.
To enforce an arbitral award, it is necessary to file a petition with the court and obtain an execution order. Upon receiving this petition, the court must make an execution order to allow enforcement unless there are grounds for refusing recognition of the award under the Arbitration Act. Therefore, the grounds for refusing recognition and enforcement are the same. The above grounds for refusing recognition and enforcement are basically the same as the grounds for setting aside arbitral awards described in 11.1 Grounds for Appeal.
If an arbitral award has been set aside by the courts in the seat of arbitration, this will be one of the grounds to deny enforcement under the Arbitration Act. Therefore, such an arbitral award may not be enforced. However, there is also a view that if a court decision setting aside an arbitral award in the country of the seat of arbitration would be contrary to public order in Japan, the arbitral award should be considered as not having been set aside and be enforceable.
Where a party files a petition at the seat to set aside an arbitral award or suspend its effect, the court in Japan may, if necessary, suspend the procedures for its recognition and enforcement. In this case, the party requesting to suspend the recognition and enforcement procedures may be required to provide security.
According to the Act on the Civil Jurisdiction of Japan with respect to Foreign States, foreign states are, in principle, immune from the civil jurisdiction of Japan. However, no such sovereign immunity is granted in civil execution proceedings for property used solely for commercial purposes. Sovereign immunity also does not apply where a foreign state has given express consent to civil execution against its property, although merely executing an arbitration agreement in and of itself does not mean that this consent has been given.
Japanese courts respect the validity of arbitral awards to the maximum extent possible, at their enforcement stage as well. As explained in 12.2 Enforcement Procedure, enforcement of an arbitral award requires an execution order from the court, which will be given unless there are exceptional grounds for refusing recognition. If the content of the arbitral award is contrary to public policy in Japan, this would be one of the grounds whereby recognition is refused.
The mere fact that a foreign law is different from Japanese law does not in and of itself mean that it is against Japan’s public policy. However, if, for example, excessive, punitive damages are ordered, it is likely that approval will be refused for that part of the award, as explained in 10.2 Types of Remedies.
The Arbitration Act does not provide for class-action or group arbitration.
The Arbitration Act requires that an arbitrator must disclose all facts that would likely give rise to doubts as to his or her impartiality or independence, before accepting appointment as well as during the arbitration proceedings.
The Supreme Court ruled in 2017 that, in order for an arbitrator to have breached a duty to disclose facts that may give rise to doubts on his or her impartiality or independence, it is necessary for the arbitrator to have been aware of such facts, or to have been able to discover them through a reasonable investigation before the conclusion of arbitration proceedings.
A counsel who is an attorney licensed in Japan as a bengoshi or registered foreign lawyer must follow the respective ethical codes (Basic Rules on the Duties of Practising Attorneys or Basic Rules on the Duties of Registered Foreign Lawyers) and other rules and regulations promulgated by the Japan Federation of Bar Associations. The Act on Special Measures concerning the Handling of Legal Services by Foreign Lawyers provides that a foreign lawyer who is not a registered foreign lawyer in Japan may act as counsel in an international arbitration case only if the case has been undertaken in the foreign jurisdiction where the lawyer is qualified, provided that the lawyer is not suspended from practising by a disciplinary action under the laws and regulations of that foreign jurisdiction.
Japanese law does not expressly prohibit or authorise third-party funding, and it is not commonly used in commercial dispute resolution in Japan.
There is a possibility that a third-party funding may be considered illegal and void depending on the structure, although the debate is still ongoing. Some argue that third-party funding violates the Attorney Act prohibiting unauthorised provision of legal services and engaging in legal procedures to pursue rights assigned by others, and the Trust Act prohibiting the creation of a trust to have a trustee litigate a settlor’s claim.
The use of third-party funding was listed as one of the possible policy measures to promote international arbitration by the Japanese government in its announcement on 25 April 2018.
The Arbitration Act does not provide whether an arbitral tribunal seated in Japan or a Japanese court may consolidate separate arbitral proceedings.
