JAPAN: An Introduction to Dispute Resolution: Domestic

Japan has well-established and efficient dispute resolution systems, including both court and ADR procedures.

Litigation  

Overview of litigation in Japan  

For domestic disputes, the courts are by far the most popular means of dispute resolution. The court process is considered to be relatively sophisticated and is generally well trusted. Judges are “career judges”, who begin their careers as an associate judge at a district court after passing the state exam and completing the requisite training, and they typically spend their whole career as judges. Given such background, they are generally reliable in relation to technical legal issues and judgements are reasonably predictable. Moreover, judges in Japan do not exhibit discriminatory treatment towards non-Japanese parties.

Japanese legal procedures also differ from those in some countries in that there are no jury trials in civil cases, as well as no pre-trial discovery or pre-trial deposition procedures. Instead, Japanese legal proceedings involve the exchange of a series of legal briefs that contain factual and legal arguments, even at the district court level, which are accompanied by documentary evidence. The court reviews the briefs and evidence to narrow down the case to the key issues in dispute, and then the case proceeds to the “trial” phase of the proceedings, which is known as witness examination. Witness examination is relatively short, normally only one or two hearings and with each side typically calling only a couple of key witnesses. After witness examination, the parties will file their final, comprehensive briefs, and the court proceeds to issuing its judgement. District court judgements can be appealed to the high courts, where the cases are reviewed de novo, and high court judgements can be appealed to the Supreme Court, although the Supreme Court must agree to hear a case, which is rare. Also, something that is quite different from many jurisdictions is that each party needs to bear its own attorneys’ fees and punitive damages are not allowed.

In addition, in practice, there is no concept of privilege in Japan, but the absence of privilege raises limited practical concerns, since there are only limited means to compel counterparties and third parties to produce documents in court. As noted above, there are no discovery procedures, and while, technically speaking, the parties can apply for a court order to compel counterparties and third parties to produce documents, the requesting party needs to specify the title of the document and provide a summary of the document, which means that opposing parties cannot go on “fishing expeditions” in the hopes of finding relevant evidence.

The judge is also empowered by law to encourage the parties to reach settlement at any stage, and it is relatively common for cases to end by settling at the district court (often before witness examination) or at the high court. The judges tend to have a lot of power to encourage the parties to settle, since the same judge will be the one to render the judgement if the parties do not settle. Some judges even go as far as disclosing their views on the merits of the case when encouraging parties to reach settlement.

Digitalisation of court proceedings  

Japan has been very slow in digitalising its court proceedings. During the COVID-19 pandemic, courts started using web conferences through Microsoft Teams for some procedures, but the proceedings remained largely paper based and in person. For example, legal briefs and documentary evidence are still submitted by fax. In order to allow for further digitalisation of court procedures, the Code of Civil Procedures was amended in May 2022 to allow for the gradual introduction of further digitalisation, to be fully implemented by May 2026. Once fully implemented, some court procedures will become more streamlined, such as being able to file legal actions and submit legal briefs online, conducting service of process via email if certain conditions are met, accessing court records online, and holding court hearings using web conferences. Once fully implemented, this should make the Japanese court system more accessible, speedy and efficient.

ADR 

There are various alternatives to litigation in Japan. Some of these means of alternative dispute resolution (ADR) involve the court or other government institutions, while others involve non-governmental organisations.

In civil disputes, parties may agree to initiate civil conciliation proceedings at the summary court or district court instead of filing a suit. Civil conciliation is a procedure aimed at resolving disputes through mutual concession of the parties. If the parties reach an agreement in the conciliation proceedings, the documented agreement has the same effect as a court judgment. Civil conciliation is an effective means for resolving disputes especially if the parties would like to settle a dispute without engaging in outright confrontation and with the goal of maintaining their relationships. However, not all disputes are suitable for conciliation since there may be a possibility that rights and interests are sacrificed in the pursuit of a mutually acceptable agreement. Apart from conciliation proceedings before the court, there are various means of dispute settlement outside the court. Some are part of central or local government bodies, whereas others are administered by non-profit bodies. For example, the Financial Instruments Mediation Assistance Center (FINMAC) is a non-profit organisation established to mediate disputes between financial institutions and its clients. Lawyers who are well versed in finance matters serve as mediators.

Generally, conciliation/mediation is preferred to arbitration, because of the binding nature of an arbitration award. If the parties wish to obtain a binding decision, they would typically choose litigation rather than arbitration, since there is general trust in the court system, and unlike arbitration awards, court decisions can be appealed. However, for cross-border disputes, international arbitration is the preferred means for dispute resolution since arbitration awards are by far easier to enforce, compared with a Japanese court decision. Further, Japan has a well-developed legal system for arbitration based on global standards, and its Arbitration Act is in line with the latest UNCITRAL Model Law. Japan also has an arbitration institution, the Japan Commercial Arbitration Association (JCAA), with the vast majority of JCAA cases being international arbitration. Also, as Japan is a civil law jurisdiction, arbitration in Japan can be an ideal choice for international disputes in Asia between parties from civil law jurisdictions, especially compared to other using arbitration tribunals based in common law jurisdictions.

Closing Remarks 

The above and other characteristics of the Japanese dispute resolution systems need to be considered when working out which forum meets a company’s needs and how to deal with various disputes that international corporations may face in Japan.