Japan

Case updates

The first case under the JCAA Interactive Arbitration Rules reported

In the 2022 edition of the Japan Commercial Arbitration Journal published by the Japan Commercial Arbitration Association (JCAA), the JCAA reported and discussed the first case concluded under its new Interactive Arbitration Rules introduced in 2019 (Interactive Rules).

The Interactive Rules was introduced by the JCAA aimed at providing a more “civil law approach” by encouraging active administration of the proceedings and an open “dialogue” between the arbitral tribunal and the parties. One of the most distinctive features of the Interactive Rules is that it requires the tribunal to provide the parties with its summary of the parties’ positions and a provisional list of factual and legal issues and to inform the parties of its non-binding and preliminary views about the factual and legal issues that it considers important before deciding whether to examine a witness.

The first case concluded under the Interactive Rules concerned a dispute between two Japanese companies in relation to a supply contract. Defects were found in the claimant’s final product at the market and the issue in dispute was whether the parts supplied by the respondent were defective. The amount of the claim was over 1 billion yen (approximately USD7,476,000).

The supply contract did not contain an arbitration clause but the parties eventually agreed to submit the dispute to the JCAA under the Interactive Rules.

It was reported that the tribunal took the opportunity to discuss the case with the parties at the very first meeting and identified to the parties the points that the tribunal was tentatively interested in with regard to the parties’ positions having reviewed the request for arbitration and answer. The parties then submitted their arguments and evidence according to the tentative and provisional points of interest indicated by the tribunal. The tribunal then presented to the parties a provisional but refined summary of the parties’ positions and issues and exchanged views with the parties at the second meeting. The parties commented on the summary and the tribunal later provided a revised draft summary, taking into account the parties’ comments and additional documentary evidence.

Subsequently, the tribunal issued its non-binding and preliminary views on important issues along with a detailed explanation and invited the parties to submit written opinions on the preliminary views. The tribunal also invited the parties to comment on how they wished to conduct the further proceedings and it was agreed, through the dialogue with the tribunal, that witness examination was not needed.

It was also through these dialogues with the tribunal that the parties were able to agree to refer the dispute to mediation under the JCAA Commercial Mediation Rules and the parties agreed to appoint the three arbitrators as mediators which resulted in a comprehensive settlement of the dispute and the tribunal issued a consent award according to the settlement agreement.

Overall, the case was settled after 12.5 months from the request for arbitration and the total amount of the arbitrators’ remuneration was 9.9 million yen (approximately USD76,000). The administration fee was approximately 4.2 million yen (approximately USD32,000). The arbitrator’s expense and other costs were approximately 130,000 yen (approximately USD1,000). It was reported that the parties gave an overall positive evaluation of the arbitration conducted under the Interactive Rules and considered that the tribunal’s non-binding and preliminary views on important issues were helpful to decide the further course of action that they should take.

 

Other key developments

Proposal for a New Mediation Act by the Ministry of Justice

On 4 February 2022, the Ministry of Justice of Japan published a proposal for Japan to become a signatory to the United Nations Convention on International Settlement Agreements Resulting from Mediation (the Singapore Convention) and to implement the Singapore Convention into the domestic laws.

According to the proposal, the Act on Promotion of Use of Alternative Dispute Resolution (Act No. 151 of 1 December 2004) (ADR Act) will be amended to allow the Japanese Courts to enforce settlement agreements arising from domestic mediations and a new piece of legislation will be promulgated to allow the Japanese Courts to enforce settlement agreements arising from international mediations.

Under the proposed legislation, a mediation will be considered to be an international mediation if:

• All or some of the parties have addresses, offices and places of business in different countries. Where a party has multiple offices, the office most relevant to the subject matter of the dispute applies.
• All or some of the parties’ addresses, offices and places of business are different from the places of performance of a substantial part of the obligations of the agreement or the places of the subject matter of the agreement.
• All of some of the parties’ addresses, offices and places of business are outside of Japan or a majority of their shareholders or equity holders have addresses, offices and places of business outside of Japan.

Currently, parties to a civil court action in Japan may request the court to record their agreement for settlement and such court-recorded settlement agreements are enforceable as court judgments. However, settlement agreements arising out of private mediations do not enjoy the same ease of enforcement and must be enforced through a new court action in Japan.

Under the new law, parties to an international settlement agreement can enforce the settlement agreement directly by submitting the agreement to the Japanese Courts that have jurisdiction provided that the agreement is in writing and the parties have opted-in to the application of the Singapore Convention or the new law implementing the Singapore Convention. An international mediation may be conducted by an independent mediator whereas a domestic mediation must be administered by a certified mediation institution provided under the Act.

In line with the Singapore Convention, international settlement agreements relating to consumers, employment, human resources, family matters and court-related mediations will not be captured by the new legislation. However, domestic settlement agreements relating to child support disputes will be enforceable under the amended Act.

