Japan Commercial
Arbitration Journal
VOL.2［2021］

The Japan Commercial Arbitration Association (JCAA)
President

Kazuhiko Bando
Editorial Board
Editor–in-Chief

Professor Masato Dogauchi, Chief Arbitration and Mediation Officer, JCAA
Editorial Committee

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Nishimura & Asahi

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TMI Associates

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Momo-o, Matsuo & Namba

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Hitotsubashi University

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Mori Hamada & Matsumoto

Naoki Iguchi
Nagashima Ohno & Tsunematsu

Shiro Kuniya
Oh-Ebashi LPC & Partners

Professor Shusuke Kakiuchi
The University of Tokyo

Tony Andriotis
DLA Piper

Yoshihiro Takatori
Kasumigaseki International Law

Yoshimasa Furuta
Anderson Mori & Tomotsune

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Japan Commercial Arbitration Journal
VOL. 2 [2021]

Table of Contents
Evaluation of the Interactive Arbitration Rules of the JCAA from the Perspective ofJapanese Court Practices
Shintaro Kato, Aoi Inoue

3

Emergency Measures – Japanese Law and Practices of the JCAA
Masafumi Kodama

12

Arbitration Clauses under Revised JCAA Arbitration Rules
Kazuhiro Kobayashi

17

The New JCAA Mediation Rules and Japan’s Future in International Mediation
Douglas K. Freeman

35International Arbitration in Japanese Bankruptcy Cases
Shin-Ichiro Abe

42

Impartiality and Independence Through Disclosure:
Comparative Review of Recent Cases ㏌ Japan and England
Natalie Yap

58

Current State of Intellectual Property Dispute Resolution Systems in Japan
Kenji Tosaki

67

Recent Court Decisions on International Adjudicative Jurisdiction in Japan
Mari Nagata

79

Enforcement in Japan of Foreign Judicial and Extra-judicial Instruments
Yoshimasa Furuta

88

Judicial Decisions and Open Data in Japan
Yasutaka Machimura

96

Introduction of IT in Civil Court Procedures in Japan
Masatoshi Kasai

102

Collective Redress to Recover Consumer Damage in Japan―Present system and the direction of its amendment―
Takuya Hatta
Managing Investment Disputes with Mediation
James Claxton

107
117

Utilizing Third-party Funding in Japan—Issues Regarding the Attorney Act and the Basic Ruleson the Duties of Practicing Attorneys
Junya Naito, Motomu Wake

127

A Message from JCAA

135

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Evaluation of the Interactive Arbitration Rules of the
JCAA from the Perspective of Japanese Court Practices
Professor at Chuo Law School and Attorney-at-law (Japan)

Shintaro Kato

1）

Attorney-at-law (Japan and New York), Anderson Mōri & Tomotsune
Foreign Law Joint Venture

Aoi Inoue

2）

Ⅰ．Introduction
The purpose of this article is to examine and evaluate the 2019 Interactive Arbitration Rulesof the Japan Commercial Arbitration Association (JCAA) (the “Interactive Arbitration Rules” )in comparison with the rules of Japanese civil court practice and their operation.

Civil proceedings in Japanese courts are governed by the Code of Civil Procedure of Japan(Act No. 109 of 1996, the “Code of Civil Procedure” ) and the Rules of Civil Procedure (Rulesof the Supreme Court No. 5 of 1996). However, their specific applications vary in practicedepending on, for instance, the substance of the civil disputes; the identity of the parties
involved in the civil dispute; the personalities of counsel, as well as the judges’ view on civil
lawsuits and their understanding of the judicial role.3） Therefore, as the style of the proceeding

can vary due to such factors, even the same court need not necessarily proceed to try thecivil suit in the same procedural way.

With this in mind, looking at the Interactive Arbitration Rules, we would like to focus on theprovisions corresponding to the court’ s (or the tribunal’ s) supervision and management of
the proceedings based on our practical experience in litigation and arbitration.

1）Shintaro Kato received a Doctorate in Law from Nagoya University and has more than 40 years ofexperience as a court judge.
2）Aoi Inoue is a partner and Co-head of the International Arbitration practice at Anderson Mori &Tomotsune. He is qualified to practice law in Japan and New York and specializes in international
arbitration and litigation.
3）For example, if a judge is of the opinion that civil litigation should push the parties to settle disputes
and should be led by the parties (or see civil proceedings as a system with such an orientation), the judge
may self-stipulate that his or her role is to remain an umpire. On the other hand, if a judge is of the viewthat civil litigation is a publicly-funded dispute resolution system, then the judge may consider his or herrole to be managing the parties and proceedings in order to expand and implement the dispute resolutionfunction as much as possible. See Shintaro Kato, Manejiaru Jyajji Ron, in Tetsuzuki sairyo ron, Kobundo(1996) at 94.

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Ⅱ．PROCEDURES FOR REASONABLE SETTLEMENT OF DISPUTES
1. Overview

What should be done to reasonably resolve or settle civil disputes? Most parties, counsel

and judges involved in the resolution of civil disputes will ponder on this question despite theparticular position they are in.

No matter how diligently the court manages and decides the case, at least one party to thecivil suit is likely to disagree with the court’ s decision, whether it is a judgment upholding aclaim or dismissing it with prejudice on merits. If a court upholds part of the claim anddismisses the rest of it, both parties may be dissatisfied. Under these circumstances, thefiling of an appeal is an indication of how the parties have perceived the proceedings of thecase and the resulting decision. Even if the parties were dissatisfied with the judgment andthe reasons behind it, they would not choose to appeal if they considered the judgment
inevitable in light of the substance of the disputes and the course of the proceedings and that
it would be difficult for the appellate court to make a different judgment. Moreover, even if

there is a possibility of receiving a different judgment on filing an appeal, parties might choose
to abandon the appeal because of the time and costs involved. Even in such cases, whether

the result falls within the range of an acceptable resolution remains the most important factor
behind the parties’ decision to appeal the judgment.

One method typically adopted in the Japanese courts, in accordance with the rules of civil

procedure, which is intended to lower the rate of decisions appealed, is for the judges toorganize the issues (issue-centered trial) and disclose their preliminary views on the cases
relatively early on in the proceedings.

Japanese courts typically seek to determine the key contested issues relatively early on andfocus the proceedings on those, in keeping with the basic structure and spirit of the current
Code of Civil Procedure. It is said that: “Under the basic principles of civil litigation, the big

picture of the dispute should be ascertained as quickly as possible so that the essence of thematter can be sorted out so that the court, the parties and counsel can work together toarticulate the issues in order to produce the best evidence to clarify the issues and conduct
intensive examination of evidence” .4）

The basic structure of civil dispute resolution in Japan is that the defendant/respondent

disputes the facts alleged by the plaintiff/claimant, the judge then focuses on the issues thatwere articulated, finds evidence through examination, and applies the law to reach aconclusion. In order to perform the function of dispute resolution in litigation and arbitration
4）Morio Takeshita, Shin minji sosyou hou seitei no igi to syourai no kadai, in Morio Takeshita (ed.), Kouza
shin minji sosyou hou I, Kobundo (1998) at 5; Shintaro Kato, Souten seiri tetsuzuki no seibi, in Tomokatsu
Tsukahara et al. (ed.), Shin minji sosyou hou no riron to jitsumu vol.1,Gyousei (1997) at 211; Shintaro
Kato, Benron jyunbi tetsuzuki no kinou, in Yoshimitsu Aoyama & Makoto Ito (eds.), Minji sosyou hou nosouten [3rd ed.], Yuhikaku (1998) at 164; Tsunahiro Kikui & Toshio Muramatsu (original authors), Mikio
Akiyama, Makoto Ito, Shintaro Kato, Hironari Takada, Takehisa Fukuda & Kazuhiko Yamamoto, Konmentaru
minji sosyou hou III [2nd ed.], Nihon Hyoronsha (2018) at 490.

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proceedings—it is thought essential for the court or arbitrator to clearly articulate thecontested issues of the case relatively early in the process and thereafter to conduct anintensive examination of the evidence on those issues without wasting time on issues notcontested. We refer to this approach as the “issue-focused model” of civil procedure.

As a result of the effective articulation of contested issues by the court, the parties

concerned will be able to concretely recognize the object for the proof and rebuttal, which will

present a clearer roadmap for the case and create a fair and transparent process. In addition,
for the court or the arbitral tribunal, the effective articulation of issues is necessary as an
essential part of the process that is transparent and understandable to the parties.

In the communications between the court/arbitral tribunal and the parties, the articulationof the issues involves forming a common knowledge that will serve as the basis for organizing
information and clarifying the case.5） Therefore, to create a sphere of information that clarifies
the subject of the proceedings and the issues, this process needs to cover a wide range ofpetitions/motions, claims, and proofs. In particular, under the issue-focused model, it is also
important to provide clarifications in the proceedings to sort out issues at an early stage,
which requires dialogue and cooperation among the parties and the court.6）
2. Indication of the issues

In articulating the issues, a judge’ s indication of his or her understanding of the issues isfundamental for the parties and the judge to have a common understanding of the issues.
Parties often say: “The articulation of claims should not only allow the court to sort out theclaims of both parties, but should also clarify the issues that the court considers important at

the time and the claims that the court places less emphasis on, so that both the counsel andthe court can have a common understanding of the issues” . However, some counsel might
be happy to eliminate the opposing party’ s arguments, while insisting on the importance of
their own. Therefore, articulation of the issues appropriately displays the judge’ s skill andexperience.

In indicating the issues, competent judges will have a pretty clear idea on what should bedone or what should be refrained from doing, or what would make no difference to theproceedings. Judges are subject to a code of conduct, which requires them to provide
comments appropriately at appropriate times in the proceedings to articulate the issues,

based on the arguments and counterarguments of both parties and the evidence provided insupport.7）

5）Kazuhiko Yamamoto, Souten seiri tetsuzuki ni tsuite, Minsho vol. 110 (4&5) (1994) at 696; Kato, supranote 4, Souten seiri tetsuzuki no seibi at 213; Wataru Murata, Souten seiri tetsuzuki, in Tadashi Oe,
Shintaro Kato & Kazuhiko Yamamoto (eds.), Tetsuzuki sairyo to sono kiritsu – riron to jitsumu no kakyo womezashite, Yuhikaku (2005) at 98.
6）Shintaro Kato, Syakumei no kouzou to jitsumu, in Yoshimitsu Aoyama sensei koki syukuga ronbunsyu:
Minji tetsuzukihougaku no aratana chihei, Yuhikaku (2009) at 461;Shintaro Kato, Syakumei supra note 5
Tetsuzuki sairyo to sono kiritsu at 123;Shintaro Kato, Minji sosyou ni okeru syakumei in Shintaro Kato(ed.), Minji sosyou shinnri, Hanrei Taimuzusya (2000) at 227.
7）Shintaro Kato, Shinsho kaiji in supra note 5 Tetsuzuki sairyo to sono kiritsu at 250.

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Parties often want the judges to be clear about arguments that they have no interest in, inorder to save time and effort. Most judges will attempt to convey to the counsels early on in
the proceedings, in carefully chosen language, the court’ s provisional views on whether any
allegation is close to being inappropriate in itself or is unlikely to be substantiated. This

communication forms the basis of a common understanding among the parties and the court
and allows the parties to direct their focus to arguments that might be more fruitful inresolving the dispute and leave aside those the court is unlikely to support.8）
3. Disclosure of preliminary views(1) Expression of a preliminary view on questions of law

In Japanese court practices, there are three types of disclosures of preliminary views of thecourt: (a) expression of a preliminary view on questions of law; (b) disclosure of preliminary
view regarding the possible outcome of the case (disclosure of preliminary view in the narrow
sense); and (c) disclosure of a preliminary view for amicable settlement.

The expression of a preliminary view on questions of law means that when the argumentsof the parties are in conflict with each other on legal questions such as interpretation of thelaw or the distribution of burden of proof, a judge may try to articulate a common
understanding between the parties and the court by expressing an opinion on how to proceedwith the case in terms of the legal issues.9）

The expression of a preliminary view on questions of law may be either: (a) based on an

established court precedent or a commonly accepted theory; or (b) without being based onan established court precedent or a commonly accepted theory. Option (a) is usually not

problematic. As for (b), judges need to be more careful in expressing their views by going
through the process of hearing opinions and arguments of the parties and the exchange of
opinions between the parties.

(2) Preliminary view on possible outcome of the case (disclosure of preliminary view in the
narrow sense)

Disclosing the court’ s preliminary view on the possible outcome of the case (disclosure of

preliminary view in the narrow sense) clarifies how judges perceive and evaluate the presenceor absence of probative facts in light of documentary evidence submitted and so on.10） For

example, the court may point out the difficulty of proving probative facts at issue or the
existence and applicability of rule of thumb. When the judge announces these matters, thecounsel and the parties will have the opportunity to reconsider the schedule of proof or toconsider the appropriateness of a compromise settlement. If, as the result of disclosure of thejudge’ s preliminary view, there are any questions or objections from the parties, the court

needs to respond to such questions or objections appropriately. It is expected that the judges
and the parties /counsel will deepen their understanding of the case through discussions
following the disclosure of the court’ s preliminary view in pursuit of an amicable resolution.
8）Kato, supra note 7 at 251.
9）Kato, supra note 7 at 251.
10）Kato, supra note 7 at 252.

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Ⅲ．Arbitral Tribunal’ s Active Role in Clarifying Parties’ Positions andAscertaining Contested Issues under the JCAA Interactive Arbitration Rules
1. Provisions of Article 48 of the Interactive Arbitration Rules

Article 48 of the Interactive Arbitration Rules allows the arbitral tribunal to take an activerole in clarifying parties’ positions and ascertaining the contested issues and is intended toachieve efficient articulation of the issues through active involvement of the arbitral tribunal.11）

This corresponds to the articulation of issues in Japanese court practice in which the court, at
an early stage, would articulate the issues as it understood them provisionally.

Article 48.1 of the Interactive Arbitration Rules provides that “At a stage as early as possible

in the arbitral proceedings, the arbitral tribunal shall draft a document containing a summaryof each Party’ s positions on factual and legal grounds of the claim and the defense( “Positions” ) and the factual and legal issues that the arbitral tribunal tentatively ascertains
arising from the Positions ( “Issues” ). The arbitral tribunal shall present such document to

the Parties, and give the Parties an opportunity to comment on the Positions and the Issues
within a time limit fixed by the arbitral tribunal.”This provision stipulates that the arbitral tribunal shall: (1) determine whether a legal

framework is in place to guide the claims and whether the alleged facts (both primary andcircumstantial facts) are sufficient to guide the claims (i.e. whether the claims have merit); (2)consider the counter party’ s answers, admissions or denials, and rebuttals; (3) present arough picture of the issues with a tentative draft of contested issues; and (4) hear theopinions of the parties. The arbitral tribunal is also required to prepare an interim writtensummary of the issues at stake. The tribunal would then of course review the documents andevidence and move forward with the proceedings.

As a subsequent procedure, “[w]ithin the time limit fixed by the arbitral tribunal under

Article 48.1, the Parties shall provide their comments in writing on the Positions and theIssues specifying which parts of the Positions and the Issues they agree or disagree with.”(Article 48.2). This rule therefore imposes an obligation on the tribunal to engage in dialogue
with parties to promote better communication.

Also, the arbitral tribunal “may revise the Positions and the Issues taking into account thecomments provided by the Parties under Article 48.2” (Article 48.3) and “may use the revised
Positions under Article 48.3 as the Parties’ positions set forth in the arbitral award” (Article
48.4).

Moreover, in light of the unpredictability in the parties’ presentation of their arguments andevidence, the Rules further provide that, “[n]otwithstanding Article 48.4, during the further

course of the arbitral proceedings, if a Party finds further amendments to be required, theParty may request in writing that the Positions be amended. Unless the arbitral tribunal

rejects the request because of delay, the arbitral tribunal may use such amended Positions as11）Shusuke Kakiuchi, Nihon syoji chusai kyoukai chusai kisoku no kaisei to sono igi, Juli 1535 (2019) at
27.

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the Party’ s position set forth in the arbitral award” (Article 48.5).
2. Interpretation, Evaluation and Operation(1) Early stage of the procedure

The arbitral tribunal’ s active role in clarifying the parties’ positions and ascertaining theissues involves a dialogue between the tribunal and the parties at the stage of articulation of
the issues. In terms of timing, how should we interpret the words “[a]t a stage as early as

possible in the arbitral proceedings” ? In the authors’ view, if an answer to a request forarbitration has been received, and if they are satisfactory to the tribunal to the extent that thetribunal could roughly grasp the gist of the case, that would be the right stage. If thoseconditions are not satisfied, it could also be the stage where more detailed written statements
have been exchanged. Although an arbitral tribunal’ s written summary of contested issues
should be considered provisional, it is expected that such a document would serve as thebasis for the arbitral award.12）

In the practice of civil litigation, are the contested issues often effectively articulated? In

many cases they are, but in some cases the issues are not successfully articulated. Although

there are a variety of reasons for such failures, one reason may be that counsel and judges
lack a deep understanding of the legal framework and significance of issue-articulation andthe process for doing so.13）

Also, the use of issue-articulation in civil lawsuits is not uniform. Although there is a practice incourt proceedings to prepare a proposal for the articulation of issues, that has not been
implemented in all cases because neither the court nor the parties are required to do so. In

contrast, the Interactive Arbitration Rules require the drafting of a summary of contested issues.14）(2) Oral discussions

Although the process of clarifying the parties’ positions and ascertaining the contested

issues is referred to as a “dialogue” between the arbitral tribunal and the parties, they areusually conducted in writing in terms of procedure (See Articles 48.1 and 48.2 of theInteractive Arbitration Rules). Does that mean the Rules do not contemplate oral
discussions?15）

This question arises because, in Japanese court practice, during the course of preparatory

proceedings, issues are often clarified and articulated through a process in which counsel
12）Masato Dogauchi, JCAA no chusai seido no kaikaku ni tsuite, JCA Journal Vol. 66, No. 1 (2019) at 12.
13）Shintaro Kato, Souten seiri tetsuzuki no kouzou to jitsumu, in Toga Yoshio sensei Endo Kenji sensei
koki syukuga: Minji tetsuzuki ni okeru hou to jissen, Seibundo (2014) at 248.
14）In arbitration practice, the usefulness of issue determination (issue definition) has been pointed out. On
the other hand, it is necessary for the arbitral tribunal to avoid prematurely inclining towards a decision
before the parties have had sufficient opportunity to argue, prove, and defend themselves against theclaims, as this may lead to grounds for annulment of the arbitral award or grounds for refusal ofenforcement. Gary Born, International Commercial Arbitration 3rd ed., Wolters Kluwer (2020) at 2408-2409.
15）Professor Makoto Ito raises the question, “Is there a need for oral discussion?” . Makoto Ito, Funsou
kaiketsu seido toshite no chusai no kinou koujyou to intarakuteibu chusai kisoku 2019 – chusaitei noshinsyou kaiji wo chushin to shite, JCA Journal Vol. 66, No. 7 (2019) at 5.

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Evaluation of the Interactive Arbitration Rules of the JCAA from the Perspective of Japanese Court Practices

respond orally, in court, to questions from the court or from the opponent party about thelegal briefs that counsel had submitted and thereby clarifying their positions.

During such oral discussions, it is usually not acceptable for counsel to respond to the court’s questions by saying, “we will reply in our next written legal brief” . The court will likely say,“It’ s not such a big question. You can answer as much as the counsel knows. The court’ squestion is whether the meaning of paragraph A in the brief is X or Y, or neither.” This is aserious occasion for counsel and the judge because well-prepared counsel who understands

the case should be able to handle the questioning. Even if there is only one major oral
argument, the judge can sense both the competence of counsel and counsel’ s grasp of thecase, and counsel can also sense the competence of the judges and the depth of theirunderstanding of the case record. It is therefore important for the parties and the judges tobe well prepared; a preparation session lasting 30 minutes to an hour would be tiring. Oral

discussion is seen as an effective way to organize information and to form a common

knowledge that becomes the basis for the clarification of a case. While there are cases inwhich it is necessary to get a party to take a position through oral discussion (in such cases, it
is usual to keep such matters in the written record of the preparatory proceedings), there aremany cases in which it is not necessary to do so. If the counsel responds by saying, “If weanswer now, it means A, but we will check again, so please allow us to reserve the possibilityof withdrawal,” then the judge will usually be fine with that.

In this way, the discussions leading up to oral arguments are prompt and opportunistic, andin light of the circumstances, the court and the parties share a rule of non-commitment

interaction (no responsibility for the answer and freedom to withdraw one’ s oral comment).

The non-commitment rule states that: “During the process of articulating the issues, a verbal

commitment is never deemed a confession and shall not be adopted as evidence against
either party or subsequently invoked against either party (even if it is a fact that is not subject
to confession)” .16） This is based on the idea that free and vigorous discussion is preferable forthe articulation of issues (formation of common knowledge), and thus parties should not beheld to their word in oral statements when arguments and objections have not yet beenclarified. The rule is intended to guarantee free and candid conversations and does notencourage irresponsible and endless discussions.

Since the articulation of issues under the Interactive Arbitration Rules in an arbitration

proceeding is carried out in writing by rule, even if oral arguments are held, there would be
no concern that the parties would make irresponsible statements or endless arguments

because ultimately what matters is what is written down. Accordingly, it is appropriate to

make a decision based on consideration of whether the articulation of issues in the case ispossible by only exchange of documents or whether it can be made more efficient by using

oral arguments. At the very least, if the parties choose the Interactive Arbitration Rules,
there seems to be no basis to disallow oral discussion.17）16）Kenya Nagashima, Souten seiri to youken jijitsu, Seirinshoin (2017) at 83.
17）Ito, supra note 15 at 6.

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Ⅳ．Expressing the Arbitral Tribunal’ s Preliminary Views
1. Provisions of Article 56 of the Interactive Arbitration Rules

Article 56 of the Interactive Arbitration Rules allows the arbitral tribunal to express its

preliminary views. This corresponds to the disclosure of the judges’ preliminary views inJapanese court practices. The dialogue between the arbitral tribunal and the parties is

considered mandatory, in which the arbitral tribunal presents its preliminary views andguarantees the parties an opportunity to state their views.

Article 56 (1) of the Interactive Arbitration Rules provides that:“In order to assist the Parties to present their cases effectively and efficiently, prior to thetime of the arbitral tribunal’ s decision as to whether or not witness examination will be

conducted, the arbitral tribunal shall prepare and give a written summary to the Parties on
the following items: (1) the factual issues that the arbitral tribunal considers important andthe arbitral tribunal’ s preliminary views with respect thereto; (2) the legal issues that thearbitral tribunal considers important and the arbitral tribunal’ s preliminary views with respect
thereto; and (3) any other matters that the arbitral tribunal considers important.”

The preliminary views expressed by the arbitral tribunal under Article 56.1 “shall not bebinding upon the arbitral tribunal’ s subsequent decisions or the arbitral award.” (Article

56.5). Also, “[t]he Parties shall not challenge any arbitrator based on the fact that he or she
has expressed preliminary views under Article 56.1.” (Article 56.6). Article 56.5 clearly statesthat the views presented by the Arbitral Tribunal are provisional, and Article 56.6 stipulates

that the views presented by the Arbitral Tribunal cannot become a ground to challenge
arbitrators, because the preliminary views can be changed even if such preliminary view may
imply adverse consequences for a party.

Further, “[t]he arbitral tribunal shall give the Parties an opportunity to comment on theitems under Articles 56.1(1) through (3) within a time limit fixed by the arbitral tribunal. “(Article 56.2). On the other hand, “[t]he Parties, within the time limit fixed by the arbitral

tribunal under Article 56.2, may comment in writing on the items under Articles 56.1(1)through (3) and, on whether or not witness examination should be conducted.” (Article 56.3).

In response, “[t]aking into account the Parties’ comments under Article 56.3, the arbitral
tribunal shall decide whether or not to witness examination will be conducted” (Article 56.4).
2. Interpretation, Evaluation and Operation

The expression of preliminary views by the arbitral tribunal corresponds to the indication ofissues, the expression of preliminary views on questions of law, and disclosure of preliminary
views regarding the possible outcome of the case in Japanese court practices.

The timing for the arbitral tribunal to present its views will normally be after the exchangeof written submissions and before the admission of a witness for evidentiary hearing.

Even if the preliminary views have been presented, the arbitral tribunal should reconsider

them if any doubt or counterargument is expressed in the statement of opinions of theparties, because such views are provisional. As a result, the preliminary views presented may

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change. By providing for presentation of the preliminary views of the arbitral tribunal, Article

56 of the Interactive Arbitration Rules is intended to ensure effective progression of thearbitration procedure while ensuring due process (prevention of surprise to parties).18）

The presentation of “the legal issues that the arbitral tribunal considers important and thearbitral tribunal’ s preliminary views with respect thereto” will give the parties the opportunity

to reformulate their approach and strategies for the examination of witnesses on theevidentiary hearing. Furthermore, through the arbitral tribunal’ s presentation of issues andprovisional views, the arbitral tribunal and the parties can exchange their views and develop anormative framework (interpretative theories) to be applied (particularly when there is noestablished court precedent or commonly accepted theory on questions of law). Under theInteractive Arbitration Rules, while the requirement of conducting the proceedings in writing

has the benefits of making the procedure clear, because the tribunal has an “active role inclarifying parties’ positions and ascertaining issues” (Article 48), it may be worthwhile to try
conducting the proceedings by oral discussions as well.

The active involvement of the arbitrator in the disclosure of preliminary views as provided

by the Interactive Arbitration Rules may appear unfamiliar to those accustomed to common

law practices, but should appear familiar to those accustomed to civil law practices.19） We feelthe same way. However, since such disclosure leads to the highly effective progression of thearbitration procedure, the Interactive Arbitration Rules are of great significance in presenting
new options for efficient dispute resolution if a successful track record of resolving matterscan be built up under the Interactive Arbitration Rules.

18）Ito, supra note 15 at 6; Kakiuchi, supra note 11 at 27.
19）Noboru Kashiwagi, Intarakuteibu chusai kisoku to chusaitei no zanteiteki na kangaekata no teiji ni
tsuite, JCA Journal Vol. 66, No. 6 (2019) at 5.

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Emergency Measures – Japanese Law and Practices of
the JCAA
Partner, Kitahama Partners

Masafumi Kodama

Ⅰ．Introduction
As arbitration becomes increasingly popular, the need for interim orders, even before an

arbitral tribunal has been constituted, has grown significantly. In response to this, for the lastten to fifteen years, many arbitral institutions in the world have adopted the rule to appoint

an emergency arbitrator to expeditiously issue interim orders. This article will briefly introduce
the current position of the Japanese law and its contemplated amendment, as well as JCAA’ srules and practices regarding emergency measures, including my own experience to serve as
an emergency arbitrator.

Ⅱ．Current Japanese Law and JCAA Rules on Emergency Measures
1. Arbitration Act of JapanThe current Japanese arbitration law, Arbitration Act of Japan (the “Act” ), is modelled after

the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law” ). The
Act came into force in 2004 and has not been amended since. Therefore, the Act does notreflect the 2006 version of the Model Law, meaning that while the Act authorizes tribunals torender interim orders,1） such orders are not enforceable. In order to obtain an enforceableinterim order in Japan, parties must apply to a Japanese court for an enforceable decision
outside the arbitration procedure.2）

The Act has no provisions on emergency measures. It seems to be the prevailing view thatan emergency arbitrator is not a “tribunal” under the Act, but at the same time the Act does
not prohibit emergency measures.

1）Article 24 of the Act.
2）Article 15 of the Act provides that parties may apply for interim orders to Japanese courts before filing ofarbitration or while an arbitration procedure is pending.

