I INTRODUCTION

i Arbitration law in Japan

Arbitration in Japan is governed by the Arbitration Act (Law No. 138 of 2003), which came into effect on 1 March 2004. It applies to all arbitral proceedings seated in Japan, including both domestic and international arbitration, and any enforcement of foreign awards in Japan. Judicial proceedings related to arbitration are also covered by the Supreme Court Rules on Procedures of Arbitration Related Cases (Supreme Court Rule No. 27, 26 November 2003).

The Arbitration Act is largely based on the UNCITRAL Model Law on International Commercial Arbitration (1985) (Model Law). Amendments of note to the Model Law are set out in subsection v, below.

ii Recognition and enforcement of awards

Japan is a contracting state to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (New York Convention). The recognition and enforcement provisions of the Arbitration Act closely mirror the recognition and enforcement provisions of the New York Convention and the Model Law. Japanese courts have generally taken a pro-arbitration approach to enforcement of domestic and international arbitration awards.

iii Structure of the courts

Japan's court system has three tiers – district courts, High Courts and the Supreme Court. Under Article 5 of the Arbitration Act, jurisdiction over arbitration-related matters is given to the district courts, the decisions of which can be appealed to the High Courts. In limited circumstances, High Court decisions can also be appealed to the Supreme Court.

There are no specialised arbitral divisions within the Japanese court system.

iv Japanese arbitral institutions

The two primary Japanese institutions for international commercial arbitration are the Japan Commercial Arbitration Association (JCAA) and the Tokyo Maritime Arbitration Commission of the Japan Shipping Exchange (TOMAC).

The JCAA has existed in its current form since 1953 and handles both domestic and international commercial arbitration. Its rules were substantially updated in 2014 and amended again in December 2015. They broadly resemble the rules of other institutions in that they cater for, inter alia, joinder, consolidating multiparty arbitration, emergency arbitrations and expedited procedures. TOMAC, on the other hand, deals with maritime disputes and has a three-track system of arbitral rules depending on the value of the dispute. Arbitrations pursuant to the rules of the International Chamber of Commerce (ICC) are also seen in Japan.

v Distinctive features of Japanese arbitration law and practice

This section sets out some distinctive features of arbitration in Japan arising from the Arbitration Act and other local laws and practices that may be of interest to practitioners.

Validity of arbitration agreements

Under Article 13 of the Arbitration Act, arbitration agreements are valid only in respect of 'a civil dispute that may be resolved by settlement between the parties (excluding that of divorce or separation)'. In addition, arbitration agreements between a consumer and a business are not binding on the consumer, and arbitration agreements between an employee and an employer in respect of individual labour-related disputes are void.2

Arbitration agreements must be in writing but do not have any other requirements of form – for example, email correspondence between parties may give rise to an arbitration agreement in the absence of a formal contract.

Interim measures

Although Article 24 of the Arbitration Act empowers an arbitral tribunal to make interim orders, for example for the preservation of evidence or assets, or for security for costs, such orders are not enforceable as awards.3 Article 15 also allows parties to an arbitration to seek interim measures of protection from the courts to preserve their rights. The court has jurisdiction in such cases notwithstanding the existence of an arbitration agreement. This is consistent with Article 9 of the Model Law, which similarly provides that applying to a court for an interim measure is not incompatible with an arbitration agreement.

Stay of proceedings and anti-suit injunctions

If an action is brought in a Japanese court regarding a matter subject to an arbitration agreement that should properly have been arbitrated, the court will typically dismiss the proceedings. However, Article 14 of the Arbitration Act provides that the defendant must file a motion to dismiss the court proceedings before it advances an argument on the merits of the case at a court hearing or preparatory hearing. The motion is usually made in writing and the parties may be invited to file further written submissions to elaborate on the motion to dismiss. The concept of an 'anti-suit injunction' does not exist in Japanese civil procedure, and courts will not make any such order preventing domestic or foreign court actions commenced in breach of an arbitration agreement.

