I INTRODUCTION TO DISPUTE RESOLUTION FRAMEWORK

Japanese society is renowned for its nature being averse to litigations. In 2016, only about 150,000 civil cases (including appeal proceedings) were newly brought to courts in Japan.2 This number represents 0.001 case per one national. It is said that such per-capita figure is one-third to one-eighth of that of most other countries.

Irrespective of such characteristic of Japanese society, the Japanese court system is well structured and judges are respected by the public. Thus, the court system has been the centre of the dispute resolution in Japan.

i Structure of law

Japan is a civil law country. Civil Code was enacted in 1896 (Law No. 89 of 1896) and since then has been amended from time to time. In 2017, Part III of the Civil Code (Claims) was substantially amended by Law No. 44 of 2017. Though some influence of English law can be also detected from the outset, the Japanese Civil Code still remains as a successor of Roman law.

Civil proceedings are governed by Code of Civil Procedure. The original Code of Civil Procedure was drafted by a German law professor on the basis of German practices and enacted in 1890 (Law No. 29 of 1890). After World War II, GHQ3 ordered the Japanese government to modify the original Code of Civil Procedure to incorporate certain American-style civil procedures such as cross-examination system. As a result, the conduct of Japanese civil procedures has become a hybrid style. The original Code of Civil Procedures was replaced by a new Code of Civil Procedure in 1996 (Law No. 109 of 1996), however, the basic structure has remained unchanged.

While the doctrine of stare decicis is not applicable in Japan, the decisions of the upper courts are often referred to by lower courts.

ii Court system

Japan has a four-layer unified court system under the Supreme Court: As of July 2017, there are (1) the Supreme Court, (2) eight High Courts and their six branches,4 (3) 50 district courts and their 203 regional branches and 50 family courts and their 203 regional branches, and (4) 438 summary courts. Under the Japanese Constitution, no court independent from the Supreme Court can be established and the judicial branch is independent from the administrative branch and the legislative branch. Further, each judge is independent from, and is not subordinate to, any other judges or other authorities.

First instance judgments rendered by district courts may be appealed to the High Courts whether on the ground of legal issues or factual issues. The ground for the super appeal to the Supreme Court are limited to unconstitutionality and some other fundamental defects of the judgment.

iii The framework for ADR procedures

In 2004, the Act on Promotion of Use of Alternative Dispute Resolution (Law No. 151 of 2004) was adopted to promote the use of ADR. Under such Act, various ADR systems were set up to resolve small disputes or tort disputes of specific categories.

Most frequently used ADR for the resolution of ordinary commercial disputes is the conciliation5 administered by summary courts.

Arbitration Act which is drafted on the basis of the 1985 UNCITRAL Model Law provides for the scheme of arbitration, however, arbitration is not common for domestic disputes except for construction disputes and maritime arbitrations. While Japanese companies are the parties to many international arbitration agreements, the choice of Japanese cities as the seat of arbitration is rather limited. Thus, the number of international arbitrations conducted in Japan is limited, though the number is increasing gradually, in particular, with respect to the cases between Japanese companies and Asian companies.

II THE YEAR IN REVIEW

Judgment of Tokyo District Court of 15 February 2016 is noteworthy for practitioners engaged in cross-border dispute resolution, though it remain as a lower court interim judgment. In this case, Shimano Seisakusho (Shimano), a small Japanese company supplying certain electronic parts to Apple Inc (Apple), the international giant, sued Apple before Tokyo District Court alleging Apple’s breach of a contract, tort and violation of Act on Prohibition on Private Monopolization and Maintenance of Fair Trade (Anti-Monopolization Act). Among others, Shimano alleged that the unilateral discontinuation of the purchase from Shimano constitutes a breach of a contract and that the forcing Shimano to discount supply price and to pay certain rebates to Apple is a violation of the Anti-Monopolization Act.6 Shimano’s annual sale amount was only US$20 million, while that of Apple was nearly US$200 billion.

The Master Development and Supply Agreement executed between Shimano and Apple in 2008 (MDSA) provided for the exclusive jurisdiction of the Californian courts for the disputes between the parties irrespective of whether such dispute arose from the MDSA or not. Apple alleged that the claim should be dismissed on the based on the above exclusive jurisdiction clause. The judges of Tokyo District Court refused such motion to dismiss by the interim judgment stating that the said exclusive jurisdiction clause was too broad to specify the category of disputes which the parties had agreed to submit to the jurisdiction of the Californian courts.