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Emergency Measures – Japanese Law and Practices of the JCAA

2. JCAA Rules

The Japan Commercial Arbitration Association ( “JCAA” ), the leading arbitral institution in

Japan, has incorporated provisions regarding interim measures by tribunals in its Commercial

Arbitration Rules ( “JCAA Rules” ) since 2004, when the Act came into effect, and added
provisions regarding emergency arbitrators in the JCAA Rules in 2014.

Provisions on emergency measures in the JCAA Rules are mostly similar to, but slightly

different from, those of other well-known arbitral institutions. Below is a brief description of
how emergency arbitrator procedures will be conducted under the JCAA Rules.
(a) Timing of Application

A party may apply for emergency measures before the arbitral tribunal is constituted orwhen any arbitrator has ceased to perform his or her duty.3） An application for emergency
measures can be made even before filing a request for arbitration, but the applicant must file

the request for arbitration within 10 days from the date of applying for emergency measures.4）(b) Basic Timeline

The JCAA will appoint an emergency arbitrator, in principle within two business days from its

receipt of application for emergency measures,5） and the emergency arbitrator shall makereasonable efforts to decide on the emergency measures within two weeks from appointment. 6）
The emergency arbitrator must give each party a reasonable opportunity to comment,7） but

has the discretion whether to hold a hearing. The length of hearing, if held, shall be one day
at maximum.8）(c) Available Relief and Requirements

Interim measures include (i) keeping or restoring the status quo, (ii) preventing action thatis likely to cause current or imminent harm or prejudice to an arbitration procedure, (iii)

preserving assets for future enforcement of an award and (iv) preserving evidence.9）

Emergency arbitrators may also order provisions for security for costs.10）

In the case of (i) through (iii) above, in order to obtain a favorable interim order, theapplicant must show that (a) harm not adequately reparable by an arbitral award of damages

is likely to result, and such harm substantially outweighs the harm that is likely to result tothe party against whom the measure is directed, and (b) there is a reasonable possibility thatthe applicant will succeed on the merits.11）

It is a little unclear under the JCAA Rules whether the allocation of costs should be orderedin the emergency measures. On one hand, Article 66, Paragraph 4 of the JCAA Rules, which

provides that the tribunal shall determine the cost and its allocation in the final award, is not3）JCAA Rules, Article 75, Paragraph 1.
4）JCAA Rules, Article 75, Paragraph 7.
5）JCAA Rules, Article 76, Paragraph 4.
6）JCAA Rules, Article 77, Paragraph 4.
7）JCAA Rules, Article 71, Paragraph 4.
8）JCAA Rules, Article 77, Paragraph 3.
9）JCAA Rules, Article 71, Paragraph 1.
10）JCAA Rules, Article 72.
11）JCAA Rules, Article 71, Paragraph 2.

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mutatis mutandis applicable to interim measures in general pursuant to Article 71, Paragraph
5. On the other hand, Article 80 of the JCAA Rules, which provides that the tribunal may

apportion the costs, may apply mutatis mutandis to emergency measures by way of Article 79of the JCAA Rules. Based on these provisions, the current practice of the JCAA is to include
allocation of costs in the emergency measures if requested by either party.
(d) Effect of Order and Subsequent Procedures

An interim measure ordered by an emergency arbitrator is binding upon the parties, andwill remain in effect until the arbitral tribunal modifies, suspends or terminates it.12） In themeantime, the emergency arbitrator and the arbitral tribunal are free to modify, suspend or

terminate the interim measures.13） The emergency arbitrator shall not be appointed as anarbitrator for the same dispute, unless otherwise agreed in writing by the parties.14）(e) Costs

The JCAA Rules offer a simple fixed fee and remuneration structure for emergency arbitrator

procedures. The JCAA’ s administrative fee is 200,000 JPY (which is less than 2,000 USD),
exclusive of applicable consumption tax.15） An emergency arbitrator’ s remuneration is

1,200,000 JPY (approximately 11,000 USD) if the order is rendered, and 300,000 JPY(approximately 2,800 USD) if no order is rendered, also exclusive of applicable consumption
tax.16）

Ⅲ．Some Practical Observations on Emergency Measures
Based on the law and the rules explained above, as well as my experience serving as an

emergency arbitrator, I would like to address two practical observations below, namely: (i)how to complete the procedures within the short time period and (ii) the practical effects ofemergency measures.

1. How to Conclude in Two Weeks

According to the information written in Japanese on the JCAA’ s website,17） in all cases

where emergency measures were ordered under the JCAA Rules, emergency arbitrators

rendered such orders within two weeks from their appointment. In order to meet this shortdeadline, in my view, an emergency arbitrator should be proactive, and the emergency

arbitrator as well as the parties should be flexible as to the schedule, while of course bearing
in mind equal treatment of the parties.
(a) ProactivenessAs to the proactiveness of emergency arbitrators, the JCAA Rules themselves expect or12）JCAA Rules, Article 77, Paragraph 5.
13）JCAA Rules, Article 77, Paragraph 1 and Article 78, Paragraph 2.
14）JCAA Rules, Article 77, Paragraph 8.
15）JCAA Rules, Article 108.
16）JCAA Rules, Article 102.
17）https://www.jcaa.or.jp/arbitration/statistics.html (last viewed on August 9, 2021)

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Emergency Measures – Japanese Law and Practices of the JCAA

even mandate emergency arbitrators to be more proactive than in normal cases, by

requesting emergency arbitrators to set up a procedural schedule as soon as possible.18） There
are practical needs for proactiveness as well. Counsel may not have enough time to fully

address the issues in one submission. Particularly in smaller cases, counsel may not be sofamiliar with emergency arbitration procedures. As a result, there can be some ambiguity inthe submission, or certain issues may be left unexplored by both parties while the emergency

arbitrator needs these to be addressed for the purposes of rendering the order. The time
sensitive nature of this short two-week period exemplifies the importance of even a single day
which cannot be wasted, and as such, an emergency arbitrator should not leave it up to theparties whether they will make clarifications or not. The better course of action is to directly
request the submitting party to clarify any uncertain or ambiguous points expediently.
(b) Flexibility of the Schedule

As to flexibility of the schedule, although an emergency arbitrator is to set up a proceduralschedule, it seems better to agree on the possibility for amendments. In practice, after
examining one party’ s submission, sometimes an extension to the original planned schedulewould seem fair and appropriate, and at other times, a shorter response period may bedeemed as sufficient. Again in a short two-week period, adjusting the schedule only for acouple of days could lead to avoid last-minute blurred lines of communications.
(c) Example in PracticeIn order to be proactive and flexible, I myself, as an emergency arbitrator, endeavored toreview submissions from the parties on the day of submission, identify seemingly new

allegations, to which the other party might want to rebut, and ask the other party by e-mailon the same day, with all relevant persons included as addressees, whether it wanted torespond with a suggestion of a deadline for the next submission, if any. By doing this, allpersons involved could communicate with one another without suffering annoyance due totime differences, or without spending valuable time arranging conferences, and withoutworrying about inadvertent ex-parte communications.
2. Practical Effects of Emergency Measures

In addition to the legal or formal effects of emergency measures mentioned in II above, I

am of the opinion that in many cases emergency measures are very useful for expediting theresolution of a dispute and saving relevant costs. For instance, if one party, despite theexistence of an arbitration agreement, initiates litigation proceedings as a delaying tactic, ananti-suit injunction by the emergency arbitrator can quickly and effectively discourage such an
attempt. Or, if the emergency arbitrator, even preliminarily and subject to later modification,finds that there is a reasonable possibility that the requesting party will succeed on the merits,
both parties, especially the responding party, will have the chance to re-evaluate their casemore objectively. As a result, the parties may settle, or narrow down the issues in thesubsequent arbitration procedure, sometimes quite dramatically. I know of a case where the18）JCAA Rules, Article 77, Paragraph 2.

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parties found the reasoning given by the emergency arbitrator to be quite persuasive, andsubsequently, the parties ceased disputing a specific issue and agreed to select the emergency
arbitrator to serve as the sole arbitrator in order to save time and cost. Indeed, emergency
measures often have the similar effect as an early neutral evaluation.

Ⅳ．Contemplated Amendment of the Act
Lastly, I would like to introduce in this article the current movement to amend the Act.

Since 2017, the Japanese government has adopted the policy to promote arbitration in Japan.
To implement this policy, the government has taken various measures including providing

assistance to the Japan International Dispute Resolution Center to open arbitration facilities in

Osaka in 2018 and in Tokyo in 2020. As one of these measures to promote arbitration in

Japan, the government is now planning to amend the Act to be compatible with the 2006
version of the Model Law. It is contemplated that the amended Act will incorporate most of
the provisions regarding interim measures in the 2006 version of the Model Law, except for aprovision on preliminary orders which expressly sets forth an interim order issued without

hearing the other party. As of August 2021, it is expected that the amendment bill will be
submitted to the Diet in 2022. When the amendment will come into force, interim measuresrendered by arbitral tribunals all over the world can be enforceable in Japan after obtaining an

enforcement order by the court. Note, however, the amended Act will still remain silent onwhether an emergency arbitrator is a “tribunal.” Therefore, as mentioned in I above, pursuant

to the prevailing view, emergency measures will not in themselves become enforceable, butwill be enforceable once a tribunal confirms the same as the tribunal’ s interim order.

In addition, in order to obtain an enforcement order, currently, a full translation of thewritten submission into Japanese is necessary, but under the amended Act, a translation of apart or all of the interim orders can be omitted with the court’ s permission.

Ⅴ．Conclusion
Even currently, I am of the view that emergency measures are highly expedient andeffective dispute resolution tools. As web conferences have become common practice during
the COVID-19 pandemic, communication among the parties and the emergency arbitrator

located in distant locales has become smoother than in the past. The anticipated amendmentof the Act to allow the enforcement of interim measures, will enhance the attractiveness of
emergency measures with the hope that such emergency measures will soon be transformed
into a tribunal’ s interim order and then become enforceable. With these developments, I
expect that the use of emergency measures in Japan will steadily increase in the near future.

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Arbitration Clauses under Revised JCAA Arbitration
Rules
Oh-Ebashi LPC & Partners

Attorney at Law in Japan and New York

Kazuhiro Kobayashi

Ⅰ．Introduction
On January 1, 2019, the revised Arbitration Rules of The Japan Commercial Arbitration

Association (hereinafter referred to as "JCAA") came into effect. In response to the revised

Arbitration Rules, revised model arbitration clauses were also published. In addition, arbitration
clauses other than the model arbitration clauses were subsequently published. I had an

opportunity to write an article about the arbitration clauses under the revised JCAA Arbitration
Rules in the Japanese language that was published in the August 2019 issue of the JCA Journal,
which is now posted on the Japanese website of JCAA. In that article, I reviewed the revised

arbitration clauses mainly from the standpoint of Japanese companies and proposed otherarbitration clauses that may be considered under the revised arbitration rules. I present sucharticle here, rewritten in English, with the added focus of also reviewing such arbitration clauses
from the standpoint of non-Japanese companies, with some additional new ideas.

Please note that this article does not reflect any opinion of JCAA or Oh-Ebashi LPC &Partners, and is limited to my individual observation.

Ⅱ．IBA Guidelines for International Arbitration Clauses
If there is any problem in the arbitration clause, the arbitration procedure may be terminated(Article 23, Paragraph 4, Item 2 and Article 40, Paragraph 2, Item 4 of the Arbitration Act ofJapan) or the arbitration award may be set aside (Article 44, Paragraph 1, Items 2, 5, 6, and 8 of

the Arbitration Act of Japan), or the arbitration award may not be recognized or enforced (Article

45, Paragraph 2, Items 2, 5, 6, 8 and 9 of the Arbitration Act of Japan) in Japan. The same may
also apply in countries other than Japan (see Article 32, Paragraph (2)(c), Article 34, Paragraphs(2)(a)(i), (iii) and (iv) and (b)(ii), and Article 36, Paragraphs (1)(a)(i), (iii) and (iv) and (b)(ii) of

the UNCITRAL Model Law on International Commercial Arbitration and Article V 1(a), (c), (d), (e),and 2(b) of the Convention on the Recognition and Enforcement of Foreign Arbitration Awards).
In addition, if a Japanese company, the opponent of a non-Japanese company, brings an action in

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Japan because the jurisdiction of the Japanese Courts is broad (Article 303, Item (i) (the place for

performance of the obligation in an action on a claim for performance of a contractual obligation),

Item (ii) (the location of seizable property of the defendant in an action for the payment ofmonies), and Item (viii) (the place where the consequences of a tort arise in an action for a tort)

and Article 3-6 (Jurisdiction over a Joint Claim)), the action shall not be dismissed and the action

shall continue (Article 14, Paragraph 1 of the Arbitration Act of Japan, see Article 8, Paragraph (1)of the UNCITRAL Model Law on International Commercial Arbitration). Accordingly, the parties
should draft the arbitration clause with more care than any other clause.

With respect to drafting of arbitration clauses, the International Bar Association has publishedthe IBA Guidelines for Drafting International Arbitration Clause (hereinafter referred to as the"IBA Guidelines"). The IBA Guidelines intend "to provide a succinct and accessible approach to

the drafting of international arbitration clauses" and provide in Guideline 2 "The parties should

select a set of arbitration rules and use the model clause recommended for these arbitration
rules as a starting point." "By doing so, the parties will ensure that all the elements required tomake an arbitration agreement valid, enforceable and effective are present. They will ensurethat arbitration is unambiguously established as the exclusive dispute resolution method under

their contract and that the correct names of the arbitral institution and rules are used (thusavoiding confusion or dilatory tactics when a dispute arises)."

Therefore, first, I will review the model arbitration clauses of JCAA, which the IBA Guidelines

regard as a starting point.

Ⅲ．JCAA Model Arbitration Clauses
1. Revised Model Arbitration Clauses

The model arbitration clauses posted by JCAA on its website are as follows.

(a) Arbitration Clause for Arbitration under UNCITRAL Arbitration Rules1）

All disputes, controversies or differences arising out of or in connection with this contract

shall be finally settled by arbitration in accordance with the UNCITRAL Arbitration Rules
supplemented by the Administrative Rules for UNCITRAL Arbitration of The Japan
Commercial Arbitration Association. The place of the arbitration shall be [city and country].
(b) Arbitration Clause for Arbitration under Commercial Arbitration Rules
All disputes, controversies or differences arising out of or in connection with thiscontract shall be finally settled by arbitration in accordance with the Commercial

Arbitration Rules of The Japan Commercial Arbitration Association. The place of thearbitration shall be [city and country].

1）The Japanese language meaning of “The arbitration clause for arbitration under UNCITRAL Arbitration Rules
and the Administrative Rules for UNCITRAL Arbitration” is posted on the Japanese website of JCAA.

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Arbitration Clauses under Revised JCAA Arbitration Rules(c) Arbitration Clause for Arbitration under Interactive Arbitration Rules
All disputes, controversies or differences arising out of or in connection with thiscontract shall be finally settled by arbitration in accordance with the Interactive Arbitration
Rules of The Japan Commercial Arbitration Association. The place of the arbitration shallbe [city and country].

2. Previous Model Arbitration Clause

The model arbitration clause for arbitration under Commercial Arbitration Rules previously

published by JCAA was as follows:

All disputes, controversies or differences which may arise between the parties hereto,out of or in relation to or in connection with this Agreement shall be finally settled byarbitration in (name of city) in accordance with the Commercial Arbitration Rules of theJapan Commercial Arbitration Association.

3. Revision Points

With regard to published discussion of the revision of the model arbitration clauses, I know

only the article entitled, "Regarding the Reform of JCAA Arbitration System-Introduction of theThree Arbitration Rules to Meet All Needs of Business Community" by Mr. Masato Dogauchi in
the January 2019 issue of the JCA Journal. Although the article only states "The part

corresponding to the designation of the place of arbitration is written as 'in (name of city)' in

English. However, in order to make it clear that this part does not designate the physical place

where the arbitration procedures such as hearings are to be conducted, but the place ofarbitration, 'The place of the arbitration shall be (city and country) is written in English.'"Then, comparing the revised model arbitration clause for arbitration under Commercial

Arbitration Rules with the model arbitration clauses previously published, the revision points
are as follows:

All disputes, controversies or differences (a) which may arise (b) between the parties

hereto , out of (c) or in relation to or in connection with (d) this Agreement shall be finallysettled by arbitration in (e) (name of city ) in accordance with the Commercial Arbitration
Rules of the Japan Commercial Arbitration Association.

(a) "Which may arise" has been changed to "arising." Because it is unclear whether or not a

dispute will occur or what kind of dispute will occur at the time of conclusion of the contract, it
seems to me that "which may arise" is broader than "arising." But I do not think that there is
any substantial change.

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(b) "Between the parties hereto" has been deleted. A dispute between parties that have notentered into an agreement may arise in connection with an agreement. For example, one
party to a joint venture agreement, as a shareholder of the joint venture, claims damages
from a director of the joint venture dispatched from the other party on the grounds of breachof the duty of due care. Though the arbitration agreement may not always bind a person who

has not signed the agreement in such case, I think that it will be more difficult for thearbitration agreement to bind a person other than the parties to the agreement if "between
the parties hereto" is specified. Thus, such deletion might broaden the subjective scope of thearbitration agreement.

(c) "Or in relation to" is deleted. The IBA Guidelines state in Guideline 3 "the scope of anarbitration clause should be defined broadly to cover not only all disputes 'arising out of' thecontract, but also all disputes 'in connection with' (or 'relating to') the contract. Less inclusive
language invites arguments about whether a given dispute is subject to arbitration." From theviewpoint that the dispute subject to arbitration should be broadly stated, it may be better toinclude "or in relation to." Since the IBA Guidelines also contain "or relating to" in theparentheses after "in connection with," however, it does not seem to be problematic if "inconnection with" is stated as in the revised model arbitration clause, even though "in relation
to" is deleted.

(d) "This Agreement" has been changed to "this contract." This is not a substantial change.

If the contract in question defines itself as "this Agreement," "this Agreement" shall be statedin the arbitration clause, and if "this contract" is stated therein on the other hand, "thiscontract" shall be stated in the arbitration clause. For example, in the case of a shareholder

agreement that abbreviates itself as "SHA" and one of the agreements attached thereto as"contract," "this contract" in the arbitration clause may lead to the conclusion that the disputearising from the shareholder agreement is not the subject of the arbitration agreement
because "this contract" may be deemed to be referring to the agreement attached to theshareholder agreement.

(e) Not only the name of the city but also the name of the country are stated. In addition to

the foregoing explanation, it is better to specify the name of the country because the place ofarbitration is an important element that may determine the governing law of the arbitrationagreement as well as the governing law of the arbitration procedures. The governing law of
the arbitration agreement is the law applicable to the existence, validity, interpretation,subjective scope, objective scope, etc. of the arbitration agreement. There are few

agreements which explicitly state the governing law of the arbitration agreement, and suchgoverning law is not provided in JCAA's model arbitration clauses. In the absence of aprovision of such governing law, it may be construed as the law of the place of arbitration, or

it may be construed as the governing law of the contract containing the arbitration clause. In
order to eliminate the ambiguity in this regard, it is contemplated that the governing law of

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Arbitration Clauses under Revised JCAA Arbitration Rules

the arbitration agreement should be stated. For example, a model arbitration clause forarbitration under the HKIAC Administered Arbitration Rules is set forth as follows:"Any dispute, controversy, difference or claim arising out of or relating to this contract,

including the existence, validity, interpretation, performance, breach or termination
thereof or any dispute regarding non-contractual obligations arising out of or relating to it

shall be referred to and finally resolved by arbitration administered by the Hong Kong
International Arbitration Centre (HKIAC) under the HKIAC Administered Arbitration Rules
in force when the Notice of Arbitration is submitted.

The law of this arbitration clause shall be ... (Hong Kong law)．*
…"

Note:

* Optional. This provision should be included particularly where the law of the substantive

contract and the law of the seat are different. The law of the arbitration clause potentiallygoverns matters including the formation, existence, scope, validity, legality, interpretation,
termination, effects and enforceability of the arbitration clause and identities of the parties
to the arbitration clause. It does not replace the law governing the substantive contract.
…

But negotiations on the governing law of the arbitration agreement itself may be protracted,

and the failure to agree on such governing law may lead to the failure to conclude thecontract itself. In addition, it is generally construed that the governing law of the arbitrationagreement may be agreed upon between the parties, but this may not be the case in all

countries. Therefore, I do not think that it is always necessary to provide the governing law of
the arbitration agreement in the arbitration clause.
4. Arbitration Clause for Expedited Procedures

The arbitration clause for the expedited arbitration procedures was published in the June2019 issue of the JCA Journal, which is now posted on the Japanese website of JCAA. There,
it was explained "Expedited arbitration procedures are arbitral procedures which can be used

to settle disputes of 50 million yen or less, in principle.2） A sole arbitrator shall make efforts torender an arbitral award within three months from when the arbitral tribunal is duly
constituted. In general, such procedures are used in small-amount disputes, but they are also

considered suitable for cases which are relatively easy to state and prove, such as disputes
relating to loans for consumption of money, even in the case of large-amount disputes." And
the arbitration clause for the expedited arbitration procedures is now posted on JCAA's
website as follows:2）To be precise, it seems to be less than JPY50,000,000 (Article 84.1 of the Commercial Arbitration Rules, andArticle 85.1 of the Interactive Arbitration Rules).

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Under the Commercial Arbitration Rules and the Interactive Arbitration Rules, expedited

arbitration procedures apply in general where the amount or economic value of a claim
does not exceed JPY50,000,000. If the parties prefer the expedited arbitration procedures

regardless of the amount in dispute, JCAA suggests that the parties include the following
clause in the contracts:"All disputes, controversies or differences arising out of or in connection with thiscontract shall be finally settled by arbitration in accordance with the expedited arbitration

procedures of the Commercial Arbitration Rules* of The Japan Commercial Arbitration
Association. The place of the arbitration shall be [city name], [country name]."* Note: The parties may also choose the expedited arbitration proceedings under theInteractive Arbitration Rules.

The expedited arbitration procedures were referred to as the "simplified procedures" in theJapanese language and applied when the amount of the economic value of the dispute was

not more than JPY20,000,000 under the previous Commercial Arbitration Rules. Therefore,
the amount of the economic value of the dispute for the expedited arbitration procedures has

been greatly increased by the revision. As mentioned in Note of the publication, the expedited
arbitration procedures are also provided in the Interactive Arbitration Rules. But please notethat such procedures may be very speedy procedures because the arbitral tribunal shallprepare and give a written summary to the Parties on the arbitral tribunal's preliminary views
under the Interactive Arbitration Rules as mentioned below, and then shall make efforts torender an arbitral award within three months as mentioned above.
5. Cross Arbitration Clause(a) JCAA once posted the arbitration clause based on the defendant's domicile (hereinafterreferred to as the "Arbitration Clause based on the Defendant's Domicile") on its website, etc.,

under which the claimant shall request arbitration in the country of the respondent's domicile.
In arbitration, the other party of the claimant is usually called as the respondent, though theother party of the plaintiff is called the defendant in litigation. For that reason, the Arbitration
Clause based on the Defendant's Domicile should have been called the Arbitration Clausebased on the Respondent's Domicile. But the Code of Civil Procedure of Japan provides

jurisdiction based on the defendant's domicile for fairness. Thus, it was called the Arbitration
Clause based on the Defendant's Domicile in Japan.

But JCAA stopped posting the Arbitration Clause based on the Defendant's Domicile on its

website, etc., because I think that an arbitral institution should advertise the model arbitration
clause under its own arbitration rules.

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Arbitration Clauses under Revised JCAA Arbitration Rules(b) With regard to the revision of the arbitration rules, JCAA said that it "believed that it wasnecessary to differentiate its services and to conduct distinctive arbitration based on therecognition that JCAA was one step behind in competition with arbitral institutions in othercountries," and that therefore it prepared its arbitration rules which "included rules that were notfound in the arbitration rules of other organizations." Characteristic rules appear to be theInteractive Arbitration Rules, which require the arbitral tribunal to prepare and give a writtensummary to the Parties on the arbitral tribunal's preliminary views. The Interactive Arbitration
Rules are considered to be suitable for disputes between Japanese companies and companies incivil law countries, as the German Arbitration Institution (Deutsche Institution fürSchiedsgerichtsbarkeit (DIS)) specifies "Providing the parties with a preliminary non-binding

assessment of factual or legal issues in the arbitration, provided all of the parties consent thereto"in Annex 3 (Measures for Increasing Procedural Efficiency) of 2018 DIS Arbitration Rules. I thinkthat JCAA would like to increase the number of arbitration cases between Japanese companies
and companies in civil law countries by introducing the Interactive Arbitration Rules.

Hong Kong and Singapore, however, increase the number of arbitration cases by serving asa third-country place of arbitration. Even if the arbitration rules of JCAA are good, especiallyfor companies in civil law countries, it is not easy to have non-Japanese companies choose toarbitrate in Japan where the opponent Japanese company is located. I also believe that thesame applies to many other arbitral institutions, since it does not seem so easy to haveJapanese companies choose to arbitrate in other countries where the opponent non-Japanesecompany is located.

Therefore, I believe that JCAA should advertise the cross arbitration clause under which theclaimant requests arbitration in the country where the respondent is located in order toincrease the number of international arbitration cases. In the July 2019 issue of the JCA

Journal, a cross arbitration clause was published. I wrote in the August 2019 issue of the JCA

Journal "Since this is a very good attempt, I would like JCAA to post the cross arbitration

clause, at least on the Japanese website of JCAA for Japanese companies." Now JCAA posts
the publication of the cross arbitration clause on its Japanese website. I think that JCAA
should post the cross arbitration clause on its English website, too.

(c) The cross arbitration clause also benefits Japanese companies as well as non-Japanesecompanies which prefer to settle disputes through settlements out of arbitration, because thecross arbitration clause is likely to restrain each party from requesting arbitration easily

because it must do so in the country where the opponent is located. That is how the crossarbitration clause is likely to facilitate settlement negotiations between the parties out ofarbitration. However, it is stated in the publication, "If the other party breaches the contract,

arbitration will be conducted in the other party's country. Therefore, care must be taken if theother party is likely to breach the contract." Accordingly, it is necessary to examine whether

or not the other party is likely to breach the contract, and what arbitral institution is located in
the country of the other party and what the arbitration rules of such institution are, before
agreeing on a cross arbitration clause.

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(d) The published cross arbitration clause is as follows:
All disputes, controversies or differences arising out of or in connection with thiscontract shall be finally settled by arbitration. If arbitral proceedings are commenced by X

(foreign corporation), arbitration shall be held pursuant to the Commercial Arbitration
Rules of The Japan Commercial Arbitration Association and the place of arbitration shallbe (the name of the city in Japan); if arbitral proceedings are commenced by Y (Japanese
corporation), arbitration shall be held pursuant to (the name of rules) of (the name ofarbitral institution) and the place of arbitration shall be (the name of the city in foreigncountry).

(e) The former Arbitration Clause Based on the Defendant's Domicile is as follows:
All disputes, controversies or differences which may arise between the parties hereto,out of or in relation to or in connection with this Agreement shall be finally settled byarbitration in (the name of city in Japan) pursuant to the Commercial Arbitration Rules of
The Japan Commercial Arbitration Association if X (foreign corporation) requests thearbitration or in (the name of city in foreign country) pursuant to (the name of rules) of(the name of arbitral institution) if Y (Japanese corporation) requests the arbitration.

(f) In comparison, the name of the arbitration clause has changed from the Arbitration

Clause Based on the Defendant's Domicile to the cross arbitration clause. As it is stated "Thisis an introduction to the cross arbitration clause. It is also called the Arbitration Clause Basedon the Defendant's Domicile or finger pointing clause. It is an arbitration clause that stipulates

that the arbitration procedures shall be conducted at the location of the other party to thearbitration (generally referred to as the respondent to the arbitration)," the Arbitration ClauseBased on the Defendant's Domicile is substantially the same as the cross arbitration clause.

