An extract from The International Arbitration Review, 12th Edition

The year in review

i Developments affecting international arbitration (legislation)

We would like to highlight the amendments to the JAA under discussion here. As discussed in Section I above, the current JAA was drafted based on the Model Law of 1985; but the amendments to the Model Law that were adopted in 2006 had not been incorporated into the JAA. Also, while the United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention) came into force in September 2019, it has not yet been adopted in Japan, and Japan's stance in respect of international mediations, including those occurring during or in the course of an international arbitration, has not been clear under the JAA.

In order to reflect and implement these and other changes that have been at the forefront of global discussion, the Arbitration Subcommittee of the Legislative Council of the Ministry of Justice was organised, and discussion formally commenced in October 2020.

The main contents of the amendments under consideration are as follows:

  1. new rules regarding interim measures and preliminary orders (including the powers of the arbitral tribunal, the kinds of measures available, and the recognition and enforcement by the courts of an arbitral tribunal's interim order (reflecting Articles 17 to 17J of the 2006 Model Law));
  2. amendments to the requirements for an arbitration agreement to be in writing (reflecting Option I of Article 7 of the 2006 Model Law);
  3. additional procedures for arbitration-related cases (including additional rules relating to issues such as jurisdiction and translation requirements); and
  4. new stipulations regarding the enforcement of settlements resulting from mediation (including rules regarding scope of application for these rules, as well as enforcement requirements, as stipulated in the Singapore Convention).

The draft amendments are now undergoing a public consultation procedure (which will be closed on 7 May 2021) and will be taken forward accordingly thereafter.

ii Arbitration developments in local courts

In recent years, arbitration practitioners in Japan have been waiting for developments in a well-known case regarding the setting aside of an arbitral award on the grounds of an arbitrator's failure to disclose a potential conflict, which was remanded by the Supreme Court to the Osaka High Court on 12 December 2017. The appeal was dismissed on 11 March 2019 by the Osaka High Court. It determined that: (1) it is required for an arbitrator to disclose the fact that a different lawyer from the same law firm as the arbitrator used to represent a related company of a party to the arbitration; but that (2) the arbitrator will be deemed to have complied with his or her disclosure obligation as long as he or she has taken all the necessary actions required to use the normal conflict-checking system implemented by his or her firm.

iii Investor–state disputes

Japan is a contracting state to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, the Energy Charter Treaty (ECT), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). As at April 2020, it is a signatory to 33 bilateral investment treaties (BITs) (of which 29 are currently in force) and 18 free trade agreements and economic partnership agreements (EPAs) that include provisions pertaining to investment protection. Most of these instruments include investor–state dispute settlement provisions that permit investors to initiate arbitration directly against the contracting states, with the Japan–Australia EPA and the European Union (EU)–Japan EPA (mentioned below) as notable exceptions.

In the past decade, Japan has sought to increase the number of investment treaties and other investment-related agreements to which it is a party. Since 2016 in particular, Japan has signed BITs with Iran, Israel, Kenya, Armenia, Argentina, Jordan, Morocco and the United Arab Emirates; the CPTTP; and the EU–Japan EPA (albeit with the investor–state dispute settlement provisions excluded, pending further discussion). It has also ratified several previously signed agreements.

Despite the increase in investment treaties and related instruments to which Japan is a party in recent years, the involvement of Japan and Japanese entities in investor–state dispute settlement remains relatively low, particularly when compared to its smaller neighbour, South Korea. That said, 2020 saw Japan become a respondent in an investor–state arbitration for the first time. The case, Shift Energy v. Japan, has been brought by a Hong Kong renewable energy investor under the Hong Kong–Japan BIT, and is being administered by the International Centre for the Settlement of Investment Disputes (ICSID). The case remains in its early stages, with an arbitral tribunal only recently having been constituted.

There have also been developments in respect of investment treaty arbitrations in which a Japanese investor entity is, or was, involved. It appears that Japanese investors are becoming more active users of investor–state dispute settlement.

One of the ongoing investment treaty arbitrations involving a Japanese claimant, Eurus Energy Holdings Corporation and Eurus Energy Europe BV v. Kingdom of Spain,7 has recently seen the issuance of a decision on jurisdiction and liability in favour of the investor. While the tribunal invited further submissions on the amount of damages to be awarded, the tribunal found Spain liable for breaches of the Energy Charter Treaty. Several other cases where Japanese claimants are pursuing claims under the Energy Charter Treaty against Spain remain pending, including ITOCHU Corporation v. Kingdom of Spain,8 JGC Corporation v. Kingdom of Spain,9 and a new claim registered by ICSID in October 2020 that has been brought by Mitsui & Co., Ltd.10

An additional favourable result for a Japanese investor came to Nissan, as it settled its claim against India11 on highly favourable terms following a 29 April 2019 decision on jurisdiction.

Adding to the developments in 2020, an award was issued in a long-running investment treaty arbitration where the investor was a wholly owned subsidiary of a Japanese company (Bridgestone Licensing Services, Inc and Bridgestone Americas, Inc v. Republic of Panama),12 which is also administered by ICSID, and is which is proceeding under the United States–Panama investment promotion agreement. The investor did not prevail, with the arbitral tribunal finding that no denial of justice had occurred.

Finally, a smaller Japanese trading company has brought an ICSID claim against the People's Republic of China under the 1988 China–Japan BIT. That case remains in its early stages but is being watched with interest.13