Paragraphs (1) and (2) of Article 3–7 of Code of Civil Procedure read as follows:

(1) Parties may establish, by agreement, the country in which they are permitted to file an action with the courts.

(2) The agreement as referred to in the preceding paragraph is not valid unless it is made regarding actions that are based on a specific legal relationship, and executed by means of a paper document.

This Article concerning agreed international jurisdiction was newly added by the amendment of the Code of Civil Procedures in 2011 (Law 36 of 2011). While the judges held that the provision of Paragraph (2) of this Article did not apply to the MSDA, which had been executed prior to the enactment of the amendment, they held that the underlying principles requiring the scope of the agreement to be specified by referring to the specific legal relationship for the sake of predictability had been same even prior to the enactment of the amendment.

No precedents had exited on this issue prior to the interim judgment.7 While it is possible that the far smaller size of Shimano in comparison with Apple affected the judges’ decision, the majority of academics seems to support this judgment.8 As no party can appeal against an interim judgment independently from the judgment on claims, we yet need to wait for judgments of upper courts. For the meanwhile, practitioners should be aware of the risks that validity of too wide jurisdiction clause can be denied by Japanese courts.

Judgment of 27 July 2017 of Tokyo District Court may also be of some interest to practitioners from the cross-border dispute resolution perspective.

In this case, a Canadian company that was listed on NASDAQ and Toronto Stock Exchange started a patent infringement action against a few Japanese companies before the United States District Court for the District of Delaware on the basis of a US patent (the US case). One of the defendant companies, which is a small-medium Japanese company (A Co), filed an action to seek for declaratory judgment holding that A Co is not liable for the alleged patent infringement with Tokyo District Court before A Co received the summons of the US case. The US case had been proceeded with respect to a Japanese co-defendant company even before the completion of the service to A Co. A Co argued that the US patent infringement action could cover acts of A Co within Japan as contributory infringement action and that Japanese courts have the jurisdiction.

The judges of Tokyo District Court dismissed the action of A Co on the ground that the Canadian company was alleging only the acts of the A Co within the United States as the infringement action and thus Japanese courts had no jurisdiction over the case.

Further, the judges went on to say that it would put unreasonable burden on the Canadian company to have it prove the infringement of the US patent in the Japanese court where most of the evidence existed within the United States, even taking into consideration the difference in the size as an enterprise between A Co and the Canadian company.

III COURT PROCEDURE

i Overview of court procedure

All proceedings are conducted in Japanese. A court case is initiated by filing a complaint with a court which has the jurisdiction over the case. If the amount of the claim exceeds ¥1.4 million, the case needs to be filed with a district court as the first- instance court. The plaintiff needs to specify the object of the claim (i.e., the remedies the plaintiff is seeking) and the statement of the claim in the complaint. The plaintiff has to pay a filing fee proportionate to the amount of the economic interest of the object.9 Usually, the complaints are accompanied by key documentary evidence supporting the claims.

Upon the filing, the case is assigned to a bench consisting of one judge or three judges depending upon the complexity of the case. No jury system exists with respect to civil cases. Then, the bench determines the first oral argument date and serves the summons on the defendant together with a copy of the complaint and evidence. The defendant needs to file an answer no later than the first oral argument date. If defendant fails to file the answer and does not appear before the court on such date, the court will issue a default judgment.

At the first oral argument date, the bench determines the next oral argument date (or, instead, a preparatory proceedings date) which is normally one month or two months ahead from the first oral argument date. By that date, each party (or one of them) files further pleadings and evidence. In practice, though the date is named as ‘oral argument date’, oral arguments are rarely presented by the parties before the judges. Each party just states at the court room that it presents its oral argument as set out in the pleading filed prior to the oral argument date. The judges may ask each party for some clarification on the content of the pleading. In the second oral argument date (or the preparatory proceedings date) and thereafter, the same conduct is repeated virtually until the parties are satisfied that they have sufficiently presented their arguments and evidence. There is no limitation on the number of the pleadings that can be filed by the parties. In very complicated cases, more than 20 pleadings may be filed by both parties. The pleadings may contain both factual argument and legal argument. During the proceedings, each party can submit evidence from time to time. The judges can, however, either on their own authority or upon the request of the counterparty, dismiss new arguments or evidence that was submitted at a later stage, if allowing such arguments or evidence to be presented would further delay the proceedings. In practice, the judges rarely make such dismissal decision.