The reason for the name change is uncertain. As mentioned above, it is precise to call theother party of the claimant as the respondent in the case of arbitration, and if so, such clauseshould have been called the arbitration clause based on the respondent's domicile (orlocation), but such clause has not often been called so. In addition, foreigners who criticize

the cross arbitration clause have come to call such clause a finger point clause or cross clause.
These may be the reasons for the name change.

Next, the former Arbitration Clause based on the Defendant's Domicile was written in asingle sentence, but the revised cross-arbitration clause consists of two sentences, the first

sentence of which only provides for settlement of disputes by arbitration, and the second
sentence of which provides for the main purport of the cross arbitration clause. This may
result in settlement of disputes by arbitration rather than by court because the first sentence
is valid, even if the cross arbitration clause itself becomes problematic.
The other differences are as described in "3. Revision Points" above.

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Arbitration Clauses under Revised JCAA Arbitration Rules(g) The risk of inconsistent arbitral awards has been pointed out because the two arbitralprocedures may be conducted in the same dispute. However, such risk of inconsistent arbitralawards is not expected to be substantial, since the respondent against whom arbitration isrequested is usually entitled to submit a counterclaim in such arbitration conducted in the

respondent's country (see Article 19 of the Commercial Arbitration Rules). If a Japanesecompany first requests for arbitration in the other party's country and the other party is
unable to submit a counterclaim under the arbitration rules of the arbitral institution in theother party's country, the other party will request for arbitration under the Commercial
Arbitration Rules of JCAA in Japan in accordance with the cross arbitration clause. Compared
to arbitration in the other party's country, including not only the original claim but also thecounterclaim, it would not be unfavorable to Japanese company to arbitrate the counterclaimin accordance with the Commercial Arbitration Rules of JCAA in Japan. Considering above, thecross arbitration clause may not be so good for non-Japanese companies which may not

submit counterclaims under the arbitration rules of the arbitral institutions in countries wheresuch non-Japanese companies are located.

The publication stated, "In theory, the party against whom the request for arbitration ismade might not submit the counterclaim in such arbitration but request for another arbitrationin the other party's country. In order to avoid such a situation, it is more desirable to also
provide that if one arbitral proceedings are commenced, the party may not commence
another arbitration." The publication introduces the following provisions.

......Once one of the parties commences arbitral proceedings in one of the above placesin accordance with the rules of the respective arbitral institution, the other party shall be

exclusively subject to the arbitral proceedings and shall not commence any arbitralproceedings as well as court proceedings. The time receipt of the request for arbitrationby the arbitral institution determines when the arbitral proceedings are commenced.

The Commercial Arbitration Rules of JCAA limit the period for submitting a counterclaim tofour weeks from the receipt of the notice of the request for arbitration (Article 19). However,according to the above provisions, Japanese companies may request new arbitration to JCAA

even after such period for submitting a counterclaim has elapsed. However, it is safer forJapanese companies to finish submitting counterclaims within the above period, because of
the risk that the other party will dispute this issue.

Ⅳ．Arbitration Clauses for Arbitration under Commercial Arbitration Rules
and Arbitration under Interactive Arbitration Rules
1. Hearing of Opinions of Parties at Appointment of the Third Arbitrator

The Commercial Arbitration Rules "newly provides detailed procedural rules that are one

step more advanced than other arbitral institutions, such as clarification of the provisions on

the arbitrator's impartiality and independence, specification of disciplinary rules in the case

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25

where the sole arbitrator or the presiding arbitrator of the arbitral tribunal uses an assistant,and prohibition of disclosing dissenting opinions by the arbitrators."3） Then, several criticisms

have been made from the perspective of differences from conventional arbitration rules orarbitration rules of other arbitration institutions. One of them is that the arbitrators appointed
by the parties are prohibited from hearing opinions on the appointment of the third arbitrator

separately from the parties who appoint such arbitrators (Article 28.5 of the Commercial
Arbitration Rules, and Article 28.5 of the Interactive Arbitration Rules). Such provisions are
not specified in the arbitration rules of main arbitral institutions. In addition, the party-

appointed arbitrators in the United States tend to weigh heavily the intentions of the parties.
Actually in the arbitration administered by the American Arbitration Association (hereinafterreferred to as "AAA") in which I was involved, the counsel who was a U.S. attorney discussed
the appointment of the third arbitrator with the party-appointed arbitrator.

It is possible to hear opinions of the appointment of the third arbitrator ex parte from theappointing party "only if all the Parties so agree in writing" (Article 28.5 of the Commercial
Arbitration Rules, and Article 28.5 of the Interactive Arbitration Rules). It is not specified that
all the Parties shall so agree in writing only after the commencement of the arbitralproceedings. Therefore, I believe that it is possible to provide such agreement in thearbitration clause. The provisions I propose are as follows:

Provided, however, that the Party-appointed arbitrator may communicate ex parte with

the Party who has appointed the arbitrator to discuss the appointment of the third
arbitrator.

2. Disclosing Dissenting Opinions

No provisions such as Prohibition of Disclosing Dissenting Opinion (Article 63 of theCommercial Arbitration Rules, and Article 64 of the Interactive Arbitration Rules) are specified

in the arbitration rules of the main arbitral institutions. Some criticize such provisions bysaying that it should be allowed to disclose a dissenting opinion in the case where the award
to be rendered by the other two arbitrators would obviously contain a material error, and that

it would not be possible to appoint a distinguished arbitrator if it is prohibited to disclose a
dissenting opinion even in such case. It is not specified in the Commercial Arbitration Rules of
JCAA that disclosure of a minority dissenting opinion may be allowed by written agreement of

all the parties differently from hearing opinions from the parties of the appointment of thethird arbitrator ex parte from the appointing parity. However, the Arbitration Rules are, in
principle, not mandatory provisions but discretionary provisions. Both the Commercial

Arbitration Rules and the Interactive Arbitration Rules provide that the parties may vary anyof the Rules except for Parts 3 and 4 of the Rules by their agreement, in the General3）"Regarding the Reform of JCAA Arbitration System-Introduction of the Three Arbitration Rules to Meet All
Business-Related Needs of Business Community" by Mr. Masato Dogauchi in the January 2019 issue of the JCA
Journal26

Japan Commercial Arbitration Journal VOL.2［2021］

Arbitration Clauses under Revised JCAA Arbitration Rules

Provisions thereof (Article 5 of the Commercial Arbitration Rules and Article 5 of theInteractive Arbitration Rules). Therefore, I believe that it is possible to provide an agreement

contrary to the prohibition of disclosing minority dissenting opinion in the arbitration clause.
One example that I propose is as follows:

Provided, however, that the arbitrator may state its dissenting or individual opinion in

the arbitral award.

Ⅴ．Arbitration Clause for Arbitration under UNCITRAL Arbitration Rules
Arbitration Clause for Arbitration under UNCITRAL Arbitration Rules has been prepared onlyin the English language. It is true that most agreements that contain Arbitration Clause for
Arbitration under UNCITRAL Arbitration Rules and the Administrative Rules for UNCITRAL

Arbitration of JCAA are written in English. But I think that it is better to have a Japaneseversion (or Japanese translation at least) of such Arbitration Clause, considering that one ofthe parties to arbitration thereunder is often a Japanese company. Therefore, I have preparedsuch Japanese translation in the above mentioned article.

The UNCITRAL Arbitration Rules themselves have been prepared by the United Nations

Commission on International Trade Law (UNCITRAL), a legal body of the United Nations

system. Therefore, such Rules are written in the six official languages of the United Nations:Arabic, Chinese, English, French, Russian and Spanish. Such versions are the authentic texts

and the Japanese translation is just for reference only. However, considering that one of theparties to arbitration under such Rules is often a Japanese company as mentioned above, I

would appreciate it if JCAA could also provide us with a Japanese translation of such Rules.

For reference only, I have found unofficial Japanese translations of the UNCITRAL Arbitration
Rules (as revised in 2010) and the UNCITRAL Arbitration Rules (with new Article 1, Paragraph4, as revised in 2013) on the Internet, both of which are translated by Mr. Shoji Yazawa.

Incidentally, the UNCITRAL Arbitration Rules (with new Article 1, Paragraph 4, as revised in2013) literally includes a new Article 1, Paragraph 4, which sets forth, "For investor-Statearbitration initiated pursuant to a treaty providing for the protection of investments orinvestors, these Rules include the UNCITRAL Rules on Transparency in Treaty-based InvestorState Arbitration ('Rules on Transparency'), subject to article 1 of the Rules on Transparency."

That is "the 2013 version … incorporates the UNCITRAL Rules on Transparency for Treaty-

based Investor-State Arbitration."4） JCAA does not provide us with the UNCITRAL Arbitration

Rules 2013 but the UNCITRAL Arbitration Rules 2010 and Administrative Rules for UNCITRAL
Arbitration 2019. But I do not think that JCAA never administers Treaty-based Investor-State

Arbitration, because JCAA clarifies that it will administer arbitration under UNICTRAL
Arbitration Rules 2013 by Rule 2.1 of the Administrative Rules for UNCITRAL Arbitration of4）https://uncitral.un.org/en/texts/arbitration/contractualtexts/arbitration

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27

JCAA, "The term 'UNCITRAL Arbitration Rules' means the UNCITRAL Arbitration Rules adopted

by the United Nations General Assembly in 1976, 2010 or 2013 applied to the arbitration
proceedings in accordance with Rule 3" and Rule 3 thereof states, "The UNCITRAL Arbitration

Rules adopted by the United Nations General Assembly in 2010 shall apply where an
arbitration agreement provides for arbitration under the UNCITRAL Arbitration Rules without
specifying which version (i.e., the UNCITRAL Arbitration Rules adopted in 1976, 2010 or2013)." I understand that neither Article 1, Paragraph 4 of the UNCITRAL Arbitration Rules

2013 nor the UNCITRAL Rules on Transparency for Treaty-based Investor-State Arbitration isused in any commercial arbitration, for which JCAA model arbitration clauses should be
agreed. I think that is why the UNCITRAL Arbitration Rule 2013 itself is not provided by JCAA.

Differently from the UNCITRAL Arbitration Rules, the Administrative Rules for UNCITRAL

Arbitration of JCAA are prepared by JCAA. Therefore, JCAA could have made both the English
version and Japanese version of such Administrative Rules the authentic texts as previous

Administrative and Procedural Rules for Arbitration under the UNCITRAL Arbitration Rules of
JCAA. At the very least, I would be grateful if JCAA could provide us with Japanese translationof such Administrative Rules. On November 16, 2018, the Japanese version of the"Comparison between the Existing Administrative and Procedural Rules for Arbitration under
the UNCITRAL Arbitration Rules and New Administrative Rules for UNCITRAL Arbitration" waspublished, but the English version of the Administrative Rules for UNCITRAL Arbitration of

JCAA was amended slightly thereafter, so unfortunately such Japanese version does notcompletely conform with the current effective Administrative Rules for UNCITRAL Arbitrationof JCAA.

Ⅵ．Arbitrator's Remuneration
1. Commercial Arbitration Rules(a) Under the Commercial Arbitration Rules, the "hourly rate of an arbitrator shall be

JPY50,000" (Article 93.2), "the hourly rate shall be reduced by 10% for every 50 hours inexcess of the initial 150 hours" (Article 95), the upper limit of the arbitrator's remuneration isset on the basis of the amount or economic value of the claim (Article 94), and the"remunerations shall not be paid … if an arbitrator ceases to perform his or her duty becauseof … resignation" (Article 96, Paragraph.1(2)). Some people express concern that the parties

cannot appoint "globally recognized and reputable arbitrators" in arbitration under theCommercial Arbitration Rules because of this. The foregoing provisions, however, "may bechanged only if all the Parties so agree in writing before constitution of the arbitral tribunal"(Article 97.1). Therefore, I believe that the parties may stipulate such agreement in thearbitration clause even before commencement of the arbitral proceedings.

(b) With respect to such reduction of the hourly rate, such upper limit and such non-payment, etc., I propose the following arbitration clause which excludes the application of therelevant provisions.

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Arbitration Clauses under Revised JCAA Arbitration Rules

All disputes, controversies or differences arising out of or in connection with thiscontract shall be finally settled by arbitration in accordance with the Commercial

Arbitration Rules (the "Rules") of The Japan Commercial Arbitration Association. The placeof the arbitration shall be [city and country]. Provided, however, that neither Article 94
Upper Limit of Arbitrator's Remuneration, Article 95 Reduction of Hourly Rate nor Article
96 Reduction or Non-payment of Arbitrator's Remuneration of the Rules shall apply.

(c) On the other hand, even if it is specified in the arbitration clause that the provision

regarding the hourly rate of the Commercial Arbitration Rules shall not apply, there remains

an issue of how to determine the hourly rate. It is difficult to specifically determine the hourly
rate at the stage of drafting the arbitration clause. Here, it is contemplated that the arbitration

clause stipulates that the parties shall agree on the hourly rate of the arbitrator(s) at thestage of the appointment of the arbitrator(s). However, it is anticipated that the parties cannot
agree at the stage of the appointment of the arbitrator. For example, the parties cannot agree

on the hourly rate of the arbitrators because one party does not agree in order to prevent theother party from appointing an arbitrator who the other party desires. It is also contemplated
that the arbitration clause stipulates that the party to appoint an arbitrator and the arbitrator

to be appointed by the party may agree on the hourly rate of such arbitrator, there is a riskthat the hourly rate of the arbitrator to be appointed by the other party is likely to be verylarge and be incurred (see Article 80 of the Commercial Arbitration Rules). As will bementioned below, it may be an option to apply Administrative Rules for UNCITRAL Arbitrationor only Rule 20 Hourly Rate Charge Basis of such Rules. But there is an issue whether or not

only such Rule 20 of the Administrative Rules for UNCITRAL Arbitration may be applied if theCommercial Arbitration Rules of JCAA, including especially Part 3 Arbitrator's Remuneration,

apply, because the Commercial Arbitration Rules of JCAA do not allow the Parties to vary Part
3 or Part 4 thereof (Article 5).

(d) Because Part 3 Arbitrator's Remuneration of the Interactive Arbitration Rules provides

the contingency remuneration of the arbitrators based on the amount or economic value ofthe claim, the parties may wish to choose the arbitrator's remuneration based thereon, eventhough arbitral proceedings are conducted under the Commercial Arbitration Rules. But as

mentioned above, the parties may not vary Part 3 the Arbitrator's Remuneration of theCommercial Arbitration Rules. Then, it may be contemplated to choose the Interactive

Arbitration Rules but change Part 1 Arbitration Procedures and Part 2 Expedited Arbitration
Procedures thereof into Part 1 and Part 2 of the Commercial Arbitration Rules as follows:

All disputes, controversies or differences arising out of or in connection with thiscontract shall be finally settled by arbitration in accordance with the Interactive Arbitration
Rules (the "Rules") of The Japan Commercial Arbitration Association ("JCAA"). The placeof the arbitration shall be [city and country]. Provided, however, that Part 1 Arbitration

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29

Procedures and Part 2 Expedited Arbitration Procedures of the Rules shall not apply butthat Part 1 Arbitration Procedures and Part 2 Expedited Arbitration Procedures of theCommercial Arbitration Rules of JCAA shall apply.

On the contrary, if the parties would like arbitral proceedings to be conducted in accordancewith the Interactive Arbitration Rules, which require the arbitral tribunal to prepare and give a
written summary to the Parties on the arbitral tribunal's preliminary views as mentioned

above, but the arbitrator's remuneration should be decided based on such hourly rate as theCommercial Arbitration Rules, I provide a sample arbitration clause as follows:

All disputes, controversies or differences arising out of or in connection with thiscontract shall be finally settled by arbitration in accordance with the Commercial

Arbitration Rules (the "Rules") of The Japan Commercial Arbitration Association ("JCAA").
The place of the arbitration shall be [city and country]. Provided, however, that Part 1

Arbitration Procedures and Part 2 Expedited Arbitration Procedures of the Rules shall not
apply but that Part 1 Arbitration Procedures and Part 2 Expedited Arbitration Proceduresof the Interactive Arbitration Rules of JCAA shall apply.

2. Arbitrator's Remuneration based on the Administrative Rules for UNCITRAL
Arbitration in Arbitration under the Commercial Arbitration Rules

Rule 20.2 of the Administrative Rules for UNCITRAL Arbitration sets forth "The JCAA shalldetermine an hourly rate within the range of USD500 to USD1,500 for each arbitrator taking

into account the arbitrator's experience, the complexity of the case and related matters" andin such Rules there are no provisions which may reduce the hourly rate or set forth the upper
limit of the arbitrator's remuneration. Although JCAA may reduce the arbitrator's

remuneration "if the arbitrator ceases to perform his or her duties due to his or her resignationor other reasons" (Rule 21.1 of the Administrative Rules for UNCITRAL Arbitration), "JCAA

shall consult with the Committee for Reviewing Arbitrator's Remuneration and take into
account the Committee's proposal" in such case (Rule 21.2 thereof). In addition, I do notthink that JCAA may choose non-payment because JCAA differentiates non-payment fromreduction in Article 96 of the Commercial Arbitration Rules and Article 96 of the Interactive

Arbitration Rules, though JCAA would have chosen non-payment if JCAA reduced thearbitrator's remuneration to zero. Therefore, it is feasible to appoint a "globally recognized
and reputable arbitrators" in arbitration under the UNCITRAL Arbitration Rules supplemented

by the Administrative Rules for UNCITRAL Arbitration of The Japan Commercial Arbitration
Association. Then, it is considered that the arbitral proceedings themselves are conductedunder the Commercial Arbitration Rules (or, if you like, the Interactive Arbitration Rules) with
the Administrative Rules for UNCITRAL Arbitration applied to the arbitrator's remuneration.

In Part 1 Administrative Rules for UNCITRAL Arbitration of the Administrative Rules for

UNCITRAL Arbitration, the following provisions are stipulated.

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Arbitration Clauses under Revised JCAA Arbitration Rules

The "'Rules' provide for the procedures and other necessary matters integrated into andsupplemental to the UNCITRAL Arbitration Rules …where the Parties have agreed to resolve
their dispute by arbitration under the UNCITRAL Arbitration Rules" (Rule 1);"The JCAA shall, in either of the following cases, provide administrative services forarbitration under the UNCITRAL Arbitration Rules in accordance with Rules 5 through 17
below: (a) Where the Parties have agreed in advance to have the JCAA provide administrative

services for arbitration under the UNCITRAL Arbitration Rules; or (b) Where the Parties agree
in writing to arbitration conducted under the Rules and notify the JCAA of such agreement (i)after the claimant has requested arbitration under the Commercial Arbitration Rules or theInteractive Arbitration Rules but (ii) before the confirmation or appointment of any arbitrator
by the JCAA" (Rule 4.1); and in addition, "Part 2 and Part 3 of the Rules shall apply as theintegral part of Part 1 of the Rules" (Article 5).

However, the Administrative Rules for UNCITRAL Arbitration provide in their General

Provisions that the parties may vary any of such Rules except for Parts 2 and 3 thereof by theparties' agreement (Rule 6). Though it is somewhat unclear whether or not the Administrative
Rules for UNCITRAL Arbitration approve varying Rules 1, 4.1 and 5 above mentioned, but
assuming that it approves thereof, I propose the following provisions.

All disputes, controversies or differences arising out of or in connection with thiscontract shall be finally settled by arbitration in accordance with the UNCITRAL Arbitration

Rules (the "Rules") supplemented by the Administrative Rules for UNCITRAL Arbitration(the "Administrative Rules") of The Japan Commercial Arbitration Association ("JCAA").
The place of the arbitration shall be [city and country]. Provided, however, that Part 1

Arbitration Procedures and Part 2 Expedited Arbitration Procedures of the Commercial

Arbitration Rules* of JCAA shall apply and prevail the Rules and Part 1 Administrative
Rules for UNCITRAL Arbitration of the Administrative Rules.

* Note: I believe that the parties may also choose the Interactive Arbitration Rules.
If the UNCITRAL Arbitration Rules and Part 1 Administrative Rules for UNCITRAL Arbitrationof the Administrative Rules for UNCITRAL Arbitration are completely excluded, Part 2

Arbitrator's Remuneration and Part 3 Administrative Fee of the Administrative Rules for
UNCITRAL Arbitration may not be applied. Therefore, I specify that Part 1 and Part 2 of theCommercial Arbitration Rules should take precedence only.

3. Arbitrator's Remuneration based on the Commercial Arbitration Rules in Arbitration
under UNCITRAL Arbitration Rules

Non-Japanese companies may prefer arbitration under the UNCITRAL Arbitration Rules toarbitration under the Commercial Arbitration Rules or the Interactive Arbitration Rules of
JCAA, even in small-amount disputes. But in such small-amount disputes, the parties may

wish to limit the arbitrator's remuneration. Then, I propose the following arbitration clause

Japan Commercial Arbitration Journal VOL.2［2021］31

where the arbitral proceedings shall be conducted in accordance with the UNCITRAL

Arbitration Rules but the arbitrator's remuneration shall be decided under the provisions ofPart 3 of the Commercial Arbitration Rules (or, if you like, Part 3 of the Interactive Arbitration
Rules, which provides the contingency remuneration based on the amount or economic valueof the claim as mentioned above).

All disputes, controversies or differences arising out of or in connection with thiscontract shall be finally settled by arbitration in accordance with the Commercial

Arbitration Rules* (the "Rules") of The Japan Commercial Arbitration Association ("JCAA").
The place of the arbitration shall be [city and country]. Provided, however, that Part 1

Arbitration Procedures and Part 2 Expedited Arbitration Procedures of the Rules shall not
apply but that the UNCITRAL Arbitration Rules supplemented by Part 1 Administrative

Rules for UNCITRAL Arbitration of the Administrative Rules for UNCITRAL Arbitration of
JCAA shall apply.

* Note: I believe that the parties may also choose the Interactive Arbitration Rules.
Here, I exclude Part 1 and Part 2 of the Commercial Arbitration Rules (or Part 1 and Part 2of the Interactive Arbitration Rules) because I believe that there are no provisions which
forbid such exclusion.

Ⅶ．Japan-American Trade Arbitration Agreement
JCAA published one model arbitration clause under the Japan-American Trade Arbitration

Agreement dated as of September 16, 1952 between JCAA and AAA as follows:

All disputes, controversies, or differences which may arise between the parties, out ofor in relation to or in connection with this contract, or the breach thereof, shall be finallysettled by arbitration pursuant to the Japan-American Trade Arbitration Agreement, ofSeptember 16, 1952, by which each party hereto is bound.

According to such publication, if arbitration proceedings are conducted in Japan under theJapan-American Trade Arbitration Agreement, JCAA's rules shall apply. I believe that theCommercial Arbitration Rules shall apply in such case because there were no other rules thanthe Commercial Arbitration Rules in 1952 and because Article 3 of the Commercial Arbitration
provides "The Rules shall also apply where an arbitration agreement provides for JCAA

arbitration without specifying the Rules, the Interactive Arbitration Rules or the UNCITRAL
Arbitration Rules." I believe, however, that the parties may choose the Interactive Arbitration
Rules or the UNCITRAL Arbitration Rules even under the Japan-American Trade Arbitration

Agreement. On the other hand, AAA has many arbitration rules such as the International
Arbitration Rules and the Commercial Arbitration Rules. Article 1(1) of the International

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Arbitration Clauses under Revised JCAA Arbitration Rules

Arbitration Rules of AAA provides "Where parties … have provided for arbitration of aninternational dispute by the International Centre for Dispute Resolution (ICDR) or theAmerican Arbitration Association (AAA) without designating particular rules, the arbitration

shall take place in accordance with these Rules ... " and Section R-1(a) of the Commercial
Arbitration Rules of AAA specifies "The parties shall be deemed to have made these rules apart of their arbitration agreement whenever they have provided for arbitration by theAmerican Arbitration Association (hereinafter AAA) under its Commercial Arbitration Rules orfor arbitration by the AAA of a domestic commercial dispute without specifying particular
rules." Therefore, I believe that the International Arbitration Rules of AAA shall apply if

arbitration proceedings are conducted in the USA under the Japan-American Trade Arbitration

Agreement. But I think that the parties may choose the rules of AAA, too. Thus, I propose thefollowing sample arbitration clause.

All disputes, controversies, or differences which may arise between the parties, out ofor in relation to or in connection with this contract, or the breach thereof, shall be finallysettled by arbitration pursuant to the Japan-American Trade Arbitration Agreement, ofSeptember 16, 1952, by which each party hereto is bound. If the arbitration is to be heldin Japan, it shall be conducted in accordance with the Commercial Arbitration Rules* of
the Japan Commercial Arbitration Association. If the arbitration is to be held in the UnitedStates of America, it shall be conducted in accordance with the International Arbitration

Rules of the International Centre for Dispute Resolution** of the American Arbitration
Association.

* Note: I believe that the parties may also choose the Interactive Arbitration Rules or the

UNCITRAL Arbitration Rules supplemented by the Administrative Rules for UNCITRAL
Arbitration.

** Note: I believe that the parties may also choose the Commercial Arbitration Rules, etc.
of the American Arbitration Association.

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33

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The New JCAA Mediation Rules and Japan’s Future inInternational Mediation
Professor, Keio University Law School, Principal, Law Offices of Douglas K. Freeman

Douglas K. Freeman, Esq., FCIArb

Ⅰ．Introduction
As part of Japan’ s recent efforts to strengthen its position in the international dispute

resolution market, the Japan Commercial Arbitration Association―Japan’ s leading ADR
institution―has fully revamped and adopted the JCAA New Commercial Mediation Rules (the“Rules” ) with the aim of making its mediation services more attractive and accessible toforeign and domestic corporate users in the international disputes arena.

As a practicing international arbitrator and mediator residing in Japan, I would like tocomment on the key, distinct features and practical implications of the Rules, which tookeffect on February 1, 2020. I should note that I was also a member of the Committee for the

Amendment and Establishment of JCAA Mediation Rules and advised the JCAA during thedrafting process of these Rules.

Whereas the JCAA previously administered separate sets of mediation rules for domestic

and international mediation procedures, they have combined these into one set of rules tofacilitate the Rules’ promotion.

The Rules are being adopted at an auspicious time in which Japan is witnessing the adoptionof major international ADR initiatives aimed at increasing the use of international mediation

and arbitration, including the inauguration of the Japan International Mediation Center in
Kyoto (JIMC-Kyoto) in 2018, and the opening of the state-of-the-art arbitration/mediation

facilities of Japan International Dispute Resolution Center (JIDRC) in Tokyo in 2020, following
the inaugural Osaka facilities established in 2018.

With their distinct features and emphasis on practicality and transparency, the Rules are

expected to contribute to the increased use of international mediation in Japan

Ⅱ．Key Features of the Revised Commercial Mediation Rules
The key features of the Rules are based on respect for party autonomy and flexibility

regarding the mediation proceedings, and include the JCAA’ s active assistance in the selection

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35

of mediator candidates, enhanced independence disclosure, provisions contemplating multiple
mediators, default rules for mediation proceedings, adoption of a Japanese version “without

prejudice” rule, provisions adopted to the United Nations Convention on International
Settlement Agreements Resulting from Mediation ( “Singapore Convention” ), and default
provisions for mediator remuneration.

Details of these key provisions are outlined below.

1. JCAA Mediator Candidate List and Mediator Selection

Finding an appropriate and competent mediator for a case frequently dictates the success ofthe mediation, and mediation centers across the world are enhancing their mediator
recommendation services to assist parties in selecting skilled mediator candidates suitable tothe nature of the dispute.

Toward this end, the JCAA has recalibrated its mediator database which now includes over

200 mediator candidate profiles, which are available to the public on its website (https://www.jcaa.or.jp/en/mediation/candidate.php?mode=view). The data includes the candidates’
nationality, location, language capabilities and links to additional available information.