However, the JCAA Commercial Arbitration Rules permit an arbitral tribunal to consolidate separate arbitral proceedings if (i) all parties have agreed to do so in writing, (ii) the claims to be consolidated arise under the same arbitration agreement, or (iii) the claims to be consolidated arise between the same parties, concern a similar question of fact or law and are capable of being conducted in a single proceeding under the applicable rules at the JCAA considering multiple issues governed by the respective arbitration agreements.
The Arbitration Act itself does not stipulate whether an arbitration agreement (and the arbitral award given based upon it) can bind a third party, whether domestic or foreign, that is not named as a party to the agreement. Whether a third party can be bound by an arbitration agreement is subject to interpretation based on the reasonable intentions of the parties. There have been cases where courts in Japan ruled that a representative director of a corporation is also bound by an arbitration agreement into which the company entered as one of the parties.
Japan’s arbitration scene has been active and robust in recent years. As part of an overarching mandate to “develop an infrastructure that will promote active recourse to international arbitration”, the Japanese government and arbitration-related organisations have initiated a number of noteworthy developments. These include proposed amendments to the national arbitration law and other ADR-related legislation, amended arbitral rules, and the ongoing development of dedicated hearing facilities with remote hearing support, all aiming to align Japanese arbitration practice and infrastructure with other leading jurisdictions and global developments in the field.
There are also signs that Japanese parties are increasingly active as users of arbitration. Last year (2020), for example, there were 46 cases filed with the Singapore International Arbitration Center involving Japanese parties, which is more than four times the number in 2010. The private legal sector, particularly among Japanese firms, has responded to the growing demand for arbitration by expanding and diversifying its arbitration practices internally through strategic overseas hires, among other changes.
Additionally, in the last couple of years, Japan is seeing the beginnings of activity in the area of investment treaty arbitration.
This article summarises the following recent trends and developments in the country:
1. proposed amendments to the Arbitration Act and mediation-related legislation;
2. JCAA arbitration rules: revised;
3. specialised hearing centres: with remote/online hearing facilities;
4. local arbitration Bar: building capacity with overseas hires; and
5. investment treaty arbitration: developments
1. Revisions of the Arbitration Act to Reflect 2006 Amendments to the Model Law, Etc
Japan’s Arbitration Act (Act No 138 of 2003), enacted in 2003, essentially adopts the Model Law on International Commercial Arbitration formulated by the United Nations Commission on International Trade Law (UNCITRAL) in 1985 (the “Model Law”). Subsequently, the Model Law was partially amended in 2006 (the “2006 Amended Model Law”), and Japan is currently considering corresponding amendments as well as other revisions to its Arbitration Act, as stipulated in an “Interim Protocol” issued by the Ministry of Justice on 19 March 2021. The main points are described below.
Amendment to rules on interim measures issued by arbitral tribunals
The 2006 Amended Model Law contains detailed provisions on interim measures issued by arbitral tribunals, which are available in arbitral proceedings and are of great practical importance today. In contrast, the current Arbitration Act, consistent with the 1985 Model Law, contains only one provision (Article 24) on interim measures.
The Interim Protocol proposes to substantially adopt the provisions of the 2006 Amended Model Law that concern tribunal-issued interim measures, including a revised definition of interim measures; provisions on the requirements for the issuance of provisional measures; and, perhaps most notably, provisions establishing the enforceability of provisional measures granted by arbitral tribunals. As the Arbitration Act does not currently recognise the enforceability in court of provisional measures issued by arbitral tribunals, these proposed amendments would be significant and, to many, a welcome change. Under the proposed amendments, courts would effectively treat tribunal-issued interim relief orders in a manner similar to a final arbitration award. This would be the case regardless of whether or not the seat of arbitration is in Japan.
Amendment to rules on the requirement that an arbitration agreement be “in writing”
The Arbitration Act presently provides (in Art. 13(2) and (4)) that any arbitration agreement must be in writing “such as in the form of a document signed by all the parties, letters or telegrams exchanged between the parties... or other communication measures for parties at a distance which
provide the recipient with a written record of the communicated content), or other documents” or in an “electromagnetic record”. The Interim Protocol proposes to replace such overly particularised verbiage with the language of Article 7 (Option I) subsection (3) of the 2006 Amended Model Law, which states more simply and generally that: “An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.”
