Written by: Luke Nottage and Nobumichi Teramura (unfootnoted draft for Sarah Biddulph and Kathryn Taylor (eds) Elgar Concise Encyclopedia of Asian Law, Elgar, forthcoming)
“Commercial Dispute Resolution and Arbitration in Japan”
For: Elgar Concise Encyclopedia of Asian Law
Luke Nottage and Nobumichi Teramura
1. Civil Procedure and Litigation
The Civil Procedure Code, enacted as the framework for civil litigation in the late 19th century as Japan adopted a modern Western legal system, derived mainly from German law. The Code experienced significant reforms after WW2 (adopting the more “adversarial principle”) and 1998 (based partly on some emerging court practices, to streamline identification of legal issues and related evidence-taking, as well as new small claims procedures and other provisions to reduce delays).[1] The 1999-2001 Justice System Reform Council Recommendations resulted in introducing expert commissioners to advise judges in complex cases, an advance notice of suit option, and other “micro”-level reforms, but also expanded numbers of bengoshi lawyers and judges aiming for “macro”-level impact.[2] Those Recommendations sought mainly to reduce perceived “structural barriers” to initiate lawsuits, which arguably underpin a comparatively low civil litigation rate in Japan especially over the 1950s-70s. However, some instead argue that this low propensity to sue is related to “cultural” factors like preferences to avoid confrontation and fear of “losing face” (although this may be related to risk-averseness especially in larger organisations), or a rational avoidance of litigation costs by settling in the shadow of comparatively predictable substantive law in Japan.[3]
Japan’s still predominantly civil law tradition means that civil litigation maintains various features not usually found in common law systems. These include limited pre-trial discovery (although some analogues[4]), non-continuous trials (though delays decreased from 2000s), no juries (only for some serious criminal cases, reintroduced from 2009), active case management by judges (including right not duty to “clarify” the law especially for self-represented litigants, and encouragement of settlement), three career judges hearing complex civil cases at first instance, and no dissenting opinions published (other than in the highest Supreme Court).[5]
2. Mediation
In Japan, mediation is mostly court-annexed, with tradition going back to the pre-WW2 era (eg farm tenancy disputes,[6] although such disputes were often settled through direct and informal negotiations between land owners and tenants). Parties may choose between two main types of mediation. One is conducted by the judge(s) assigned the case, although in larger courts like Tokyo and Osaka, the case may be referred to a division where mediation is attempted by other judges, and then returned to the original judge(s) if settlement fails. The second type is mediation under the 1951 Civil Conciliation Act, mandated by the court or more typically agreed by parties: a conciliation committee consisting of a judge and two non-judges having expert knowledge and experience lead the mediation settlements. In both scenarios, it is quite common among the judicial mediators to caucus separately with each party (unlike eg Germany, where judges encourage settlement in open court).[7]
The government also provides mediation service. For instance, some formal government-supported mediation is available, eg for environmental pollution or neighbourhood disputes (eg noise),[8] or recently for financial institutions.[9] Informal government-supported mediation schemes are available too for consumer disputes, through Consumer Lifestyle Centre. The government also promoted criteria (such as independence of formal mediators from any industry associations) for Product Liability (PL) ADR Centres, created from the mid-1990s.[10]
Due to very high public trust in the court-annexed and government-supported schemes, government financial support for them and perhaps still comparatively fewer disputes, Japan has less privately-supplied mediation services. The Justice Reform Council perceived this as another structural barrier, so the 2004 Act on Promotion of Use of Alternative Dispute Resolution encouraged private mediation through government certification to build trust and visibility, allowing such organisations to make limitation periods tolled during their mediations (unlike non-certified mediation suppliers).[11] Many got certified, both some old institutions (like Bar Associations providing mediation services) and quite a few new ones (such as Japan Sport Arbitration Agency),[12] but caseloads have not increased much especially for commercial dispute resolution.[13]
3. Arbitration
Arbitration legislation was also initially also derived originally from Germany: the arbitration section in its Civil Procedure Code also from the late 19th century. This legislation remained basically unchanged in Japan’s 1998 civil procedure reform, despite an earlier push from academics to adopt the 1985 UNCITRAL Model Law template that was starting to spread especially around the Asia-Pacific region. Arbitration was seen as less important compared to improving the civil litigation and mediation environment because it was little used domestically (except eg a scheme for disputes between construction companies and the government).[14] For international transactions, Japanese commercial parties seemed quite content to agree to arbitration in foreign seats, perhaps in exchange for other benefits received in contract negotiations. Part of the thinking may also have been they were unlikely to get involved in (expensive) formal dispute resolution and, in particular, to initiate claims. Hence some Japanese parties and their legal advisors established the comparatively unusual practice of “finger-pointing clauses” in arbitration agreements, designating the defendant’s domicile as the seat of arbitration.