Separately, the JCAA can also provide a tailor-made recommendation list of mediatorcandidates to the parties upon request (Art. 8), which list may contain one to five candidates

based on the dispute’ s case profile and desired attributes. The JCAA is also actively
recruiting former judges to be included in the database who would be skilled in handlingdomestic legal cases. Owing to the long tradition of judicial mediation practiced by judges in

the Japanese courts, many Japanese judges are experienced in evaluative mediation—aprocess familiar to Japanese counsel—and their involvement as mediators may assist in the
resolution of Japanese-law governed domestic cases.

Further, the parties may request the JCAA to appoint their mediator for them directly. In

this case, to enable the appointment of a mediator who matches the parties’ desires, theRules proscribe the following procedures: (i) first, the JCAA sends a list of mediator candidates
to the parties; (ii) second, each party informs the JCAA of the name(s) of any unacceptable

candidates and their order of preference of acceptable candidates; (iii) third, the JCAA
appoints a mediator taking into account the order of preference expressed by the Parties andany other relevant circumstances (Art.17.5 & 17.6).

JCAA’ s proactive involvement in the mediator selection process is expected to assist parties

in identifying appropriate mediator candidates, including for cases involving specific legal
areas.

2. Independence/Impartiality Disclosure

A rather unique feature among the Rules is the inclusion of a detailed provision concerning

mediator independence, which mirrors the comparable requirements of JCAA’ s new

arbitration rules adopted in 2019 (See Art. 24 of the JCAA Commercial Arbitration Rules(2019)).

In addition to the typical provision requiring the independence and impartiality of the36

Japan Commercial Arbitration Journal VOL.2［2021］

The New JCAA Mediation Rules and Japan's Future in International Mediation

mediator (Ar t 15.1), the Rules also require the mediator to “conduct a reasonable
investigation into any circumstances which may, in the eyes of the parties, give rise tojustifiable doubts as to his or her impartiality or independence,” and to disclose suchcircumstances when seeking to accept an appointment (Art. 15.2). The Rules further impose

an ongoing duty to conduct such investigation and provide disclosure during the course of themediation (Art. 15.4).1）

To require this level of propriety for mediators may strike observers as somewhat excessive

given that mediation proceedings are not subject to the same procedural protocols as

arbitration proceedings in which an award resulting from a faulty proceeding could be set
aside. Nonetheless, parties who engage in mediation may appreciate the additional assuranceof neutrality of their mediator, which could bolster the reliability of the mediation process
thereby contributing to the Rules’ increased usage.

Needless to say, these requirements would not prohibit parties from appointing a mediator

who in fact lacks "neutrality” where circumstances require, such as when the parties desire toengage their respective general counsel to jointly mediate a dispute which has arisen betweenthem.

3. Multiple Mediators

Notably, the Rules provide procedures for appointing two mediators: one by the applicant

and the other by the respondent (Art. 17.2). In practice, a dual mediator setup can beproductive, for instance in cases where a deep mistrust exists between the parties who desire

to have a mediator that each of them has selected unilaterally. A settlement proposal agreed

by both party-appointed mediators may be more readily accepted by the parties thereby
facilitating early resolution. (While in an abundance of foresight, the Rules further provide forthe possible appointment of three mediators, circumstances requiring such a multitude of
mediators are rather hard to fathom!)

4. Conduct of Mediation Proceedings

Sensibly, the Rules spell out the procedures for commencement of the mediation

proceedings in cases where the parties have an existing negotiated mediation agreement (Art.
12) and where no prior mediation agreement exists (Art. 13).

At the commencement of the mediation proceedings, the Rules require the mediator tod i s c u s s t h e p r o s p e c t i ve p r o c e e d i n g s w i t h t h e p a r t i e s , i n c l u d i n g t h e l a n g u a g e o fcommunication, exchange of written statements and documents, duration of proceedings andwhether the mediator is to proactively offer a proposal for settlement (Art.21.2). The Rules
also confirm that the parties are free to agree to such procedural matters and that suchagreement shall be binding upon the mediator.

1）These disclosure requirements were added to the arbitration rules in response to a 2017 ruling of the Supreme
Court of Japan (Japanese Supreme Court Dec. 12, 2017), which held that arbitrators have an on-going duty todisclose potential conflicts of interest and that such disclosures should include information the arbitrators could have
known through reasonable investigation

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While experienced parties would be aware of the typical conduct of mediation proceedings,

spelling them out explicitly provides welcome visibility to inexperienced parties regarding the
expected mediation process. Of particular importance is whether the mediator will offer a

proposal for settlement—which translates into whether a facilitative or evaluative approach is
to be taken in the proceedings.

As above noted, Japan has a long-standing tradition of evaluative mediation developed in

the practice of judicial settlement by judges in the Japanese court system. While each judge

differs in their approach to these proceedings, most typically the judge would assume anevaluative approach. The judge’ s views are generally well respected by the parties owing to
the judge’ s expertise and, of course, the judge’ s non-negligible “clout” to render a formal
judgement if the parties fail to reach agreement.

Although Japanese practitioners are familiar with the evaluative approach, it is well known

that a facilitative, interest-based approach is gaining prevalence in global mediation practice.

It is therefore important to align the parties’ expectations regarding which type of approach
would be taken in order to enable an effective proceeding.

While there are pros and cons to both approaches, personally I believe the increased use ofa facilitative approach would be valuable in assisting parties to think outside the box of theimmediate dispute at hand, and arrive at a settlement that is most in tune with their true
interests through an analysis encouraged through a facilitative process.
5. Admissibility of Evidence in Other Proceedings

A key addition to the revised Rules—which is not widely found in Japanese civil procedures—is a “without prejudice” provision. This provision prohibits the parties from using as evidence
in any future judicial proceedings oral or written statements made in an attempt to settle thedispute in the mediation proceedings, including the proposal to conduct the mediation,

admissions as to specific matters, proposals for settlement, and views expressed in respect
thereof (Art. 24.2).

The Rules provide specific carveouts for the permitted use of such statements (e.g., indisputes regarding the validity of the settlement agreement itself) (Art. 24.3 to 24.5). These
provisions are generally modelled after the UNCITRAL Mediation Rules (Art. 7) and are a
distinct aspect of the new Rules.

Because the Japanese Civil Procedure Law does not contain a “without prejudice rule” foundunder common law, these provisions seek to replicate the substance of this rule byincorporating it into the parties' mediation agreement. The intended objective is to allow theparties to candidly discuss their settlement proposal without fear of their statements being
used against them if a settlement is not achieved.

Given the paucity of legal precedents in this area in Japanese jurisprudence, there may belimitations in the extent to which these rules would be honored in subsequent judicial
proceedings.

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The New JCAA Mediation Rules and Japan's Future in International Mediation

6. Arbitral Award Based on Settlement and the Singapore Convention

The new Rules address the issue of enforcement of mediated settlement agreements in two

ways.

First, to meet the needs of parties who desire legal enforceability of their settlementagreement, the Rules allow the parties to appoint their mediator as arbitrator and have thearbitrator record the settlement in the form of an arbitral award (Art. 27).

It is rather unusual for parties to require such enforceability after they have gained enoughmutual trust to reach a settlement, but enforceability may be desirable, for instance, if thesettlement requires only one of the parties to make a recurring payment over an extended
period of time.

Whether such form of award—generally referred to as a “consent award” or an “award on

agreed terms” —is enforceable under the New York Convention may be subject to question.

Possible issues may include whether the “consent award” qualifies as an “award,” and whether
the requirement of having a “valid arbitration agreement” is met if the arbitration agreement

is concluded after a settlement has been reached. But despite these possible limitations, it is

helpful to have an enabling provision for parties who desire such additional assurance.

Second, Japan is yet to become a signatory of the Singapore Convention on Mediation,

adopted in 2018 and signed by 53 states, which enables the direct enforcement among its
signatories of a mediated settlement agreement.

But to assist the parties in meeting the Convention’ s requirement to show that thesettlement agreement resulted from mediation, the Rules allow the parties to request that themediator sign the settlement agreement as a witness and for the JCAA to attest that themediation agreement resulted from mediation proceedings administered by the JCAA (Art.
26.2, 26.3).

Because the Singapore Convention does not require the settlement agreement to be enteredinto in a signatory state to be eligible for enforcement, holding the mediation proceedings inJapan would not hinder enforceability of a resulting settlement agreement in a signatory
state. Nonetheless, it is hoped that Japan will eventually become a signatory to the Singapore
Convention to increase the nation’ s appeal as an international ADR center.
7. Mediator Remuneration

The new Rules provide a standard remuneration scheme for mediator remuneration: anhourly rate of JPY 50,000, with a 50% discount for mediator travel time (Art. 30.1). The

Rules also allow the parties to agree to a separate remuneration scheme, indicating a “fixedfee” and “success fee” -based schemes as examples (Art. 30.2).

Many professional mediators have their own established fee schedule, but providing astandard rate provides visibility of the possible fees and could facilitate the parties’ decision touse mediation. The standard rate itself is reasonable and competitive with other mediation

institutions in the Asia region. I have personally found that having a success fee component—for instance by retroactively applying an increased hourly rate in the event a settlement isreached—can be effective in aligning the parties and mediator’ s interests. Indicating a

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"success fee" scheme as an example in the Rules could encourage parties to propose sucharrangement to the mediator to their mutual benefit.
8. Closing Remarks

The new JCAA Mediation Rules provide a practical, streamlined set of rules that effectively

support the resolution of international disputes. The Rules along with the JCAA’ s avid
promotion of their use is hoped to increase the use of mediation to resolve international
disputes in an expedited and mutually beneficial manner. As an advocate of mediation myself,

I hope that the Rules will be a useful addition to the international business community'sarsenal of peaceable means of dispute resolution.

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International Arbitration in Japanese Bankruptcy Cases

Adjunct Professor at Chuo Law School

Shin-Ichiro Abe

Ⅰ．Introduction
1. Conflict between Bankruptcy Law and Arbitration Law

The Bankruptcy Law is a system in which collective resolution is made based on a majority

decision and proportional payment (pro-rata) is made to creditors based on the amount of
their claims from debtor’ s estates, which cannot satisfy all creditors' claims. Arbitration law
is a system based on individual consent between the parties. Therefore, it has been said that

there is a gap between dispute resolution in a collective nature, which is the essential natureof bankruptcy law, and dispute resolution based on individual consent, which is the inherent
nature of arbitration, and the two have not intersected until recent years.
2. Transformation in Insolvency Law - International Insolvency

In insolvency law, especially in international insolvency, we gradually realize the inefficiency

of conducting collective resolution rendered by national courts. In the case of the insolvencyof a multinational company group, the affiliated companies are located in multiple countries
and as a result, the insolvency proceedings occur in multiple countries. This means that eachinsolvency court would independently decide how to deal with the common assets of thegroup companies and how to restructure them. This is not efficient for the rehabilitation of thegroup companies and /or maximizing the group's assets by selling the common assets as awhole and allocating them among the affiliates of the group. Further, if each insolvency courtin each country were to implement this mission separately, there could be differences among

the courts as to the allocation. Therefore it would be more efficient to resolve disputes basedon a unified arbitral award. We gradually recognize the usefulness of using arbitralproceedings in the field of bankruptcy as well.

From this perspective, we will examine how arbitration proceedings can be used in Japanesebankruptcy cases.

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International Arbitration in Japanese Bankruptcy Cases

Ⅱ．Characteristics of insolvency Laws in Japan
In general, there are four main types of bankruptcy procedures available under Japaneselegislation: Bankruptcy under the Bankruptcy Act, Civil Rehabilitation under the Civil
Rehabilitation Act, Corporate Reorganization under the Corporate Reorganization Act, andSpecial Liquidation under the Companies Act. Bankruptcy and Special Liquidation areprocedures for liquidation and are designed to distribute debtor’ s estate to creditors pro-rata,

based on the dissolution of its business. Conversely, the procedures under the Civil

Rehabilitation Act and the Corporate Reorganization Act are laws for business rehabilitation.
But there are significant differences between these two procedures despite sharing the aim ofbusiness rehabilitation. Civil Rehabilitation is mainly a Debtor In Possession (DIP) -type
procedure in which the existing management of the debtor stay in office to restructure thecompany1）, similar to Chapter 11 proceedings under the United States Bankruptcy Code. In

the case of Corporate Reorganization, the bankruptcy court appoints a trustee to manage andcontrol the company's assets, prepare a reorganization plan, and pursue the task ofreorganizing the company. Another major difference between the two types of procedures isthat only unsecured creditors are bound under the Civil Rehabilitation proceedings whereas
both secured and unsecured creditors are bound under the Corporate Reorganization
proceedings.

Concerning the requirements for filing for insolvency proceedings, for example, inBankruptcy proceedings, if a company is in deficit (i.e., its liabilities exceed its assets) or

insolvent (i.e., it is unable to pay its debts as they become due), the court will declare anorder of commencement of the case and the company will enter into insolvency proceedings.2）

The trustee appointed by the bankruptcy court has the obligation to terminate the debtor'sbusiness, sell the assets and collect the accounts receivable in order to maximize the debtor’ s

estate. Also, the trustee will investigate the existence and amount of claims filed bycreditors,3） and make pro-rata payments from the debtor’ s estate after the trustee completessuch investigations. In the process, the trustee is granted special powers, such as avoidance
powers under which unfair or preferential transactions implemented immediately before

bankruptcy, such as partiality to creditors, could be denied and the property of the transaction
could be returned to the debtor’ s estate.4）

Ⅲ．Commencement of Insolvency Proceedings in Japan and Types ofInvolvement of Arbitration
1. In the past, the use of arbitration in insolvency proceedings in Japan was extremely rare

and there were few precedents. However, with the enactment of the Act on Recognition and
1）See Article 38 (1)of the Civil Rehabilitation Act.
2）See Article 15,16 of the Bankruptcy Act.
3）See Article 117 of the Bankruptcy Act.
4）See Article 160 of the Bankruptcy Act.

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Assistance of Foreign Insolvency Proceedings and the Civil Rehabilitation Act in 2000, and therevision of the Bankruptcy Act and the Corporate Reorganization Act in 2004, Japan has
adopted the UNCITRAL Insolvency Model Law ( “Model Law” ) throughout its insolvency legal
system. In this trend, Japan also shifted from the past territorialism to universalism (althoughwith some limitations). Further, many international insolvency cases such as the Lehman casehave come to involve the debtor’ s Japanese subsidiaries (group companies) and their

creditors. Thus, Japanese practitioners and scholars specializing in insolvency have become
interested in the efficiency of insolvency cases and the maximization of debtor estates throughcooperation with other affiliates located in various countries in international insolvency casesof group companies. How to utilize the arbitration system in relation to insolvency cases has
become an important issue in Japan.

2. Insolvency proceedings are commenced by an order of commencement of insolvency
proceedings issued by the court. The intersection of arbitration proceedings with insolvency
proceedings can be examined from four different aspects depending on the stage of thearbitration proceedings at the time the insolvency proceedings have commenced: (1) wherean arbitral award has already been made prior to the commencement of insolvency
proceedings; (2) where insolvency proceedings are commenced after arbitration proceedings

are already in progress; (3) where an arbitration agreement has been reached between theparties before insolvency proceedings are commenced and there is an issue as to whether
new arbitration proceedings can be initiated or not on the basis of the former arbitrationagreement; and (4) where an arbitration agreement is established after the commencementof insolvency proceedings and there is an issue as to whether new arbitration proceedings canbe initiated or not.

In this article, I would like to examine the cases described in items (1) to (3) in theforegoing where the arbitration agreement is made before the order of commencement ofBankruptcy proceedings under the Bankruptcy Act, which is the most widely used procedure
for Japanese insolvencies among the insolvency procedures available under Japanese law.

Ⅳ．Cases in which an arbitral award has already been made before the orderof commencement of bankruptcy
1. Enforcement of arbitral awards

In Japan, arbitration applies to civil disputes that can be settled between the parties.5） If an

arbitral award has been made for the civil dispute, and then one of the parties has beenordered to commence bankruptcy proceedings by the bankruptcy court, we can examine if
one party can enforce the arbitral award against the adverse party.

5）Article 13(1) of the Arbitration Act provides that except as otherwise provided for in laws and regulations, an
Arbitration Agreement shall be effective only when the subject thereof is a civil dispute (excluding disputes ofdivorce or dissolution of adoptive relation) which can be settled between the parties.).

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International Arbitration in Japanese Bankruptcy Cases(a) When a trustee enforces an arbitral award

When a court decides to commence bankruptcy proceedings, a trustee is appointed by thebankruptcy court at that time.6） In Japan, experienced lawyers are appointed as trustees inbankruptcy. This trustee has the right to manage and dispose of the debtor’ s estate and cancollect claims belonging to the debtor’ s estate.7） Based on the arbitral award, the trustee has
the right and obligation to execute the claim against the other party. The proceeds should be
moved to the debtor’ s estates.

(b) When a creditor executes the process based on an arbitral award

What about such cases as where a creditor executes the award when the adverse party (thedebtor) to the arbitration fails to perform its obligation voluntarily? Before the adverse party
enters into insolvency proceedings, individual enforcement of the arbitral award may be

carried out in accordance with the arbitration laws of each country, the New York Convention(1958), the ICSID Convention(1966), or bilateral treaties.

However, once an order is issued to commence bankruptcy proceedings against the adverse

party (the debtor), repayment should be conducted under the Claims Determination

Procedure.8） Under the Japanese Bankruptcy Act, i) a creditor files a proof of claims to thecourt, and then ii) the trustee would investigate the existence and amount of the filed claim,
as well as the priority and subordination of the claim, and iii) the trustee would decide

whether or not to approve or reject the claim. If the bankruptcy trustee recognizes the claim
as a result of the investigation and the other filed creditors do not raise any objection, theclaim is confirmed as a bankruptcy claim. Therefore, in practice, if a creditor does not file a

proof of claim based on the arbitration decision at the court, he or she will not be able toreceive anything in the distribution under the Bankruptcy Act.

2. Whether or not the arbitral award is a claim with Enforceable Title of Obligation etc.

Among the claims recognized, those with enforceable titles of obligation or final judgments

are called "named claims", and the fact that claims which obtained the enforceable title ofobligation before the commencement of bankruptcy proceedings are respected, and burden of

proof regarding the existence or non-existence of claims, the amount of claims, and the priority

or subordination of claims is shifted.9） The Bankruptcy Act does not prescribe or specify theword "arbitral award" but includes the final judgment as to the "named claim." Therefore, it
has been debated whether an arbitral award can become a named claim and the burden of

proof can be shifted to the creditor. There is no case law in Japan. The majority opinion is that
6）See Article 31(1) of the Bankruptcy Act.
7）Article 78(1) of the Bankruptcy Act provides that where an order of commencement of bankruptcy proceedings ismade, the right to administer and dispose of property that belongs to the bankruptcy estate shall be vested exclusively
in a bankruptcy trustee appointed by the court.
8）See Article 111(1) of the Bankruptcy Act.
9）See Article 129(1) of the Bankruptcy Act. Makoto Ito et al., Jokai Hasanho(2nd Edition) , 2014, p.908, Katsumi
Yamamoto et al., Shin-Kihonho Comental , 2014, 289).

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an arbitral award becomes a named claim in the same way as a final judgment.10）

I agree with the majority opinion. The purpose of shifting the burden of proof is that it not

only respects the status of the claim that can be immediately enforced but also the probabilityof the existence of the right.11） Also, the form of an arbitral award has been recognized as thesame effect as a final and binding judgment under the Arbitration Act.12）
3. How to deal with cases where assets are located outside Japan

Under the Japanese Bankruptcy Act, based on the principle of universality mentioned above,assets outside Japan constitute the debtor’ s estate,13） and the trustee is granted the right tomanage and dispose of such assets. Therefore, if a debtor's assets exist outside Japan at thecommencement of the bankruptcy case, they should not be disposed of without thepermission of the trustee. However, in the context of international arbitration, if an arbitralaward is made overseas and the adverse party would be subsequently ordered to commence

bankruptcy, the creditor who wins the arbitration may realistically be able to execute on thebankrupt's overseas assets based on the New York Convention, etc.. This action may be

executed in secret with the knowledge of the other party's bankruptcy, or it may be done ingood faith without knowing of the bankruptcy. In cases where execution by the other party isin progress and has not yet been concluded, the trustee has the power and obligation toassert objections to the execution, such as a stay or revocation, to the foreign court that is

conducting the execution.14） In such a case, the trustee must obtain approval from therelevant foreign court to be a representative of the foreign insolvency proceeding and undergo
assistance procedures. The U.S. Bankruptcy Code, which adopted the Model Law, provides forprocedures based on Chapter 15, and in Japan, based on the "Act on Recognition andAssistance of Foreign Insolvency Proceedings," which was adopted with reference to theModel Law, measures are provided for the recognition in Japan of representatives of foreign
insolvency proceedings outside Japan and assistance in execution including debt collection.

In addition, if a creditor is unable to satisfy all of the claims recognized in an arbitral award byexecuting on assets abroad and files a proof of claim in Japan, the question arises as to how thetrustee in bankruptcy will deal with the claim. In this regard, under the Japanese Bankruptcy Act,bankruptcy creditors who have received payment in a foreign country may file proofs of claim in
the amount of their claims at the time of the decision to commence Bankruptcy proceedings, i.e.,

the amount of their claims before receiving payment from debtor's assets.15） However, he or she
may not receive the final distribution until other bankruptcy creditors of the same rank receive the10）Makoto Ito, Hasanho Minjisaiseiho (4th Edition) , 2018,p.684
11）Junichi Matsushita, Insolvency Legal System and Arbitration(3), JCA Journal 94/6 , 1994, p.33.
12）See Article 45(1) of the Arbitration Act. Hideo Saito et al., Chukai Hasanho (Ge) (Third Edition),2002,546.
Professor Kazuhiko Yamamoto reports that in the discussion at the UNCITRAL General Assembly, arbitration is"substantially the same as litigation" and can be read as "procedure" even though there is no explicit text, Commentaryon the UNCITRAL International Model Law (5), NBL No. 636 , 1998, p.53.
13）See Article 34 of the Bankruptcy Act.
14）Ito, Hasanho Minjisaiseiho , p.267.
15）See Article 109 of the Bankruptcy Act.

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same percentage of the distribution as he or she received from the overseas assets.16） From thestandpoint of fairness, this is called the "hotchpotch rule" because it helps to equate the collectionof claims from overseas assets with the distribution from the debtor’ s estate.

Ⅴ．If an arbitration proceeding is commenced and an order to commence
insolvency proceedings is made against one party, can the arbitration
proceeding be continued thereafter?
1. Outcome of ordinary court proceedings in JapanI will first explain how the court proceedings will be affected if bankruptcy proceedings arecommenced against one party while court proceedings are pending between the parties. Under

the Japanese Bankruptcy Act, when a decision to commence bankruptcy proceedings is made, theproceedings in which the bankrupt is one party are suspended.17） Since the trustee is allowed to
be a party to the lawsuit regarding the debtor’ s estate, the trustee obtains standing to represent
the debtor in filing a new lawsuit regarding the debtor’ s estate after the commencement of thecase.18）The outcome of the discontinued lawsuit can be divided into two major categories.

First, if the lawsuit does not relate to bankruptcy claims, the trustee may take over the

discontinued lawsuit.19） This is the case, for example, when a bankrupt makes a claim against

an account receivable. The trustee takes over the interrupted lawsuit and if the trustee wins
the case, the estate will be multiplied.

Second, if the lawsuit concerns bankruptcy claims, the opposing party in bankruptcy will filea proof of claim with the court. As mentioned above, the claim determination procedures
under the Bankruptcy Act provides for a simple and expeditious procedure for establishingclaims. The trustee investigates the existence, amount, and priority of the filed claims, and if

the filed claims are recognized, the claims are confirmed.20） On the other hand, if the trustee

does not recognize the claim, or if the bankrupt or other creditors would file an objection to

the claim, a lawsuit to determine the claim would be initiated.21） In this case, if litigation incourt was ongoing prior to the commencement of Bankruptcy proceedings with respect to thisclaim for which the trustee does not recognize or to which the bankrupt or other creditors
object, the case will be taken over.22）

2. Dealing with cases where there is an arbitration proceeding already in progress
before the commencement of bankruptcy

In such a case, how will arbitration already in progress prior to Bankruptcy be handled?
16）See Article 201(4) of the Bankruptcy Act.
17）See Article 44(1) of the Bankruptcy Act.
18）See Article 80 of the Bankruptcy Act.
19）See Articles 127 and 128 of the Act of Civil Procedure and Article 44(2) of the Bankruptcy Act.
20）See Article 118 of the Bankruptcy Act.
21）See Article 125 of the Bankruptcy Act.
22）See Article 117 of the Bankruptcy Act.

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2.1

Will an arbitration agreement expire due to an order to commence the

Bankruptcy case?

If the arbitration agreement expires due to the order to commence the Bankruptcy case,then the existence, amount, and nature of claims related to Bankruptcy claims will be
determined by using the subsequent claim determination procedures. As for claims related tothe debtor's property, the trustee will have to file a new lawsuit.

In this regard, the majority opinion is that the arbitration agreement does not expire andthat the trustee is bound by the arbitration agreement entered into by the bankrupt.23） The
theory of lapse is not appropriate because it does not respect the arbitration agreement, andit excludes all other considerations without uniformly taking them into account.
2.2

Whether arbitral proceedings will be suspended or not

Arbitral tribunal should decide under the doctrine of kompetenz-kompetenz if the arbitralproceedings should be suspended or not. There is no provision under the Bankruptcy Act onwhether or not arbitral proceedings are to be suspended.24） The majority opinion suggeststhat it would be appropriate to read "a lawsuit" to include "arbitration" in "cases where alawsuit is pending at the time of commencement of bankruptcy proceedings.25） Under Article

20(1)(a), Article 21(1)(a) of the Model Law there is no mention of arbitration, but it isunderstood that arbitration is the same as litigation. In Hudson and others v The Gambling
Commission the U.K. High Court also held that arbitration is included in legal proceedings.26）

If arbitration proceedings would be suspended the trustee can take over the action

discontinued under the same reasoning.
2.3

W h e t h e r c l a i m s c a n b e d e te r m i n e d by a r b i t ra t i o n ra t h e r t h a n by c o u r t

proceedings or not

Is it possible to determine claims through arbitration rather than in court? There may be

one case allowing the arbitral award to confirm the file of claims. However, it is quite old andthe details are not clear.27）

Failure to file a proof of claim will disqualify creditors from receiving a distribution in

Bankruptcy proceedings. Therefore, in order to receive a distribution, a proof of claim must be23）Ito, Hasanho Minjisaiseiho , p.632, Hajime Kaneko et al., Jokai kaisha Koseiho (chu) 2001,p.729, Daisuke
Shimaoka et al., Bankruptcy and Litigation , 2013, p. 484.
24）See Article 44(1) of the Bankruptcy Act.
25）Makoto Ito, "The Intersection of Bankruptcy Claims Determination Procedures, Foreign Litigation Procedures,and Arbitration Procedures," Kinyu Houmu Jijo No. 2140 ,p. 37, Aritoshi Fukunaga, New Special contracts andInsolvency Act , 1988, p. 217, Junichi Matsushita, Insolvency Legal System and Arbitration (2), JCA Journal l94/5 ,1994, p. 17, Hamada-Tomimatsu, "Procedural Intersection of Domestic Insolvency and Foreign Arbitration," NBL No.
1048 , p. 22.
26）In Hudson and others v The Gambling Commission (Re Frankice (Golders Green) Ltd [2010] EWHC 1299 (Ch) (6May 2010).
27）Noboru Koyama, "A case in which a reorganization claim was settled by the arbitral award," Jurist No. 1001 ,1992, p. 116.

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filed at the court. The question is whether the filed claim has to be confirmed only by the
court or whether the confirmation can be done through arbitration.