Generally, any kind of documentary evidence is admissible. There is no restriction on hearsay evidence in terms of a civil proceeding. The value of such evidence is evaluated by the judges. All evidence needs to be translated into Japanese. Partial translation may be accepted by courts depending upon the nature of the document. In Japan, there are no certified translators. Translation can be done by anyone.

As discussed below, the effectiveness of discovery proceedings is rather limited. Accordingly, the discovery proceedings are not an important part of the Japanese civil proceedings. In principles, each party needs to fight with the evidence in their possession.

When the judges think the proceedings have progressed sufficiently following several exchanges of the pleadings and evidence, the bench designates the dates of the witness hearing. Each party requests their witnesses to be heard. Generally the bench limits the witnesses to be heard to those whose testimony is important for the determination on the case. This is particularly true in the case where the judges have felt that the pleadings and the evidence submitted by the parties were enough for the determination of the case. Not only for the numbers of the witness but also the time assigned for the witness’ examination may be rather limited. The time allocation is pre-determined and the attorneys need to finish the examination of each witness within such time frame. If a witness does not speak Japanese, the time necessary for interpreting is taken into account when determining the allocation of witness hearing time. Each party is asked to submit written statements of each witness before the witness hearing.

Though parties can present expert witnesses, generally, the judges do not put much importance on a party’s appointed expert witnesses because the judges believe that such experts cannot be neutral and impartial. This is also true in intellectual property disputes. Given such environments, there is no pool of professional expert witnesses in Japan. If the bench feels it necessary to be assisted by an expert, the bench will appoint its own expert and have such export to prepare an expert report. Sometimes courts put too much importance on the expert report prepared by the court-appointed expert.

Witness hearings entail direct examination followed by cross-examination and then redirect. At the end of the witness testimony, judges may make some questions.

After the completion of the witness hearing date, each party is allowed to file the final pleading. If the judges find something missing for determination, the bench urges the party to supplement their argument or submit additional evidence.

One of the unique features of Japanese court proceedings is the settlement administered by the court. One or more of the judges who are actually handling the case act as mediators. Anytime during the proceedings, the bench may suggest that the parties engage in settlement talks. If the bench does so at a later stage, such as after the completion of the witness hearing, the judges even propose specific settlement conditions while disclosing their evaluation of the case. The party that believes it will win may make a concession to settle the case taking account of the burden and risks of appeal proceedings. The other party will consider whether or not it can reverse the judges’ determination in the appeal proceedings. In case judges suggest settlement talks at an earlier stage, the judges act rather as facilitative mediators. In 2015, 52,957 first instance cases were finished by such settlement administered by the judges among 148,106 completed first instance cases.10 Though this kind of settlement proceeding administered by the decision maker is criticised in many other jurisdictions, it has been traditionally working well in Japan and accepted as appropriate dispute resolution measures by Japanese legal practitioners.

ii Time frames

In 2016, 77.3 per cent (114,371 cases) of all completed first instance cases (148,016 cases) took no more than one year to conclude, 94 per cent (139,274 cases) took no more than two years and 4.2 per cent (6,259 cases) took more than two years but no more than three years.11 Complicated disputes such as construction disputes, labour disputes and medical malpractice disputes tend to take longer.

The Act on the Expediting of Trials (Law No. 107 of 16 July 2003) obligates the government and relevant parties to develop and implement measures to enable the proceedings of the first instance to be concluded in as short a time as possible within a period of two years. The Code of Civil Procedure as amended by Law No. 108 of 16 July 2003 obliges judges and parties to endeavour to abide by the planned progress of the litigation proceedings (Article 147-2), and as to complicated cases, obliges judges to formulate a plan for proceedings after consultation with the parties, where judges consider it appropriate (Article 147-3). Once such plan is formulated, the courts are expected to more actively dismiss arguments and evidence that was submitted behind such plan. However, in practice, the planned proceedings are not well implemented except for the specific area such as intellectual property litigation.

