Will Privately-Supplied ADR Keep Growing in Japan?

[Adapted on 10 April for the East Asia Forum blog]
The shift since the 1990s in the self-image of many bengoshi lawyers outlined in my previous posting, underpinned also by the slowly changing nature of their work generally as well as the emergence of corporate law firms, helps explain the quite swift enactment of the 2004 Law to Promote the Use of Out-of-Court Dispute Resolution Procedures (translated here), driven also by a Judicial Reform Council (JRC) recommendation in 2001. After a slow start, the Law also seemed to be gaining some traction in promoting privately-supplied ADR services.
However, Court-annexed mediation and recent improvements in the litigation process itself leave a formidable competitor. And the conservative backlash among bengoshi in electing their new JFBA President is likely to further dampen the emergence of private ADR services and institutions. Especially now, that only seems probable if and when private suppliers develop niche markets like more facilitative (not evaluative) forms of ADR – a characteristic of ADR in Australia that has impressed ANJeL Visiting Professor Tatsuya Nakamura (see his columns in Japanese reproduced here) – and if litigation costs balloon like they have in countries like Australia.

Out of the reform debates regarding the 2004 Law, the view did emerge that promoting ADR, not just better court procedures, was consistent with the rule of law – the ultimate aim of judicial sector reform. ADR could complement court proceedings if it could help bring disputing parties closer together “in the shadow of the law” cast by an improved system of courts (and, of course, predictable substantive law). ADR could also advance the vision of the JRC (and the government more generally) of more informed and active citizens, taking greater responsibility for their own actions rather than relying passively on guidance from public authorities.
A second debate that emerged, particularly within the Study Group set up in late 2001 to propose concrete elements of the new legislation to promote ADR, was whether ADR providers should be licenced, certified or completely deregulated. (For both debates and the following summary of the outcomes, see YAMADA, A. (2009) A.D.R. in Japan: Does the New Law Liberalize A.D.R. from Historical Shackles or Legalize It? Contemporary Asia Arbitration Journal, 2, 1-23 at pp 15-16).
Ultimately, although not mentioned by the JRC recommendations, the Group and the Law provided a MoJ certification scheme. The rationale was that this was needed to promote public trust in ADR, given already the active use of Court-annexed conciliation on the one hand, and on the other the continuing involvement of yakuza gangsters and other undesirable providers of dispute resolution “services” in Japan. This view prevailed over those who argued that liberalisation would have been more consistent with the goal of promoting private ADR and the broader deregulatory program of the government. Liberalisation was also seen as too much of a shift from the starting point, which was close to licencing: Art 72 of the Lawyers Law (criminally) prohibited legal services provided other than by bengoshi except when (i) not offered on a (continuing) business basis, (ii) a legitimate act, or (iii) other legislation provided differently.
The Law’s certification scheme represented a compromise aimed to placate bengoshi by coming within exception (iii), while appealing to those sceptical about too much government control over the ADR services industry. It offers a “carrot” (to encourage certification by ADR providers) rather than using a “stick” (forcing providers to get licenced before they provide services). Providers do not need to become certified, although then there is a risk that they may violate the Lawyers Law unless they fit within another exception to Art 72. But if they do get certified, they obtain three specific advantages:
• If their procedure ends without the parties settling and one sues within a month, the prescription period is calculated as if the suit had been brought on the date the claim was filed with the certified ADR procedure (Art 25);
• If a suit is pending but parties agree to use the certified procedure or it is already underway, the court may suspend litigation proceedings for up to four months (Art 26; cf court-annexed conciliation, where there is no time limit);
• Parties can elect to use certified ADR instead of the court-annexed system (Art 27) if other legislation requires conciliation before litigation (eg land or building rent disputes under Civil Conciliation Law Art 24-2(1) or divorces under the Domestic Relations Adjudication Law – kaji shimpan ho).
Certification also provides the more diffuse benefit or marketing point of showing the public that the private institution (or individual) has fulfilled minimum standards detailed in Art 6, and is not disqualified under Art 7(eg a yakuza member). These standards are mostly procedural (eg it must clarify a standard process from commencement to termination, including notices and grounds for termination), and mostly consistent with international standards (eg ISO 10003, but not including a confidentiality requirement).