Court intervention

The courts' jurisdiction over arbitral proceedings is limited by Article 4 of the Arbitration Act to the matters explicitly set out in the Arbitration Act. Broadly speaking, the courts have jurisdiction over matters relating to:

  1. the service of notice;
  2. the appointment or removal of arbitrators;
  3. challenges to an arbitral tribunal's ruling on its own jurisdiction;
  4. judicial assistance with evidence-gathering;
  5. interim measures of protection; and
  6. setting aside, recognising or enforcing arbitral awards.

Costs

The Arbitration Act allows parties to agree the apportionment of costs. In the absence of any such agreement, the arbitral tribunal will not default to a 'costs follow the event' framework. Rather, the presumption under Article 49 of the Arbitration Act is that each party will bear their own costs notwithstanding the outcome of the proceedings.

In practice, most international arbitrations seated in Japan are institutional arbitrations, with the relevant institutional rules giving arbitral tribunals the power to apportion costs. For example, the JCAA Rules, like other institutional rules such as those of the ICC, grant the tribunal the power to allocate costs, including legal fees and expenses, based on (among other things) the parties' conduct, the outcome on the merits of the dispute and any other relevant circumstances (Rule 83).

Appointment of arbitrators in multiparty arbitrations

Article 17 of the Arbitration Act provides that the district court will, on the request of any party, appoint the arbitral tribunal in cases where three or more parties to an arbitration have not agreed a process for the appointment of arbitrators or where that process fails. Pursuant to Article 16, the court retains the power to decide the number of arbitrators where there are three or more parties to an arbitration and no agreement on the number of arbitrators has been reached.

Qualifications of counsel

Generally speaking, parties are free to be represented in any international arbitration seated in Japan by Japanese lawyers, foreign lawyers practising outside of Japan, and registered foreign lawyers practising in Japan.

However, an international arbitration case is defined in Article 2(xi) of the Foreign Lawyers Law (Law No. 66 of 1986) (as amended in 2003) as 'a civil arbitration case which is conducted in Japan and in which all or part of the parties are persons who have an address or a principal office or head office in a foreign state'. In certain cases, we have seen this argued to mean that an arbitration between wholly owned Japanese subsidiaries of foreign parents is not an international arbitration for the purposes of Japanese law and that foreign counsel should therefore be restricted from acting.

Qualifications of arbitrators

The Arbitration Act does not impose any requirements for the qualification or residency status of arbitrators acting in arbitrations seated in Japan. However, the failure of an arbitrator to possess specific qualifications agreed upon by the parties can be a ground for challenge under Article 18(1)(i).

Taking evidence

Article 35 of the Arbitration Act permits an arbitral tribunal, or parties to an arbitration with the approval of the tribunal, to apply for assistance from the courts with taking evidence. This may include, among other options, examination of witnesses, expert testimony and investigation of documentary evidence. In these circumstances, the arbitral tribunal is permitted, with permission of the presiding judge, to put questions to witnesses and examine documents or objects.

The Arbitration Act does not provide guidance on the disclosure of documents. The parties may either: agree on whether there will be any document disclosure in the arbitration, and if so, the rules for disclosure; or the arbitral tribunal may determine those questions. Practitioners from common law jurisdictions should be aware that full common law-style disclosure is not a feature of Japanese civil procedure. Where the parties have not agreed on disclosure rules the tribunal may, depending on the individual arbitrator's legal background and experience, be inclined to order only limited document production. However, it should be noted that Japanese practitioners are becoming increasingly familiar with general document production practices in international arbitration, including the IBA Rules on the Taking of Evidence, meaning that broader document production is possible.

Tribunal involvement in settlement

It is common practice in domestic Japanese arbitration for an arbitrator to take a hybrid mediator and arbitrator role, and to actively participate in the settlement of a matter. As such, Article 38 of the Arbitration Act allows an arbitral tribunal to attempt to settle the dispute that is the subject of the proceedings. However, the arbitral tribunal may only attempt to settle the dispute with the written consent of all parties.

Substantive law of the dispute

If the arbitration agreement is silent as to the governing law of the dispute, Article 36 of the Arbitration Act provides that it will be 'the substantive law of the State with which the civil dispute subject to the arbitral proceedings is most closely connected'. This is a departure from the equivalent provisions of the Model Law and, unlike the Model Law, does not refer to any conflict of law rules.

