Will the Recent Amendment to the Japanese Foreign Lawyers Act Help Japan Become the Next Arbitration Hub?

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AuthorNika Bederman*

Dispute Resolution and Litigation
International Character of Dispute
National Legislation

Foreign lawyers in Japan can now play a greater role in international arbitration and mediation proceedings, thanks to the Japanese Diet’s recent amendment to the Act on Special Measures Concerning the Handling of Legal Services by Foreign Lawyers (“Foreign Lawyers Act”).[1] Effective August 29, 2020, this amendment relaxes the existing professional experience requirements for foreign lawyers to become Registered Foreign Lawyers in Japan, and facilitates cooperation between Registered Foreign Lawyers and local Japanese lawyers.[2] Most importantly, it broadens the definition of “international arbitrations”, allowing greater involvement from Registered Foreign Lawyers and qualified foreign lawyers.[3]

Previously, an “international arbitration” proceeding was narrowly defined as a civil arbitration case where Japan is the seat of the arbitration and in which all or some of the parties have an address, a principal or the head office in a foreign jurisdiction.[4] Registered Foreign Lawyers and qualified foreign lawyers could only participate in this sort of arbitration proceeding. As a result, it was common for Japanese subsidiaries of companies based elsewhere to move their arbitrations away from Japan so as to have greater freedom to choose their counsel.[5] Under the new amendment, an arbitration is deemed “international” (and therefore open to participation from foreign lawyers and Registered Foreign Lawyers) if:

  • (in arbitrations between companies) a foreign company (with a principal office or head office in a non-Japanese jurisdiction) owns a majority (over 50%) of one of the parties[6];
  • the governing law agreed upon by the parties is foreign (non-Japanese) law; or
  • Japan is the venue (the physical location) for the arbitration, but the seat (the jurisdiction with the applicable arbitral law) is outside Japan.[7]

The amendment is mostly regarded as a “welcome development” for foreign lawyers in Japan and as auspicious for Japan’s popularity as a seat of arbitration.[8] In recent years, Japan has been working to establish itself as an attractive arbitration seat. These efforts include the Japan Commercial Arbitration Association’s (JCAA) 2019 update of its commercial rules, as well as the upgrade of its online resources and roster of arbitrators.[9]  In addition, the Japan International Dispute Resolution Center (JIDRC) opened new hearing facilities in Osaka in 2018 and in Tokyo in 2020.[10] In amending the Foreign Lawyers Act, the Japanese Diet is hoping to further boost Japan’s desirability as an arbitration hub in East Asia.[11] But to what extent will the new amendment make it happen?

It may be too early to tell, but the amendment has its limitations. The first revision to the definition of an “international” arbitration proceeding—majority ownership of at least one of the parties by a foreign company—is the most likely to have a tangible effect given the sheer number of multinational companies with Japanese affiliates.[12] The impact of the third revision is yet unclear. While the seat and the venue of arbitration are two different matters, they most commonly coincide. In normal times, the subset of arbitration proceedings with Japan as their venue but not as their seat would be quite small, which means the third revision would not make much of a difference. Yet, with remote hearings on the rise as a result of the COVID-19 pandemic, the revision may cover a larger subset of proceedings in the future.[13] The second revision is perhaps the least impactful. While Japanese companies do occasionally select something other than Japanese law as the governing law for contracts, this practice is unusual with the result that this revision would apply to a very small subset of disputes.[14]