This became an issue in re Bresco case28）, where the opinion of the U.K. Supreme Court

states that "Where there are real disputes between the company and third parties (who may

be creditors or debtors) the insolvency code is inherently flexible as to the best means fortheir resolution. A disputed pending claim (in court proceedings or in arbitration) against thecompany (as at the cut-off date) may be allowed to continue by the liquidator or by the court
supervising the insolvency process, as the best means of resolving the dispute," which should
include arbitration in our discussion.

Professor Westbrook argues that bankruptcy courts should try to honor the arbitrationagreements unless the arbitration will 1) be too slow, 2) cost too much, 3) involve something
too important to the bankruptcy case, or 4) not likely to be enforceable under the NY
Convention.29）

The Japanese traditional theory that the determination of claims is in the exclusive

jurisdiction of the courts has been prevailing until now. The rationale was that thedetermination of claims should be done by the national court, and /or that third party
protection should be critical, i.e. not only the trustee but also other creditors (third party)
could raise objections under this procedure.30）

However, there is also a prevailing new theory that the determination of claims can besubstituted by arbitration.31） In my opinion, since the Act for the Promotion of the Utilization of

ADR enacted in 2004 implemented the government's policy that "ADR should be expanded andencouraged for the purpose of its becoming an attractive option along with the court
litigation,"32） arbitration should be allowed in the determination of claims to the extent possible.

We should consider that the intention of the parties who choose to agree to arbitration should
be respected as much as possible. The validity of arbitration agreements should be honored aslong as they do not impose a significant burden on the third party who objects to the claims.
2.4

A further problem is that even if arbitration can replace the claim determination

procedure at the court, who decides which one to choose?

One opinion is that the court will make the decision33） and another is that the trustee will

make the decision.34） However, even if the court would make the decision, it will ask theopinion to the trustee who knows the case much better than the court, and even if the trustee

would make the decision, it will inevitably obtain the permission of the court, so the conclusion
will be the same.

28）Bresco Electrical Ltd (in liq) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25, at paras 33 and 34.
29）Jay Westbrook, International Arbitration and Multinational Insolvency, 29 Penn St. Intl. L. Rev. 635 (2010).
30）Takashi Sonoo, "Notification of Claims and Investigation of Claims Regarding Foreign Claims," in Investigationof Claims and Distributions by Trustees , p. 614.
31）Ito,The Intersection of Bankruptcy Claims , p. 34, 37.
32）Judicial System Council Opinion, p. 35.
33）Etsuko Sugiyama, "Arbitration Agreement in Bankruptcy Proceedings," Arbitration and ADR No. 10 , 2015, p. 10.
34）Hamada and Tominaga, Procedural Intersection , p.23.

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2.5 Cases where arbitration proceedings were commenced in a foreign country andBankruptcy proceedings were commenced in Japan and the arbitral award was orderedin the absence of a trustee

Even if a decision to commence Bankruptcy proceedings is issued in Japan while arbitration

has been commenced, it may happen that the arbitration proceeding is continuing outside
Japan without the involvement of the trustee, who has the capacity to be a party in thearbitration. This would cause the result that the trustee would be deprived of the right toparticipate in the arbitration and dispose of the debtor’ s estate. Therefore, an arbitral award
would be invalid and unenforceable.

In practice, however, if the claim being disputed at an arbitral tribunal outside Japan is a

Bankruptcy claim, the arbitration proceedings may be continued without filing a proof of claimin Japan, and the author has had experience with such cases.

Note 180 of the UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment

and Interpretation (regulating Article 20) explains the following situation: "Thus, article 20

establishes a mandatory limitation of the effectiveness of an arbitration agreement. This

limitation is added to other possible limitations restricting the freedom of the parties to agree

to arbitration that may exist under national law (e.g. limits as to arbitrability or as to thecapacity to conclude an arbitration agreement). Such limitations are not contrary to thearbitration agreement). Such limitations are not contrary to the Convention on the Recognition

and Enforcement of Foreign Arbitral Awards of 1958. However, bearing in mind theparticularities of international arbitration, in particular its relative independence from the legal

system of the State where the arbitral proceeding takes place, it might not always be possible,
in practical terms, to implement the automatic stay of arbitral proceedings. For example, if

the arbitration does not take place in either the enacting State or the State of the mainproceeding, it may be difficult to enforce the stay of the arbitral proceedings."

As mentioned above, a creditor who fails to file a proof of claim under the Japanese

Bankruptcy Act may be excluded from receiving a distribution from the debtor’ s estate. The

party can not execute an arbitral award against the trustee because the trustee is not a party
to the proceedings.

However, as a consequence of the trustee not being able to participate in the arbitration,

the bankrupt company (the debtor), not the trustee, still a party to the arbitration after thecommencement of the bankruptcy case, would lose the case, and as a result compulsory
execution against the overseas assets of the debtor company may, in fact, be carried out.

Under such circumstances, the trustee in the Japanese Bankruptcy proceedings may be toobusy to submit an objection promptly to the foreign execution at the foreign court. In suchcases, the trustee may need to seek a conciliated solution with the permission of the Japanesecourt.

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Ⅵ．Relationship between the power of trustee and arbitration proceedings
1. Exercise of Trustee's Specific Rights

In this section, we will assume a case where, after an arbitration agreement has been

performed, an order of commencement of Bankruptcy is issued and a trustee exercises its

powers of avoidance under the Bankruptcy Act35） with respect to preferred transactions basedon a contract between the debtor and the other party. In this case, since an arbitrationagreement has been made between the parties, the question is whether or not the trustee isbound by this agreement and whether the trustee may exercise avoidance powers inside thearbitration proceeding without court litigation?

The subject of arbitration agreements are civil disputes that can be settled by the parties,36）

but it is also recognized that there are subjects that are inappropriate to be resolved byprivate arbitration by the parties. For example, the Bankruptcy Act provides for a trustee’ s

avoidance powers, the right of setoff,37） the right to determine priority of Bankruptcy claims,

etc., which are rights uniquely provided for to the trustee by the Bankruptcy Act from theviewpoint that the trustee represents the rights of all of the creditors. It is recognized that thepriority of Bankruptcy claims, etc. is not in the nature contractual rights that can be freely

agreed upon by the parties, but rather derived from mandatory law to protect common
interests of society, and is not a right that can be freely disposed of by the parties because itis related to important public policies.38）

Thus, even if the parties agree to arbitrate, there are claims that do not fall within the scopeof the agreement. The majority opinion is that the trustee is not bound by the arbitrationagreement because avoidance power is a special right specifically granted only to the trusteeby the Bankruptcy Act and the nature of the right is different from the rights given by or to
the bankrupt company.39）

The United States Bankruptcy Court also previously held that not all bankruptcy disputes

are arbitrable, but has recently changed its approach to determining which "core bankruptcy

35）Article 160 of the Bankruptcy Act provides that (1)The following acts (excluding acts concerning the provisionof security or extinguishment of debt) may be avoided in the interest of the bankruptcy estate after the commencementof bankruptcy proceedings:(i) An act conducted by the bankrupt while knowing that it would prejudice bankruptcy creditors; provided, however,that this shall not apply where the person who has benefited from said act did not know, at the time of the act, thefact that it would prejudice any bankruptcy creditor.
(ii) An act that would prejudice bankruptcy creditors conducted by the bankrupt after suspension of payments or filingof a petition for commencement of bankruptcy proceedings (hereinafter referred to as "suspension of payments, etc."
in this Section) took place; provided, however, that this shall not apply where the person who has benefited from said
act did not know, at the time of the act, the fact that suspension of payments, etc. had taken place nor the fact thatthe act would prejudice any bankruptcy creditor.
36）See Article 13(1) of the Arbitration Act.
37）See Articles 71 and 72 of the Bankruptcy Act.
38）Morio Takeshita, The Study On Litigation Agreement, HogakuKyokai Zassi No81-4 , 1965, p. 377.
39）Kazuhiko Yamamoto, "Legislative Issues of Various Lawsuits in Bankruptcy Cases," in Bankruptcy and
Litigation , 2013, note 21, p. 484.

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51issues" are discussed whenever issues are raised at the court.40）

In re Larsen Oil in Singapore, a clear distinction was made between disputes based on rights

and obligations prior to insolvency and those arising in the course of the conduct of insolvency

and insolvency-related laws and regulations.41, 42） In re Tanning in Australia, Justice Brennan
and Dawson J. agreed on this approach.43, 44）

It should be noted, however, that the U.S. Bankruptcy Judge Hon. Allan L. Gropper statedthat arbitration proceedings can be used for bankruptcy "core" disputes as long as the party
who does not consent to arbitration would not be impaired.45）

In the past, the prevailing view was that arbitration agreements entered into by parties

prior to the commencement of bankruptcy would not be applicable to such rights as can only

be exercised by the trustee in bankruptcy after the commencement of the case, such as apreferential transaction. This is the case whether we call these rights inherent to the trustee
or the core of the bankruptcy case, etc. It is true that the trustee, who is the representativeof all creditors, has the discretion to invoke the trustee's inherent rights, such as avoidance
powers. On the other hand, with regard to the determination of the facts that are the precondition for exercising avoidance powers, and the existence and amount of damages andrestitution based on the exercise of avoidance powers as a cleanup resulting from the contract

between the parties, it is rather within the scope of agreed arbitration to have the above
dispute resolved between the parties. It may be suitable to use the arbitration process insome cases for smooth return of assets from the adverse party to the debtor’ s estate or
payment of compensation of damages if the exercise of avoidance powers would be allowed.

It may be possible and useful for asking the arbitral tribunal to determine the facts based on

the claims of the parties with their professional knowledge, experience, and efficiency.

Compared to the case where the losing party would be reluctant to pay restitution orcompensation for damages even if the trustee prevails in the litigation, an arbitral award,
which results from a consensual process agreed to by the parties, would encourage voluntary
performance and less time and money consuming method for resolution.

In addition, in exercising avoidance powers, it would be worthwhile considering a hybrid

structure such as court proceedings with the combination of a partial arbitration proceeding.

For example, the arbitration proceeding may be adopted for the determination of the facts
and the court can have the task of determining whether or not the exercise of avoidance

powers should be allowed based on the arbitration proceeding. Certain academics in the U.S.
40）Arbitration and insolvency disputes: A question of arbitrability, INSOL SPECIAL REPORT , 2020, note 14.
41）Larsen Oil & Gas Pte Ltd v Petroprod Ltd [2011] SGCA21.
42）Arbitration and insolvency disputes: A question of arbitrability, INSOL SPECIAL REPORT , 2020, p. 15.
43）Tanning Research Laboratories Inc v O'Brien (1990) 91 ALR 180 (HCA) at paras 184 to 185.
44）However, In re Nori Holdings (Nori Holdings Ltd v Public Joint-Stock Co" Bank Otkiritie Financial
Corporation" [2018] EWHC 1343(Comm)), which involved a Russian bank, the court took a different approach.
45）Allan L. Gropper, "The Arbitron of Cross-Boarder Business Insolvencies." https://s3.amazonaws.com/tlddocuments.llnassets.com/0016000/16496/the%20arbitration%20of%20cross-border%20business%20insolvencies.pdf.
p.229.

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International Arbitration in Japanese Bankruptcy Casesargue that a non-binding or semi-binding arbitration process would be better for cooperation
between the court and arbitral tribunal. This asserts a structure in which the parties

understand that they will need to comply with the arbitral awards as a general rule, but ifthey are dissatisfied with the award, they can appeal to the court, and the court will make its

decision from its own standpoint, taking into account the reasons for the arbitration award.46）

While this structure seems not to be a formal arbitration structure we can examine if such a"quasi" arbitration approach would be realistic or not if the seat of arbitration is in Japan.

However, even if we adopt the traditional view that a trustee's inherent rights such as

avoidance powers cannot be arbitrated under the existing arbitration agreement, it would bepossible for the trustee to resolve disputes by entering into a new arbitration agreement withthe creditor who benefited from the preferential transaction with the debtor company before
commencement of bankruptcy proceedings.

2. Can the trustee reject the arbitration agreement?

Can a trustee reject an arbitration agreement when the adverse party submits request forarbitration stating that there exists an arbitration agreement between them ? Since Article 53of the Bankruptcy Act provides an executory contract clause where the trustee has the rightto assume or reject the contract it has been debated whether this article can be applied to an
executory contract which includes arbitration agreements.47）

Arbitral tribunal should decide under the doctrine of kompetenz-kompetenz if rejection of

the executory contract by the trustee would be effective or not. We understand from aJapanese Supreme Court decision that the arbitration agreement clause is separable from its

main contract.48） Therefore we can say that the arbitration agreement stipulated in thecontract is not subject to termination because the contents of the contract are separable.

Article 13(6) of the Arbitration Act stipulates that a contract clause that includes an arbitrationagreement will not prevent the arbitration agreement from being effective even if the contract

clause other than the arbitration agreement is invalid or rescinded.49） The purpose of thisclause is that the independence of the arbitration agreement, and then this independence

could extend to cases where the trustee rejects the executory contract because the parties'

intention to settle the aftermath of the termination of the contract through arbitration shouldbe the same and valid both under contract law and under the Bankruptcy Act.50）

46）Edna Sussman and Jennifer L. Gorski, "Capturing the benefits of Arbitration for Cross Border Insolvency
Disputes" in Contemporary Issues in International Arbitration and Mediation, The Fordham Papers 2012 , 2012, p. 170.
47）Article 53 (1) of the Bankruptcy Act provides that (1) if both the bankrupt and his/her counterparty under an
executory contract have not yet completely performed their obligations by the time of commencement of bankruptcy
proceedings, a bankruptcy trustee may cancel the contract or may perform the bankrupt's obligation and request thecounterparty to perform his/her obligation.
48）Supreme Court, July 15, 1975, Kinyu Houmu Jijo No. 767 , p. 32.
49）Article 13(6) of the Arbitration Act provides that in regard to a single contract containing an Arbitration
Agreement, even if the clauses of the contract other than that of the Arbitration Agreement are not valid due to nullity,
rescission, or for any other reasons, the validity of the Arbitration Agreement shall not be impaired automatically.

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Ⅶ．Restrictions based on public policy
There are cases where public policy restricts arbitral awards. Although the concept of public

policy representing the common interests of society differs from country to country, theJapanese Arbitration Act clearly states that this public policy may be a ground for setting aside

an arbitral award or a ground for the annulment of enforcement under the arbitral award.51）

These provisions are in line with Article 36 of the Uncitral Model Law on International
Commercial Arbitration(1985).

In relation to insolvency, especially in situations where recognition and assistance of foreign

insolvency proceedings are provided, it is expected that recognition may be dismissed on the
grounds that the court's disposition of assistance is contrary to public policy in Japan.52）

Japanese courts issued several decisions regarding public policy in relation to arbitration.
In the Tokyo District Court decision of January 28, 2015,53） the Tokyo District Court heldthat in Corporate Reorganization cases, disputes such as the nature and priority of claims andwhether or not setoff is prohibited under the Corporate Reorganization Act are issues outside
the scope of the arbitration agreement. To summarize the case, an arbitration agreement

between the parties to the time charter contract had been made before issuing the order tocommence corporate reorganization proceedings. The agreement includes that any dispute

between the shipowner and the charterer (the debtor) would be referred to arbitration in

London. The Tokyo District Court ruled that the above issues were not within the scope of thearbitral agreement because the above issues are inherent in the interpretation of the

Corporate Reorganization Act of Japan, and that it is difficult for arbitrators who would be
appointed in London to make an appropriate judgment about Japanese law, and that evenunder English law, it is not permitted to conduct arbitration proceedings against a bankrupt
company except in special occasions.

This decision deals with a matter of priority of claims named common benefit claims, which

is a special claim set forth in the Corporate Reorganization Act, and therefore deciding thepriority of claims should be a matter beyond the scope of arbitral agreement. It also statesthat matters such as setoff in the Corporate Reorganization Act are beyond the scope ofagreement in arbitration.

In the Tokyo District Court decision of June 13, 2011,54） the Tokyo District Court held that50）Junichi Matsushita, Insolvency Legal System and Arbitration (4), JCA94/7 , 1994, p. 15, Sugiyama, Arbitration
Agreement , p. 9.
51）See Article 44(1)(viii), Article 45(2)(ix) of the Arbitration Act.
52）Article 21(3) of the Act on Recognition and Assistance of Foreign Insolvency Proceedings provides that if any of
the following items applies, the court shall dismiss with prejudice on the merits a petition for recognition of foreign
insolvency proceedings: (iii) where it is contrary to public policy in Japan to render a disposition of assistance for theforeign insolvency proceedings pursuant to the provisions of the following Chapter.
53）Hanrei Jihou No. 2258 , p. 100.
54）See Article 44(1)(viii) of the Arbitration Act. See Jurist No. 1447 , p. 107 and No. 1456 , p. 161.

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International Arbitration in Japanese Bankruptcy Cases"procedural public policy" is included in the public policy stipulated as a ground for setting

aside an arbitral award. To summarize the issue in this case, in the final argument after theconclusion of the hearing by the arbitral tribunal, the sole arbitrator did not take into
consideration the argument newly raised in the documents submitted by the respondent anddetermined that there was "no dispute" of the facts surrounding the case. The court held that"to render an arbitral award without determining important matters that the parties havelegitimately and procedurally submitted and that may have an impact on the main text of thearbitral award... is, for the parties, tantamount to not having received the arbitral award, andtrustworthiness in arbitration would be impaired. Under this condition, it would be contrary to
the principle of the fairness of arbitration and against the procedural public policy of Japan.

In re Manse Kogyo the Supreme Court indicates that the compulsory execution of a claim

for punitive damages included in an arbitral award is not permitted due to public policy inJapan.55） The reason for the decision was that the system of punitive damages is intended tosanction the perpetrator of a highly malignant act by ordering the payment of additional
compensation in addition to the compensation for the actual damage caused, for the purposeof preventing the perpetrator from making similar wrongful action in the future. On the other

hand, Japan's tort compensation system is designed to compensate for the actual damages
incurred by the victim, so allowing punitive damages is inconsistent with the basic principles
of public policy and principles of Japan's tort compensation system.

Ⅷ．Conclusion
It is clear that there is an urgent need to examine the applicability of arbitration proceedings

to Japanese insolvency cases in light of recent examples of insolvency cases involving
international group companies.

The issues which I mentioned in this article are based on the premise that there is anarbitration agreement prior to the commencement of the insolvency case. We, however,recognize other cases, such as the Lehman case, where arbitration proceedings werecommenced with a new arbitration agreement (protocol) after the commencement of theinsolvency proceedings. The representative of the Japanese subsidiary did not participate in
the protocol but was only indirectly involved as an observer of the protocol meeting. It would
be possible for the parties to enter into an arbitration agreement after the commencement of
the Bankruptcy case with the permission of the bankruptcy court and begin the (ad hoc)55）The Supreme Court decision of July 11, 1997. See Jurist No.1129 , p.106.
56）See Article 78(2)(xi) of the Bankruptcy Act.
57）Nortel's subsidiaries in Canada, the U.K., and the U.S. sold 3.7 billion U.S. dollars of intellectual property. They
have disputed the allocation of the proceeds. While the U.S. and Canadian court decided that dispute should besettled at the court because there was no arbitral agreement between the subsidiaries the U.S. judge mentioned that
arbitral tribunal could be used, if the arbitral agreement would exist, in the case of international insolvency. See
Edna Sussman and Jennifer L. Gorskie, Capturing the Benefits for Arbitration for Cross Border Insolvency Disputein Contemporary Issues in International Arbitration and Mediation The Fordham Papers 2012 , p. 165.

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arbitration proceedings in Japan.56） In the Nortel case, the judge recognized that it waspossible for multiple subsidiaries of Nortel to jointly sell common assets and decide theallocation of the sale proceeds among the above subsidiaries by arbitration.57）

The use of arbitration in insolvency proceedings, especially in international insolvency

proceedings, may become standard in the future. For reasons of space, I will leave the detailsof this to the next time.

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Kasumigaseki International Law OfficeInternational Arbitration Chambers

Kasumigaseki Building, 23F, 3-2-5,
Kasumigaseki, Chiyoda-ku
Tokyo, 100-6023, Japan
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including international litigation, arbitration and mediation, we serve as independent arbitrator
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and international dispute resolutions, for large, middle, and small sized companies, on various
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Impartiality and Independence Through Disclosure:
Comparative Review of Recent Cases ㏌ Japan andEngland
Nishimura & Asahi1）

Natalie Yap

Ⅰ．Introduction and the purpose of disclosure
On 12 December 2017, about three years before the judgment of the English Supreme

Court in Halliburton Company v Chubb Bermuda Insurance ( “Halliburton ” ) was handed
down,2） the Japanese Supreme Court issued its decision in a case between Sanyo Electric Co.

Ltd and Sanyo Asia Pte Ltd against Prem Warehouse LLC and Prem Sales LLC ( “Sanyo ” ).3）

Central to any case concerning arbitrator bias is an awareness that there may be unseen

associations between an arbitrator and a party or a party’ s counsel that consciously or
unconsciously affect the arbitrator.

An arbitrator’ s duty to disclose is intended to dispel any disquiet about such associations

and serves two purposes: first, it helps an arbitrator avoid the appearance of bias, as the very

act of withholding potentially relevant information could, of itself, give rise to an appearanceof bias toward or against one of the parties. Second, keeping the parties properly informed ofpotentially relevant facts gives them an opportunity to consider the facts disclosed and decide
what action, if any, is required as a consequence of the disclosure. Conversely, not disclosing
such information deprives a party of that choice and may later provide grounds to challenge
the arbitrator or the enforcement of any arbitration award published.

In this way, disclosure supports both party automony and the regime for challenging an

arbitrator, a point noted by the Japanese Supreme Court in the Sanyo case:

The purpose of this obligation is understood as to secure the effectiveness ofthe system for challenging an arbitrator by allowing the par ties toappropriately file a petition for a challenge by causing the arbitrator todisclose facts more broadly than facts constituting “reasonable grounds todoubt the impartiality or independence of the arbitrator,” which are grounds
1）The author thanks her colleague, Mr. Mihiro Koeda, for his comments.
2）https://www.supremecourt.uk/cases/docs/uksc-2018-0100-judgment.pdf
3）https://www.courts.go.jp/app/hanrei_en/detail?id=1558

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Impartiality and Independence Through Disclosure: Comparative Review of Recent Cases ㏌ Japan and England

for a challenge (paragraph (1), item (ii) of the same article).
This brief article focuses on specific points of the duty of disclosure applicable to arbitrators

sitting in English and Japanese seated arbitrations, and compares the way the duty has been
shaped in the two jurisdictions by the recent Sanyo and Halliburton cases.

Ⅱ．The nature of the disclosure obligation
Under both English and Japanese law, an arbitrator’ s obligation to disclose certain facts

and circumstances to the parties is a legal obligation deriving from statute.

In Japan, this duty is set out at Article 18 of the Japanese Arbitration Act (Act No. 138 of

2003).4） Article 18(4) stipulates that the arbitrator’ s duty continues for the “course of thearbitration procedure ” , during which the arbitrator must disclose all relevant facts “without

delay ” , unless they have already been disclosed. This tracks the position which is set out at
Article 12(1) of the UNCITRAL Model Law.

The English Arbitration Act 19965） (the “1996 Act” ) does not contain an equivalent

stipulation, which is one reason why the English Supreme Court’ s confirmation in theHalliburton case that the duty of disclosure is a legal duty, and not just a matter of bestpractice, is a welcome clarification. The court pronounced that the duty derives from thearbitrator’ s statutory duty to act fairly and impartially6） between the parties under Section 33

of the 1996 Act.7） As with the Model Law position, the duty of disclosure under English law is
a continuing one.8）

Ⅲ．The content of the disclosure
It would defeat the true purpose of the disclosure and the challenge regimes if arbitrators

were expected to disclose any and all facts or circumstances which arise or which become
known to him or her during the course of the arbitration. The arbitrator’ s duty of disclosure
is not totally wide ranging and does allow the arbitrator to apply sensible filters.

For arbitrations seated in either England or Japan, an arbitrator must ask him or herself

whether the facts or circumstances under consideration are those which would, might or could

lead to the conclusion there was a possibility of bias or justify doubts as to the arbitrator’ s
impartiality or independence.

The Japanese Supreme Court decided that arbitrators presiding over Japanese-seatedarbitrations must “disclose facts more broadly than facts constituting “reasonable grounds todoubt the impartiality or independence of the arbitrator ” , but it was not decided on the facts4）An unofficial translation is found here: http://www.japaneselawtranslation.go.jp/law/detail/?id=2784&vm=2&re=025）https://www.legislation.gov.uk/ukpga/1996/23/contents
6）Halliburton , at para. 81.
7）https://www.legislation.gov.uk/ukpga/1996/23/section/33
8）Halliburton , at para. 120.

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of the Sanyo case how far beyond those grounds an arbitrator must go.

In Halliburton , the English Supreme Court found, obiter , that an arbitrator could avoid theappearance of bias by disclosing matters which “could arguably ” 9） be said to give rise to areal possibility of bias. It does not matter if the facts or circumstances are later found to beinnocent - at the time facts or circumstances become known to the arbitrator, he or she must

consider whether an objective observer “might reasonably ” consider those facts orcircumstances to conclude a real possibility of bias:

In English law it is not necessary that the facts or circumstances which are to

be disclosed would cause the fair-minded and informed observer to conclude

that there was a real possibility that the arbitrator was biased. It is sufficientthat they might reasonably cause the objective observer to reach thatc o n c l u s i o n…. I t f o l l o w s t h a t t h e o b l i g a t i o n t o d i s c l o s e c a n a r i s e i ncircumstances in which the objective observer, informed of the facts at thedate when the decision whether to disclose is or should have been made (“thedisclosure date” ), might reasonably conclude that there was a real possibilityof bias, even if at a later date, with the benefit of information which was notavailable at the disclosure date, the objective observer would conclude that

there was not such a real possibility. (emphasis in the original).

In both England and Japan, the cases do not dictate the limits on the obligation, or what did

not have to be disclosed. However, following the guidance provided by the IBA Guidelines,
Part 1, General Standard 3(d), if the arbitrator is in doubt about whether to disclose facts orcircumstances, he or she ought to err on the side of caution and make disclosure:Any doubt as to whether an arbitrator should disclose certain facts orcircumstances should be resolved in favour of disclosure.

Ⅳ．Objective or subjective perspective?
Is the arbitrator required to enquire into the minds of the arbitrating parties, or does he or

she apply an objective standard?

The Japanese Supreme Court did not express a view on whether the arbitrator’ s duty todisclose “all the facts that would likely to give rise to doubts as to his/her impartiality or

independence ” 10） was to be assessed from an objective or subjective viewpoint. The
generality of the formulation above suggests that an arbitrator must consider both what theparties and what an objective bystander may consider to be relevant facts. This goes beyond
General Standard 3 of the IBA Guidelines, which adopts a subjective approach:9）At para. 70.
10）Article 18(4) of the Japanese Arbitration Act.

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Impartiality and Independence Through Disclosure: Comparative Review of Recent Cases ㏌ Japan and England(a) If facts or circumstances exist that may, in the eyes of the parties, giverise to doubts as to the arbitrator’ s impartiality or independence, thearbitrator shall disclose such facts or circumstances to the parties, thearbitration institution or other appointing authority (if any, and if so requiredby the applicable institutional rules) and the co-arbitrators, if any, prior toaccepting his or her appointment or, if thereafter, as soon as he or she learnsof them.