Amendments to provisions on arbitration-related court proceedings
Jurisdiction over arbitration-related court proceedings
The Arbitration Act designates which courts have jurisdiction over matters related to arbitral proceedings (“Arbitration-Related Court Proceedings”), such as the setting aside of arbitral awards and applications for execution orders. Currently, it stipulates that the following courts may have jurisdiction over such matters: (1) any district court agreed upon by the parties; (2) any district court with jurisdiction over the seat of arbitration; or (3) any district court with jurisdiction in the region where the respondent is located (Article 5 of the Arbitration Act).
The Interim Protocol proposes a partial shift in the above jurisdictional scheme in order to funnel more Arbitration-Related Court Proceedings into designated courts, which presumably would accrue experience and know-how particular to arbitration-related issues. Specifically, in cases falling under category (3) above, the Tokyo District Court will have concurrent jurisdiction with a district court located within the district where the Tokyo High Court, Nagoya High Court, Sendai High Court or Sapporo High Court has jurisdiction; and the Osaka District Court will have concurrent jurisdiction with a district court located within the district where the Osaka High Court, Hiroshima High Court, Fukuoka High Court or Takamatsu High Court has jurisdiction. This “concurrent jurisdiction” arrangement permits flexibility for the parties while also enabling the Tokyo District Court and Osaka District Court to handle as many more Arbitration-Related Court Proceedings as possible with the apparent goal of building a specialisation in procedures related to international commercial arbitration.
Relaxation of document translation requirements in arbitration-related court proceedings
Under the current Arbitration Act, when making a request to a court for an order of enforcement of an arbitral award, the applying party must submit a complete and verified copy of the award accompanied by a full translation in Japanese (if the award is prepared in a language other than Japanese) (Article 46(2) of the Arbitration Act). In addition, any evidence submitted that is in any other language must be accompanied by a Japanese translation.
The Interim Protocol proposes that in Arbitration-Related Court Proceedings, courts may, after hearing the opinions of the parties, omit the translation requirement or allow only partial translations. Given that English is used in a significant proportion of cases in international arbitration, the proposed amendment is expected to reduce some of the time and costs involved in Arbitration-Related Court Proceedings and reduce the burden on the parties.
Amendment to rules on settlement agreements through mediation
Parties in civil litigation in Japanese court who reach an amicable settlement of the dispute may ask the court to formally record such agreement. Such court-recorded settlement agreement will be per se enforceable (ie, as though it were a court judgment). In contrast, a settlement agreement resulting from private mediation independent of the courts is not enforceable per se under Japanese law.
On the other hand, the United Nations Convention on International Settlement Agreements Resulting from Mediation (“Singapore Convention on Mediation”), signed on 7 August 2019, provides that settlement agreements reached in mediation that meet certain requirements will be enforceable in court. While Japan is not a signatory to this convention (as of 1 July 2021), the Interim Protocol proposes legislative changes allowing for court enforcement of settlement agreements reached through mediation independent of Japanese courts in a manner consistent with Article 5 of the Singapore Convention on Mediation. The Interim Protocol leaves open the question of whether such enforcement will be limited to settlement agreements that are international in nature.
Amendment to rules on jurisdiction of civil conciliation cases
Just as the jurisdictional adjustments mentioned above are meant to encourage the development of specific courts with enhanced experience and know-how in handling arbitration matters, a similar scheme has been implemented in recent amendments to the Civil Conciliation Act, although its application is limited to IP-related disputes. Civil conciliation, under this law, is a means by which parties may seek court assistance in resolving a civil dispute through a process similar to mediation rather than litigation. If, in the course of such process, the parties reach an agreement to settle the dispute or the court issues an order and no party (or other interested person) objects, then the agreement or order will have the same effect as a judicial settlement (ie, parties can seek enforcement of such court-sanctioned agreements or orders).
