Arbitration in Japan: A Brief Overview
Japan is Australia’s second largest export market, accounting for over 10% of all exports. For Australian SMEs and startups, it is an attractive market to target. However, Australian and Japan have significantly different legal systems. Therefore, rather than using the domestic courts in either country, it’s worth considering using arbitration to resolve any disputes that arise.
In this blog post, we provide an overview of the arbitration procedures and practices in Japan.
What are the advantages and disadvantages of using arbitration as a form of dispute resolution?
Historically in Japan, arbitration has been used less frequently than courts as a form of dispute resolution. However, since the introduction of the Japanese Arbitration Act (Act No. 138 of 2003, the JAA), arbitration has become increasingly common.
Arbitration, as an alternative to court litigation, offers distinct advantages that contribute to its growing prominence
Japan is a contracting state to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). This means that you can have your arbitration award made in Japan enforced in other contracting states (including Australia) and vice versa (see below for further details).
Arbitration empowers parties to choose impartial arbitrators with specialised knowledge relevant to the dispute at hand. This expertise enhances the quality and accuracy of decisions.
Japan has a complex court system which often leads to delays. Opting for arbitration can expedite dispute resolution and foster swifter conclusions.
Arbitral proceedings are generally kept confidential and private, unlike in litigation
Nevertheless, certain drawbacks must be weighed against these advantages
Arbitration can involve higher costs than litigation. If you’re considering arbitration, it is important to take into account costs such as arbitrator’s remuneration, filing fees, and hearing venue fees.
As of March 2022, in Japan, interim orders like injunctions that are granted by an arbitral tribunal cannot be compulsorily enforced.
An arbitral award cannot be appealed to the court. It can only be set aside by the court on certain grounds provided in the JAA (see below for further details).
What legislation applies to arbitration?
The JAA applies to arbitrations that are seated in Japan. This legislation incorporates the key provisions of the UNCITRAL Model Law on International Commercial Arbitration 1985 (Model Law) before the amendments adopted in 2006.
The JAA departs from the Model Law in the following aspects:
The JAA governs both domestic and international arbitrations.
The JAA introduces special provisions for arbitration agreements involving consumers and individual employees.
The JAA allows the arbitral tribunal, upon mutual written agreement between the parties, to facilitate negotiations for an amicable resolution.
It should be noted that you can modify most of the provisions of the JAA relating to the arbitration procedures by agreement between you and the other party. However, there are certain mandatory provisions which apply. These include the equitable and fair treatment of parties and limited court intervention. Failure to comply with these mandatory provisions can constitute grounds for having the arbitral award set aside.
Who is eligible to become an arbitrator?
Parties are free to determine the number of arbitrators and the procedure for their appointment (see JAA art 16(1) and 17(1)). Where no such agreement is reached, the procedures outlined under the JAA governing the appointment of arbitrators apply by default. The default rule is that, when two parties are involved, there must be three arbitrators appointed (JAA art 16(2)). In arbitrations involving multiple parties, the court takes on the responsibility of determining the appropriate number of arbitrators.
The JAA does not prescribe any requirements regarding nationality, citizenship or professional qualifications for arbitrators, unless the parties agree otherwise. For instance, an arbitrator in Japan does not need to have a license to practice law.
Are there procedural rules that govern Japanese arbitrations?
Parties have the autonomy to determine their own rules of an arbitration procedure. However, these rules must align with key provisions of the JAA (art 26(1)), such as the principle that parties are to be treated equally and be given a full opportunity to present their cases (art 25).
If parties have not reached a consensus on procedural rules, the arbitral tribunal can conduct the proceedings in a manner it deems suitable (JAA art 26(2)). This latitude extends to matters such as admissibility of evidence (JAA art 26(3)), the language to be used during proceedings (JAA art 30(2)), and whether oral hearings are permitted in a given case (JAA art 32).
Is an arbitral award enforceable?
Japan is a signatory of the New York Convention. However, this is subject to the ‘reciprocity’ reservation, meaning that Japan will apply the New York Convention to the recognition and enforcement of awards only when such awards are made in another contracting state. In other words, arbitral awards made in signatory states of the New York Convention can be directly enforced in Japan under the New York Convention without the need to have recourse to a domestic legislation. However, arbitral awards made in non-signatory nations can only be enforced under domestic legislation, such as the JAA (see arts 45 and 46).
When can an arbitral award be set aside by a court?
As mentioned above, while you will not be able to appeal an arbitral award, you can apply to have it set aside on the grounds stipulated in art 44.1 of the JAA. These grounds substantially mirror those stipulated by the Model Law. As such, the majority of these grounds are limited to significant procedural issues such as defective composition of the arbitral tribunal, or the failure to give parties the opportunity to present their case during the arbitration hearing. Additionally, an additional basis for setting aside an award arises if its content contravenes Japan’s public policy or moral standards.
The procedure for appealing an arbitral award involves the unsuccessful party filing a petition in a competent Japanese court. This petition must be filed within three months from the date of receipt of the award (JAA arts 44.1 and 44.2).
If you’re involved in a dispute between an Australian and Japanese company and would like to discuss arbitration further, please contact us here.
The above article was written by Pippin Barry (BA; JD Unimelb, an Australian Legal Practitioner) and Hyein Kim (Paralegal).