Accordingly, the caseloads of the Japan Commercial Arbitration Association (JCAA) and Tokyo Maritime Arbitration Commission (TOMAC), as well as other international arbitrations with seat in Japan (eg under the ICC Arbitration Rules or ad hoc UNCITRAL Arbitration Rules), remained few even over 2000s, while Asian centres in Singapore, China and HK recorded large increases in arbitration cases. Nevertheless, more foreign counsel and arbitrators joined the arbitration market especially after the 2003 reform of the Act on Special Measures Concerning the Handling of Legal Services by Foreign Lawyers (the Foreign Lawyers Act) that allowed full profit sharing with international firms established in Japan. There also remained a salient practice of Arb-Med, with arbitral tribunals actively encouraging settlement, especially when Japanese parties, counsel and/or arbitrators were involved.[15]
As part of Justice System Reform Council Recommendations, however, the 2003 Arbitration Act was enacted based on the 1985 UNCITRAL Model Law. Some tweaks to that template included extending it from international to domestic arbitration cases (hence, allowing no appeals for errors of law), adding criminal sanctions for corrupt arbitrators (to build trust in arbitration), and requiring express written consent from parties for Arb-Med (given natural justice concerns). Case law has been generally pro-arbitration, enforcing most foreign arbitral agreements and awards in accordance with the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.[16] However, not many judgments, including those related to international arbitration, are translated into English. Few judges give speeches promoting Japan as a seat for arbitration or go on to become arbitrators after retirement — instead, most have been professors and (increasingly) local or foreign lawyers — unlike in common law jurisdictions like Singapore or Australia where (former) judges play more active roles in promoting arbitration generally. JCAA and TOMAC did amend their Rules around the time of the 2003 Act and subsequently from time to time. However, they continued to mostly administer cases involving at least one Japanese party, without marketing their centres aggressively to see large increases in caseloads.[17]
Since 2018, nonetheless, we have witnessed an elevated political push for Japan to catch up with international competitors and become more of an international dispute resolution hub regionally. Along with the Japan International Mediation Centre (JIMC) Kyoto (an earlier academic / law society joint venture), the Japan International Dispute Resolution Centre (JIDRC) was established with government-supported facilities in Osaka and then Tokyo, with quite intense marketing despite the pandemic. A new Tokyo-based institution, International Arbitration Centre in Tokyo (IACT), focuses on intellectual property arbitration. These governmental initiatives prompted JCAA to enact three sets of new Rules from 2019. Amendments to allow more foreign law representation in foreign-related arbitrations seated in Japan.[18] Moreover, formal consultation was launched in 2020, albeit belatedly by Asia-Pacific standards, to revise the 2003 Arbitration Act along more of the lines of the 2006 UNCITRAL Model Law amendments especially on tribunal-issued interim measures.[19] This is important especially for marketing Japan as a seat, although the 2003 Act had already anticipated a few provisions on interim measures that were being discussed in UNCITRAL and incorporated into their 2006 Model Law amendments.[20]
Those new public and private initiatives should help further reduce structural barriers to arbitrating in Japan, but it is still unlikely that arbitration will ever become popular for domestic dispute resolution. Moreover, it is too early to tell whether these efforts will make Japan a significantly more popular seat for international arbitrations.
[1] Yasuhei Taniguchi, ‘The 1996 Code of Civil Procedure of Japan-A Procedure for the Coming Century?’ (1997) 45 The American Journal of Comparative Law 767.
[2] Translated at https://japan.kantei.go.jp/policy/sihou/singikai/990612_e.html; Luke Nottage, ‘Civil Procedure Reforms in Japan: The Latest Round’ (2005) 22 Ritsumeikan Law Review 81, available at SSRN: https://ssrn.com/abstract=837864.
[3] Masaki Abe and Luke Nottage, ‘Japanese Law’ in Jan Smits (ed), Elgar Encyclopedia of Comparative Law (3rd edn, Edward Elgar Publishing 2022), available at SSRN: https://ssrn.com/abstract=3672112 or http://dx.doi.org/10.2139/ssrn.3672112 .
[4] Andrew M. Pardieck, ‘Discovery in Japan’ (2021) 31 Indiana International & Comparative Law Review 61.