However, the Interim Protocol proposes, with respect to IP-related matters, to grant concurrent jurisdiction over such civil conciliation cases to the Tokyo District Court or Osaka District Court, respectively, with the aim of developing specialisation in those courts. Specifically: the Tokyo District Court will have concurrent jurisdiction over cases where the designated court of jurisdiction as stipulated in Article 3 of the Civil Conciliation Act (excluding jurisdiction admitted by parties’ agreements) is located within the jurisdictional region of the Tokyo High Court, Nagoya High Court, Sendai High Court or Sapporo High Court; while the Osaka High Court will have concurrent jurisdiction over matters where the designated court of jurisdiction as stipulated in Article 3 of the Civil Conciliation Act (excluding jurisdiction admitted by parties’ agreements) is located within the jurisdictional region of the Osaka High Court, Hiroshima High Court, Fukuoka High Court or Takamatsu High Court.
2. Amendment of the JCAA Arbitration Rules
On 1 July 2021, the JCAA amended its international arbitration rules, with noteworthy revisions especially in three key areas, described below.
Increase in the maximum amount for Expedited Arbitration Procedures
Previously, the Expedited Arbitration Procedures of the JCAA Rules mandatorily applied to cases in which the amount or economic value of the claim was not more than JPY50 million (approximately USD500,000). Under the revised rules, the maximum amount in dispute has been raised to JPY300 million (approximately USD3 million), which now includes the total amount of all claims, counterclaims and set-off defences plus the amount of any interest, rent, damage, penalty, expense or cost.
In line with this, the deadline for the submission of counterclaims and set-off defence has been extended from two weeks to four weeks. In addition, with the permission of the arbitral tribunal, parties are permitted to amend their claims, counterclaims or set-off defences, which they previously were not.
The amended rules also provide for the tribunal to consult with the parties by videoconferencing or other methods at the discretion of the arbitral tribunal, prepare a procedural schedule, and send it to the JCAA and the parties within two weeks from the date when the tribunal was constituted. Further, the revised rules allow more flexibility to appoint a three-member panel in expedited cases (where previously, such procedures were to be decided by a sole arbitrator) and allow for the award to be issued within six months – an extension from the prior three-month limit (which still applies when the amount is less than JPY50 million).
New rules for JCAA to act as Appointing Authority in ad hoc arbitrations or in arbitrations administered by the rules of other arbitral institutions
Although there was no prohibition on the parties entrusting the JCAA with the appointment of arbitrators in ad hoc arbitrations or arbitrations administered by the rules of other arbitral institutions before the enactment, there were no formal procedures set in place. Whereas after the enactment, a new set of rules for cases where the JCAA acts as the Appointing Authority was established.
Under the new rules, when the JCAA responds to an application for the appointment of arbitrators, it shall provide the following services depending on the content of the application:
They further provide that the application fee to be paid by the applicant to the JCAA in making an application under these rules shall be JPY100,000 (approximately USD1,000) plus consumption tax per appointment of the arbitrators.
Alternative administrative fee schedule for low-value matters
Previously, for cases where the amount or economic value of the claim was less than JPY20 million, the administrative fee was uniformly set at JPY500,000 (approximately USD5,000). After the amendment: (i) in cases where the amount or economic value of the claim is less than JPY5 million, the administrative fee shall be an amount equal to 10% of the amount or the economic value of the claim; and (ii) in cases where the amount or economic value of the claim is JPY5 million or more but less than JPY20 million, the administrative fee shall be uniformly set at JPY500,000. The intention of this revision was for the administrative fee to be more reasonable, especially for cases where a small amount or economic value is in dispute.