iii Class actions

Class actions are not generally permissible in Japan. In the field of consumer protection, however, certain consumer organisations certified by the Prime Minister can conduct legal proceedings on behalf of a group of the consumers who suffered damages due to common consumer contracts with a specific business enterprise under Act on Special Measures Concerning Civil Court Proceedings for the Collective Redress for Property Damage Incurred by Consumers (Law No. 96 of 2013). Once the common obligation of such business enterprise towards relevant consumers is determined by a court through the litigation by such organisation, individual consumers can notify their individual monetary claims to the court and recover them through simple proceedings. This procedure is very unique from Japanese law perspective and sometimes is referred to as a Japanese version of class actions. As the Act came into force in October of 2016 and only two consumer organisations have been certified so far, no actual case has been reported. If this procedure proves to be successful, the scope may be extended to other area such as damages suffered by cartels.

iv Representation in proceedings

Representation by a lawyer is not mandatory. In any type of civil case, a litigant can represent himself or herself. In the case of legal entities, however, the registered legal representatives of the legal entities such as a representative director (in case of Japanese corporations, usually the president of the company) or a registered branch general manager12 must attend the court proceedings in person, except for small cases at summary courts. It follows that except for very small legal entities, it would not be practical for such legal representatives to attend the court proceedings. For this reason, most legal entities are represented by attorneys.

v Service out of the jurisdiction

Whether the defendant is inside or outside Japan, court clerks are primarily responsible for service. Neither the plaintiff nor its attorney makes direct service to the defendant.

Where the defendant is not located in Japan, whether the defendant is a natural person or a legal entity, the court will serve the summons (1) in accordance with the Convention of 1 March 1954 on Civil Procedure, (2) in accordance with the Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, (3) by a Japanese consul stationing in the location of the defendant pursuant to the bilateral consular treaties (the treaty with the United States and the treaty with the United Kingdom) or on the basis of personal jurisdiction over the Japanese individuals staying abroad, or (4) in accordance with the permanent or ad hoc diplomatic understanding with other countries. In short, the service is made by the competent servicing authorities of the country where the defendant is located, or the Japanese consul stationing in such country. Same applies to both the court document initiating the proceedings and any other judicial documents such as judgments or extrajudicial documents such as enforceable notarised deed.

vi Recognition and enforcement of foreign judgments

Foreign judgments can be recognised and enforced in Japan, if they satisfy the conditions set forth in Article 118 of Code of Civil Procedures. Such conditions are:

  • a the jurisdiction of the foreign court is recognised pursuant to Japanese laws and regulations or any convention or treaties to which Japan is a party;
  • b the defeated defendant has been served (excluding service by publication or any other service similar thereto) with the requisite summons or order for the commencement of litigation, or has appeared without being so served;
  • c the content of the judgment and the litigation proceedings are not contrary to public policy in Japan; and
  • d a guarantee of reciprocity is in place.

Under the condition (a), a judgment obtained in a foreign country against a Japanese defendant in which jurisdiction of such foreign court was admitted on the basis of ‘doing business doctrine’ may not be recognised because Japanese Code of Civil Procedure does not recognise the jurisdiction on the basis of such doctrine.

Under the condition (b), the defeated defendant needs to have been served the summons by the central authority in accordance with the above-mentioned two conventions, or where permissible under relevant bilateral treaties, or by a consul of the foreign country. The direct service of the summons by a foreign party to the defendant residing in Japan may not be valid for the sake of the recognition and enforcement in Japan.13 It would be safer to avoid direct service if the enforcement of the judgment in Japan is expected.

Under condition (c), the enforcement of US judgments awarding punitive damage is refused.14

Most of common law countries that admit the validity of foreign judgment will liberally satisfy the reciprocity requirement under condition (d).15 In contrast, the judgments of the countries in which courts have the power to review the decision on the merit of the foreign judgments in enforcing such foreign judgments, cannot satisfy this requirement. For this reason, a Belgian judgment was refused to be enforced.16

Under condition (d), Japanese courts do not enforce Chinese judgments because a Chinese court had refused to enforce a Japanese judgment in China before the first case on the enforcement of Chinese judgments was brought to the Japanese court.17

If a foreign judgment satisfies the above-mentioned conditions, they are automatically recognised as valid in Japan. If the judgment creditor wants to enforce the foreign judgment in Japan, however, the creditor needs to obtain a decision of a competent Japanese court to allow the enforcement of the foreign judgment in accordance with under Article 24 of Civil Execution Act (Law No. 4 of 1999 as amended). Then, the foreign judgment can be executed in the same manner as a judgment rendered by a Japanese court.

vii Assistance to foreign courts

Japan is the party to (1) the Convention of 1 March 1954 on Civil Procedure and (2) the Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters. In addition, Japan has entered into certain diplomatic agreements on the mutual judicial assistance with many countries which are not the parties to the above-mentioned conventions. Pursuant to these conventions, diplomatic understandings and sometimes even on ad hoc basis, Japanese courts provide assistance to foreign courts in relation to the service of judicial documents and the collection of evidence.