Time limit for correction of award

An application by a party for the correction of any non-substantive error in an award must be brought within 30 days of the award under Article 41 of the Arbitration Act. Unlike the Model Law, the Arbitration Act does not prescribe a time limit within which the arbitral tribunal may correct an error in an award on its own initiative.

Confidentiality

The Arbitration Act does not require that arbitration be conducted on a confidential basis. However, the local practice is that arbitrations are generally regarded as confidential unless otherwise agreed by the parties, and Rule 38 of the JCAA Rules imposes confidentiality obligations. Practitioners should ensure that, where needed and if not in the relevant arbitration rules, appropriate confidentiality provisions are included in arbitration agreements.

vi Trends in Japanese arbitration

The JCAA handles the majority of international arbitrations seated in Japan, and its statistics suggest that the absolute number of its cases has remained relatively constant over the past five years. More than half of claimants and respondents are Japanese.

As can be seen from the following data provided by the JCAA, the number of JCAA cases finally determined in the past three years has gradually decreased in number:

  1. in 2011, 16 awards were rendered, and two cases were withdrawn;
  2. in 2015, 13 awards were rendered, and five cases were withdrawn;
  3. in 2016, 12 awards were rendered, and eight cases were withdrawn; and
  4. in 2017, seven awards were rendered and four cases were withdrawn.

The incoming caseload has also decreased in the past three years, while the ongoing caseload of the JCAA has remained at comparable levels for the same period:

  1. in 2011, there were 19 new cases, and 32 ongoing cases at year's end;
  2. in 2015, there were 20 new cases, and 27 ongoing cases at year's end;
  3. in 2016, there were 18 new cases, and 25 ongoing cases at year's end; and
  4. in 2017, there were 14 new cases, and 28 ongoing cases at the year's end.

The demographics of the cases recently handled by the JCAA show that JCAA arbitrations involve more Japanese parties than any other nationality, as both claimant and respondent. This reflects a trend, discussed below, for international parties to arguably favour Japan as an arbitration venue only where there is a direct connection to the subject matter of the arbitration.

2015: determined and ongoing cases

2016: determined and ongoing cases

2017: determined and ongoing cases

Frequency of claimant nationality

Frequency of respondent nationality

Frequency of claimant nationality

Frequency of respondent nationality

Frequency of claimant nationality

Frequency of respondent nationality

Japan

39

Japan

36

Japan

29

Japan

25

Japan

25

Japan

23

Korea

6

Korea

7

China*

4

China*

6

Taiwan

3

Taiwan

3

China*

4

Thailand

4

Thailand

4

Korea

4

Thailand

3

Thailand

3

United States

2

China*

3

Korea

3

Thailand

4

China

2

China

3

Singapore

2

Taiwan

3

US

1

US

3

US

1

US

2

Thailand

2

India

2

Chile

1

Taiwan

3

UK

1

France

1

Indonesia

1

Germany

2

Saudi Arabia

1

India

2

Korea

1

Korea

1

British Virgin Islands

1

British Virgin Islands

2

Kuwait

1

British Virgin Islands

1

British Virgin Islands

1

Nigeria

1

Chile

1

Philippines

1

Mexico

1

Kuwait

1

Mexico

1

Saudi Arabia

1

Saudi Arabia

1

Saudi Arabia

1

Taiwan

1

Saudi Arabia

1

Kuwait

1

Kuwait

1

Kuwait

1

Brazil

1

Brazil

1

Malaysia

1

Malaysia

1

Mexico

1

Spain

1

Bangladesh

1

UAE

1

Myanmar

1

Total

61

Total

64

Total

46

Total

51

Total

40

Total

42

*Including Hong Kong and Macao

In terms of the value of cases heard by the JCAA in 2016 and 2017, approximately half of all cases were in the ¥100 million to ¥1 billion range, with only four and five cases in each respective year worth more than ¥10 billion.