New action plan for promotion of Online Dispute Resolution

On 31 March 2022, the Ministry of Justice announced the “Basic Policy on the Promotion of ODR – Action Plan for making ODR familiar to citizens”. The action plan draws up the targets for promoting online dispute resolution (ODR).

The short-term targets include: penetration of ODR into the daily lives of citizens (making ODR a lifestyle infrastructure), improving access to ODR and quality of ODR and support for entry into ODR business. The medium-term targets include creating an environment to provide one-stop consultation, negotiation and mediation services, facilitating an environment where world-class ODR can be provided and develop infrastructure for using AI technology in ODR.

It is expected that an organisation will be formed with participation from the public, private and academic sectors to implement the measures to achieve the targets of promoting ODR.

Amendment of the Arbitration Act

As covered in the last edition of our Asia Pacific Arbitration Roundup, Japan will likely soon amend its Arbitration Act (Act No. 138 of 1 August 2003) (the Act) to bring into conformity with the UNCITRAL Arbitration Rules. Although the UNCITRAL Arbitration Rules (Model Rules) have been revised several times since 2003, the Act has not been completely updated to harmonise with the revised Model Rules. On 18 June 2021, the Government of Japan published the “Follow-up on the Growth Strategy” (Strategy), which described the progress of past growth strategies and new initiatives.

Under the Strategy, the Government of Japan indicated that, as part of supporting overseas expansion of domestic small and middle-sized companies, they would work on having the Act match up with the Model Rules to stimulate the utilisation of international arbitrations in Japan. Finally, on 8 October 2021, the Legislative Council of the Ministry of Justice published an outline of the amendment of the Arbitration Act.

The following is a summary list of outstanding topics from the outline of the amendment of the Act:

1. Establishing organised rules for interim measures

In accordance with the Model Rules, the amended Act will set rules on tentative preservation orders. For example, the arbitral tribunal can request “deposits” to be paid from the parties seeking tentative preservation orders, such as the following:

• Prohibit any transfer or transformation of assets if such action may render future enforcement unfeasible or seriously difficult.
• Prohibit any transfer or transformation of the assets subject to the claim except for money if such action may render future enforcement unfeasible or seriously difficult.
• Prevent significant damage or imminent danger to property or rights subject to the arbitration from occurring and restore the said property and rights to their original state.
• Prohibit obstruction of arbitration process.
• Prohibit the destruction, erasure, or alteration of evidence necessary for the arbitration process.

2. The form of Arbitration Agreements

The amendment will add the following provision to Article 13 of the Act:

“If the contract is executed in a form other than in writing, the arbitration agreement shall be deemed to have been made in writing if a document or electromagnetic record containing the terms of the arbitration agreement is cited as part of the contract.”

This allows an oral agreement to satisfy the written requirement of the arbitration agreement whenever a document or electromagnetic record makes a written reference to the arbitration clause originally agreed upon orally.

3. Revision of procedural requirements

The Act currently recognises the following three types of district courts as having jurisdiction with respect to the enforcement (and setting aside) of arbitration awards (including other arbitral processes which the Act allows Japanese Courts to handle):

• The district court determined by an agreement between the parties;
• The district court which has jurisdiction over the place of arbitration; or
• The district court which has jurisdiction over the location of the general venue of the respondent of said case.

In addition to the above, the amendment will recognise the Tokyo District Court and the Osaka District Court as having jurisdiction for all cases where the seat of the arbitration is in Japan. Therefore, for example, the parties can apply for the enforcement of an arbitral award in the Tokyo or Osaka District Court even if these Courts do not meet one of the three abovementioned requirements as long as the seat of the arbitration is in Japan. The rationale behind this modification is that it often requires advanced expertise in specific fields (e.g. IPT, construction, etc.) to handle these cases. Judges equipped with advanced expertise in these fields are mostly found in Tokyo and Osaka. Therefore, this amendment will provide the parties with the option to rely on Tokyo’s and Osaka’s District Courts and their expertises on specific cases that require advanced technical knowledge.

4. Simplifying the translation requirement

The amendment will simplify the translation requirement. The current Article 46(2) of the Act requires parties to translate documents written in foreign languages for applications to enforce arbitral awards. According to the amended Article 46(2), the Court may exempt arbitral award enforcement applicants from preparing and submitting Japanese translations of required documents, such as the arbitral award.

Moreover, the Court may permit the parties to submit evidence written in foreign languages without attaching Japanese translations. This change will mitigate the parties’ burden to seek enforcement orders.

At a cabinet meeting on 28 February 2023, the Government of Japan has adopted a Bill to revise the Act which follows the Strategy and the Bill has been submitted to the national legislature of Japan for approval.