The service is usually made by a special post service. If such service by post is not accepted by the defendant, the service is made by a court execution officer. Foreign practitioners should note that if the documents the service of which was requested lack their Japanese translation, the Japanese court will contact the defendant and ask whether or not it will accept the service on a voluntary basis. If the defendant does not so accept within certain time period, the court will return the document to the requesting court. Therefore, in order to ensure the compulsory receipt of the summons by the defendant, the Japanese translation of those documents needs to be attached. Sometimes we see very poor Japanese translations, and although this does not prevent the summons from being compulsorily served on the defendant, the quality of the translation may become an issue at the enforcement phase.

A typical assistance with respect to the collection of the evidence is for a Japanese judge to take the testimony of a witness or a party. Such collection is made in accordance with the Japanese laws. Where the foreign court ask specific manner in relation to such collection, the Japanese judge will comply with such request to the extent admissible under Japanese laws.

ix Access to court files

There is no public list of the ongoing court proceedings. If one can identify a specific case, any member of the public can inspect the case files including pleading and evidence, whether the case is ongoing or has been completed. Only the party who has prima facie interest in the case can obtain a copy of the file. If a party does not want that a specific part of the pleadings or evidence submitted by such party is disclosed to the public, the party can apply for the court’s decision not to disclose such part to the public. Generally, if the court finds that the specific part contains confidential information or information concerning the privacy of such applicant, the application will be granted.

x Litigation funding

So far, the practice of the litigation funding does not exist in Japan. The discussion on the permissibility of the litigation funding has not been well developed. There is a view that litigation funding is not permissible under the laws of Japan.

IV LEGAL PRACTICE

i Conflicts of interest and Chinese walls

Attorney Act provides for the basic rules on the conflict of interest. The Basic Rules on the Duties of Practising Attorneys (Basic Rules) issued by the Japan Federation of Bar Associations (JFBA) supplement these rules. Under these rules, a lawyer can act for the case of the client which is the counterparty of the other case that the lawyer is handling, if the client of the latter case agrees.

The Basic Rules provides that a member of a law firm cannot handle the case with respect to which another member of the firm18 cannot provide service due to conflict of interest unless there is a reason that the former member can maintain impartiality. The Chinese wall has been understood to be the method to ensure the maintenance of impartiality in this context. The Basic Rules do not provide any specific definitions of the Chinese wall. It has been left to the reasonable practices by the law firms.

ii Money laundering, proceeds of crime and funds related to terrorism

No responsibilities relating to money laundering are legally imposed on Japanese lawyers because of the historical independence of the lawyers from the government. The rules of JFBA impose certain responsibilities on the lawyers. Either (1) if a lawyer is deposed the money of no less than ¥2 million by or on behalf of its client (except for the fund to be paid to courts in relation to litigation, the advance payment to cover the lawyer’s remuneration or the fund to be received from the counterparty in accordance with the judgment or court settlement), or (2) if a lawyer is instructed to assist a sale and purchase of real estates, a M&A transaction or other specified transactions, the lawyer is obligated to confirm the identity of the client by verifying certain official certificates. If the client is a foreign individual or entity, the lawyer must confirm the identity of the client by those documents that would be used for the same purpose in the relevant country. In short, where Japanese lawyers are instructed by a client to represent such client in a Japanese litigation, the liabilities concerning money laundering are rarely applicable.

iii Data protection

Though the legislations regarding data protection has been tightened also in Japan, so far such legislations has not substantially affected the practice of lawyers. One of the methods frequently used by Japanese lawyers to collect evidence is the request of provision of the information to various public or private entities through the Bar association to which the lawyer belongs pursuant to Article 23-2 of Attorneys Act. As this procedures has such legal ground, the provision of personal information is out of the scope of the protection under the Act on the Protection of Personal Information (APPI). Under APPI, the restriction on the share of personal information with third parties are limited to the personal date which constitutes a data of a data base that was systematically organised so as to be able to search for particular personal information using a computer. Usual personal information to be shared with other lawyers in connection with a litigation, whether domestically or internationally, does not fall within the scope of restriction. Further, as opposed to EU data protection rules, where the information relating to the employees of a client constitutes protected personal data, the consent of the employees can validly exempt the obligation of the client not to transfer the personal data to third countries.

