Almost 5 years ago, there was an extensive overhaul of the laws relating to arbitration in Japan. In our March 2004 newsletter (No. 20) we outlined the key provisions to be laid down by the new Arbitration Law (Law No. 138 of 2003) (the "New Law") and its respective aims. Five years on, it is pleasing to note that the New Law has achieved many objectives, resulting in diminished criticism of the Japanese arbitration system. A recent article by Peter Godwin (head of the Tokyo Disputes Practice at Herbert Smith) in the Japanese Commercial Arbitration Association (JCAA) newsletter1 highlighted the improvements in Japanese arbitration over the last five years. A summary of the main points are set out in this newsletter.
The need for change
One of the most frequently rehearsed complaints against arbitration in Japan was that the law relating to it was inadequate and out-of-date. There was no stand-alone arbitration code and arbitration was given only limited attention in articles 786 to 805 of the old Code of Civil Procedure of 1890. The Japanese Arbitration Law (Law No. 138 of 2003) which came into force on 1 March 2004 (the "New Law") was based on the 1985 UNCITRAL Model Law on International Commercial Arbitration (the "Model Law"), providing instant familiarity and certainty to users.
- The New Law sought to follow the general UNCITRAL objectives but it recognised a need to depart from some of the standard provisions. A number of the modifications are specific to Japanese requirements yet none of them should undermine the New Law in the eyes of experienced international arbitrators and arbitration counsel:
- The New Law applies to both international and domestic arbitration, and to both commercial and non-commercial civil arbitration – as long as the place of arbitration is in Japan. In contrast, the Model Law only applies to international commercial arbitration.
- The New Law has included provisions to recognise that arbitrators can have a role as mediators in amicable settlements. 2
- The New Law has included provisions which give special treatment to consumers and individuals that are involved in arbitration agreements.
Any gaps in the New Law's content, such as the fact that it is silent on key issues like confidentiality and arbitrator's immunity, have been addressed in the new commercial arbitration rules of the JCAA, which were updated at the same time as the enactment of the New Law to bring them into line with the law, the UNCITRAL arbitration rules and also with the other leading international commercial dispute resolution organizations. Parties can choose to adopt the rules or adopt them with modifications, although most parties tend to adopt the rules in full.
A number of key reforms were made in 2004 to address some of the repeated criticisms of the Japanese arbitration system.
Arbitration proceedings in Japan often used to be criticised for being extremely lengthy and slow; one of the main focuses of the reforms of 2004 was to improve the efficiency of the system. In the New Rules, the JCAA gave the arbitral tribunal the power to speed up the proceedings and prevent unnecessary delay. If one of parties fails to submit evidence or fails to appear at a hearing without good cause, the tribunal can proceed regardless. 3 Furthermore, documents are to be submitted to the tribunal directly rather than through the JCAA and they can be submitted via electromagnetic record or facsimile if the tribunal agrees. Further, in place of numerous short hearings spaced a few weeks apart, are single longer evidentiary hearings of the type familiar to arbitrators and arbitration counsel in all the major arbitration centres.
Selection of Arbitrators
In the past, the selection of arbitrators was hugely restrictive. There was a general bias in favour of a single arbitrator, and any attempt to avoid this needed early action from one of the parties. Furthermore, arbitrators had to be resident in Japan on appointment and only a small number were registered with the JCAA, so the choice of arbitrator was limited.
In line with international norms, the New Law:
- gives the parties the freedom to determine the number of arbitrators, and then implements default provisions for occasions when the parties fail to do so;
- does not require any specific qualifications for arbitrators, so there is complete freedom to appoint the arbitrators most suitable for the case;
- puts no restrictions on nationality or residence of arbitrators; leaving parties to choose from the widest possible pool.
Finally, where the JCAA is called upon to make an appointment, it has recognised the need to internationalise its panel of arbitrators and this process is proceeding apace at the time of writing.
Any criticisms about the lack of impartiality of arbitrators are dealt with by a number of provisions in the New Law and New Rules which require impartiality and independence from arbitrators, as well as full disclosure of any interest they may have in the proceedings. There are also grounds to challenge an arbitrator if there is a justifiable doubt as to his or her impartiality and there are criminal penalties for corruption of an arbitrator, such as bribery. 4
The New Law provides that parties are now free to agree on the language or languages to be used in the arbitral proceedings, or in the absence of such an agreement, for this to be determined by the arbitral tribunal. In practice, more and more JCAA arbitrations are now being conducted in English.
One of the most enduring issues in Japanese arbitration has been the lack of clarity as to who may represent a party in arbitration proceedings. For a lengthy time the JCCA and Japanese Bar interpreted the Lawyers' Law (Bengoshi Ho) (Law No. 205, 1949) as prohibiting all foreign lawyers from acting as arbitration counsel of record. However, it has since been acknowledged that a foreign lawyer registered as a gaikokuho jimu bengoshi may conduct arbitration in Japan in return for the payment of fees. Furthermore, foreign lawyers may represent clients in an international arbitration case when they are appointed outside of Japan.
Japan has addressed many of the criticisms which for many years were made about its arbitration system. More could be done and more is likely to be done, especially in keeping up-to-date with any changes that are made by UNCITRAL to its model law and rules. 5
However, for now the New Law and New Rules together allow for a very flexible and progressive arbitration system in Japan. They have created much greater autonomy for parties involved, and while they set out a default standard for arbitration practice, they also allow parties to vary any of the provisions that they find unacceptable to their circumstances. Japan has established a framework suitable for use in both domestic and international arbitration.
In short, there is no longer any reason (legal or procedural) why an international commercial arbitration conducted in Japan should not look identical to one conducted in any of the major arbitration centres. The challenge still remains to encourage its use.