Japan Continues Efforts to Promote International Arbitration in the Country with Revisions to Arbitration Act

Other Author      Beatrice Tsang, Trainee Solicitor

On 28 February 2023, Japan adopted a bill to revise its Arbitration Act, with the view to promoting international arbitration in Japan for cross-border business disputes. This represents the first substantial amendment to Japan’s Arbitration Act since its enactment 20 years ago.

With the increased number of Japanese companies routinely involved in international arbitration in seats outside Japan – a shift from the traditional culture of avoiding disputes altogether – the time is right for Japan’s efforts to promote international arbitration in the country. The revisions to the Arbitration Act are the latest of a number of initiatives in the country in the last several years, including (a) improving physical infrastructure for arbitration hearings by opening the Japan International Dispute Resolution Center in Tokyo and Osaka; (b) expanding the scope of international arbitration cases in respect of which foreign lawyers may provide representation in Japan; and (c) enhancements to the Japan Commercial Arbitration Association Rules.

Background

In 2017, the Ministry of Justice, Japan officially announced its policy to promote international arbitration in Japan. In 2020, the Japanese government began the revision process of its Arbitration Act. 

The Arbitration Act is based on the 1985 UNCITRAL Model Law on International Commercial Arbitration (UNCITRAL Model Law). The current revisions seek to incorporate the changes made in the 2006 UNCITRAL Model Law into the Arbitration Act. 

The draft bill was finalised in March 2021. On 28 February 2023, Japan’s Cabinet adopted the bill and sent it to Congress to pass it into law. 

With these changes, the Arbitration Act will be in line with modern international practices in many leading arbitral jurisdictions. 

Key Changes under the Bill

1. Interim measures. The revisions clarify the different categories of interim measures that can be ordered by an arbitral tribunal, which include ones that prevent parties from disposing their assets before conclusion of the arbitration process. The bill also establishes a mechanism to enforce such measures by the court. Under the revisions, Japanese courts can enforce interim measures granted by an arbitral tribunal to prohibit actions which would unfairly affect the status quo of the arbitral proceedings. This effectively provides a mechanism for an arbitral order for interim measures in Japan to have legally binding status.
2. Requirements for arbitration agreement. An arbitration agreement recorded in electronic or other forms will be recognised as an arbitration agreement “in writing”, which is one of the requirements for a valid arbitration agreement under the Arbitration Act. 
3. Arbitration-related court proceedings. Previously, the Japanese court’s jurisdiction depended on the parties’ choice of court. Under the bill, applications for arbitration-related proceedings can be made before the Tokyo and/or Osaka District Courts, in addition to the other competent courts. This revision aims to help the Tokyo and Osaka District Courts to gain expertise in arbitration-related matters.
4. Translations. Japanese courts may exercise discretion to waive the requirement to translate foreign arbitral awards and/or relevant documents submitted to the court. This logistical issue is not to be underestimated as the costs of translations of an arbitral award can run into millions of dollars in very large cases. This reform will streamline and facilitate enforcement proceedings and other arbitration-related litigation in Japan relating to arbitrations involving Japanese parties outside Japan.

Conclusion

In summary, the adoption of this bill is a welcome development for Japan as it symbolises a progressive step towards modernising and aligning its arbitration legislation with international practices. 

There is a significant potential for growth of international arbitration in Japan, considering its independent and efficient judiciary, Japan’s physical and legal infrastructure, the size of Japan’s external economy and the government’s support for promoting international arbitration in Japan.