JAPAN: An Introduction to Dispute Resolution: International

International Dispute Resolution: Japan 

Japan, as one of the world's leading economies, has a robust and evolving system for international dispute resolution. The recent amendments to the Arbitration Act as well as the introduction of the Mediation Act are aimed at facilitating and strengthening alternative dispute resolution procedures within Japan, in line with international practice and the approach taken in other major dispute resolution hubs in Asia, such as Hong Kong and Singapore.

Legislative Updates in Japan 

In terms of legislative updates, Japan has made significant strides in improving its dispute resolution framework. The most notable developments are the amendments to the Arbitration Act in 2023. These are part of ongoing efforts to reinforce Japan’s alternative dispute resolution framework, thereby enhancing Japan’s attractiveness as an international hub for dispute resolution.

The amendments seek to bring the existing framework, based on the 1985 UNCITRAL Model Law on International Commercial Arbitration, in line with the changes made in the 2006 UNCITRAL Model Law. They also reflect the position taken in other major arbitration centres in Asia, including Hong Kong and Singapore.

The key revisions to the Japan Arbitration Act include the following:

1. Interim measures: 

The amendments clarify the power of the Japanese courts to grant different types of interim measures to support or protect Japan-seated arbitrations. These include freezing orders to prevent a party from disposing of its assets before the conclusion of an arbitration, and/or other injunctions to protect the integrity of the arbitration process.

2. Arbitration-related court proceedings: 

Parties will be able to apply to the Tokyo District Court and/or Osaka District Court, and other competent courts within Japan, for arbitration-related proceedings. This amendment is aimed at building arbitration expertise in the Tokyo and Osaka District Courts.

3. Translation of documents for Japanese court proceedings:

The Japanese courts will have the discretion to waive the requirement for Japanese translations of arbitral awards (or other documents connected to an arbitration) in applications for the recognition or enforcement of such awards (or interim measures). The amendment will likely result in reduced time and cost burdens for parties in enforcement proceedings.

4. Requirements for arbitration agreement: 

The amendments also provide that, in the case of a non-written contract, an arbitration agreement recorded in separate written or electronic form shall be deemed to meet the requirement that arbitration agreements must be made in writing.

On 1 October 2023, Japan also deposited the instrument of accession to the United Nations Convention on International Settlement Agreements Resulting from Mediation (the "Singapore Convention"). The Singapore Convention is an international framework for enforcing settlement agreements arising from mediation in international commercial disputes. This convention will enter into force in Japan on 1 April 2024. Japan's accession to the Singapore Convention is likely to facilitate the use of mediation, contribute to the expansion of Japanese companies' overseas businesses, and to further attract foreign investment in Japan.

Japan's introduction of the Mediation Act establishes a mechanism for the enforcement of international settlement agreements in Japanese courts, and has paved the way for Japan's accession to the Singapore Convention. In particular, the Mediation Act permits Japanese courts to enforce international settlement agreements when a party has submitted the settlement agreement as well as other documents proving the international settlement agreement arose from mediation.

Trends in Dispute Resolution 

Over the past year, there has been a noticeable trend towards the use of alternative dispute resolution (ADR) methods in Japan. This trend is driven by the desire to avoid lengthy and costly litigation processes. Mediation, in particular, has gained popularity due to its flexibility, confidentiality, and the possibility of preserving business relationships.

Another trend is the increasing use of online dispute resolution (ODR) following the COVID-19 pandemic. ODR allows parties to resolve disputes remotely, which has proven to be efficient and cost-effective. The Japan Commercial Arbitration Association (JCAA) has been at the forefront of this trend, offering online arbitration and mediation services.

Furthermore, there has been a growing interest in international arbitration in Japan. The number of international arbitration cases handled by the JCAA has been increasing, reflecting Japan's growing role in international trade and investment. The 2023 amendment to the Arbitration Act is expected to further boost this trend.

However, the extent to which the recent amendments to the Arbitration Act will bolster the use of Japan-seated arbitrations by Japanese parties remains to be seen. In the meantime, Japanese parties continue using foreign arbitral centres, including SIAC, HKIAC and the ICC. SIAC, in particular, remains a popular venue for international arbitration by Japanese parties.

Third-party Funding 

Although contingency fees are permitted in Japan, the position with respect to third-party funding remains unclear. Japanese legislation does not currently allow or prohibit third-party funding, and there have been no reported decisions where the validity of such funding arrangements was adjudicated upon. The position in Japan differs from that of foreign pro-arbitration jurisdictions, such as Singapore and Hong Kong, and from that provided pursuant to the latest version of the ICC arbitration rules.

Third-party funding would contribute significantly to the expansion of the arbitration landscape in Japan, in line with the intention behind the recent changes to the Arbitration Act. Notably, the benefit of third-party funding has been previously approved at a policy level. For instance, the session notes of a meeting between the Ministry of Justice, JCAA and the Japan International Dispute Resolution Center (JIDRC) record that third party funding may promote international arbitration in Japan by mitigating the increasingly higher costs of arbitral proceedings. On this basis, it is expected that developments on third-party funding will be forthcoming in Japan.