Lately Japan has taken a number of positive steps to boost its international arbitration profile. These steps include updates in 2019 to the rules of the Japan Commercial Arbitration Association (JCAA), the establishment in 2018 of the Japan International Dispute Resolution Center (JIDRC) in Osaka, and the opening of a JIDRC office in Tokyo in March 2020 (see https://zelojapan.com/en/4982). Most recently, on August 29, 2020, several amendments took effect in Japan’s Act on Special Measures Concerning the Handling of Legal Services by Foreign Lawyers (Foreign Lawyers Act).1 Among these amendments is a revision that expands the right of “Registered Foreign Lawyers” in Japan to represent parties in “international” arbitration (a Registered Foreign Lawyer is authorized to handle legal services concerning the laws of the jurisdiction in which he or she obtained qualification as a lawyer or the laws of a specific jurisdiction designated by Japan’s Ministry of Justice). This revision is a welcome if overdue improvement. But does it go far enough to contribute to the “activation of international arbitration in Japan,” which was the stated aim of the government-sponsored committee whose recommendations were adopted in the revision?2
The ability of parties in arbitration to select lawyers of their own choosing is extremely important. As Gary Born, a leading arbitration practitioner and commentator, has noted, parties’ right to choose legal representation in arbitral proceedings “is of fundamental importance. The quality and vigor of a party’s representation can have substantial consequences for the party’s case, for the outcome of the arbitral process, and for the parties’ perceptions of the fairness of the process.”3
Under the Foreign Lawyers Act, Registered Foreign Lawyers may not represent clients in Japanese court or give legal advice on laws other than those of their jurisdiction of qualification. But the Foreign Lawyers Act allows Registered Foreign Lawyers to act in an “International Arbitration Case,” which, before the recent amendment, was defined as “a civil arbitration case which is conducted in Japan and in which all or some of the parties are persons who have an address or a principal office or head office in a Foreign Jurisdiction [i.e., outside Japan].”4 This previous definition meant that Registered Foreign Lawyers were allowed to act in arbitrations seated in Japan only if at least one party was not a Japanese company.5 Registered Foreign Lawyers were not permitted to act in a Japan-seated arbitration if all parties were Japanese, even if those parties were Japan-based affiliates of non-Japanese corporations, and even if the governing law of the contract at issue was not Japanese.
Now, with the amendment to the Foreign Lawyers Act, the definition of “International Arbitration Case” has been expanded to mean arbitration cases where at least one of the parties is over 50% owned by a non-Japanese corporation, the governing law of the contract at issue is not Japanese law, or the seat of arbitration is not Japan. The third revision is unlikely to have much effect on the rights of Registered Foreign Lawyers; it is rare that arbitral proceedings occur outside the seat (although this may be evolving somewhat with more remotely held hearings due to the COVID-19 pandemic). Nor is the second revision likely to be of great consequence; it is unusual, although not unheard of, for Japanese parties to select a governing law for their contract other than Japanese law. Given the number of multinationals that have affiliates in Japan, the first revision may have more impact on the ability of Registered Foreign Lawyers to act in Japan-seated arbitrations.
The question remains: will the amendment, in the words of the committee tasked with reviewing the Foreign Lawyers Act, “provide motivation for more people to use Japan’s international arbitration proceedings and to activate Japan’s international arbitration”?6 Perhaps, in conjunction with the other steps that have been taken recently in Japan to promote arbitration. The committee itself, however, acknowledged the competitive challenge Japan faces in this respect from the two most established and popular Asia-based arbitral centers:
Looking at systems of foreign countries . . . we find that, particularly in Singapore and Hong Kong, which boast a high number of petitions for international arbitration in Asia, no qualification restriction is imposed with regard to representation in arbitration.7 (Emphasis added.)
In Singapore and Hong Kong, the distinction between domestic and international arbitration does not apply in respect of parties’ legal representation. Thus, in Singapore and Hong Kong parties are free to choose their lawyers, including non-Singaporean and non-Hong Kong lawyers, as legal counsel in any arbitration, including if the governing law of the contract at issue is Singapore or Hong Kong law.8 In contrast, as reflected in the recent amendment to the Foreign Lawyers Act, if an arbitration involves Japanese majority-owned companies, is seated in Japan, and the contract’s governing law is Japanese, the arbitration is not considered to be an “International Arbitration Case” – it is “domestic,” in other words – for purposes of determining who can represent the parties (i.e., Japanese lawyers, not Registered Foreign Lawyers).
If Singapore and Hong Kong do not distinguish between domestic and international arbitration in respect of a party’s ability to choose its lawyer, why does Japan still maintain this distinction? The answer is not clear, although the committee reviewing the Foreign Lawyers Act provided a hint. According to the committee, “foreign companies often retain Registered Foreign Lawyers, etc. who have enough knowledge on the laws of the foreign country concerned to represent them in international arbitration,” and so these companies prefer arbitral seats such as Singapore or Hong Kong with fewer restrictions on party representation.9 The premise of this reasoning seems to be that companies choose their arbitration lawyers based principally on the governing law of the contract at issue.
This premise is questionable for at least two reasons. First, while knowledge of a given set of national laws is one criterion for choosing arbitration counsel, it is not the only nor even the major factor. Arbitration is a particular method of dispute resolution, similar to litigation in certain respects but quite different in others. More so than in litigation, for example, lawyers in arbitration play a central role in key matters such as selecting arbitrators and designing the procedural schedule. Well-advised companies understand this and also know that familiarity and experience with arbitration are the decisive criteria when choosing arbitration counsel.