Under English law, the test is an objective one: the court is only concerned with how things

appear objectively,11） such that the facts and circumstances that must be disclosed areconsidered from the perspective of a “fair-minded and informed observer” :12）“The question is whether the fair-minded and informed observer, having

considered the facts, would conclude that there was a real possibility that thetribunal was biased.”This is similar to the test of “justifiable doubts” adopted by the UNCITRAL Model Law Article

12(c) and IBA Guidelines, Part 1, General Standard 2(c), and requires objectivity anddetachment in relation to the appearance of bias.13）

Ⅴ．An arbitrator’ s duty to search for facts or circumstances to disclose
The IBA Guidelines, where adopted, imposes a positive duty on arbitrators to make“reasonable enquiries to identify any conflict of interest” . The underlying intention appears tobe that the arbitrator cannot be passive about the state of his or her knowledge, and musttake reasonable steps to discover facts or circumstances:14）

An arbitrator is under a duty to make reasonable enquiries to identify any

conflict of interest, as well as any facts or circumstances that may reasonably

give rise to doubts as to his or her impartiality or independence. Failure todisclose a conflict is not excused by lack of knowledge, if the arbitrator does

not perform such reasonable enquiries.
1. Position in Japan

In the Sanyo case, the Japanese Supreme Court espoused a legal duty to carry out

investigations for relevant facts. The Court noted that the language of Article 18(4) of theJapanese Arbitration Act does not limit the facts to be disclosed to just those known to the11）Halliburton , paras. 52 and 72.
12）Halliburton , para. 52.
13）Halliburton , para. 54.
14）Part I, General Standard 7(d).

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arbitrator. As such, in addition to the facts that an arbitrator actually knows, he or she must
disclose facts that can be ordinarily discovered by the arbitrator undertaking a reasonable
investigation, carried out till the “completion of the arbitration procedure ” :Considering, in addition to the intention of Article 18, paragraph (4) of the Act

as described above, the fact that the same paragraph does not limit the facts

required to be disclosed to those that are known to the arbitrator, thearbitrator should be obligated to disclose to the parties facts that should

ordinarily be found out by his/her investigation as to the presence of Facts

Mentioned in Article 18, Paragraph (4) of the Act conducted to a reasonable

extent.

In addition, in light of the fact that the same paragraph does not limit thetiming at which an arbitrator is obligated to disclose Facts Mentioned in Article

18, Paragraph (4) of the Act other than by merely stating “During the courseof the arbitration procedure,” and that the same paragraph only excludes

facts “which have already been disclosed” from those required to bedisclosed, an arbitrator should have the obligation of disclosure until

completion of the arbitration procedure, whether or not any disclosure isrequested by any of the parties.

Therefore, in order for the arbitrator’ s failure to disclose to the parties a Fact

Mentioned in Article 18, Paragraph (4) of the Act to constitute a breach of thearbitrator’ s obligation of disclosure imposed by the same paragraph, it isrequired that by the time of completion of the arbitration procedure: (i) thearbitrator had known the fact; or (ii) the fact should have ordinarily beenfound out by the arbitrator’ s investigation conducted to a reasonable extent.

What a “reasonable extent” entails depends on the facts, but does not appear to require an

arbitrator to expend extraordinary efforts. In Sanyo ¸ the Japanese Supreme Court considered
whether the relevant fact could have been discovered through the conflict check system at thelaw firm that the arbitrator in question worked.

It would appear at first blush that because the obligation under Japanese law continues forthe duration of the arbitration and disclosure must be volunteered to the parties “without

delay” under Article 18(4), arbitrators in Japanese-seated arbitrations are expected to run andrepeat periodical conflict checks and any other reasonably accessible searches for the durationof the arbitration, up to the publication of the award. To this point, there appears to be a

distinction between those arbitrators who belong to organisations using a conflict checksystem, and those who do not, perhaps because they practice independently or in an

organisation that does not require conflict checks. The Sanyo case provides guidance insofar

as it relates to arbitrators who are also practising lawyers. Upon remittance to the Osaka High62

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Impartiality and Independence Through Disclosure: Comparative Review of Recent Cases ㏌ Japan and EnglandCourt as the court below, it was decided in Sanyo that if the law firm to which the arbitrator

belongs has established a conflict-check system which is typical of one used by other law
firms, and provided the arbitrator had properly implemented the searches, the arbitrator

would have satisfied the requirement to conduct continuous, reasonable searches. On thefacts, the court found that the arbitrator’ s firm, US law firm King & Spalding, had establisheda conflict check system comparable with that of other large US law firms, and that thearbitrator had duly recorded the parties’ names into the system. As such, because the conflict
check system would have identified any conflicts, the arbitrator was found to havesatisfactorily conducted reasonable and continuous searches. It was found, in any event, thatas a matter of fact, the arbitrator could not have discovered the relevant fact even throughthe proper implementation of the conflict check system.

Arbitrators who are not required to use a conflict check system would be prudent to carryout periodical conflict checks and document or log these checks in the event they are called
upon to prove they had complied with their duty.
2. Position in England

As things stand, there is no positive English law requirement that arbitrators undertake

searches of facts or circumstances that may affect their independence or impartiality. In

Halliburton , the English Supreme Court did not find it necessary to express a concluded viewon whether an arbitrator would be required to make reasonable enquiries as to facts andcircumstances, but did not rule this out as a possibility:

An arbitrator can disclose only what he or she knows and is, as a generality,

not required to search for facts or circumstances to disclose. But I do not ruleout the possibility of circumstances occurring in which an arbitrator would beunder a duty to make reasonable enquiries in order to comply with the dutyof disclosure…

The English Supreme Court did not adopt the obligation to make reasonable enquiries into

English law as advocated by the IBA Guidelines, Part I, General Standard 7(d), but noted that
this was good practice:15）

It is not necessary in the context of this appeal to express a concluded viewon whether this statement of good practice is also an accurate statement ofEnglish law, but I do not rule out that it might be.

Ⅵ．Advance disclosure
The duty of disclosure is not discharged by a disclaimer or blanket representation as to a15）At para. 20, above.

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future state of affairs.

In the Sanyo case, the arbitrator submitted a statement to the JCAA that there was a future

possibility that lawyers at King & Spalding may represent clients with a conflicting interest to
any of the parties:

Attorneys at K&S may in the future give advice to, or represent, clients incases which are not related to the Arbitration Case but in which the clients’interests conflict with those of any of the parties to the Arbitration Case and/or any of its/their affiliated companies. Attorneys at K&S may also in the

future give advice to, or represent, any of the parties to the Arbitration Caseand /or any of its /their affiliated companies in cases not related to the

Arbitration Case.”

The Japanese Supreme Court found that this statement did not satisfy the duty of disclosure

as it was “an abstract statement to the parties that there is a possibility of occurrence of
events that will constitute Facts” . It was therefore not excluded as past disclosure under
Article 18(4). The Court’ s finding underscores the active and continuous nature of thearbitrator’ s duty under Japanese law, which accords with the IBA Guidelines, Part I, GeneralStandard 3(b):An advance declaration or waiver in relation to possible conflicts of interest

arising from facts and circumstances that may arise in the future does notdischarge the arbitrator’ s ongoing duty of disclosure under General Standard

3(a).

The English Supreme Court did not decide the point, but it is submitted that the fair-minded

and informed observer contemplated by the English test would not consider a generalstatement about possible conflicts, made at the outset of the arbitrator’ s appointment, to bea disclosure of facts for the purposes of satisfying the arbitrator’ s continuing duty of
disclosure.

Ⅶ．Comment and conclusion
What is clear from the two cases is that an arbitrator’ s disclosure is for the parties’ benefit

but also for the arbitrator’ s protection. No arbitrator wishes to have their appointment tainted

by suggestions of non-disclosure and to have their conduct scrutinised, even if he or she isfinally exonerated, as in both the Sanyo and Halliburton cases.

Yet the solution is not to over-disclose facts, given the nuances of an arbitrator’ s

circumstances and possible obligations of confidentiality. Further, he or she may quite
understandably not wish to encourage unwarranted challenges by making disclosure of facts
that may be used tactically by a party.

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Impartiality and Independence Through Disclosure: Comparative Review of Recent Cases ㏌ Japan and England

Recognising that the duty falls first and foremost on the arbitrator, it will be interesting tosee if the arbitration institutions step in to develop guidelines or protocols to go some way inhelping arbitrators implement systems for disclosure or to manage the scope or frequency of
disclosure.

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Lawyers:

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Leading You Forward
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Current State of Intellectual Property Dispute Resolution
Systems in Japan
Attorney-at-law, Nagashima Ohno and Tsunematsu

Kenji Tosaki

Intellectual property disputes in Japan have traditionally been handled by way of litigation.

However, the framework for settling intellectual property disputes has expanded in recent

years, with the establishment of an arbitration institution specializing in intellectual property
disputes and the commencement of the handling of intellectual property mediation

proceedings by the Tokyo District Court. With respect to intellectual property litigation, onsite inspections became available in 2020 and a bill to enable the submission of an amicus
brief in relation to a pending patent infringement lawsuit has been proposed and is underdiscussion by the Diet. In this article, I will outline the current status of each intellectual
property dispute resolution system in Japan and discuss what types of disputes are suitablefor each system.

Ⅰ．Intellectual Property Mediation
Intellectual property mediation is an intellectual property dispute resolution system that was

newly launched on October 1, 2019 by the Tokyo District Court. The Osaka District Court has

handled intellectual property mediation cases since 1999, and started applying a revised

framework that harmonizes with the practices by the Tokyo District Court to its intellectual
property mediation practices on October 1, 2019. From October 1, 2019 to September 30,

2020, 11 intellectual property mediation cases were filed with the Tokyo District Court.1）

Intellectual property mediation is not a newly created system, but a new way of using existing
systems. Nevertheless, as the Intellectual Property Divisions of the Tokyo District Court, whichhave ample experience in intellectual property litigation, have declared that they would takethe lead in administering the new practice, it is now considered one of the available options tosettle an intellectual property dispute.

1）Ken Nakadaira, et al. “Overview of Cases of the Intellectual Property High Court and the Intellectual Property
Divisions of the Tokyo District Court and the Osaka District Court (FY2019) [Translated from Japanese.]” Hōsō Jiho
(Lawyers Association Journal) (in Japanese)

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A. Flow of intellectual property mediation proceedings

The flow of intellectual property mediation proceedings is roughly as follows.2）

First, the Petitioner submits a written petition for mediation and relevant evidence, and the

Respondent submits a written answer and relevant evidence. The arguments and relevant
evidence are submitted on or before the first session. The first session is held approximately

six weeks after the petition for mediation is filed. During the session, the mediationcommittee may instruct the parties to supplement their arguments and evidence, and ask theparties about their intentions as to the terms and conditions of a settlement agreement. Theinterval between sessions is about three weeks to one month and a half. The mediationcommittee will, in general, orally disclose its impressions of issues by the third session. In theevent that the parties reach a settlement agreement, the official mediation record in which
the agreement is recorded shall have the same effect as a judicial settlement (Article 16 of

the Civil Mediation Act). Even if the parties are not likely to reach an agreement, the court

may, ex officio, make a decision necessary for resolution of the case (Article 17 of the Civil
Mediation Act). This decision is referred to as an “Article 17 Decision.” When an objection to
an Article 17 Decision is not filed, the decision shall have the same effect as a judicial

settlement (Article 18(5) of the Civil Mediation Act). On the other hand, when an objection is

filed against an Article 17 Decision, the decision loses its effect (Article 18(4) of the Civil
Mediation Act).

If the parties fail to reach an agreement, or if the petition for mediation is withdrawn, theparties will consider whether to continue further negotiations between the parties andwhether to resolve the matter by way of litigation or preliminary injunction proceedings. Evenif a lawsuit or a petition for preliminary injunction is filed after the mediation proceedings, themediation record is not handed over to the court for reference in the lawsuit or preliminary

injunction proceedings, and the lawsuit or preliminary injunction proceedings are presided
over by a judge other than a judge who served on the mediation committee. However, whenan Article 17 Decision is made in the mediation proceedings, the impressions of a mediationcommittee judge who served on the mediation committee may be expressed in the Article 17
Decision. For this reason, as a practical measure, if a party believes that the Article 17

Decision indicates an impression favorable to the party, the party will consider submitting suchdecision in the lawsuit or preliminary injunction proceedings as evidence.
B. Features of Intellectual Property Mediation

The key features of intellectual property mediation are as follows:(a) A mediation committee consisting of three persons in total, i.e., one judge from theIntellectual Property Divisions and two experts, such as lawyers and patent attorneys withextensive experience in intellectual property cases, presides over the proceedings.
(b) The proceedings are not open to the public.

(c) The purpose is not to obtain a judgment from a third party but to resolve the dispute2）https://www.courts.go.jp/tokyo/saiban/l3/Vcms3_00000618.html (in Japanese, last checked on May 6, 2021)

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Current State of Intellectual Property Dispute Resolution Systems in Japanthrough negotiation.

(d) Intensive dialogue takes place from the first session, and the views of the mediationcommittee are disclosed within about three sessions, in principle.

(e) An agreement on jurisdiction must be reached in advance in order to hold the proceedings
before a district court.

As mediation proceedings are held to resolve a dispute through negotiation and reaching anagreement on jurisdiction is necessary, it would be difficult to submit a highly contested

dispute for intellectual property mediation. In addition, as it is an expeditious procedure inwhich the views of the mediation committee are disclosed within about three sessions, inprinciple, only disputes with relatively few and straightforward issues are suitable forintellectual property mediation. For this reason, disputes that are submitted to courts inconventional intellectual property lawsuits are not suitable for intellectual property mediation

proceedings. Rather, for certain disputes that conventionally have not been brought before
courts and have been resolved through out-of-court negotiation between the parties,
intellectual property mediation would be an additional option.

The fee for filing a petition for mediation is calculated according to the value of the subject

matter for which mediation is sought, as with the fee for filing a lawsuit, and the amount of
the fee for filing a petition for mediation is around 40 to 50% of that of the fee for filing anequivalent lawsuit (Article 3(1) and row 14 of the Appended Table 1 of the Act on Costs ofCivil Procedure).

Ⅱ．Intellectual Property Arbitration
There are two arbitration institutions that specialize in intellectual property disputes inJapan: (a) Japan Intellectual Property Arbitration Center and (b) Tokyo International
Intellectual Property Arbitration Center (IACT).

A. Japan Intellectual Property Arbitration Center

The Japan Intellectual Property Arbitration Center (hereinafter referred to as the “Center” )is an arbitration institution specialized in intellectual property disputes that commenced

operations in April 1998.3） The Center publishes statistics on the total number of applications
for mediation and arbitration per year and the percentage of each of the applications formediation and arbitration among all applications. The average number of applications formediation and arbitration is approximately seven per year, and the percentage of theapplications for arbitration among all applications is 4%.4） Thus, the total number ofarbitration cases from the start of operations in April 1998 through 2018 is estimated to beapproximately six.

3）https://www.ip-adr.gr.jp/eng/history/ (last checked on May 6, 2021)
4）https://www.ip-adr.gr.jp/outline/case-ctatistics/ (in Japanese, last checked on May 6, 2021)

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1. Flow of Intellectual Property Arbitration by the Center

The flow of intellectual property arbitration by the Center is roughly as follows:

The Applicant files a written application for arbitration (Article 14 of the Rules for Arbitral

Proceedings) and the Center shall appoint arbitrators (Article 15(2) of the Rules for Arbitral

Proceedings). The Arbitral Tribunal consists of three arbitrators, comprising at least one

lawyer and one patent attorney (Article 5 of the Rules for Arbitral Proceedings). The
arbitrators shall be selected by the Center from among the arbitrator candidates, but if theparties wish to do so, each party shall appoint one arbitrator, and the Center shall appoint thethird arbitrator from among the arbitrator candidates (Article 7 of the Rules for Arbitral
Proceedings). However, the Center may dismiss the application if it determines that it is notproper to continue the arbitral proceedings (Ar ticle 15(3) of the Rules for Arbitral
Proceedings). The Respondent shall submit a written answer no later than the datedesignated by the arbitrators (Article 16(1) of the Rules for Arbitral Proceedings). At the firsthearing, the Arbitral Tribunal and the parties shall make efforts to create a plan for the arbitralproceedings, and shall cooperate in order for the proceedings to be conducted as planned

after the schedule for the proceedings has been set (Article 20(1) of the Rules for Arbitral

Proceedings). The arbitral proceedings aim to be completed within six months from the firsthearing and within three hearings (Article 20(2) of the Rules for Arbitral Proceedings). The

parties are to submit documentary evidence with the application or the answer (Articles 14
and 16 of the Rules for Arbitral Proceedings), and the Arbitral Tribunal may, if necessary,advise the parties to present evidence (Article 23 of the Rules for Arbitral Proceedings). Thereis no specific provision as to when a party may be advised to present evidence and it is left tothe discretion of the Arbitral Tribunal. The Arbitral Tribunal may decide to terminate thearbitral proceedings if the Applicant fails to present evidence in accordance with the directionof the Arbitral Tribunal (Article 24(1) of the Rules for Arbitral Proceedings), and if the

Respondent fails to present evidence in accordance with the direction of the Arbitral Tribunal,
the Arbitral Tribunal shall continue the arbitral proceedings without treating it as the

Respondent’ s affirmation of the Applicant’ s allegations (Article 24(2) of the Rules for Arbitral
Proceedings).

If a party fails to produce documentary evidence, the Arbitral Tribunal may make thearbitral award on evidence collected up until such time, unless there is justifiable cause for not

submitting documentary evidence (Article 24(3) of the Rules for Arbitral Proceedings). A

party may, before submitting any documentary evidence, propose that particular portions ofsuch documentary evidence should be kept secret and should not be disclosed to the otherparty, and if the Arbitral Tribunal so approves, the Arbitral Tribunal shall not disclose such
portions to the other party (Article 25 of the Rules for Arbitral Proceedings). The arbitralaward shall have the same effect as a final and binding judgment (main clause of Article 45(1)of the Arbitration Act). Compulsory execution based on an arbitral award shall be made byfiling a petition with the court for an execution order and obtaining an execution order (Article
46 of the Arbitration Act). When the execution order becomes final and binding, the arbitralaward becomes a title of obligation (Article 22(vi)-2 of the Civil Execution Act).

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Current State of Intellectual Property Dispute Resolution Systems in Japan

An appeal against an arbitral award can be made only in exceptional cases (Article 44 of the

Arbitration Act).

2. Main Features of the Intellectual Property Arbitration by the Center

The main features of the intellectual property arbitration by the Center are as follows:(a) The Arbitral Tribunal consists of three arbitrators, comprising at least one lawyer and one
patent attorney.

(b) The proceedings are not open to the public.

(c) The arbitral proceedings aim to be completed within six months from the first hearing andwithin three hearings, and as an appeal cannot be filed in practice, the dispute can be
resolved promptly (the inability to appeal is a common feature of arbitration).

(d) Certain portions of the documentary evidence may be kept secret so that they are notdisclosed to the other party.

(e) An arbitration agreement is required (a common feature of arbitration).

Since an arbitration agreement is required and the arbitral proceedings aim to be completed

within six months from the first hearing and within three hearings, matters to be brought tothe intellectual property arbitration by the Center would necessarily be those where there is acontractual relationship between the parties or where there has been a preliminary
negotiation between the parties and the issues are arranged to a considerable extent eventhough there is not a contractual relationship between the parties. Consequently, the types ofdisputes suitable for intellectual property arbitration by the Center are considered to be similar

to those suitable for intellectual property mediation. Intellectual property arbitration by theCenter may be an appropriate option in the cases where the amount of the dispute is not
sufficiently high to institute a lawsuit but a simple and prompt decision by a third party isdesired. Major costs for the arbitral proceedings are a filing fee of JPY 100,000 (+ tax), a
hearing fee of JPY 100,000 (+ tax), and a fee for the preparation of the arbitral award of JPY
200,000 (+ tax) (Articles 42(1), 43 and 44(1) of the Rules for Arbitral Proceedings).
B. International Arbitration Center in Tokyo (IACT)The International Arbitration Center in Tokyo (hereinafter referred to as the “IACT” ) is anarbitration institution specialized in intellectual property that commenced operations in 2018.
The IACT focuses on resolving complex international intellectual property disputes, inparticular, disputes related to Standard Essential Patents (SEPs), with former intellectual
property judges from major nations joining the list of arbitrators.5）6）
1. Flow of Intellectual Property Arbitration by the IACTThe flow of intellectual property arbitration by the IACT are roughly as follows:

The Claimant first sends a notice of arbitration to the IACT Secretariat and the Respondent5）https://www.iactokyo.com/ (last checked on May 6, 2021)
6）Frequently Asked Questions, No. 1 (https://www.iactokyo.com/faq (last checked on May 6, 2021))

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(Article 3 of the IACT Arbitration Rules7）). The Respondent submits a response to the noticeof arbitration within 21 days of the receipt of the notice of arbitration (Article 4 of the IACT
Arbitration Rules). The number of arbitrators is three in principle (Article 7 of the IACT

Arbitration Rules). Arbitrators are chosen from the world’ s major jurisdictions, and many
arbitrators have been involved as judges in a number of complex cases, including Randall R.
Rader, former Chief Judge of the U.S. Court of Appeals for the Federal Circuit, and Ryuichi

Shitara, former Chief Judge of the Intellectual Property High Court, or have been involved inand played a key role in legislation. The standard language of the proceedings is English(Article 21, Paragraph 1 of the IACT Arbitration Rules), but Chinese, Japanese, German, andKorean can be selected as the language to be used in the proceedings.8） After the arbitral

tribunal is constituted, the arbitral tribunal shall establish the provisional timetable of thearbitration. The provisional timetable shall provide that the decision shall be made no later

than twelve months after the establishment of the arbitral tribunal, except for good cause(Article 19, Paragraph 4 of the IACT Arbitration Rules). The Claimant shall, within the time
determined by the arbitral tribunal, submit a statement of claim stating the content of theclaim (Article 22 of the IACT Arbitration Rules), and the Respondent shall, within the time

determined by the arbitral tribunal, submit a statement of defense stating its response to thestatement of claim (Article 23 of the IACT Arbitration Rules).

Each party shall be responsible for proving the facts upon which its arguments are based,

and the arbitral tribunal may at any time require the parties to produce evidence (Article 29,

Paragraphs 1 and 3 of the IACT Arbitration Rules). There is no specific provision as to when
the arbitral tribunal can require the parties to produce evidence and it is left to the discretionof the arbitral tribunal. However, the IBA (International Bar Association) has established theRules on the Taking of Evidence in International Arbitration9） and these Rules may be appliedwith the agreement of the parties or by the discretion of the arbitral tribunal.10）

Under the IBA’ s rules, a party may require the opposite party to produce documents in thepossession of the opposite party by specifying the documents, indicating the relevance andimportance (Articles 3.2 and 3.3 of the Rules on the Taking of Evidence in International

Arbitration). Upon receipt of the request to produce, the party to whom the request to
produce is addressed may object to the arbitral tribunal on the grounds of lack of relevance orimportance or excessive burden to produce (Article 3.5 of the Rules on the Taking of Evidencein International Arbitration). If the party to whom the request to produce is addressed does

not object or if the arbitral tribunal dismisses the objection and orders the party to produce

the document(s), it must produce the document(s)11） (Articles 3.4 and 3.7 of the Rules on the7）https://0f06c889-dcdb-4e92-8dfd-345401b7ce4d.filesusr.com/ugd/345c69_59c1eb6c62da419fba9500943049c294.
pdf (last checked on May 6, 2021)
8）Frequently Asked Questions, No. 5 (https://www.iactokyo.com/faq (last checked on May 6, 2021))
9）Downloadable from the following URL: https://www.ibanet.org/LPD/Dispute_Resolution_Section/Arbitration/
Default.aspx (last checked on May 6, 2021)
10）Mugi Sekido “Measures in relation to International Arbitration for Japanese Companies (No. 27) [Translated
from Japanese.]” Shoji Homu Portal (in Japanese, last checked on May 6, 2021)

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Current State of Intellectual Property Dispute Resolution Systems in Japan

Taking of Evidence in International Arbitration).

If the party invited by the arbitral tribunal to produce evidence fails to produce it within theestablished period of time without sufficient cause, the arbitral tribunal may make an award

based on the evidence before it (Article 31, Paragraph 3 of the IACT Arbitration Rules). Under
the IBA’ s rules, if a party who has not objected to a request to produce fails to produce thedocument without satisfactory explanation, or if a party ordered by the arbitral tribunal toproduce a document fails to produce the document, the arbitral tribunal may infer that the

document would be adverse to the interests of that party (Article 9.6 of the Rules on the
Taking of Evidence in International Arbitration). The effect of the arbitral award and thecompulsory execution based on it are the same as described in 1 above with respect to thearbitration by the Center. In addition, there are more than 150 Contracting States to theConvention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York

Convention), and a party can enforce arbitral awards in those Contracting States. If there isany material error in the award, a party may submit a request for review of the award by asuper visor y panel for substantive scrutiny, and the super visor y panel may issue arecommendation to the arbitral tribunal to amend the award (Article 40 of the IACT
Arbitration Rules).

2. Main Features of Intellectual Property Arbitration by the IACTThe main features of intellectual property arbitration by the IACT are as follows:(a) The arbitral tribunal consists of three arbitrators, in principle; and there are many
experienced arbitrators, including former intellectual property judges from major countries.
(b) The proceedings are not open to the public.

(c) In principle, the decision shall be made within 12 months of the establishment of thearbitral tribunal.

(d) An arbitration agreement is required (a common feature of arbitration).

Since an arbitration agreement is required, matters to be brought before the IACT in

intellectual property arbitration would naturally be those where there is a contractual
relationship between the parties. As the IACT focuses on resolving disputes related toStandard Essential Patents (SEPs), the IACT also intends to invite disputes related to SEPs
where there is no contractual relationship between the parties. Dealing with disputes related
to SEPs necessitates advanced and intensive expenditure and efforts, such as involvement ofexperienced attorneys specialized in intellectual property disputes, communicating thetechnical details to the arbitral tribunal in as comprehensible a way as possible, and collectionof the appropriate materials needed to calculate the amount of royalties under the FRAND

terms. If it is not the ultimate goal of the patentee to obtain an injunction and if the parties

want to resolve the dispute in a short period of time, it would be beneficial for the parties toselect an arbitration before the IACT so that they can obtain a final conclusion in about a year.
11）The party shall produce the documents to the other parties and, if the arbitral tribunal so orders, to it (Articles
3.4 and 3.7 of the Rules on the Taking of Evidence in International Arbitration).

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Another advantage of arbitration by the IACT is that disputes involving patents spanningseveral jurisdictions can be resolved together. The filing fee for arbitration by the IACT is USD
2,000, and the hourly fee of each arbitrator is approximately USD 1,000 (Annex to the IACT
Arbitration Rules).

Ⅲ．Intellectual Property Litigation
A. Main Features and Problems of Intellectual Property Litigation in Japan

As mentioned in I and II above, it is generally understood that bringing small intellectual

property disputes to courts for litigation or preliminary injunction proceedings is not areasonable decision in light of the time and money required, and that complex international

intellectual property disputes, may be better settled through intellectual property mediation or

intellectual property arbitration than through litigation or preliminary injunction proceedings

before courts, in light of the timelines and jurisdictional limitations of such litigation or
preliminary proceedings. However, in Japan, litigation is the main means of resolving
intellectual property disputes.

The main features of intellectual property litigation, in contrast to intellectual property

mediation and intellectual property arbitration, are as follows:(a) A panel of judges with extensive experience in intellectual property proceedings examines
the case, and a technical assistant supports the judges in technical matters.
(b) The proceedings are open to the public.

(c) In many cases, the first instance phase takes about one to one-and-a-half years, and thelosing parties are entitled to file an appeal.

(d) No agreement is required in advance between the parties.

Compared to intellectual property litigation in many of other countries or regions, intellectual

property litigation in Japan takes a shorter time and the decisions of the courts are generallyof a stable nature. On the other hand, when compared with the United States and Germany,in which a large number of intellectual property litigation cases are handled, an insufficiency
of decisions by the courts means that it sometimes take a considerable time for judicial

theories on new legal issues to be established. In addition, attention is drawn to the difficultyof collecting evidence in intellectual property litigation in Japan: the means of collecting

evidence from others is limited; while the collection of evidence on the manufacture and saleof business-to-business products and of evidence on the methods used by the defendant areoften considered to be difficult. With regard to the means of collecting evidence, thelawmakers intended to improve such means through the introduction of the document

production order system (Article 105 of the Patent Act) and the introduction of the protective

order system (Article 105-4 et seq . of the Patent Act). However, it was considered that there

were still not sufficient means, and so the on-site inspection system was introduced by the2019 amendment of the Patent Act.