After a slow start (only 5 by November 2007) there has been an almost exponential growth in certified ADR providers (26 by January 2009 and 61 by March 2010): see (in Japanese) <http://www.moj.go.jp/KANBOU/ADR/jigyousya/ninsyou-index.html> and my graph below compiled thanks to ANJeL Assistant Glenn Kembrey. Of the current 61 institutions, 4 are local Bar Associations but 9 are local Judicial Scriveners Associations (many shihoshoshi being engaged now eg in resolving consumer credit disputes) and one is the Tokyo Administrative Scriveners Association.
There is no comprehensive data on whether certification has led directly to much more filings and cases being resolved through these providers of ADR (which the Law defines as processes to encourage settlement, thus excluding arbitration from its scope). Anecdotal evidence suggests that this has not yet occurred, and that public knowledge and trust remains lower than for court- or government-administered ADR. However, businesses do seem to be settling cases more often at an earlier stage through the certified bodies (or even in direct negotiations) because they wish to avoid the more formalised mediation process (see Yamada, op cit, pp 20-1, also regarding the following three other likely effects of the Law so far).
A second effect is a growing diversification in ADR providers. Many certified are smaller and/or newer bodies specialising eg in labour or social security related disputes. The Japan Industrial Counselors Association also adopts a more facilitative style of mediation, in contrast to Court-annexed (and even Bar Association Centre) evaluative mediation. (Others like the JCAA or the Sports Arbitration Centre have obtained certification with the goal of expanding their services to include mediation.) Other government agencies have become more interested in privately-supplied ADR. For example, METI in 2008 allowed those certified under the MoJ to obtain further METI certification to become involved in mediations under the Law on Special Measures for Industry Revitalisation.
Thirdly, due to the certification standards the providers have started to become more conscious about the need for transparency and structure in designing and implementing their various dispute resolution processes. For example, in the industry-association based PL ADR Centres for consumers’ product defect related claims (2 of which are now certified), many cases have been resolved without proceeding to a cheap but formal mediation thanks to Centre staff engaged in “shuttle diplomacy” (often by free-dial phone or by exchange of documentation: see also my paper with Yoshitaka Wada at http://ssrn.com/abstract=837965). However, now they are more conscious of the need to maintain due process standards (including confidentiality, adopted voluntarily by the Centres) even at this stage.
Lastly, networking is emerging among ADR providers. For example, the (certified) Osaka Bar Association tries to work in with other providers, as do now some of the Ho-terasu offices. Mediators registered under the Civil Conciliation Law are also starting to up-skill through training offered by private certified ADR providers.
These amount to small but very significant changes, underpinned by earlier attempts from bengoshi to become more involved in ADR and in turn likely to reinforce their involvement (although not necessarily so much in Bar Association ADR Centres). However, Court-annexed ADR is extremely well-established due to its long history, public trust in the judiciary, and low cost (with registered mediators so far accepting low wages for the honour and opportunity of serving in Civil Conciliation Law proceedings). Another challenge to (even certified) privately-provided ADR services comes from a further round of reforms to the Code of Civil Procedure, in effect from 2004 (and also reflecting some JRC recommendations: see my paper at http://ssrn.com/abstract=837864). This opens more avenues to the courts and may also make it easier to settle disputes within the litigation process. For example, these amendments:
• allow parties to seek opinions from expert advisors before formally lodging suit;
• encourage more use of expert witnesses (kanteinin) during proceedings; and
• introduce a system of “expert commissioners” (semmon i’in) who can provide explanations in writing or orally before the parties and, with their consent, even attend settlement conferences to facilitate settlement or attend witness examinations to ask questions.

Author: Luke Nottage

Prof Luke Nottage (BCA, LLB, PhD VUW, LLM LLD Kyoto) is founding co-director of the Australian Network for Japanese Law (ANJeL), Associate Director (Japan) of the Centre for Asian and Pacific Law at the University of Sydney (CAPLUS), and Professor of Comparative and Transnational Business Law at Sydney Law School. He specialises in international dispute resolution, foreign investment law, contract and consumer (product safety) law.