In recent years, the Japanese government has been enhancing the country's image as a preferred choice for international arbitration and dispute resolution. The latest steps include modernising the Arbitration Act to match international practice. Lawyers share how effective the legislation can be and what more the government should do to support Japan's arbitration ecosystem.
Japan has been on a quest to burnish its hitherto muted reputation as an international arbitration hub. The government has pulled out all the stops to boost the country's attractiveness as the region's premier seat for cross-border arbitrations and dispute resolutions, refusing to be sidelined by neighbouring arbitration powerhouses, including Hong Kong and Singapore.
One of the reasons is the increased willingness of Japanese parties to embrace international arbitration in a deviation from the traditional dispute-adverse attitude. The number of Japanese parties in arbitrations administered by the Singapore International Arbitration Centre (SIAC) quadrupled between 2010 and 2020, with more than half the parties being claimants.
"Perhaps due to parties' preference for expertise of arbitrators, we have seen an increased number of arbitration cases, for example, in the areas of maritime and energy disputes," says Kohei Murakawa, a senior partner at Atsumi & Sakai. "Industry-specific arbitration and investment arbitration can be areas where international arbitration will increase in the medium to long term in Japan."
"As international business transactions increase, so does the potential for international disputes. Having a robust arbitration framework in Japan becomes crucial to resolving these disputes efficiently, and thus will be beneficial not only for Japanese entrepreneurs but also foreign investors."
Fumiyasu Miyazaki, Japan Ministry of Justice
Fumiyasu Miyazaki, an attorney at Japan's Ministry of Justice (MoJ), cites Japan's "deeply integrated" economy into the global market as the reason for a robust international arbitration ecosystem. "As international business transactions increase, so does the potential for international disputes. Having a robust arbitration framework in Japan becomes crucial to resolving these disputes efficiently, and thus will be beneficial not only for Japanese entrepreneurs but also foreign investors," he notes.
In April, Japan completed its introduction of long-awaited amendments to the Arbitration Act. The earlier version, enacted 20 years ago, was based on the 1985 UNCITRAL Model Law on International Commercial Arbitration (Model Law), which itself underwent revisions in 2006.
The updated act aims to harmonise international arbitration practice in Japan with modern global standards in the wake of "the growing demand from practitioners and business industries that seek a reliable arbitration hub in Asia," notes Miyazaki.
The Bill for Partial Amendment of the Arbitration Act was submitted to the National Diet of Japan in February. After two months of deliberations, the Japanese parliament unanimously passed and promulgated the bill.
One of the most prominent revisions covered the different categories of interim measures that an arbitral tribunal may order, and court procedures to enforce interim measures issued by an arbitral tribunal.
"The Japanese court now has the authority to enforce tribunal-ordered interim or provisional measures. The amendments clearly set out what types of interim orders may be ordered by the tribunal, making slight adjustments to the wording from the Model Law in order to accommodate the Japanese legal system," explain Yoshimi Ohara and Kara Quek, attorneys at Nagashima Ohno & Tsunematsu.
Lawyers also highlight the venues for arbitration-related court proceedings, which, under the amendments, have been extended to cover the Tokyo and Osaka District Courts.
"For example, a prevailing party of an arbitral proceeding may request the Tokyo or Osaka District Court to issue an execution order to enforce the arbitral award, if the case has certain proximity to Japan," note Murakawa of Atsumi & Sakai.
This revision is believed to help the two district courts concentrate expertise in hearing arbitration disputes in Japan. "This will allow parties seeking to arbitrate in Japan to receive support for their arbitration – whether in the form of recognition, enforcement, or otherwise – from a court which is more well-versed in arbitration and therefore more suited to meet their needs," say Ohara and Quek of Nagashima Ohno & Tsunematsu.
Other notable changes include oral arbitration agreements, which may now qualify under the Model Law as long as the oral agreement refers to a written arbitration agreement. The Japanese court now also has the discretion to waive the requirement for Japanese translations of some, or all, of the evidence, including arbitral awards being enforced.
"These legislative reforms will further contribute to make Japan more arbitration-friendly jurisdiction, which guarantees impartial, just and expedited dispute resolutions and its enforcement," says Miyazaki of Japan's MoJ.
Murakawa suggests that the government should consider providing further guidelines on third-party funding, which he says is most closely related to the financial interests of Japanese parties.
However, Tony Andriotis, a partner at DLA Piper based in Tokyo, does not think it is an issue. "The issue of concern relates to Japan's money lending/banking laws. These laws are likely why funders are not setting up shop in Japan. Despite this, however, I do not see an issue with funding being used. It is a matter of structuring the funding, not a matter of purported legal ethics, as it is in other jurisdictions," notes Andriotis.
Instead, Andriotis believes more substantive and elaborate government support is needed to help Japan achieve its desired status as Asia's premier international arbitration hub.
"Though Japan is moving in the right direction in creating (and maintaining) a pro-arbitration ecosystem, it is way behind on marketing," he says. "The government should learn from its neighbours in pushing for a cooperative arbitration community. As things stand now, Japan has no proper unifying arbitration event, which unites multiple stakeholders, such as government ministries, local and international institutions, and law firms. The Japanese government should move to support an annual event such as Hong Kong Arbitration Week or the Seoul Arbitration Festival."
Andriotis cites the ill-fated Japan International Dispute Resolution Centre, which was opened and folded at the height of the pandemic, as an "unfortunate misstep" to Japan's campaign to bolster its arbitration-friendly image.
"Serious considerations should be given to re-opening a government-funded and supported centre that will offer facilities suitable for arbitration at a reasonable cost. Without such facilities, international parties to a dispute will likely have few choices but to conduct the arbitration at a hotel or conference centre that is not well suited for an arbitration," adds Andriotis.
Ohara and Quek of Nagashima Ohno & Tsunematsu note that the caseload of the Japan Commercial Arbitration Association remains fairly low at around 20 cases a year. "The Japanese courts have consistently been enforcing arbitration agreements and arbitral awards, but this is not widely known as the judgments of the courts are published in Japanese. It would be useful if English summaries of court decisions relating to arbitration could be published in order to increase global awareness," they say.
Lawyers urge the government to boost the level of support for arbitration to match that of other arbitration hubs in Asia, such as Hong Kong and Singapore.
"It has taken only about a decade or two for some seats, such as Singapore, to essentially transform from zero to hero. Much of that transformation is directly due to government support," says Andriotis.
"As Japan, despite its efforts at liberalising its arbitration and legal practice laws, is not quite where an economy of its size and prestige should be, continued concrete efforts by the government are necessary in order to build a reputation in the arbitration space that is commensurate to its strength in the global economy," he adds.
The MoJ's Miyazaki says Japan does not intend to compete with Singapore or Hong Kong but instead focuses on enhancing international partnerships. The government is also taking steps to deepen collaborations with a wider range of stakeholders, encompassing private industries and foreign arbitration institutions.
"Having a robust dispute resolution framework is an essential part to promote fundamental values such as the rule of law," says Miyazaki. "It is not a competition."