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Current State of Intellectual Property Dispute Resolution Systems in Japan

B. Flow of On-site Inspection Procedures

In an action regarding intellectual property infringement, a party can file a request for on-site inspection.

A petition for on-site inspection can be granted when the following requirements are met(Article 105-2(1) of the Patent Act):(a) It is deemed necessary to collect evidence by checking, operating, measuring,experimenting, or taking other measures with regard to, documents, equipment, or any otherobjects (documents, etc.) possessed or controlled by the opposite party, in order to determine
whether or not certain facts exist.

(b) There are reasonable grounds to suspect that the Respondent has infringed the patent.

(c) It is expected that the Petitioner will not be able to collect such evidence by itself or by
any other means.

(d) The case is not found to be one where it is inappropriate to order an on-site inspection
due to the excessive time needed for collection of the evidence, the excessive burden on theparty to be inspected, or other circumstances.

The Petitioner shall state in the written petition, among others, (i) matters that are sufficient

to identify the documents, etc. to be inspected; (ii) the location of the documents, etc.; (iii)the contents of the measures to be taken; and (iv) the matters to be inspected (Article 105-2(2)(ii) of the Patent Act and Paragraphs 1 and 2 of Article 1 of the Rules on Procedures for

On-site Inspections under the Patent Act (hereinafter referred to as the “Rules on On-site
Inspection” )). In order to issue an on-site inspection order, the court shall hear the opinionof the Respondent (Article 105-2(1) of the Patent Act). The on-site inspection shall be

conducted by an inspector designated by the court (Paragraphs 1 and 2 of Article 105-2-2 ofthe Patent Act). The inspector shall, in advance, notify the court of the date, time and placeof the on-site inspection to be implemented and the court clerk shall notify the parties of
those matters (Paragraphs 1 and 2 of Article 5 of the Rules on On-site Inspection).

The inspector may (i) enter the factory, etc. where the documents, etc. subject to the on-site inspection are located; (ii) ask the inspected party questions or request that the inspected
party present documents, etc.; or (c) conduct equipment operations, measurements orexperiments or take measures permitted by the court as necessary for the on-site inspection(Article 105-2-4(2) of the Patent Act). The inspected party shall cooperate as necessary forthe on-site inspection (Article 105-2-4(4) of the Patent Act) and if the inspected party does

not comply with the inspector’ s request without a justifiable reason, the court may find thePetitioner’ s argument regarding the facts to be proved by the on-site inspection to be true

(Article 105-2-5 of the Patent Act). There are no criminal penalties for not cooperating withthe on-site inspection or not complying with the inspector’ s requests. The inspector shallprepare a report (an inspection report) on the results of the on-site inspection and submit itto the court (Article 105-2-4(1) of the Patent Act). The inspection report shall identify the

documents, etc. subject to the inspection, the date and time the inspection was commenced

and the date and time it was completed, the place the inspection was conducted and theresult of the inspection (Article 6(3) of the Rules on On-site Inspection). The court shall firstJapan Commercial Arbitration Journal VOL.2［2021］

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send a copy of the inspection report to the inspected party (Article 105-2-6(1) of the Patent

Act). The inspected party may, within two weeks from the date of receipt of the copy of theinspection report, file a petition for the inspection report to not be disclosed in whole or inpart to the Petitioner (Petition for Non-Disclosure) (Article 105-2-6(2) of the Patent Act) andthe court may, if there are justifiable reasons, decide not to disclose the inspection report inwhole or in part to the Petitioner (Article 105-2-6(3) of the Patent Act). If the court finds that

it is necessary to hear the opinions of the counsel, employees or assistants-in-court of thePetitioner for the purpose of determining whether or not there are justifiable reasons, thecourt may disclose the inspection report to the counsel of the Petitioner or with the consent of
the party who was inspected, to the employees of the Petitioner or the assistants-in-court of
the Petitioner (Article 105-2-6(4) of the Patent Act). There are no special provisions in the

Patent Act or in the Rules on On-site Inspection about what kind of circumstances constitute a“justifiable reason.” However, if trade secrets are included in the inspection report, it would

normally constitute a “justifiable reason.” If a Petition for Non-Disclosure has not been filed

within the two week period or if a decision on a Petition for Non-Disclosure has become final
and binding, the Petitioner may request a certified copy of the inspection report with the parts
that were not allowed to be disclosed excluded (Article 105-2-7(1) of the Patent Act). No one

other than the Petitioner and the inspected party may view the inspection report or request acertified copy thereof (Article 105-2-7(2) of the Patent Act).

C. How to Deal with Patent Infringement Actions in Light of the Possibility of On-site
Inspections

On-site inspections are expected to be useful tools for proving infringement in cases where

it is difficult for the patentee to collect evidence. However, the extent to which on-site
inspections are useful depends on how the courts handle the requirements for ordering them,in particular, the probability requirement that “there are reasonable grounds to suspect that
the Respondent infringed on the patent.”

Regarding this point, Judge Tatsubumi Sato of the Tokyo District Court states that theprobability of satisfying the constituent elements to be proved through the on-site inspection
is not required to have an on-site inspection order issued. He further states that, if a method
patent consisting of processes A through D is at issue and there is no dispute over thefulfillment of constituent elements A and D but there is a dispute over the fulfillment ofconstituent elements B and C, as constituent elements B and C are the subject of the on-site
inspection, the probability requirement would be met if it would be difficult to prove

constituent elements B and C without the on-site inspection.12） Judge Sato’ s comments arein line with the purpose for which the on-site inspection system was introduced and from apractical point of view, this system will be operated in line with these comments.

There may be problems if a method patent is at issue but there is a dispute over the12）Tatsubumi Sato “Outline of On-site Inspection Proceedings and Issues in Their Operations [Translated fromJapanese]” Law and Technology, No. 87, 58-66, 62 (in Japanese)

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Current State of Intellectual Property Dispute Resolution Systems in Japanfulfillment of all of the constituent elements and all of the constituent elements are to be
proved through the on-site inspection. In such case, a petition for an on-site inspection
without proof by the patentee would likely be determined to not satisfy the probability

requirement as it would be an exploratory attempt to collect evidence.13） With respect toconstituent element A of a method patent consisting of processes A through D, if the patentee
demonstrates by a written statement of an employee of the patentee that only three kinds ofprocesses - A1, A2 and A3 - are the possible processes that the defendant uses and that it isprobable that the defendant uses process A1 from the viewpoint of the defendant’ s own
patent application, the equipment possessed by the defendant and economic reasonableness,the issue is whether the patentee satisfied the probability requirement and if it is determinedthat the patentee did not do so, what the patentee can do to satisfy the probability
requirement would then be the issue.

Further, the extent to which the court may find the Petitioner’ s argument regarding thefacts to be proved by the on-site inspection to be true if the inspected party does not comply

with the inspector’ s request without a justifiable reason pursuant to Article 105-2-5 of the
Patent Act should be carefully observed. A similar finding may also be made if a party does

not comply with a document production order. However, since the inspected party can file a

Petition for Non-Disclosure if trade secrets are included in the inspection report, whichfunctions as a mechanism to maintain the confidentiality of trade secrets of the defendant,

courts will not need to be too hesitant to find the Petitioner’ s argument to be true if theinspected party does not comply with the inspector’ s request compared to if a party does notcomply with a document production order.

It should be noted that, if the defendant is likely to falsify, conceal or destroy its documents

or other items, the patentee cannot rely on the on-site inspection system because the court
must hear the opinion of the Respondent in order to issue an on-site inspection order andnotice must be given to the inspected party in respect of the date, time and place of the on-site inspection to be implemented. In such cases, the patentee will need to consider usingpreservation of evidence (Article 234 et seq. of the Code of Civil Procedure). However, it isextremely difficult to use preservation of evidence for documents or other items that include

trade secrets because although a party can file a petition for preservation of evidence and canattend the preservation proceedings, preservation of evidence contains almost no mechanism
for the protection of trade secrets.

Although this system is not an easy and simple system and practitioners need to makeefforts to be able to utilize this system, the on-site inspection system is expected to serve as
an important tool for making Japanese intellectual property litigation more user-friendly.

13）Tatsubumi Sato “Outline of On-site Inspection Proceedings and Issues in Their Operations [Translated fromJapanese]” Law and Technology, No. 87, 58-66, 61-62 (in Japanese)

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Recent Court Decisions on International Adjudicative
Jurisdiction in Japan
Osaka University, Graduate School of Law and Politics, Professor

Mari Nagata

Ⅰ．Introduction
Japan amended its Code of Civil Procedure (CCP) in 2011 and introduced rules oninternational adjudicative jurisdiction.1） The amended CCP has been in force since April 1,
2012. This paper first introduces the Supreme Court’ s first decision applying the amended

provisions of the CCP and then presents trends in case law on the issues raised in thedecision. Next, this paper provides comments on the relationship between the amended CCP
and choice of court agreements.

Ⅱ．Supreme Court decision2）

1. Supreme Court’ s decision of March 10, 2016

This is a case in which a Japanese court declined to exercise international jurisdiction over a

dispute between a Japanese corporation (and its chairperson) and a Nevada corporation.
(a) Summary of facts

X2 was the chairperson for company X1 (a Japanese corporation) and also a director ofcompany Y (a Nevada corporation). X1 primarily engaged in the business of development,
manufacture, and sale of gaming machines, while Y had a gambling license in Nevada and its

main business was to operate a casino. Company A (a Nevada corporation) was a subsidiaryof X1 and held around 20 percent of Y’ s total outstanding shares.

In 2011, Y’ s Compliance Committee engaged a U.S. law firm to investigate whether X2

was involved in misconduct that could have threatened the maintenance of Y’ s gaming
license. The law firm submitted a report (hereinafter, the “Report” ) to the Commission

stating that X2 and the related persons appeared to have repeatedly violated the U.S. Foreign1）The general introduction of this amended code can be found in Jun Yokoyama, Private International Law in Japan,(2017), pp.133-143
2）Minshu Vol. 70 No. 3 p.846. The English translation of this decision is published in the Japanese Yearbook ofInternational Law vol.60, p.488(2017) and at https://www.courts.go.jp/app/hanrei_en/detail?id=1450

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79Corrupt Practices Act (FCPA).

On February 19, 2012, Y posted an article in English on its website. The summary of thearticle (hereinafter, the “Article” ) is as follows.

1) The Report has shown that X2 and the related persons, in an attempt to gain profit forthemselves, engaged in inappropriate activities on at least thirty-six occasions over a period ofaround three years in a manner that is clearly in violation of the FCPA and in extreme
disregard of Y’ s code of conduct.

2) On February 18, 2012, Y’ s board of directors, by a unanimous decision of all directors
except X2, determined that Company A, X1, and X2 had acted inappropriately under Y’ sarticles of incorporation, and adopted a resolution to compulsorily redeem Y’ s shares thenheld by Company A.

On February 19, 2012, Y filed an action in the state court of Nevada against Company A,

X1, and X2 to obtain a declaratory judgment that Y had acted legally and in good faith inaccordance with the articles of incorporation and to seek damages for X2’ s breach of fiduciary
duty. In response, on March 12, 2012, Company A and X1 filed counterclaims against Y and

its directors in the same action in the Nevada court (hereinafter, Y’ s action and counterclaims
are collectively referred to as the “U.S. Action” ), alleging invalidity of the resolution of Y’ sboard of directors, and demanding, among other things, suspension of the execution of theresolution. The counterclaims also sought payment of damages.

In August 2012, X1 and X2 filed an action against Y in the Tokyo District Court, seeking tort

damages for defamation on the basis that X1’ s and X2’ s reputation had been impaired by
the Article that Y posted on its website.

Neither the Tokyo District Court nor the Tokyo High Court exercised international jurisdiction

to adjudicate the matter in Japan, and the appeal of X1 and X2 ensued.
(b) Summary of decision

The Supreme Court of Japan first pointed out that posting the Article on Y’ s website could

impair the reputation of X1 and X2 in Japan and admitted that a court of Japan could havejurisdiction for this action (Article 3-3 (viii) of the CCP). Based on this premise, the Supreme
Court then examined whether there were “special circumstances where, if a court of Japan

conducts a trial and renders a judicial decision in the matter, it would harm the equity
between the parties or impede the well-organized progress of court proceedings” (Article 3-9of the CCP). The Court noted that the U.S. Action, which was already pending at the time offiling of this action, was a case between Y, on one side, and A, X1, and X2 on the other side,
regarding the measures taken by Y, including the compulsory redemption of Y’ s shares held
by A (which was a subsidiary of X1, where X2 serves as a director and chairperson) on the
ground that X2 and the related persons had repeatedly committed acts in violation of the

FCPA. On the other hand, in the action in Japan, X1 and X2 sought tort damages against Y,
alleging that their reputation had been impaired by the Article, which described matters suchas the developments leading to the compulsory redemption mentioned above. The Supreme

Court thus held that this action in Japan was related to a dispute derived from the dispute in

the U.S. Action. The Court further noted that the U.S. Action had much overlap with the80

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Recent Court Decisions on International Adjudicative Jurisdiction in Japanaction in Japan in terms of facts and legal issues and that the evidence on the main issues incontroversy was mostly located in the U.S. Furthermore, parties including X1, X2, and Y
appeared to have expected that any dispute arising out of or in relation to Y’ s management

to be resolved, litigated, or otherwise handled in the U.S. Indeed, X1 and X2 had not only
responded to the U.S. Action but had also filed counterclaims. X1 and X2 would not face anexcessive burden even if they were to file an action anew in the U.S. to assert the claims thatthey raised in the action in Japan. Meanwhile, among other things, in light of the fact that theevidence was mainly located in the U.S., it would be unduly burdensome to Y if all such

evidence was to be examined in a court in Japan. Considering all of these circumstances, theSupreme Court concluded that “special circumstances” that “would harm equity between theparties or impede the well-organized progress of court proceedings” as prescribed in Article
3-9 of the CCP, exist this case, if a Japanese court exercised jurisdiction.
2. Remarks(a) Special jurisdiction in tort and infringement of personality rights

According to Article 3-3 (viii) of the CCP, courts in Japan have international jurisdiction if thetort was committed in Japan. The place where the tort was committed can mean either theplace where the harmful events giving rise to the damage occurred, or the place where thedamages occurred. However, when the harmful events occurred outside of Japan and only thedamages occurred in Japan, Japanese courts do not have international jurisdiction if thetortfeasor could not expect the consequence of his/her conduct to have an impact in Japan at
the time of the event.3）

In the decision discussed above, the Supreme Court found that the damages occurred inJapan, but did not explain in detail why it decided so. It appears that the Supreme Court
simply affirmed the decisions rendered by the lower courts.4） In the first instance, the Tokyo
District Court made the following findings of facts: the Article stated that X2 and the related

persons had engaged in violations of the FCPA on multiple occasions, and, because its
contents were accessible from within Japan as a result of Y’ s publication of the Article on theInternet, it is fair to conclude that the resultant defamation and damages to the reputation of
X1 and X2 occurred in Japan. Moreover, according to the decision rendered by the Tokyo

District Court on October 21, 2013 (Minshu vol. 70 no. 3 p. 890, the English translation of thisdecision can be found in the Japanese Yearbook of International Law, vol. 57, p. 531 [2014]),
it was ordinarily foreseeable that the Article may be viewed in Japan and may damage thereputation of X1 and X2 once published. This finding was affirmed in the second instance by
the Tokyo High Court in its decision on June 12, 2014 (Minshu vol. 70 no. 3 p. 913).

Among the other published cases applying the amended CCP, the ones concerning theinfringement of personality rights (including defamation and infringement of privacy), as the3）For special jurisdiction in tort in the Japanese CCP in general, see Nozomi TADA, INTERNATIONAL CIVILJURISDICTION BASED ON THE PLACE OF THE TORT, Japanese Yearbook of International Law, vol.55, p. 287(2012)
4）Dai YOKOMIZO, Case Comments, JURISTO (Jurist) No.1517, p. 131

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case discussed above did, include (1) Tokyo District Court’ s decision on June 20, 2016 (LEXDB 25535498), (2) Tokyo District Court’ s decision on November 30, 2016 (Hanrei-Taimuzu

no. 1438 p. 186), and (3) Tokyo District Court’ s decision on February 15, 2017 (LEX-DB
25553745). All these rulings relate to cases of infringement of personality rights by articles

published on the Internet. Moreover, in all of these cases, Japan was the place where theconsequences of such infringement occurred and, therefore, jurisdiction based on the tort

could exist. All of these courts found Japan to be the place where the consequences ofinfringement of personality rights occurred on the basis that the articles were distributed on
the Internet and could be read in Japan. Two of these cases emphasized that the articles atissue were written in Japanese (cases (1) and (3)), but in the Supreme Court case above andcase (2), the articles posted on the Internet were written in English. Therefore, it is fair to saythat the language of the allegedly defamatory article did not have a significant impact on theJapanese courts’ decision on where the damages occurred in Japan.5） From these cases, themere accessibility of a website would suffice in determining special jurisdiction based on torts.

While one may argue that allowing tort-based jurisdiction simply because an article distributedon the Internet is accessible from Japan can result in overbroad jurisdiction, in practice, forJapan to have jurisdiction based on tort, the occurrence of consequences in Japan must be

ordinarily foreseeable, which limits the exercise of the jurisdiction.6） Further, dismissal basedon the special circumstances, as described below, will also prevent excessive exercise ofjurisdiction.

(b) Exception clause as “special circumstances”
Article 3-9 of the CCP provides:

3-9 Dismissal without Prejudice Due to Special Circumstances

Even when the Japanese courts have jurisdiction over an action (except when an action is

filed based on an agreement that only permits an action to be filed with the Japanese courts),

the court may dismiss the whole or part of an action without prejudice if it finds that there are

special circumstances because of which, if the Japanese courts were to conduct a trial andreach a judicial decision in the action, it would be inequitable to either party or prevent a fairand speedy trial, in consideration of the nature of the case, the degree of burden that thedefendant would have to bear in responding to the action, the location of evidence, and othercircumstances.

This provision is consistent with Japanese case law before the amendment of the CCP.7） The

factors to be considered under this Article 3-9 include the nature of the case, degree of5）Yoshimasa Furuta, Case Comments, MEDIA HANREI HYAKUSEN(Collected Cases in Media Law), 2nd eds., p.
251(2018)
6）Naoshi Takasugi, Case Comments, JURISTO(Jurist) no.1505, p.314(2017)7）Masato Dogauchi, NEW JAPANESE RULES ON INTERNATIONAL JURISDICTION : GENERALOBSERVATION, Japanese Yearbook of International Law vol.54, p.275(2011). A description of case law before theamendment can be found in Yoshihisa Hayakawa, LIS PENDENS, Japanese Yearbook of International Law vol. 54,
pp.327-328(2011).

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Recent Court Decisions on International Adjudicative Jurisdiction in Japanburden on the defendant, and location of the evidence. However, this list is not exhaustive,

and courts may consider other factors when evaluating the special circumstances under this
Article 3-9. Obviously, this obscures the criteria for exercising jurisdiction by Japanese courts.

In the decision discussed above, the Supreme Court examined the degree of burden on the

defendant and the location of the evidence mainly because there was a related action between
plaintiffs and the defendant in the U.S. court and that the Japanese plaintiffs X1 and X2
actively responded to that action.

Among the published cases applying the amended CCP, eleven decisions declined to exercise

jurisdiction based on the existence of such special circumstances, including the judgment of

the Supreme Court and the lower courts in the case discussed above. Existence of these
special circumstances is to be evaluated on a case-by-case basis, but there are few publishedjudicial precedents after the amendment of the CCP and the factors to be considered are notalways clear. Nevertheless, it is possible to discern certain trends based on the publishedjudicial precedents. First, as is in the case discussed above, pending related or identicalproceedings in a foreign country are an important factor to be considered in determining theexistence of special circumstances. Similarly, the Yokohama District Court’ s decision on
August 6, 2014 (Hanrei Jiho no.2264, p.62), Tokyo District Court’ s decision on July 27, 2017
(Saibansho website), Intellectual Property High Court’ s decision on December 25, 2017

(Saibansho website, second instance decision for the Tokyo District Court’ s decision on July27, 2017), and Tokyo District Court’ s decision on January 24, 2018 (Hanrei Taimuzu,
no.1465, p.250) all found special circumstances to exist and declined to exercise jurisdictionin Japan because identical or related proceedings were pending in other countries. In otherwords, in Japanese courts, the issue of lis pendens is an important factor to be considered indetermining the existence of special circumstances,8） even though there is no explicit languagein the text of the CCP governing lis pendens in the international context. Second, in somejudicial precedents, the fact that foreign law governed the action was a factor considered indetermining the existence of special circumstances. In the Tokyo District Court’ s decision on

February 22, 2013 (LEX-DB 25510985), in which the ownership of real estate in Shanghai
was disputed, the court emphasized that Chinese law would be the governing law andacknowledged the existence of special circumstances for declining to exercise jurisdiction,even though the defendant was domiciled in Japan. Another example is the Tokyo District
Court’ s decision on July 14, 2016 (2016WLJPCA07148030), where the court noted that there
was some basis to exercise international jurisdiction in principle because the defendant owned

real estate in Japan,9） but nevertheless declined to exercise jurisdiction based on the existenceof special circumstances because the governing law of the merits was Chinese law and there

was a significant amount of evidence in China. Looking at court practices before theamendment of the CCP, one could discern a high correlation between the governing law being

a foreign law and the refusal to exercise jurisdiction by Japanese courts.10） This tendency has
8）Yoshihisa Hayakawa, op.cit ., p. 332
9）According to the CCP, Japanese courts have jurisdiction over a defendant who owns a sizable property in Japan if
the action is a claim for the payment of monies. (Art. 3-3 (iii))

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83been maintained in the jurisprudence on the existence of special circumstances even after theamendment of the CCP. Nevertheless, from a theoretical perspective, it is generally acceptedthat whether the governing law is foreign law should not be taken into account in evaluating

the existence of special circumstances or the jurisdiction of Japanese courts.11） In this regard,
it will be necessary to carefully monitor future trends in case law.

Ⅲ．Choice of court agreements and the amended CCP
1. Provisions of the amended CCP and its temporal applicability
Article 3-7 of the CCP provides:(1) Parties may establish, by agreement, the country in which they are permitted to file anaction with the courts.

(2) The agreement as referred to in the preceding paragraph is not valid unless it is maderegarding actions that are based on a specific legal relationship, and executed by means of apaper document.

(3) If Electronic or Magnetic Records (meaning records used in computer data processing

which are created in electronic form, magnetic form, or any other form that is otherwise

impossible to perceive through the human senses alone; the same applies hereinafter) in

which the content of the agreement is recorded are used to execute the agreement as

referred to in paragraph (1), the agreement is deemed to have been executed by means of apaper document and the provisions of the preceding paragraph apply.

(4) An agreement that an action may be filed only with the courts of a foreign country may

not be invoked if those courts are unable to exercise jurisdiction by law or in fact.

(5) An agreement as referred to in paragraph (1) which covers Consumer Contract disputesthat may arise in the future is valid only in the following cases:(i) if the agreement provides that an action may be filed with the courts of the country where

the Consumer was domiciled at the time the Consumer Contract was concluded (except in thecase set forth in the following item, any agreement that an action may be filed only with acourt of such a country is deemed not to preclude the filing of an action with a court of any

other country);(ii) if the Consumer, in accordance with said agreement, has filed an action with the courts of

the agreed-upon country, or if an Enterprise has filed an action with the Japanese courts orwith the courts of a foreign country and the Consumer has invoked said agreement.

(6) An agreement as referred to in paragraph (1) which covers Individual Civil Labor Disputethat may arise in the future is valid only in the following cases:(i) if the agreement is made at the time a labor contract ends, and establishes that an action10）Toshiyuki Kono et al. KOKUSAI SAIBANKANKATSU NI KANSURU HANREINO KINOUTEKIBUNSEKI(Functional Analysis on Japanese Case Law on International Jurisdiction), NBL, no. 890, p.74(2008)11）Yasushi Nakanishi, ATARASHII KOKUSAISAIBANKANKATSU KITEI NI TAISURU SOURONTEKIHYOUKA(General Remarks on the New Japanese Rules on International Judicial Jurisdiction), KOKUSAI SHIHONENPO(Japanese Yearbook of Private International Law), no.15, p.17(2013).

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Recent Court Decisions on International Adjudicative Jurisdiction in Japan

may be filed with the courts of the country where the place that the labor was being provided

as of that time is located (except in the case set forth in the following item, an agreementthat an action may be filed only with the courts of such a country is deemed not to preclude

the filing of an action with the courts of any other country);(ii) if the worker, in accordance with said agreement, files an action with the courts of theagreed-upon country; or if the enterprise files an action with the Japanese courts or with thecourts of a foreign country and the worker invokes said agreement.

Although this Article 3-7 sets forth the requirements for choice of court agreements, it only

applies to agreements concluded after the amended CCP came into force, that is, after April 1,2012 (Article 2(2) of the Supplementary Provisions of the CCP). For this reason, there arevery few published cases in Japanese courts that have been decided based on Article 3-7.

From this viewpoint, a series of judicial precedents in the MRI International case, which has
become widely known as an investment fraud case, can provide an overview of the position ofJapanese case law regarding choice of court agreements.
2. MRI International caseIn this case, MRI International, an investment company, which was a Nevada corporation,

approached and sold financial products to consumers residing in Japan only through its
Japanese branch. However, the funds collected were not invested or returned to theconsumers. The financial product sales contracts between the consumers and MRIInternational included a jurisdiction clause providing for exclusive jurisdiction and venue in thestate court of Nevada. The majority of such consumer contracts were signed before April 1,

2012. The victims (the consumers) filed multiple proceedings seeking damages against MRIInternational in Japanese courts, but the courts’ decisions on the validity of the choice of court
agreement were divided. There was no question that the exclusive choice of court agreements

concluded on or after April 1, 2012 is invalid based on Article 3-7 (5) above because these

agreements are consumer contracts under Japanese law, and this point has been confirmed

by multiple judicial precedents (Tokyo District Court’ s decision, January 27, 2015 (LEX-DB
25524077), Tokyo District Court’ s Decision, March 22, 2017 (LEX-DB 25554104), Tokyo

District Court’ s decision, March 30, 2017 (LEX-DB 25550954), Tokyo District Court’ s

decision, August 22, 2018 (LEX-DB 25556780)). However, for the agreements concluded
before April 1, 2012, (a) some decisions held that the choice of court agreement is valid eventhough it is part of a consumer contract, and declined to exercise jurisdiction based on the
choice of court agreement (Tokyo District Court’ s decision on January 14, 2014 (Hanrei Jiho,

no. 2217, p.68)), while (b) some other decisions invalidated the choice of court agreement
based on violation of public policy because the agreement imposed a heavy litigation burden

on the consumers, and agreed to exercise jurisdiction in Japan based on the consumers’
domicile in Japan12） (Tokyo High Court’ s decision on November 17, 2014 (Hanrei Jiho

12）CCP prescribes Japanese courts have jurisdiction over the action brought by a consumer against an enterprisewhen the consumer’s address is in Japan at the time of filing of the action or the conclusion of the consumer contract(Article 3-4(1) of the CCP).

