History of International Arbitration in Japan

[This is the Introduction to a draft chapter written with ANJeL-in-ASEAN Convenor Asst Prof Nobumichi Teramura, for a book being edited by Lars Markert et al on International Arbitration in Japan]

Arbitration has had quite a long modern history in Japan, including a fascinating inter-state dispute that arose in 1872 (Part 2 below). The first arbitration legislation, modelled on German law, was enacted in 1890 and survived for over a century (Part 3).

In 1961, Japan also became one of the first states in Asia, indeed world-wide, to ratify the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC). A few years after the 1985 release of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (ML), a group comprising mostly academics proposed new legislation based on that emerging global standard. However, the concept was only enacted 15 years later as the Arbitration Act (Law No 138 of 2003),[1] as part of the government’s broader package of reforms into justice system reforms. Instead, in 1996, legislation was amended to allow “fly-in” foreign lawyers (in addition to “foreign law solicitors” registered in Japan under legislation since 1986) to represent clients in international arbitrations in Japan. Their scope of permitted practice was somewhat expanded in 2021, as part of the government’s initiatives from 2018 to have Japan catch up with larger regional hubs for international arbitration. As another part of that program, the first amendments to the Arbitration Act were approved in 2023 (Part 4).

Despite this rather slow development of cutting-edge legislation for international arbitration in Japan, the courts have been comparatively consistent in rendering pro-arbitration decisions complying with the NYC and ML as international instruments (Part 5). Japan’s two main arbitration institutions, The Tokyo Maritime Arbitration Commission (TOMAC, established in 1926) and the Japan Commercial Arbitration Association (JCAA, established in 1953), have also helped keep arbitration practices updated by periodically revising their Arbitration Rules. The government’s push since 2017 to promote Japan more actively as a seat has led to further new Rules as well as new arbitral institutions, including for sports and intellectual property disputes (Part 6).

Japan has also become a comparatively active proponent of investor-state dispute settlement (ISDS) arbitration provisions in international investment agreements, although again after a slow start. Japan has seen few outbound and even fewer inbound ISDS arbitration claims. However, this means that arbitration generally may not attract as many negative associations with the general public as in other states experiencing more and/or high-profile ISDS arbitration claims from foreign investors (Part 7).

Despite such positive developments, arbitration has not yet captured the imagination in Japan. The general public remained quite unfamiliar with it, although awareness nowadays may be improving. Indeed, one colloquial understanding or definition of arbitration (chusai) was closer to mediation (chotei), even though the latter does not involve imposition of a binding decision by the agreed third-party neutral.[2] This confusion may have persisted from the Tokugawa era (1603-1867),[3] when notions of judiciable rights were comparatively weak and mediation was actively practiced to resolve civil disputes.[4]

As for awareness among Japanese firms in the modern era, the larger ones have long been quite familiar with the advantages of including arbitration clauses especially in maritime matters and other cross-border commercial contexts. Accordingly, some have got involved in some arbitrations and even some high-profile related court proceedings particularly abroad. In addition, sustained efforts by arbitral institutions and business associations since World War II have made smaller and medium sized enterprises more likely to include arbitration clauses in their own growing cross-border trade and then investment contracts, although many probably remain quite unfamiliar with arbitration. Furthermore, as a whole, Japanese firms have been more willing to agree to arbitration clauses specifying a seat outside Japan. In addition, they have appeared more reluctant actually to proceed with arbitration claims even under such clauses, or locally when the seat is agreed to be in Japan, compared to companies from other states in Asia and beyond.[5]

The result has been that Japan’s major arbitration institutions have not yet seen the significant growth in international case filings evident in several states in the region. Arbitration is also still used infrequently to resolve domestic commercial disputes. As with Japan’s still comparatively low per capita civil litigation rate, the reasons may be related to (general, organisational or legal) culture or institutional barriers (including comparatively few lawyers, experts, arbitrators and institutions pro-actively specialising in the field, at least until recently). These questions, and therefore the prospects for expanding arbitration services in Japan, are explored further in the Conclusions (Part 7).

[1] For a semi-official translation, see Japan Ministry of Justice, ‘Arbitration Act (Act No. 138 of 2003)’ (Japanese Law Translation) https://www.japaneselawtranslation.go.jp/en/laws/view/2784 accessed 14 April 2023.

[2] Tatsuya Nakamura, Chusaiho Gaisetsu [Outline of Arbitration Law] (Seibundo Shinkosha 2022) 1.

[3] Yoshihisa Hayakawa, ‘Nihon ni okeru Chusai no Rekishiteki Isou [Historical Phases of Arbitration in Japan]’ (2015) 87 Horitsu Jiho 19, 19-20.

[4] Nonetheless, some litigants did actively press their rights even during this pre-modern era, when Japan largely closed itself off from the wider world: see e.g., Herman Ooms, Tokugawa Village Practice: Class, Status, Power, Law (University of California Press 1996).

[5] Compare generally [[X-ref to Chapter 3 (Japan as seat) in this volume].