A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in Japan continues to be governed by the Arbitration Act of 2003 (“Arbitration Law“), which took effect in 2004, but this will change imminently. From 1 April 2024, the amended Arbitration Law will take effect (“Amended Arbitration Law“). After several steps in both the public and private sectors to build the country as an international dispute resolution hub in recent years, the overhaul of the underlying legislation appears to be a pivotal phase in Japan’s arbitration reforms. The Amended Arbitration Law brings Japan alongside major regional destinations for arbitration, such as Hong Kong and Singapore, while allowing Japan to compete more easily with emerging centers such as South Korea and Thailand.
First, the Amended Arbitration Law introduces an enforcement scheme for interim and/or provisional measures issued by arbitral tribunals, which is in line with the amended UNCITRAL Model Law. Until now, while parties could seek interim measures from an arbitral tribunal, any measures that were granted were not enforceable in the courts of Japan. The amendments will allow parties to enforce interim measures from an arbitral tribunal in Japan’s courts where such measures are either preventative or restorative, or else prohibitive.
Second, while the previous law required an arbitration agreement to be in writing, the Amended Arbitration Law provides that if a non-written contract incorporates a written, electronic or magnetic record by reference, such non-written contract shall be deemed to have been made in writing.
Third, in the Amended Arbitration Law, the court has discretion to decide not to require a Japanese translation of a written arbitral award (or to require only a partial translation) in applications for recognition or enforcement of arbitral awards. While this amendment does depend on the court exercising its discretion, this is in stark contrast to the previous position in which a full translation of the arbitration award was required. This change also puts Japan ahead of several other countries in the region, which still require translation of documents submitted to the courts in cases pertaining to international arbitration.
Fourth, while international arbitration-related proceedings could previously have ended up in any district court throughout Japan, it will now be possible to file in the Tokyo District Court or the Osaka District Court if the place of arbitration is in Japan. The intention of this revision is to increase certainty and track record by ensuring that judges with experience in international arbitration-related cases are appointed.
In connection with other methods of ADR, Japan’s accession to the United Nations Convention on International Settlement Agreements Resulting from Mediation (“Singapore Convention“) came to pass on 1 October 2023. The Singapore Convention will come into force in Japan on 1 April 2024 through the local act incorporating the Singapore Convention and will enable the enforcement of international settlement agreements reached through mediation by way of an effective mechanism for such enforcement.
In common with other jurisdictions, in the enacting legislation, Japan states that it shall apply the Singapore Convention only to the extent that the parties to the settlement agreement have agreed to the application of the Singapore Convention. Accordingly, aside from the settlement agreement itself, an agreement on the application of the Singapore Convention will be required for the enforcement of a settlement agreement reached through mediation in Japan.
A.2 Institutions, rules and infrastructure
The major international arbitration institution in Japan is the Japan Commercial Arbitration Association (JCAA). On 1 July 2021, the JCAA introduced its revised Commercial Arbitration Rules (“New JCAA Rules“) and new Appointing Authority Rules (“Appointing Authority Rules“). While the JCAA Rules were revised as recently as 1 January 2019, the New JCAA Rules introduce two key changes to the existing rules and the newly introduced Appointing Authority Rules, which will likely provide a distinct aspect to dispute resolution in Japan.[1]
The New JCAA Rules introduce two major changes to the existing JCAA Rules: (i) expedited procedures will apply to arbitrations in which the amount in dispute does not exceed JPY 300 million (around USD 2.75 million), except in certain circumstances; and (ii) a new category of administrative fees will apply to “small claims” in which the amount claimed does not exceed JPY 5 million (approximately USD 45,000).
As regards the new maximum claim value for expedited procedures to apply, the new JPY 300 million ceiling represents a considerable increase from the previous upper limit of JPY 50 million (approximately USD 400,000) introduced under the previous revisions to the JCAA Rules and appears aimed at keeping pace with other major arbitral institutions in the region. In one press release on the introduction of the New JCAA Rules, the JCAA noted that in 47.4% of JCAA-administered arbitrations between 2011 and 2020, the amount in dispute did not exceed JPY 300 million. As such, this recent revision should better serve the JCAA’s “typical user” in ensuring arbitrations are as swift and efficient as possible.[2]
With respect to administrative fees, the New JCAA Rules insert a new category of fees for small claims. Here, for claims with a value not exceeding JPY 5 million, the administrative fee will be 10% of the economic value of the claim. This new “bracket” of administrative fees appears likewise to seek to expand the use of JCAA arbitration for smaller claims and perhaps for fairly typical JCAA users. Indeed, the JCAA noted in a press release that, between 2011 and 2020, 21.43% of JCAA-administered arbitrations had an amount in dispute of less than JPY 50 million.
By way of the JCAA’s Appointing Authority Rules, the JCAA may assist with the appointment of arbitrators in ad hoc arbitrations where the JCAA is selected as appointing authority by the parties. Moreover, the JCAA may assist with the appointment of arbitrators in arbitrations conducted under the rules of other arbitral institutions under the Appointing Authority Rules, where they are designated to do so. The Appointing Authority Rules provide an additional string to the JCAA’s bow as regards the services it is able to offer arbitration users and follow the example of other major arbitral institutions — including the ICC — in establishing specific rules for such circumstances.