While absolute numbers of JCAA-administered cases have only shown a slight downward trend in recent years, Japan's ranking as a preferred seat of international arbitration has suffered somewhat (or other cities have increased in popularity) according to a well-known independent study. In the '2010 Choices in International Arbitration' survey of arbitration practitioners conducted by Queen Mary University of London and White & Case, Tokyo was ranked the fourth most preferred seat of arbitration, with 7 per cent of respondents preferring it. In the more recent '2015 International Arbitration Survey' and '2018 International Arbitration Survey' conducted by the same partners, Tokyo disappeared entirely from the list of the top seven most preferred seats. The results from the three surveys are set out below.4

2010 survey

2015 survey

2018 survey

Seat

Preferred by (%)

Seat

Preferred by (%)

Seat

Preferred by (%)

London

30

London

47

London

64

Geneva

9

Paris

38

Paris

53

Paris

7

Hong Kong

30

Singapore

39

Tokyo

7

Singapore

24

Hong Kong

28

Singapore

7

Geneva

17

Geneva

26

New York

6

New York

12

New York

22

Other

34

Stockholm

11

Stockholm

12

The top five criteria for seat selection among respondents to the 2015 survey were:

  1. reputation and recognition of the seat;
  2. the law governing the substance of the dispute;
  3. particularities of the contract or type of dispute;
  4. personal connection with the seat; and
  5. corporate policy.

Relative to Singapore and Hong Kong as competitors in Asia, Tokyo's prominence as a centre of international arbitration has fallen in recent years. This decline is likely due to the surge in popularity of Singapore (in particular) and Hong Kong as arbitral venues in Asia, and also in part as a result of Japan's high ratio of outbound to inbound foreign investment.

ii THE YEAR IN REVIEW

i Developments affecting international arbitration

In May 2017, it was announced that a new centre for international arbitration is to be established in Tokyo. The Japanese Foreign Ministry, Justice Ministry and Ministry of Economy, Trade and Industry will be jointly responsible for establishing the new centre. The Cabinet Office established an inter-departmental committee in 2017 to investigate options in more detail. As at May 2018, six committee meetings have been held, however, no firm decisions or commitments have been made public to date with regards to this centre.

In December 2017, it was announced that a new Japan International Mediation Centre (JIMC) would open in Kyoto in 2018. It is understood that the JIMC will be jointly managed by the Japan Association of Arbitrators and Doshisha University (the JIMC secretariat is to be maintained at its campus in Kyoto). The JIMC entered into a memorandum of understanding with the Singapore International Mediation Centre, which will assist in the JIMC's set up and advise on establishing a panel of mediators. At the time of writing in May 2018, the JIMC is yet to open its doors.

Furthermore, new arbitration facilities opened in Osaka in May 2018. It will be interesting to see whether the Osaka centre collaborates with the soon-to-be-established JIMC, if at all, given their proximity to each other in the Kansai region.

ii Arbitration developments in local courts

In 2016, for only the second time, a Japanese court set aside an arbitral award.

The first time a Japanese court set aside an arbitral award was in 2011. This case involved a Japanese company and a US company in a dispute regarding the enforceability of certain terms requiring a payment to be made to the US company. The tribunal found in favour of the claimant US company, but in its reasoning stated that a particular fact was undisputed by the parties, which was not the case. The Japanese company challenged the decision on the basis that the award was in conflict with 'the public policy or good morals of Japan'5 and consequently should be set aside.

The Tokyo District Court6 found in favour of the Japanese company and set aside the award, stating that the tribunal had failed to give the Japanese company adequate opportunity to dispute an important fact, which is inconsistent with Japanese procedural public policy. The US company appealed this decision to the Tokyo High Court,7 which approved the District Court's decision that the arbitral proceedings had been conducted in a manner that violated the procedural public policy of Japan.

The Court also held that the language of Article 44(1)(viii) of the Arbitration Act gives scope for parties to argue procedural grounds of challenge. Therefore, Japanese courts are able to judge whether an award is against Japanese public policy from a domestic legal standpoint, which, if established, necessitates that an award be set aside.

The more recent decision to set aside an arbitral award and the results of the subsequent appeals are set out in further detail below.