Second, a saying exists among dispute resolution lawyers – perhaps even more relevant to arbitration than to litigation – that cases are won or lost 90% on the facts and 10% on the law. This saying should be taken with a grain of salt, but it is true that the factual circumstances surrounding a dispute often demand more attention of counsel than the legal principles of a particular jurisdiction (which, when pertaining to issues of breach of contract, may not differ dramatically from the legal principles of other jurisdictions).
Does all this mean than the legal principles are unimportant? Of course not. Knowledge of such principles and their proper application is required to advance or defend against claims. But many lawyers who are qualified in a given jurisdiction have such capability without necessarily knowing anything about arbitration.
Where, then, does this leave the amended Foreign Lawyers Act? As noted above, the revised legislation still prohibits Registered Foreign Lawyers from representing parties in a “domestic” arbitration, i.e., an arbitration that involves only Japanese majority-owned companies, a seat in Japan, and a Japanese law-governed contract. Is it the last factor that is of greatest concern? If so, Japan might ponder why Singapore and Hong Kong do not appear worried about non-Singapore or non-Hong Kong qualified lawyers representing clients in arbitration where the contracts’ governing law may be that of Singapore or Hong Kong. The answer is that Singapore and Hong Kong assume that such lawyers are competent and conscientious advocates who will partner with Singapore or Hong Kong qualified lawyers for purposes of obtaining Singapore or Hong Kong legal guidance, not least because one or more members of the arbitral tribunal probably will be Singapore or Hong Kong qualified practitioners. There is no reason to assume differently about Registered Foreign Lawyers. Further, one would expect Japanese to be the language of a “domestic” arbitration under the Foreign Lawyers Act. As relatively few Registered Foreign Lawyers who specialize in arbitration are fluent in Japanese, such partnering would be necessary not only to analyze Japanese law issues, but likely also to review documents, interview witnesses, and perform other tasks involved in developing the evidentiary record.
Perhaps another concern is that, if Japan is the seat, the arbitration would be subject to Japan’s Arbitration Law, which provides recourse in certain circumstances to Japanese courts. But the Arbitration Law is itself based on a well-known international template, the UNCITRAL Model Law on International Commercial Arbitration, and incorporates the essential language about arbitral award enforceability from the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which Japan and over 160 other countries have signed. Thus, Japan’s Arbitration Law, like many national arbitration laws around the world, derives substantially from international legal authorities that are very familiar to experienced practitioners. Of course, insofar as parties in arbitration have to seek support from the Japanese courts pursuant to the Arbitration Law, Japanese counsel would do so. This is another reason why Registered Foreign Lawyers would need to partner with their local counterparts.
Lastly, what about an arbitration involving only Japanese majority-owned companies? In this regard, the committee tasked with reviewing the Foreign Lawyers Act considered where a company’s decision-makers (and witnesses) are located – abroad or in Japan – but did not clarify the relevance of this circumstance to the choice of legal representatives in arbitration.10 Arbitration lawyers represent decision-making clients of different nationalities all the time, all over the world. Language issues may arise (and not only as to Japanese), but there is little compelling argument for restricting legal representation based on a company being Japanese majority owned. The key considerations for a company when selecting arbitration counsel should be the lawyers’ skill, experience, and track record in handling arbitration matters.
In sum, as Japan strives to raise its international arbitration profile and attract more arbitral proceedings to its shores, the amendment to the Foreign Lawyers Act to broaden the right of Registered Foreign Lawyers to represent arbitration parties is a positive step. In the future, it is to be hoped that Japan will take additional steps, including by following the examples of Singapore and Hong Kong to dispense with the distinction between international and domestic arbitration for purposes of legal representation and further amend the Foreign Lawyers Act so that Registered Foreign Lawyers may represent clients in any arbitration in Japan.
1 See http://www.moj.go.jp/content/001331477.pdf.
2 Report of the Review Committee for Representation in International Arbitration, etc. by Registered Foreign Lawyers or Foreign Lawyers (Report), September 25, 2018, p. 2.
3 G. Born, International Arbitration: Law and Practice (2012), p. 261.
4 Act on Special Measures concerning the Handling of Legal Services by Foreign Lawyers (Act No. 66 of May 23, 1986), Art. 2(xi).
5 As explained in an earlier article (https://zelojapan.com/en/4816), arbitral “seat” means the legal place of arbitration, which in turn refers to the country: (i) where the arbitral award is deemed to have been issued under the Convention on the Recognition and Enforceability of Foreign Arbitral Awards; (ii) whose national arbitral legislation applies to the arbitration; and (iii) whose courts have supervisory authority over the arbitration.
6 Report, p. 2.
8 See Born, p. 263; “International arbitration – the use of Hong Kong arbitration for international commercial disputes,” August 13, 2019, http://csj.hkics.org.hk/site/2019/08/13/international-arbitration-the-use-of-hong-kong-arbitration-for-international-commercial-disputes/.
9 Report, p. 1.
10 Report, pp. 2-3.
The information provided in this article does not, and is not intended to, constitute legal advice and is for general informational purposes only. Readers of this article should contact an attorney to obtain advice with respect to any particular legal matter.