3. JIDRC Hearing Centres and Virtual Hearing Capability
With the support of the Japanese government, the Japan International Dispute Resolution Center (JIDRC) was established in February 2018 as an agency to contribute to the further activation of international arbitration and international mediation in Japan. Initially, the JIDRC-Osaka centre was established in 2018 as the first dedicated facility in Japan for international arbitration and alternative dispute resolution (ADR) hearings and other activities. Then in March 2020, JIDRC-Tokyo, a cutting-edge facility for international arbitration and alternative dispute resolution, was established in Toranomon, Tokyo. In April 2021, JIDRC-Osaka relocated to the Osaka International Convention Center. These facilities are available for conducting arbitration proceedings of various institutional arbitrations (eg, arbitrations under the rules of the ICC, the JCAA, SIAC, the AAA/ICDR, HKIAC, the LCIA, the KCAB and ICSID) or ad hoc arbitrations, charging relatively inexpensive fees.
In 2020, the JIDRC Advisory Board formed a Subcommittee on Web Hearings and Other Related Matters, which undertook a detailed review regarding the suitability of the JIDRC’s hearing facilities for remote or online hearings, which have been increasingly common since the wide spread of COVID-19. The subcommittee’s detailed findings were provided in a report on 27 November 2020, confirming that the JIDRC's hearing facilities had all the infrastructure and capabilities for capably conducting remote/online hearings.
4. Recent Developments in Investment Treaty Arbitration
Investment treaty arbitration remains a rarity in Japan, although there are signs that this is beginning to change. For example, in 2020, Japanese investors filed three investment arbitration cases with ICSID, and as of 1 July 2021, ICSID has five pending cases in which Japanese parties are the claimants. The media have also reported the first alleged ICSID case brought against Japan by a foreign investor this year in connection with disputes that arose in renewable energy incentives schemes.
5. The Expanding and Evolving Role of Foreign Lawyers in International Arbitration in Japan
Expanded scope of “international” arbitrations in Japan in which foreign lawyers may act as counsel
Recent legislation has also clarified and expanded the scope of arbitrations in Japan in which non-Japanese lawyers are permitted to act as counsel.
Under the Special Measures concerning the Handling of Legal Services by Foreign Lawyers (Act No 66 of 1986) (“Foreign Lawyers Act”), lawyers who are not qualified in Japan may act as an arbitration counsel only under certain conditions. First, the foreign lawyer must be qualified and reside in a foreign jurisdiction or, if residing in Japan, be registered under the Foreign Lawyers Act.
Second, the matter must fall within the scope of the statutorily defined “International Arbitration Case”. Before the amendment, this was defined in Article 2 of the Foreign Lawyers Act 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”. Criticised for years as overly narrow in its interpretation, an arbitration between two Japanese subsidiaries despite being wholly owned by foreign parent corporations would not be an “International Arbitration Case” because none of the parties has an address or a principal office or head office in a foreign jurisdiction. Under the prior scheme, parties in such a dispute were required by law to retain only Japanese lawyers as counsel.
However, on 29 May 2020, the Foreign Lawyers Act was amended via the Law for Partial Amendment to the Special Measures concerning the Handling of Legal Services by Foreign Lawyers (Act No 33 of 2020) to clarify and broaden the definition of an "International Arbitration Case" to include civil arbitration cases in which:
Going forward, registered foreign lawyers residing in Japan and foreign lawyers qualified and practising abroad will be able to act as arbitration counsel in matters falling under this revised and expanded definition of an International Arbitration Case.
Diversification and expansion of the local arbitration Bar
As Japan has seen increasing activity and sophistication in the international arbitration sector, there has been a corresponding development in the local arbitration Bar. Mirroring a successful model used by a number of firms in neighbouring Korea during its arbitration renaissance in the decade of 2000–10, Japanese firms are now expanding and diversifying their own international arbitration practices, with three of the four largest firms having hired or promoted foreign attorneys to partnership or leadership positions. Likewise, there are an increasing number of foreign attorneys in the associate ranks as well, including in the firms’ foreign offices. International firms have also made notable hires and promotions to partner of international arbitration specialists in their Tokyo offices in the past year, and the number of non-Japanese academics in Japan who specialise in the field has also grown.
Such trends will no doubt continue to increase and enhance the practice of international arbitration in Japan.