Osaka District Court, 17 March 20158

The presiding arbitrator of the tribunal for the award that was challenged was a lawyer in the Singapore office of a law firm. Approximately 18 months after the arbitration commenced, a new lawyer moved to the San Francisco office of the same law firm as the presiding arbitrator. Prior to his move to the firm, the new lawyer had represented the sister company of the applicant in an unrelated antitrust class action in California, and continued to represent the sister company following his move. The presiding arbitrator failed to disclose this fact.

Before his appointment by the party arbitrators, the presiding arbitrator had submitted a statement of independence to the JCAA with a reservation that, according to his firm's policy:

It is possible that [the] law firm may in the future act for or advise the parties in this arbitration or their affiliates in matters unconnected to this arbitration. For the duration of this arbitration, I shall neither involve myself in such mandates nor be provided with information relating to the same, and I believe that there is no possibility that such mandates may have any effect on my independence or impartiality as an arbitrator in this arbitration.

The applicant applied to have the arbitral award set aside on the grounds that the presiding arbitrator's failure to disclose the circumstances in question meant that the composition of the arbitral tribunal was (1) in violation of Japanese laws and regulations (in breach of Article 44(1)(vi) of the Arbitration Act), in particular the ongoing obligation on arbitrators to disclose without delay to parties any circumstances likely to give rise to justifiable doubts as to their impartiality or independence under Article 18(4) of the Arbitration Act, and (2) in conflict with public policy (in breach of Article 44(1)(viii) of the Arbitration Act). The District Court dismissed the challenge on the basis that the circumstances in question did not give rise to any justifiable doubts regarding the arbitrator's impartiality or independence.

The applicant appealed this decision to the Osaka High Court.

Appeal to the Osaka High Court, 28 June 20169

The Osaka High Court allowed the appeal and set aside the arbitral award. The High Court found in particular that:

Arbitrators have an ongoing obligation during the course of proceedings to disclose without delay all facts that would likely to give rise to justifiable doubts as to their impartiality or independence under Article 18(4) of the Arbitration Act. An advance declaration and waiver of potential future conflicts of interest was considered too abstract, and lacked the factual specificity required to enable parties to determine whether or not to challenge the appointment of an arbitrator.

Arbitrators have an ongoing duty to identify disclosable facts. The High Court took the apparent view that, in this case, the potential conflict could have been identified with minimal difficulty through the arbitrator's law firm's conflict check processes. The High Court found that, regardless of whether the conflict had not been identified, or had been identified and cleared but not disclosed, the arbitrator had breached its obligation and this had led to grave procedural defects in the arbitral process. This was deemed sufficient ground to set aside the award under Article 44(1)(vi) of the Arbitration Act.

At the time, the High Court's decision attracted significant attention from arbitration practitioners. While the Japanese courts are perceived as pro-arbitration and have a track record of dismissing arbitral award challenges, this decision marked a strict approach being taken to the disclosure of conflicts, with breaches of disclosure obligations potentially leading to the setting aside of arbitral awards, even if unintentional and not affecting the final arbitral result.

The High Court's decision was further appealed to the Supreme Court.

Appeal to the Supreme Court, 12 December 201710

On 12 December 2017, the Supreme Court found as follows.

It agreed with the High Court's decision that the duty of disclosure was an ongoing one, and that the purpose of this obligation was to ensure the effectiveness of the process for challenging arbitrators. Merely telling parties in the abstract that circumstances under Article 18(4) of the Arbitration Act could potentially arise does not constitute proper disclosure as it lacked the necessary specificity to enable parties to challenge an arbitrator's appointment.

It also found that the disclosure obligation was not limited to facts that an arbitrator was actually aware of, but extended to circumstances that an arbitrator would normally have become aware of had a reasonable investigation been conducted. In this sense, the Supreme Court also agreed with the High Court judgment.

However, the Supreme Court found that, in this case, it was unclear:

  1. whether the arbitrator had in fact been aware of the conflict before the award was rendered;
  2. whether the arbitrator's law firm was aware of the conflict; and
  3. what sort of conflict-checking system was in place at the arbitrator's law firm.

On that basis, it did not consider that the facts as presented were sufficient to allow the High Court to conclusively find that the arbitrator could have become aware of the potential conflict, had a reasonable investigation been conducted.