V DOCUMENTS AND THE PROTECTION OF PRIVILEGE

i Privilege

No common-law-type privilege is admitted by Japanese law. Japanese lawyers can refuse to testify on any fact that the lawyer learned in conjunction with her or his processional activities. Similarly Japanese lawyers can refuse the production of the documents that include such fact. However, clients have no right to refuse to testify on communications with lawyers or to produce a document containing information relating to the communications with lawyers. In addition, whether or not the right of lawyers to refuse the production of the documents is applicable in administrative proceedings such as the investigation by the Japanese Fair Trade Commission is not clear. The LDP, the party in charge of the current government is presently proposing the adoption of the US-type privilege in connection with the antitrust proceedings, however, the JFTC have resisted such legislation. In the future, the US-type privilege may be adopted in relation to certain administrative proceedings.

ii Production of documents

Under Article 220 of the Code of Civil Procedure, a party to a case can request the court to order the counterparty or a third party to produce documents in their possession. The documents include an electronic data.

Certain documents are exempted from the documents to be produced. Among others, following exemption are important: (1) documents containing confidential information and (2) documents prepared exclusively for the internal use of the requested party. Documents containing technical know-how fall under the scope of exemption (1). Internal minutes, memorandum or personal notes fall under the scope of exemption (2). Accordingly, the documents the content of which the requesting party is keen to know may not be easily produced.

The court grants such request only if the court thinks such evidence is relevant for its determination. This means that unless the requesting party succeeds in persuading the judges for all other issues that support its claim or defence, it is difficult to have the court grant the production request. It is the general practice of courts that upon the filing of the request, the court asks the counterparty to voluntarily produce the requested documents. If the counterparty refuses the voluntary production, the courts will not decide on the production request until it becomes confident that such document is necessary for the determination on the case. Often, the requests are formally dismissed at the last oral argument date.

Once the request is granted and if the counterparty fails to produce the requested document without any justifiable reason (such as the non-existence of the requested documents), the court may find the requesting party’s allegations concerning the details of said document to be true. This is the sole sanction against the requested party. In order to ensure the effective sanction on the failure to produce, the requesting party needs to allege the content of the requested document with reasonably detailed specifications, which is not easy for the requesting party without reviewing the document.

When the requesting party possesses the requested document as a result of the discovery proceedings in other jurisdiction as a part of parallel litigations but is unable to use such document in Japanese proceedings because of a protection order, the use of Japanese production order can be considered to the extent it does not violate the protective order.

If a third party fails to comply with the order, such third party will be subject to the civil penalty in the amount of no more than ¥200,000, which would not be a very serious penalty for the third party if such party has any serious reason not to produce the documents.

For the above-mentioned limited scope of the documents to be produced and the less effective sanction, it is difficult to effectively make use of the document production order. The document production request is most effectively used for the proof of damages in intellectual property litigations because the accounting documents are not generally exempted from the documents to be produced and the defendant cannot excuse that no accounting documents are left. Also, in labour disputes and medical malpractice disputes, the document production request may be effective where payrolls or medical records are requested to be produced.

Because of such circumstances, the discussion on the issues which might be relevant in other jurisdictions, such as whether the requested party needs to produce the document located outside of Japan or in the possession of its subsidiary or agent, has not been well developed.

VI ALTERNATIVES TO LITIGATION

i Overview of alternatives to litigation

The most frequently used alternative to litigation is the conciliation administered by courts. Public institutions including Bar associations and various industrial associations are offering ADR services that mainly aim to resolve small disputes such as those between business operators and consumers or neighbourhood disputes, and alleged tortfeaser and alleged victims of the torts of certain categories (such as car accidents or medical malpractice). Disputes concerning damage caused by the Fukushima nuclear power plant accident are also resolved through a special ADR mechanism. So far, it is not common to use arbitration or other non-court ADR for the resolution of ordinary domestic commercial disputes.

ii Arbitration

For domestic commercial disputes except for the area of construction disputes and maritime arbitration, use of arbitration is not common. For international disputes, though many Japanese companies are parties to arbitration agreements, cities of Japan are not often designated as the seat of arbitration.

