Guest blog: Japan – The Next Arbitration Shangri-La?

Written by: Nobumichi Teramura (UNSW Law Faculty)
As reported by the Nikkei Asian Review on 18 May 2017, the Japanese government announced it planned to open a new centre for international commercial arbitration in Tokyo. The facility was reportedly to be established for the use of the Japan Commercial Arbitration Association (JCAA), the only permanent commercial arbitration institution in the country as well as other arbitration institutions from all over the world. The Ministry of Foreign Affairs, Ministry of Justice, and Ministry of Economy were working together for necessary legislative reforms and staffing issues.
Studying other institutions’ experiences is important to plan the forthcoming reform, but it is also important to reflect on the past Japanese arbitration reforms when considering the future of Japanese arbitration. A wise person learns from history. What reforms have been made in international commercial arbitration regimes in Japan until today? What can we learn from the past reforms? What implications do they have for the forthcoming arbitration reforms?
Th0se questions are addressed in the Japan chapter in a forthcoming book on “The Developing World of Arbitration: A Comparative Study of Arbitration Reform in the Asia Pacific”, co-edited for Hart by Hong Kong University Professors Anselmo Reyes (also a Judge of the Singapore International Commercial Court) and Gu Weixia. I was pleased to be invited to become the lead author of “Arbitration Reform in Japan: Reluctant Legislature and Institutional Challenges”, with my PhD thesis associate supervisor Professor Luke Nottage of Sydney Law School as co-author. My primary supervisor, Professor Leon Trakman of the University of New South Wales, contributed the chapter on arbitration reforms in Australia. Below is my outline of the forthcoming chapter on Japan.
The aim of establishing such a centre is to boost the number of international commercial arbitrations held in the country, which is now around 20 per year. New JCAA case filings have ranged from 14 to 27 annually between 2007 (15 cases filed) and 2016 (18). International Chamber of Commerce arbitration cases with the seat in Japan ranged from 2 to 5 annually between 2007 (4 filed) and 2015 (2). This number is quite small, compared with other countries or cities having those well-known arbitration institutions such as Hong Kong, Singapore, London, Paris and New York. (However, in Australia, ACICA only attracted a few new cases each year until 2009 and on average about 8 annually between 2010 and 2015, with ICC cases ranging between 1 and 8 each year from 2008 (2 cases filed with the seat in Australia) and 2016 (8 filed)). Japan’s Ministry of Justice launched a task force to investigate these popular institutions for the purpose of clarifying what reforms are necessary to attract more arbitration cases to Japan. Japanese arbitration is therefore venturing into a new era of reform.

Background: legislation, institutions and judiciary
Various statutes regulate international arbitration in Japan. The main statute is the Arbitration Law (Law No. 138 of 2003). It dutifully follows the 1985 UNCITRAL Model Law on International Commercial Arbitration (Model Law), with minor modifications to suit the Japanese legal context (for example, it applies to domestic as well as international cases), and the Act took into account deliberations underway since 2000 in UNCITRAL that eventually generated the amended Model Law in 2006. Some other norms, such as the Rules of the Supreme Court (No. 27 of 2003), the Civil Execution Law (Law No.4 of 1979), and the Japanese Code of Civil Procedure deal with aspects of arbitration. Moreover, international treaties as represented by the 1958 New York Convention and the 1965 ICSID Convention cannot be overlooked when discussing arbitration in Japan.
Like other countries, Japan also has several arbitration institutions. The most prestigious is the JCAA, which is proud of its long history extending over six decades. The Tokyo Maritime Arbitration Commission (TOMAC) of the Japan Shipping Exchange also has a long tradition. Other than these bodies, organisations of different sizes are covering various types of arbitration cases (e.g., intellectual property rights disputes, construction disputes, sports disputes, and so on).
Japanese judges shows a pro-arbitration attitude. In accordance with the Model Law, the Japanese courts mainly play a supportive role in arbitration and intervene in the procedure only in limited circumstances.
Reform: what has been done until today?
What we can call reforms have taken place only in legislation and institutions. The judiciary has only played a secondary role in supporting the reforms.
Between 1999 and 2004, a broader Justice System Reform was initiated under the jurisdiction of the Cabinet that included an overhaul of the arbitration system, in light of UNCITRAL’s work from 2000 to revise the Model Law. The Arbitration Law is the product of this reform, and this is the only major legislative reform related to arbitration in Japan since the 19th century.
The reforms in arbitration institutions are happening relatively more frequently than in the legislature (but sometimes in piecemeal fashion). For example, JCAA has revised its arbitration rules more than five times, including minor modifications. TOMAC has also frequently revised its arbitration rules. In doing so, they always keep their eyes on ongoing developments in international arbitration institutions.
The judiciary has supported the reforms by rendering ‘pro-arbitration’ judgments (such as acceptance of severability and restrictive use of public policy in setting aside arbitral awards) to follow the spirit of the legislation closely. For the judges of a country that follows a continental European career system, it is uncommon to make extra-judicial pronouncements. Therefore, issuing judgments in favour of international commercial arbitration is the best thing they can do for the growth of international arbitration in Japan.
Future: what should Japan do for the future growth of arbitration?
At the time the manuscript for this chapter was prepared, there was no indication of real willingness among the legislature and the judiciary to reform the arbitration system further. Only arbitration institutions, especially JCAA, was willing to continue updating and upgrading their arbitration service in both hard aspects (such as its facilities and equipment) and soft aspects (such as its arbitration rules and arbitration administration services). However, to make Japanese arbitration meet international standards, more immediate reforms are necessary, such as developing the ‘market’ for arbitration.
Within Japan, it is necessary to do something to change the mindset of the Japanese people towards international arbitration. In other words, it is crucial to increase public awareness of arbitration itself. For example, the situation would be changed by the inclusion of arbitration in the National Bar Exam as a subject, by establishing more LLM courses in universities with an exclusive focus on international dispute settlement, and by organising public lectures on arbitration to general people in business. Internationally, in addition to raising awareness of Japanese arbitration globally, it is necessary to increase the number of ‘international arbitrators’ who have an excellent command of dealing with transnational disputes. On this point, one of the easiest solutions is to deepen and expand cooperation between the Japan Association of Arbitrators and the Chartered Institute of Arbitration. This would contribute to energising the presence of Japan in both domestic and international arbitration markets.
At first glance, the Japanese arbitration system has various features that could make the jurisdiction an attractive arbitration destination: modern arbitration legislation based on the Model Law, a pro-arbitration judiciary, and quite active arbitration institutions. But a dramatic increase in international arbitration caseload has never taken place in the country due to its inactive arbitration market. What the Japanese government primarily has to do, therefore, is to enlighten Japanese citizens on the utility of this dispute resolution mechanism and to advertise Japanese arbitration institutions globally. On this point, I believe that the government’s recent declaration on a new arbitration centre will provide good opportunities to increase public awareness of Japanese arbitration at both domestic and international levels. Let’s see where the experiment can take Japanese arbitration. Japan might be able to become the next arbitration Shangri-La by 2020 Tokyo Olympics.

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.