The Supreme Court therefore set aside the High Court's decision and referred it back to the High Court for further determination. Although most practitioners do not expect the High Court to set aside the award again in light of the Supreme Court's findings, its eventual decision (not yet issued as at time of writing) is eagerly awaited.

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 and to the Energy Charter Treaty (ECT). As at May 2018, it is a signatory to 28 bilateral investment treaties (BITs) and 15 free trade agreements and economic partnership agreements (all of which are currently in force). Japan was a signatory to the Trans-Pacific Partnership (TPP), from which the United States withdrew on 23 January 2017. Led by Japan, the remaining 11 parties signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in March 2018. The revised CPTPP retains all of the original tariff reductions and eliminations from the original TPP concluded by the 11 countries and the United States, but suspends 22 provisions that the United States had previously pushed for.

Compared to other major capital-exporting nations, Japan has entered into few investment treaties and free trade agreements relative to its high levels of outbound foreign direct investment. However, in 2013, as part of its Japan Revitalization Strategy, the government announced that it aimed to raise the ratio of free trade agreements with its trading partners from 19 to 70 per cent by 2018. The government reiterated its commitment to additional investment agreements in its publication of the Japan Revitalization Strategy 2016, stating its aim of signing up to investment-related agreements covering 100 countries and regions by 2020. In a sign of this commitment to investment agreements, since 2016 Japan has signed BITs with Iran, Israel and Kenya; signed and ratified the TPP; ratified the Japan–Mongolia Economic Partnership Agreement (which came into force in June 2016); concluded negotiations on the text of the EU-Japan Economic Partnership Agreement in December 2017 (yet to be signed as at May 2018); and signed the CPTTP.

Despite the increase in investment agreements to which Japan is a party in recent years, the involvement of Japan and Japanese entities in investor–state dispute settlement remains very low. As at May 2018, Japan has never been a respondent to any investment treaty arbitration. Furthermore, we are aware of only five investment treaty arbitrations to which a Japanese investor entity is, or was, a party, none of which were brought pursuant to a Japanese BIT. Of these arbitrations, three are ongoing and two are historical.

The three ongoing investment treaty arbitrations involving Japanese entities are JGC Corporation v. Kingdom of Spain,11 Eurus Energy Holdings Corporation and Eurus Energy Europe BV v. Kingdom of Spain,12 and Nissan Motor Co Ltd v. The Republic of India. Both cases against Spain are administered by the International Centre for the Settlement of Investment Disputes (ICSID) and have been brought under the ECT, whereas we understand that Nissan's claim has been brought under the India-Japan Economic Partnership Agreement and is being conducted under the UNCITRAL Rules with its seat in Singapore. All cases are currently pending with constituted arbitral tribunals, and have no Japanese tribunal members.

As for past investment treaty arbitrations, Japanese investors were involved in Saluka Investments BV v. The Czech Republic,13 conducted through the Permanent Court of Arbitration and brought under a Netherlands–Czech Republic BIT with a final partial award in favour of the Japanese investor, and Nusa Tenggara Partnership BV and PT Newmont Nusa Tenggara v. Republic of Indonesia,14 conducted through ICSID and brought under a Netherlands–Indonesia BIT. The latter case was withdrawn in 2014 a month after filing.

The reasons for the low level of Japanese involvement in investor–state dispute settlement are not clear. One possibility is that Japanese investors will tend to avoid commencing claims where the relationship with the host government is extant. Another potential contributing factor is that the government may assist Japanese investors with difficulties with host states through advocacy, advice or financial assistance only until the investor files a request for arbitration. In our experience, Japanese parties are certainly becoming more active in structuring their investments to obtain the benefit of relevant treaties and are more often considering available protections once issues arise. Japanese involvement in investor–state dispute settlement is likely to increase in the near future as Japanese investors become more aware of their rights and as the investment agreement target in the Japan Revitalization Strategy 2016 is approached.

iii OUTLOOK AND CONCLUSIONS

While there was concern that the Supreme Court might uphold the Osaka High Court's decision to set aside the arbitral award as set out in Section II.ii above, its ruling and referral of the decision back to the Osaka High Court has reaffirmed the general pro-arbitration stance of the Japanese courts.