Arbitration Act was adopted in 2003 based upon 1985 UNCITRAL Model Law. Japanese courts may set aside an arbitral award only on the limited grounds listed in Article 44 of Arbitration Act that conform to the grounds set out in Article 34 of the 1985 Model Law. There are two recent cases to be noted in this respect.

On 12 December 2017, the Supreme Court reversed a decision of the Osaka High Court. In its decision, Osaka High Court set aside an arbitral award of the Japan Commercial Arbitration Association (JCAA) on the ground that one arbitrator had failed to disclose a certain fact constituting a reasonable ground to doubt the impartiality or independence of the arbitrator that occurred during the course of the arbitral proceedings. During the arbitration proceedings, a new partner handling a case for a sister company of a party to the arbitration joined a different office of the same law firm to which the arbitrator belongs. The arbitrator did not inform the parties that the new partner had joined. The Supreme Court held that if the arbitrator knew such fact or could learn such fact with a reasonable investigation, the arbitral award should be set aside, but otherwise should not be set aside. The Supreme Court sent the case back to the Osaka High Court and ordered it to further investigate facts with a view to the above-mentioned standard.

On 13 June 2011, Tokyo District Court set aside an arbitral award of JCAA on the ground that the award was contrary to Japanese public policy. The award erroneously specified a certain fact that a party had been disputing as an undisputed fact and on the basis of such specification, the arbitrators had formulated the decision. The District Court held that such substantial procedural defect makes the award contrary to Japanese public policy. The judgment was upheld by higher courts.

Japan is a party to the New York Convention and Japanese courts enforce foreign arbitral awards within the framework of the New York Convention. If the creditor of an arbitral award wants to enforce the award, the creditor needs to obtain the execution order of a competent court pursuant to Article 46 of the Arbitration Act. The author is not aware of any recent cases where the enforcement of foreign arbitral awards was refused.

The JCAA is the major arbitral institution commonly used for international disputes. Japanese companies often agree to the ICC arbitration with the seat being Tokyo or Osaka as well. For domestic construction disputes, arbitration by Committees for Adjustment of Construction Work Disputes19 are often used because the widely used standard construction contract form contains such arbitration as a standard dispute resolution mechanism.

iii Mediation

As stated above, most frequently used alternative to litigation is the conciliation administered by courts under the Civil Conciliation Act. Mainly, summary courts handle such conciliation irrespective of the amount of the involved economic interest. Three court-appointed conciliators (one judge and two part-time conciliators such as lawyers, architects, business persons or accountants, chosen depending upon the nature of the disputes) act as a conciliation panel. Each year, 30,000–40,000 new cases are filed. If the parties do not agree to the settlement conditions, the conciliation fails. Even large commercial business entities make use such conciliation proceedings.

Unlike conciliation or mediation in many other jurisdictions, the conciliation proceedings at summary courts take time. Parties meet once or twice in a month for one to two hours. Each party considers settlement conditions carefully during the period up to next session and in the next session, presents its position including further concession to the panel. Such mechanism generally fits for the decision making system of Japanese companies, while sometimes it does not catch up the speed of the business.

Though there is no statutory limitation on the length of the conciliation proceedings, if the parties do not reach agreement within certain period (e.g., six months), the conciliation panel decides to discontinue the proceedings without success.

There are some other institutional mediations or conciliation proceedings offered mostly by public organisation to resolve disputes of specific categories.

Ad hoc mediation to resolve commercial disputes is not common in Japan and nor are other forms of alternative dispute resolution.

VII OUTLOOK and CONCLUSIONS

Over the last decade Japan has adopted various new schemes to improve and expedite Japanese civil proceedings at courts; however, such new schemes have not sufficiently changed the actual practice, while the number of complicated litigations such as construction disputes, disputes involving innovative financial products and new IT technologies is increasing. As presently there is no concrete plan for further amendment of the Code of Civil Procedure, we do not expect any dramatic changes in Japanese court proceedings in the near future.