While the amendment is a step towards increasing Japan’s popularity as an arbitration seat, Japan will most likely continue to lag behind Singapore and Hong Kong so long as the distinction between domestic and international arbitrations is preserved. Singapore and Hong Kong enjoy much greater popularity because (as Japan’s own Review Committee for Representation in International Arbitration has acknowledged) “no qualification restriction is imposed [there] with regard to representation in arbitration.”[15] This freedom to choose legal counsel is of the utmost importance to parties choosing an arbitration seat. In the words of Gary Born, “the quality and vigor of a party’s representation can have substantial consequences for the party’s case, for the outcome of the arbitral process, and for the parties’ perceptions of the fairness of the process.” [16]Singapore and Hong Kong both allow parties to choose lawyers with the greatest familiarity and experience with arbitration proceedings, regardless of where they are from. If these lawyers need guidance from local counsel on contracts governed by Singapore or Hong Kong law, they are trusted to do seek it. This is an option Japan could explore as well. Furthermore, the laws governing seats of arbitration frequently derive from international legal authorities. Japan’s Arbitration Law belongs to this category and would feel fairly familiar to a seasoned practitioner.[17] If the Japanese Diet allows foreign lawyers to participate in all arbitrations, whether “international” or “domestic”, parties would no longer need to avoid Japan in order to select their representation freely.[18]

[1]Sarah E. Reynolds et al., Japan Allows Foreign Lawyers Greater Participation in Alternative Dispute Resolution, Mayer Brown Perspectives & Events (August 3, 2020),  https://www.mayerbrown.com/en/perspectives-events/publications/2020/08/japan-allows-foreign-lawyers-greater-participation-in-alternative-dispute-resolution#:~:text=Japan%20Allows%20Foreign%20Lawyers%20Greater%20Participation%20in%20Alternative%20Dispute%20Resolution,-Home&text=Effective%20August%2029%2C%202020%2C%20the,and%20mediation%20proceedings%20in%20Japan; see also Joel Greer, Arbitration-Related Amendment to Act on Special Measures Concerning the Handling of Legal Services by Foreign Lawyers, ZeLo (November 4, 2020), https://zelojapan.com/en/5016.

[2] Reynolds et al., supra note 1; Thomas G. Allen & Takuya Uenishi, Amendments to Japan’s Foreign Lawyers Act Clarify and Broaden the Scope of Party Representation by Foreign Counsel in International Arbitration, Kluwer Arbitration Blog (July 7, 2020), http://arbitrationblog.kluwerarbitration.com/2020/07/07/amendments-to-japans-foreign-lawyers-act-clarify-and-broaden-the-scope-of-party-representation-by-foreign-counsel-in-international-arbitration/.

[3]Peter Godwin et al., Japan Reforms Laws Affecting Foreign Lawyers: a Win for Japanese Companies, Herbert Smith Freehills Arbitration Notes (June 18, 2020), https://hsfnotes.com/arbitration/2020/06/18/japan-reforms-laws-affecting-foreign-lawyers-a-win-for-japanese-companies/.

[4] Allen & Uenishi, supra note 2.

[5] Godwin et al., supra note 3.

[6] Reynolds et al., supra note 1.

[7] Godwin et al.; see also Nicholas Lingard et al., Japan opens more “international” arbitrations to Registered Foreign Lawyers, Freshfields Bruckhaus Deringer (August 27, 2020), http://knowledge.freshfields.com/en/Global/r/4301/japan_opens_more__international__arbitrations_to.

[8] Matthew Gearing QC et al., Japan eases restrictions on foreign lawyers, Allen & Overy Publications (September 21, 2020), https://www.allenovery.com/en-gb/global/news-and-insights/publications/japan-eases-restrictions-on-foreign-lawyers; see also Allen & Uenishi, supra note 2.

[9]Allen & Uenishi, supra note 2; JCAA Commercial Arbitration Rules (2019).

[10] Allen & Uenishi, supra note 2.

[11] Id.; Gearing et al, supra note 7.

[12] Greer, supra note 1.

[13] Id.

[14] Id.

[15] Report of the Review Committee for Representation in International Arbitration, etc. by Registered Foreign Lawyers or Foreign Lawyers, September 25, 2018, 2, cited in Greer, supra note 1.

[16] Gary Born, International Arbitration: Law and Practice 261 (2012), cited in Greer, supra note 1.

[17] Greer, supra note 1.

[18] Id.

*J.D. Candidate 2022, Columbia Law School.