In recent years, however, Japan has clearly fallen further behind regional rivals such as Singapore and Hong Kong when it comes to attracting international arbitrations. Historically, the explanation for this has been that Japanese companies do not have an appetite for contentious matters and will look to avoid formal disputes as much as possible. However, this explanation is no longer appropriate – we have significant experience of Japanese companies being regular users of international arbitration, albeit with the majority of these arbitrations held overseas at neutral venues.

In our view, there are a number of reasons why Japan has not become a prominent seat for international arbitration, despite corporate Japan adopting a more pro-arbitration attitude. First, foreign companies are reluctant to agree to Japan as the arbitral seat, partly because, in the event of court involvement, judicial proceedings are conducted in Japanese. Second, Japanese companies do not push for 'home advantage' when negotiating arbitration agreements, and tend to either recognise the benefits of a neutral venue or readily agree in negotiations to a non-Japanese seat. Third, Japan is seen as an expensive place to conduct an arbitration hearing. Fourth, Japan has not promoted itself as aggressively to companies and arbitration practitioners as countries like Singapore and Hong Kong. This was most apparent in 2017 when Singapore and Hong Kong both enacted legislation to clarify the use of third-party funding in their respective jurisdictions. There is a degree of uncertainty under current Japanese legislation on the legality of using third-party funding, which would greatly benefit from clarification.

Although Japan may not match Singapore or Hong Kong as an arbitral hub in Asia in the near future, it has great untapped arbitral potential. In our view, this potential will only be realised once the international business community is persuaded to think of Japan as a centre for international arbitration. This will only occur if international companies have as positive an experience as possible in the limited number of arbitrations that are conducted in Japan. To ensure this, arbitral conditions must be improved through government support for arbitration (the announced international arbitration centre and JIMC are a good start, although it would be good to see concrete results), the availability of better and more cost-effective venues to hold arbitrations, and an increased number of Japanese and foreign practitioners versed in international arbitration matters. A virtuous circle can be completed by Japanese organisations using their negotiation powers to insist on Japan-seated arbitration.

While we hope for more international arbitrations seated in Japan and for Japan to become a more popular arbitral hub, we should not lose sight of the fact that arbitration is now seen as a standard choice for Japanese companies' international business. We are also seeing a gradual increase in the number of arbitration practitioners at both domestic and foreign law firms. It is also being taught as a subject at Japanese law schools. This has not always been so and there has been a marked increase in awareness of arbitration over the past 20 years. The virtuous circle is in motion, even if at a relatively slow pace.


Footnotes

1 Christopher Hunt and Elaine Wong are partners and Ben Jolley and Yosuke Homma are senior associates at Herbert Smith Freehills. The authors are indebted to Mr Mugi Sekido and Ms Yuko Kanamaru of Mori Hamada & Matsumoto for their assistance with this chapter.

2 See Articles 3 and 4 of the Supplementary Provisions to the Arbitration Act.

3 Pursuant to Articles 45 and 46 of the Arbitration Act.

4 Note that in the 2015 survey respondents were asked to select three preferred seats and five seats in the 2018 survey, which is why the cumulative results exceed 100 per cent.

5 Article 44(1)(viii) of the Arbitration Act.

6 Tokyo District Court Heisei 21 (chu) No. 6.

7 Tokyo High Court Heisei 23 (ra) No. 1334.

8 Osaka District Court, 17 March 2015, 2014 (arb) No. 3, 2270 Hanrei Jiho 74.

9 Osaka High Court, 28 June 2016, 2015 (ra) No. 547, 2319 Hanrei Jiho 32.

10 Japan Supreme Court, 12 December 2017, 2016 Kyo No. 43.

11 JGC Corporation v. Kingdom of Spain (ICSID Case No. ARB/15/27).

12 Eurus Energy Holdings Corporation and Eurus Energy Europe BV v. Kingdom of Spain (ICSID Case No. ARB/16/4).

13 Saluka Investments BV v. The Czech Republic (PCA 2001-04).

14 Nusa Tenggara Partnership BV and PT Newmont Nusa Tenggara v. Republic of Indonesia (ICSID Case No. ARB/14/15).