[5] See generally eg Shusuke Kakiuchi, ‘Access to justice in Japan’ (2007) Japanese Law Resources <http://www.asianlii.org/jp/other/JPLRes/2007/1.html> .
[6] Dimitri Vanoverbeke, Community and State in the Japanese Farm Village: Farm Tenancy Conciliation, 1924-1938 (Leuven University Press 2004). “
[7] Yasunobu Sato, Commercial Dispute Processing and Japan (Kluwer Academic Publishing 2001); Harald Baum, ‘Mediation in Japan. Development, Forms, Regulation and Practice of Out-of-Court Dispute Resolution’ in Klaus J. Hopt and Felix Steffek (eds), Mediation: Principles and Regulation in Comparative Perspective (Oxford University Press 2012).
[8] Mark D. West, ‘The Resolution of Karaoke Disputes: The Calculus of Institutions and Social Capital’ (2002) 28 The Journal of Japanese Studies 301 (demonstrating the success of the Internal Affairs Ministry’s Pollution Complaint Counsellor in dealing with noise complaints); Shiro Kawashima, ‘A Survey of Environmental Law and Policy in Japan’ (1994) 20 North Carolina Journal of International Law and Commercial Regulation 231; Luke Nottage, ‘The Cultural (Re)Turn in Japanese Law Studies’ (2009) 39 Victoria University of Wellington Law Review 755.
[9] Tomohiko Maeda and Andrew M. Pardieck, ‘ADR In Japan’s Financial Markets & the Rule of Law’ (2018) 10 Northeastern University Law Review 400.
[10] Luke Nottage and Yoshitaka Wada, ‘Japan’s New Product Liability ADR Centers: Bureaucratic, Industry, or Consumer Informalism?’ (1998) 3 Journal of Japanese Law 40.
[11] Aya Yamada, ‘ADR in Japan: Does The New Law Liberalize ADR From Historical Shackles or Legalize It?’ (2009) 2 Contemporary Asia Arbitration Journal 1.
[12] As of 9 April 2022, there are 163 certified organisations: Ministry of Justice, ‘The List of Certified ADR Providers [in Japanese]’ (n.d.) <https://www.moj.go.jp/KANBOU/ADR/jigyousya/ninsyou-index.html> accessed 9 April 2022.
[13] James Claxton, Luke Nottage and Nobumichi Teramura, ‘Disruption as a Catalyst for International Dispute Services in Japan: No Longer Business as Usual?’ in Luke Nottage and others (eds), New Frontiers in Asia-Pacific International Arbitration and Dispute Resolution (Wolters Kluwer 2021).
[14] Tatsuya Nakamura and Luke Nottage, ‘Arbitration in Japan’ in Shahla F. Ali and Tom Ginsburg (eds), International Commercial Arbitration in Asia (3rd edn, Juris 2013).
[15] Luke Nottage, International Commercial and Investor-State Arbitration: Australia and Japan in Regional and Global Contexts (Edward Elgar Publishing 2021), Chapter 4.
[16] Yasuhei Taniguchi and Tatsuya Nakamura, National Report for Japan (2019 through 2022), in Lise Bosman (ed), ICCA International Handbook on Commercial Arbitration (ICCA & Kluwer Law International 2020, Supplement No. 120, February 2022) at 36-39.
[17] Nobumichi Teramura and Luke Nottage, ‘Arbitration Reform in Japan: Reluctant Legislature and Institutional Challenges’ in Weixia Gu and Anselmo Reyes (eds), Arbitration Reform in Asia (Hart Publishing 2018).
[18] Junya Naito and Ryo Otobe, ‘The Act on Special Measures concerning the Handling of Legal Services by Foreign Lawyers —Recent Developments toward Internationalization’ (2020) 1 Japan Commercial Arbitration Journal 34.
[19] WeiJian Teo and Yusuke Iwata, ‘The Rise of Japan Arbitration: A Balance to the Common Law Forces of International Arbitration in Asia?’, (Kluwer Arbitration Blog, 6 July 2021) <http://arbitrationblog.kluwerarbitration.com/2021/07/06/the-rise-of-japan-arbitration-a-balance-to-the-common-law-forces-of-international-arbitration-in-asia/>.
[20] James Claxton, Luke Nottage and Nobumichi Teramura, ‘Developing Japan as a Regional Hub for International Dispute Resolution: Dream Come True or Daydream?’ (2019) 47 Journal of Japanese Law 109.