The involvement of Japanese companies in arbitration proceedings and international mediation proceedings has been demonstrably increasing. Though Japan has fallen behind other Asian countries such as Singapore, Malaysia and South Korea, the Japanese government has committed to making an effort to develop the infrastructure to solicit more international arbitration and mediation to Japan. In line with such commitment, in December 2017 the Japan Association of Arbitrators (JAA) announced its plan to set up a hub of international mediation in Kyoto. It will be interesting to see to what extent Japan can rival other Asian competitors in this respect.

1 Teppei Mogi is a partner at Oh-Ebashi LPC & Partners, Japan.

2 Justice Statistic for the fiscal year of 2016 issued by the Supreme Court.

3 General Headquarters, the Supreme Commander for the Allied Powers.

4 Intellectual Property High Court has been established as a branch of Tokyo High Court to exclusively deal with appeal cases relating to intellectual property.

5 In Japan, there is no clear distinction between the concept of mediation and that of conciliation. Though there are different concepts of ‘assen’ and ‘chotei’ relating to the dispute resolution between the parties assisted by a third party, such difference does not match with the difference between conciliation and mediation. As in the Japanese Law Translation Date Base offered by the Ministry of Justice, the word ‘conciliation’ is used to mean this proceeding, the author uses the word ‘conciliation’ in this article.

6 Articles 1.9.5 and 19 of the Anti-Monopolization Act prohibit a business entity who has a superior bargaining position against its business partner from abusively taking advantage of such position in forcing the business counter-party to accept unreasonable contract terms (‘abuse of dominant positions’). Violation of such prohibition may be subject to a huge fine. Recently, the Japanese Fair Trade Commission (‘JFTC’) is very active in investigating the violation of this category.

7 Judgment of Tokyo District Court of 6 October 2016 refused the similar argument presented by the plaintiff that the scope of the jurisdiction clause is too broad as it covers disputes indirectly arising from the supply contract, holding that the scope is sufficiently specific as far as it refers to the specific agreement. In this case, the business size of the plaintiff was far larger than the defendant.

8 Some practitioners suggest that the judges could have also refused the motion of Apple on the ground that the jurisdiction of Japanese courts over the private disputes involving violations of the Anti-Monopolization Act could not be excluded as a matter of public policy. The judgment of Tokyo District Court of 6 October 2016 referred to in the previous footnote, however, denied the argument that U.S. courts lacks the jurisdiction over the violation of the Anti-Monopolization Act, holding that even if U.S. courts do not decide on the violation of the Anti-Monopolization Act, the U.S. courts would render similar decision taking account of the unconscionability doctrine existing in the U.S. contract law, and thus the validity of the agreement of the jurisdictions between the parties should be respected. Tokyo High Court upheld this judgment.

9 To illustrate the level of the filing fee, if the amount of such economic interest is ¥100 million the amount of the filing fee is ¥320,000.

10 Justice Statistics issued by the Supreme Court for the fiscal year of 2016.

11 Ibid.

12 Foreign companies can register their representatives in Japan.

13 The Japanese government has not declared the objection to the direct service as permitted under Article 10(a) of the Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters.

The Japanese government has explained that it does not object to such direct service which is made for the purpose of the proceedings of a foreign country as long as it is permissible under the laws of such foreign country, however, this does not mean that such service is valid for the purpose of Japanese laws. Under such circumstances, it is controversial in Japan whether foreign judgments rendered on the basis of direct service can be enforced by courts. So far, there is no definitive judgment in this respect. The views of academics and practitioners vary.

14 Judgment of the Supreme Court, 11 July 1997.

15 Judgments of California State, New York State, Nevada State, Hawaii State, England, Singapore and Hong Kong have been recognised as valid. Furthermore, though it is a civil law country, judgments of Germany and South Korea whose law on the recognition of foreign judgments is more or less same as that of Japan have been recognised.

16 Judgment of Tokyo District Court, 20 July 1960. The author understands that this ruling is no longer applicable in respect to Belgium, because the Belgian law on the recognition of foreign judgment has been changed.

17 Judgment of Osaka High Court, 9 April 2003.

18 Japanese law firms jointly operated by more than one members are either in the form of partnership or in the form of legal professional corporation (LPC). While LPC constitutes a legal entity, the partnership is not regarded as a legal entity. For this reason, the Attorneys Act does not provide for the rules on conflict of interest in respect to the law firm in the form of partnership, however, the Basic Rules do so.

19 Pursuant to the Construction Business Act, one in each prefectural government and one in central government were established.