B. CASES
In a 2021 case, a regional court in Japan provided clarity on the issue of jurisdiction where the governing law of an arbitration agreement is unclear.
The case was filed by a wholly owned subsidiary of the claimant (“Claimant“), who purchased a cargo ship from the defendant. The ship was chartered to B under a distinct charter agreement (“Charter Agreement“). Subsequently, the Claimant sought a decision pertaining to ship charter fees that B could no longer pay due to poor performance.
Under a separate contract (“Taking Over Agreement“), the Claimant alleged principally that there was an agreement between the Claimant and the defendant that, in the event that B could no longer continue the Charter Agreement, the defendant would take over the Charter Agreement (i.e., conclude a charter agreement with the Claimant under the same conditions as the Charter Agreement in question).
The Claimant alleged that the defendant received an assignment of a claim for damages based on certain concepts of Japanese tort law by which the defendant had misled the Claimant into believing that it was taking over the ship, even though it had no intention of doing so, and for having caused the Claimant to purchase the ship.[3] Consequently, the Claimant claimed remuneration from the defendant and interest on such damages.
In the Charter Agreement, the dispute resolution clause provided that all disputes shall be referred to arbitration in Singapore and the general rules of the London Maritime Arbitrators Association (“Arbitration Agreement“). Distinctly, the governing law of the Charter Agreement was English law. The defendant asserted that all of the Claimant’s claims arose under the Charter Agreement and, as a result, the Claimant’s claims in Japan’s courts should be dismissed in favor of arbitration in Singapore in line with the Arbitration Agreement.[4]
In response, the Claimant stated that the law governing the Taking Over Agreement should be interpreted as Japanese law in this case, and the claims were not subject to the Arbitration Agreement in the Charter Agreement as (i) the disputes subject to the Claimant’s claim did not require expertise in maritime matters or reference to English law precedents on international maritime disputes; and (ii) there was no specific benefit to resolving the dispute by arbitration in Singapore.
Additionally, the Claimant argued that the Charter Agreement was an agreement between the Claimant and B, with the defendant merely having signed the agreement to make clear that it had entered into the Taking Over Agreement with the Claimant. As such, the parties subject to the Arbitration Agreement in the Charter Agreement were limited to the Claimant and B, i.e., the defendant should not be able to avail itself of the Arbitration Agreement as it was not a party to the agreement.
In the court’s discussion, as regards the establishment and validity of arbitration agreements in international arbitration, the court held that it was reasonable to conclude that the governing law of the Arbitration Agreement should be determined in accordance with the intention of the parties in the first instance.[5] Although there was no explicit agreement on the governing law of the Arbitration Agreement itself: (i) the Charter Agreement was governed by English law, and (ii) the Arbitration Agreement stated that all disputes relating to the Charter Agreement were to be referred to arbitration in Singapore[6] and the general rules of the London Maritime Arbitrators Association. In light of this, it was held that it was reasonable to assume that there was an implied agreement[7] between the parties to the Arbitration Agreement to the effect that the Arbitration Agreement was governed by English law.
Given that the governing law of the Arbitration Agreement in this case was English law, the scope of the Arbitration Agreement would also be subject to determination in accordance with English law. In this connection and under court precedents in the English courts at the time, the Japanese courts considered that the interpretation of an arbitration clause should be based on the presumption that if the wording is unclear as to whether certain issues are excluded from the scope of an arbitration agreement, the parties, as reasonable business persons, would have intended that any dispute arising out of a contract they had entered into would be decided by way of arbitration.
Taking into account the regional court’s finding on the scope of the Arbitration Agreement, the court found that the dispute relating to each of the Claimant’s claims fell within the scope of the Arbitration Agreement. Therefore, it dismissed both claims as unlawful.
In summary, this decision — while a regional court’s decision — reaffirmed the position that in Japan: (i) in principle, the governing law of the main contract is recognized as the governing law of the arbitration agreement when the governing law of the main contract is expressly stated; and (ii) when the law of the place of arbitration differs from the jurisdiction to which the governing law of the main contract belongs (here, Singapore was the physical place of arbitration whereas the governing law was English law), there is an implied agreement as to the governing law of the arbitration agreement.
[1] https://www.jcaa.or.jp/files/news_attach/detail_attach00000202-31.pdf.
[2] https://www.jcaa.or.jp/files/news_attach/detail_attach00000202-31.pdf.
[3] Arts. 709 and 715, Civil Code.
[4] Arts. 3(2) and 14(1), Arbitration Law.
[5] In accordance with Article 7 of the Act on General Rules for the Application of Law (Hou no Tekiyo ni kansuru Tsusoku ho) and certain case law in Japan.
[6] In accordance with the Arbitration Law.
[7] Under the concept of “Mokuji no Goui,” an agreement may be validated as an agreement without explicit manifestation of intent.