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no.2243, p.28, the second instance decision to the Tokyo District Court’ s decision on January

14, 2014), Tokyo District Court’ s decision on March 22, 2017 (LEX-DB 25554104), Tokyo
District Court’ s decision on March 30, 2017(LEX-DB 25550954), Tokyo District Court, July 11,2018 (LEX-DB 25556612), Tokyo District Court’ s decision on August 22, 2018 (LEX-DB

25556780). In addition, (c) some decisions held the choice of court agreement to be valid,
but exercised jurisdiction in Japan because another choice of court agreement providing for

litigation in Japan was reached in the subsequent U.S. lawsuit between MRI International andcertain consumers (Tokyo District Court’ s decision on January 27, 2015 (LEX-DB 25524077),

Tokyo District Court’ s decision on January 17, 2017 (LEX-DB 25538647), Tokyo District
Court’ s decision on January 19, 2017 (LEX-DB 25538330)). Of course, the facts are notexactly the same in all proceedings, but it is interesting to note that the court decisions on thevalidity of the choice of court agreements differed even though the language of the clause
was probably identical or highly similar across the agreements.
3. The Shimano case

Additionally, Shimano v. Apple was a case in which there were some interesting judicial

decisions that may inform the application of the amended CCP regarding the interpretation ofa choice of court agreement, even though the case itself did not apply the amended CCP. The
matter was between plaintiff Shimano Manufacturing Co. Ltd. and defendant Apple Inc. Inthat case, Shimano, a Japanese supplier of Apple, a California corporation, filed a lawsuit
against Apple in a Japanese court for civil damages, alleging that Apple suddenly suspended

its orders for the manufacture and supply of product parts, which continued for years, andthat Shimano was forced to respond to unreasonable demands for price reductions and rebate

payments. Shimano’ s contract with Apple included a clause providing for exclusive jurisdictionin the state or federal courts of Santa Clara County, California whether or not the dispute iscaused by or in connection with this Contract. As the contract between Shimano and Applewas concluded before April 1, 2012, the amended CCP was not applicable to this choice ofcourt agreement. The Tokyo District Court ruled that the clause was invalid and expressed theopinion that, even under the pre-amendment CCP, there was a requirement that the choice ofcourt agreement needs to be based on a certain legal relationship, as provided in Article 3-7(2) of the pre-amendment CCP. According to the District Court, the clause in the AppleShimano contract had no limitation other than that the dispute be between Apple andShimano and thus it was difficult to discern the underlying specific legal relationship withrespect to which the clause covers.13） However, on appeal, the Tokyo High Court ruled that thejurisdiction and venue clause was valid because, when one construes this clause as a whole, it
was clear that the choice of court agreement applies at least to the disputes over the contract

at issue. The High Court explained that, although admittedly the choice of court agreement
could be partially invalid to the extent that it seeks to cover all disputes between Apple andShimano, this observation should not have any effect if applied to disputes related to the13）Tokyo District Court’s decision on February 15, 2016, LEX-DB 25542763.

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Recent Court Decisions on International Adjudicative Jurisdiction in Japan

contract.14） As mentioned above, although these decisions in the Shimano case did not apply
the amended CCP, they discuss the matters relevant to the amended CCP and are expected toaffect future court practices regarding the interpretation of Article 3-7 of the amended CCP.

Ⅳ．Conclusions
This paper provides an overview of the judicial precedents of Japanese courts after theamendment of the CCP applying the amended CCP or its underlying spirit in cases whereinternational jurisdiction was at issue. So far, there are some interesting cases, but case law is
not yet well established regarding the amended CCP. In addition to the issues raised in thispaper, there are many jurisdictional bases that require interpretation guidelines, such as

jurisdiction based on the place of performance of an obligation (Article 3-3 (i) of the CCP) andactivity-based jurisdiction (Article 3-3 (v)). Courts, practitioners, and commentators should
continue to monitor the trends in case law.

14）Tokyo High Court’s decision on July 22, 2020, D1-Law 28283185

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87Enforcement in Japan of Foreign Judicial and Extrajudicial Instruments

Yoshimasa Furuta*

Ⅰ．Introduction
In September 2020, the Japanese Minister of Justice commissioned the Legislative Council

to consider possible amendments to the Arbitration Act and other related statues. Since then,the Legislative Council has been extensively deliberating measures to make (i) interim

measures issued by an arbitral tribunal enforceable, so that the Arbitration Act will match the2006 Model Law and (ii) settlement agreements resulting from private mediation enforceable,
so that Japan is ready to join the Singapore Mediation Convention.

This Article will outline the current procedure to enforce a foreign court judgment or arbitralaward in Japan (Chapter II), and discuss possible reforms to the current procedure (Chapter
III).

Ⅱ．Outline of the current procedure to enforce foreign judicial and extrajudicial instruments
1. “ Title of Obligation”

Under the Civil Execution Act of Japan (Act No. 4 of 1979; “CEA”)1） as it presently exists,

one must have a so-called “title of obligation” (“Saimu Meigi ” in Japanese) in order to initiate
a civil enforcement procedure. A “title of obligation” is an instrument that satisfies all legal

requirements for enforceability. Article 22 of the CEA lists the various forms that a “title ofobligation” may take, including various domestic instruments such as court orders andjudgments, instruments prepared by a Japanese notary public, and a court-recorded

settlement resulting from court mediation (Article 16 of the Civil Conciliation Act (Act No. 222* Partner, Anderson Mori & Tomotsune; Fellow, Chartered Institute of Arbitrators (FCIArb); Executive Director,
Japan International Dispute Resolution Center. I wish to thank my new colleague and good friend, David MacArthur(Senior Foreign Counsel, Anderson Mori & Tomotsune) for his insightful comments and editorial support on theearlier draft of this article.
1）English translation can be found at: http://www.japaneselawtranslation.go.jp/law/detail/?id=70&vm=&re=88

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Enforcement in Japan of Foreign Judicial and Extra-judicial Instrumentsof 1951). It also includes judgments of foreign courts and arbitral awards (regardless whether

the seat of arbitration was in Japan or abroad) under certain conditions, as addressed infurther detail in the following sections.
2. Foreign judgments

Foreign court judgments can be enforced in the courts of Japan pursuant to Article 24 of

the CEA, which provides that:(1) An action seeking an execution judgment for a judgment of a foreign court shall be under
the jurisdiction of the district court having jurisdiction over the location of the generalvenue of the obligor, and when there is no such general venue, it shall be under thejurisdiction of the district court having jurisdiction over the location of the subject matterof the claim or the seizable property of the obligor.

(2) An execution judgment shall be made without investigating whether or not the judicial
decision is appropriate.

(3) The action set forth in paragraph (1) shall be dismissed without prejudice when it is notproved that the judgment of a foreign court has become final and binding or when such
judgment fails to satisfy the requirements listed in the items of Article 118 of CCP.

(4) An execution judgment shall declare that compulsory execution based on the judgment by
a foreign court shall be permitted.

An “execution judgment” is a court judgment authorizing civil execution or enforcement

procedure based on a foreign court judgment. Thus, in order to enforce a foreign judgment ina Japanese court, one must prove that the foreign judgement has become final and binding
and satisfies the requirements under Article 118 of CCP. That article states:

A final and binding judgment rendered by a foreign court is valid only if it meets all of thefollowing requirements:(1) the jurisdiction of the foreign court is recognized pursuant to laws and regulations,conventions, or treaties;(2) the defeated defendant has been served (excluding service by publication or any otherservice similar thereto) with the requisite summons or order for the commencement of
litigation, or has appeared without being so served;(3) the content of the judgment and the litigation proceedings are not contrary to public policy
in Japan;(4) a guarantee of reciprocity is in place (addressed further in section III.1.(a) below).

If a Japanese court finds that the foreign judgement satisfies all of the requirements above,

it will grant an execution judgment for the foreign judgment. Upon becoming final andbinding, such an execution judgment constitutes a “title of obligation” under Article 22 (iv) of
the CEA on which one can initiate a civil enforcement procedure for immediate execution.
3. Arbitral award

Regarding the enforcement of an arbitral award in Japanese courts, Article 46 of the

Arbitration Act of Japan (Act No. 138 of 2003)2） provides that a competent Japanese court shallJapan Commercial Arbitration Journal VOL.2［2021］

89grant an “execution order” , which is functionally comparable to an execution judgment while
being somewhat less burdensome to obtain, procedurally (addressed further in section III.1.(b)below), for an arbitral award, unless it finds that any of the following conditions exist, i.e.:(i)	the Arbitration Agreement is not valid due to the limited capacity of a party;(ii)	the Arbitration Agreement is not valid on grounds other than the limited capacity of aparty pursuant to the laws and regulations designated by the agreement of the parties
as those which should be applied to the Arbitration Agreement (or if said designation has

not been made, the laws and regulations of the country to which the place of arbitration
belongs);(iii)	the party did not receive notice required under the laws and regulations of the country towhich the place of arbitration belongs (or if the parties have reached an agreement on

the matters concerning the provisions unrelated to public order in such laws andregulations, said agreement) in the procedure of appointing arbitrators or in thearbitration procedure;(iv)	the party was unable to defend itself in the arbitration procedure;(v)	the Arbitral Award contains a decision on matters beyond the scope of the Arbitration
Agreement or of a petition in the arbitration procedure;(vi)	the composition of the Arbitral Tribunal or the arbitration procedure is in violation of thelaws and regulations of the country to which the place of arbitration belongs (or if theparties have reached an agreement on the matters concerning the provisions unrelated
to public order in said laws and regulations, said agreement);(vii)	according to the laws and regulations of the country to which the place of arbitration
belongs (or if the laws and regulations applied to the arbitration procedure are laws andregulations of a country other than the country to which the place of arbitration belongs,
said other country) the Arbitral Award is not final and binding, or the Arbitral Award has
been set aside or its effect has been suspended by a judicial body of that country;(viii)	the petition filed in the arbitration procedure is concerned with a dispute which may not
be subject to an Arbitration Agreement pursuant to the provisions of Japanese laws andregulations; or(ix)	the content of the Arbitral Award is contrary to public policy in Japan.

This list is substantially identical to the grounds for refusing recognition or enforcement ofan arbitral award as provided for in Article 36(1) of the UNCITRAL Model Law on International
Commercial Arbitration (the “Model Law”)3）.

In sum, if a Japanese court finds that any of the grounds set forth above apply, it will

decline to issue an execution order for the arbitral award. But if none of the grounds apply,
the court will issue such execution order which, upon becoming final and binding, will

constitute a “title of obligation” per Article 22 (vi)-2 of the CEA, on which a civil enforcement
procedure can be initiated.

2）English translation can be found at: http://www.japaneselawtranslation.go.jp/law/detail/?id=2784&vm=&re=3）https://uncitral.un.org/en/texts/arbitration/modellaw/commercial_arbitration

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Enforcement in Japan of Foreign Judicial and Extra-judicial Instruments

Ⅲ．Possible reforms to the current procedure to enforce foreign judicial andextra-judicial instruments
1. Foreign judgment(a) On “guarantee of reciprocity”

In July 2019, the Hague Conference on Private International Law adopted the Convention

on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters(“Hague Judgment Convention”)4）. Under Japanese law, the provisions in Article 118 of the

CCP largely align with the provisions of the Hague Judgment Convention, with one exception

noted below. For instance, with regard to the requirement under Article 118 (i) of the CCP(indirect jurisdiction of the foreign court), Article 5 of the Hague Judgment Convention

provides a detailed basis for indirect jurisdiction. With regard to Article 118 (ii) & (iii) of the
CCP (proper notice & public policy), Article 7 of the Hague Judgment Convention provides for

substantially the same grounds for refusal. However, as for Article 118 (iv) of the CCP(guarantee of reciprocity), there is no equivalent provision in the Hague Judgment Convention.
In other words, it is not permissible under the Hague Judgment Convention to refuserecognition & enforcement of a foreign judgment on the ground of the lack of guarantee ofreciprocity. Accordingly, if Japan is to join the Hague Judgment Convention, Article 118 (iv) of
the CCP must be deleted.

In addition, when a business entity is to enter into an international business transaction, it

is common practice in Japan for parties to procure a legal opinion regarding enforceability of aforeign court judgment that might be obtained in the event of a dispute arising from thattransaction. Under the current regime, in light of Article 118 (iv) of the CCP, Japanese lawyers

must investigate and understand whether equivalent systems and requirements exist in the
courts of a certain foreign country which may render the judgment relating to thattransaction, inasmuch as “guarantee of reciprocity” is to be judged by comparing whether or
not a Japanese judgment of the same kind shall be recognized and enforceable in the foreigncountry under conditions that do not differ in any material respect from the conditionsprescribed in Article 118 of the CCP (Judgment of the Supreme Court of Japan dated June 7,

1983, Minshu Vol. 37, No. 5, page 611). This is a time consuming, costly and difficult task. As

a result, more often than not, such legal opinions omit discussion of the issue of “guarantee ofreciprocity”, which leaves a gap of uncertainty regarding the central issue which they areintended to address—i.e., the judicial enforceability of a foreign judgment relating tocontractual obligations in Japan. This introduces an element of precariousness in international
business transactions with entities in Japan that may add a layer of friction to such dealings.

In the first place, it is said that the purpose of requiring a “guarantee of reciprocity” is not

to pursue justice among private entities, but is based on the "principle of equality between

sovereign states", i.e., originated from the traditional notion under the international public lawthat has been already abandoned in many jurisdictions. Application of such a principle to4）https://www.hcch.net/en/instruments/conventions/full-text/?cid=137

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judicial treatment of purely commercial transactions introduces an element of uncertainty that
may well have undesirable effects in trade and commerce with Japanese businesses. . From
this viewpoint, it would be better to delete sub-provision (iv) of Article 118 of the CCP.
(b) “Execution judgment” or “execution order”

To enforce a foreign judgment in Japan, one needs a final and binding “execution judgment”(“Shikko hanketsu ” in Japanese), while for enforcement of an arbitral award in Japan, one

needs a final and binding “execution order”(“Shikko kettei ” in Japanese). Under the CCP, theprocedure for obtaining a “judgment” is much heavier and more time-consuming than theprocedure for an “order” . While Article 82 of the Constitution of Japan requires a “judgment”

procedure to adjudicate the substantive rights and obligation of the litigants (Judgment of theSupreme Court of Japan dated June 30, 1965, Minshu Vol. 19, No. 4, page 1089), in the caseof an “execution judgment”, the court may only adjudicate whether a foreign judgment canbe recognized in Japan, and it cannot adjudicate the substantive rights and obligation of thelitigants. Therefore, it is just a matter of legislative policy whether the enforcement of aforeign judgment requires “execution judgment” or “execution order”.

Before the current Arbitration Act took effect in 2004, a final and biding “execution

judgment” was required to enforce an arbitral award in Japan. As the Arbitration Act changed“execution judgment” to “execution order” for an arbitral award, it is desirable and sensible tochange “execution judgment” to “execution order” for a foreign judgment as well.
2. Foreign court-recorded settlement

Under the CCP, when the litigants have reached an amicable settlement before the judge,

the settlement terms are recorded in the court record. As discussed the above, once recordedin the court record, such a court-recorded settlement is readily enforceable. By contrast, sucha settlement recorded or otherwise simply approved in a foreign court is not enforceable inJapan, as it does not qualify as a “judgment of a foreign court” as provided for in Article 22(vi) of CEA nor “document that has the same effect as a final and binding judgment” asprovided for in Article 22 (vii) of CEA. That said, however, in cases where a settlement isapproved by a foreign judge and registered as a court judgment as a matter of judicial process(such as a “consent decree” in the United States), it qualifies as a “judgment of a foreign

court” as provided for in Article 22 (vi) of CEA and can be enforceable in Japan if it meets therequirements under Article 118 of CCP (see, e.g., Judgment of the Tokyo District Court dated

January 26, 2017, 2017 WL JPCA01268002 (consent decree of the U.K. family court),
Judgment of the Tokyo District Court dated March 19, 1957, Kaminshu Vol. 8, No. 3, Page 525(consent decree of the California state court).

From a substantive view point, it is a rather technical difference between a consent decree

and other type of court-recorded settlement, and the degree of the judge’ s involvement
during settlement discussion may not be categorically different. That being the case, it may

not be sensible to distinguish them in terms of enforceability. Incidentally, Article 11 of theHague Judgment Convention provides that “Judicial settlements (transactions judiciaires)

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Enforcement in Japan of Foreign Judicial and Extra-judicial Instruments

which a court of a Contracting State has approved, or which have been concluded in thecourse of proceedings before a court of a Contracting State, and which are enforceable in thesame manner as a judgment in the State of origin, shall be enforced under this Convention in
the same manner as a judgment.” As such, it would be worth considering to make asettlement recorded or otherwise simply approved in a foreign court enforceable in Japan.
3. Enforceability of interim measures issued by an arbitral tribunal

Articles 17A to 17I of the Model Law (as amended in 2006) provide, among other things,

that interim measures issued by an arbitral tribunal shall be recognized and enforced by acompetent court as long as certain requirements are met. The Arbitration Act of Japan lacks
equivalent provisions, having been enacted 2003, before the 2006 amendments to the Model
Law.

In June 2017, Cabinet Office of the Government of Japan published “Basic Policy on

Economic and Fiscal Management and Reform 2017,” 5） which declared that “the government

will ... develop a foundation to activate international arbitration, including in sports events” .
In February 2018, the Japan International Dispute Resolution Center ( “JIDRC” ) was

incorporated, which now operates state-of-the-art arbitration facilities in Tokyo and Osaka6）.

In June 2019, the Japanese Ministry of Justice entrusted JIDRC to implement the Five Year

Program to Activate International Arbitration. From FY2019 to FY2023, the JIDRC will advancea variety of measures to:(1) Educate and train prospective arbitrators, arbitration counsel, and other necessary humanresources;(2) Enhance awareness among the business community on international arbitration; and(3) Launch and operate new arbitration hearing facilities in Tokyo.

In May 2020, the Act on Special Measures concerning the Handling of Legal Services byForeign Lawyers (Act No. 66 of 1986; “Gaiben Act”) was amended to enlarge the scope of“international arbitration cases” for which foreign lawyers can act as counsel cases in Japan.

These are welcome and positive developments, reflecting a pro-arbitration drive in Japan.

Given the spirit and intentions of this trend, it is now time to amend Arbitration Act to matchthe 2006 Model Law in providing for interim relief granted by arbitrators in matters seated inJapan to be directly enforceable in the country’ s courts.

4. Settlement agreement resulting from private mediation

In December 2018, the United Nations General Assembly adopted the United Nations

Convention on International Settlement Agreements Resulting from Mediation (the “Singapore

Mediation Convention”)7）. Under this convention, a settlement agreement resulting fromprivate mediation shall be enforced by any competent court, unless the court finds any of the5）English translation can be found at: https://www5.cao.go.jp/keizai-shimon/kaigi/cabinet/2017/2017_basicpolicies_
en.pdf6）https://idrc.jp/en/7）https://www.singaporeconvention.org/

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grounds to refuse enforcement as provide for in Article 5 thereof.

In Japan, under the current CEA, a settlement agreement resulting from private mediation

is not readily enforceable in Japan, unless it is recorded in (a) a notarial deed prepared by aJapanese notary public with a statement to the effect that the obligor will immediately accept
compulsory execution (Article 22 (v) of CEA), or (b) a court record of a judicial settlement(Article 22 (vii) of CEA). When the Act on Promotion of the Use of Alternative Dispute
Resolution (Act No. 151 of 2004; “ADR Act”) was enacted in 2004, it was discussed whether asettlement agreement resulting from private mediation should be readily enforceable or not.

It was decided at that time that the situation was premature, and so far, the ADR Act has notbeen amended yet to incorporate this change.

Accordingly, in practice, where a settlement agreement resulting from private mediationneeds to be enforceable, the parties to the settlement agreement would have it recorded in (a)a deed notarized by a Japanese notary public or (b) a court record of a Japanese court. This

practice, however, is not necessarily feasible for an international business mediation. First, as
for a notarial deed, the scope of enforceability is limited to “a claim for payment of a certain
amount of money or any other fungible thing or a certain amount of securities” and does notcover other types of relief such as specific performance that may be included in a mediatedsettlement. Second, to have the settlement agreement recorded as a court record, one mustfirst file a petition for mediation with a Japanese court (Article 2 of the Civil Conciliation Act),or file a petition for settlement with a Japanese court (Article 275 of CCP). In either case, thecourt will set a hearing date for settlement, which will usually be several weeks after thefiling. Third, both the notarial deed and the court record must be written in Japanese.

In November 2018, the Japan International Mediation Center in Kyoto (“JIMC-Kyoto”)8） was

officially launched. JIMC-Kyoto is the first international mediation center in Japan and provides
world-class mediation services for various kinds of cross-border disputes between foreign andJapanese parties. In May 2020, the Gaiben Act was amended to allow representation byforeign lawyers in international mediation cases in Japan. In September 2020, the Singapore
Mediation Convention entered into force.

Under these circumstances, the time has come for Japan, at least in relation to internationalcommercial mediation, to make settlement agreements resulting from private mediation
inherently enforceable, and to join the Singapore Mediation Convention.

Ⅳ．Conclusion
As outlined in this article, there are a number of amendments to Japanese law that should

be discussed and adopted in furtherance of the country’ s recent trend in promoting anddeveloping the field of international dispute resolution, especially international arbitration andmediation. It is envisaged that the necessary bills can be submitted to the National Diet assoon as late 2021 and it is hoped that they can be established as law in the near future.
8）https://www.jimc-kyoto.jp/

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Judicial Decisions and Open Data in Japan

Professor, Seijo University

Yasutaka Machimura

Ⅰ．The necessity of open data in judicial decisions
T h e t e r m " o p e n d a t a ", w h i l e n o t d e f i n e d , wa s [ f i r s t ] u s e d i n J a p a n i n t h e 2012

e-Government Open Data Strategy adopted by the Strategic Headquarters for the Promotionof an Advanced Information and Telecommunications Network Society (IT Strategic
Headquarters)1）. The objective of this Strategy was three-fold: (i) to improve transparency
and reliability of public administration, (ii) to promote public participation and cooperation
between the public and private sectors, and (iii) to revitalize the economy and improveadministrative efficiency through the secondary use of public data. Open data is an establishedinternational strategy, having been pursued in the United States2） and the EU3） since early

2000.

The term "open data" tends principally to cover data held by administrative agencies,

whether legislative or judicial, and an open data strategy requires that such data be madewidely available to the public. In particular, legal information such as laws and regulations

must be freely accessible to the general public under the principle of popular sovereignty. Thisis partly to enable the sovereign to control the content of laws, but also because, theoretically,members of the public must know in advance the content of any law that acts as a normative
constraint on their actions. In particular, criminal law, which is governed by the legal principleof legalism for crime and punishment4）, is based on the fundamental premise that the actor

should know the law in advance.

The legal information contemplated here is not limited to legal texts of the JapaneseConstitution, legislation, and various subordinate laws, but also includes factors that affect the1）http://www.kantei.go.jp/jp/singi/it2/pdf/120704_siryou2.pdf2）Transparency and Open Government, Memorandum for the Heads of Eexecutive Departments and Agencies.
https://obamawhitehouse.archives.gov/the-press-office/transparency-and-open-government3）The European Union Open Data Portal (EU ODP) https://data.europa.eu/euodp/en/home4）Article 39 of our Constitution stipulates that no person shall be held criminally liable for an act which was lawfulat the time it was committed.

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interpretation and application of those laws. The factors referred to in the legislative process
are key to interpreting the meaning of the law as are court precedents.

Thus, such information must be freely accessible to the public, who are sovereign and theaddressees of the law—i.e., they must be considered open data.

Free access to legal information also contributes to the enhancement of Japan’ s credibility

with foreign countries. This can be an effective tool to attract foreign trade and investment

into Japan, as well as to expand Japan's presence in international arbitration forums. The
coronavirus pandemic has forced a reassessment of global strategy, but when foreign tradeand business activity eventually recovers, transparency, as well as fairness of the Japanese
legal system, will be strategically important.

In addition, judicial decisions should be open data, so that this can be used as a basis for AI

analysis. For example, a committee for research on online dispute resolution5） has
recommended that "There is a strong need to open up the data from civil judgments so that it
can be used as big data".

Ⅱ．Open data methods
1. Machine reading and Free access

The definition of open data was clarified in the 2017 Basic Guidelines for Open Data6） issued

by the IT Strategic Headquarters. According to these guidelines, open data must be madeavailable to the public for easy use (processing, editing, redistribution, etc.) through theinternet, or through other means in a form that meets the three conditions of secondary use,machine readability, and free use.

An example of providing legal information as open data in Japan is the e-government

website for providing legal data7）. This site satisfies the definition of open data and provides

all legal data in XML format free of charge, as well as bulk data of all laws and ordinances,

and a legal API (Application Programming Interface) to facilitate secondary use in a form
suitable for machine reading. The provision of such open data has led to the development ofprivate-sector applications for the use of legal data on smartphones, which are being used invarious ways.

An English translation of Japanese laws is available on the site administered by Ministry ofJustice, Japan. This site, "Japanese Law Translation"8） provides a considerable amount of legal
data for free, although not in an XML format.

Similarly, the availability of court judgments on the court websites has increased after the

judicial system reforms. Now, in principle, the Supreme Court’ s official case-law collection, its
quasi-official case-law collection, the High Courts’ case-law collection, intellectual property

case-law collection, and some other important decisions are open to the public9）. However,5）This is an organization of Ministry of Justice. http://www.moj.go.jp/content/001332396.pdf
6）Revised version was published at: https://www.kantei.go.jp/jp/singi/it2/kettei/pdf/20190607/siryou10.pdf
7）https://elaws.e-gov.go.jp
8）http://www.japaneselawtranslation.go.jp/

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documents are generally formatted as a scanned PDF of the paper original, and although full-text search is possible, it is not XML-based and does not provide an API. So that these sites
can convert these documents into XML with standard tags, submissions should be required tobe made in a natively digital format.

The website of the Supreme Court of Japan also provides a summary of the Court’ s

decisions in English10）. Although this service is a notable and welcome development, it has

not been positively publicised. In addition, for the time being, translations are limited torecent cases.

A further challenge to the vision of openness in legal data in Japan is the relatively low rateof reporting of court judgments. Only a small fraction of the cases decided are actuallyreported, even in Japanese. Since there are various types of trials, it is difficult to ascertain

the numbers with accuracy. However, as per the Annual Report of Judicial Statistics, while thenumber of completed cases (excluding duplicates and special appeals) of the civil andadministrative cases of the Supreme Court in 2018 was 2,902, the number of judgments

reported on the court website was only 32 (1.1%). The number is slightly higher in private
databases, but even so, the number of Supreme Court civil and administrative judgments

available on the Westlaw Japan11） case database is only 121 (4.17%). As for the high courtsand district courts, although the number of cases reported is more, the number of cases thathave been decided is also larger. In percentage terms, 1.02% of the civil and administrative

cases of the high courts are published on the court website, and 2.79% on Westlaw Japan. In

the case of district court cases, the reporting rate is only 0.05% on the court website and0.83% in Westlaw Japan.

The definition of open data makes no mention of the amount of data, but if we start fromthe premise that judicial precedents ought to be considered open data, so that they can beaccessed as examples of how to interpret and apply the law, and also to develop relatedindustries through secondary use, then it is clear that the reporting rate of judgments should
be increased dramatically. Conventional publication of judicial precedents tends to focus onparticularly important judgments, since these serve as precedents or as practical references.
Similarly, private publishers and database companies also select and publish the mostimportant precedents from their own perspectives. However, open data should, in principle,
cover all, or a majority of, the judicial precedents, while being open and available to the
public, with exceptions for non-disclosure under special circumstances only.
2. Protection for trade secrets and privacy

While judicial precedents are public property and should be widely available to the generalpublic, many cases that go to trial contain large amounts of private information, and in somecases, trade secrets. Currently, the case records of civil trials can be inspected by anyone9）https://www.courts.go.jp/app/hanrei_jp/search1
10）https://www.courts.go.jp/app/hanrei_en/search11）This database company is a joint ventrue by the Westlaw and New Japan Law (Shin Nihon Hoki). https://go.westlawjapan.com/

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Judicial Decisions and Open Data in Japan(Article 91, Japanese Code of Civil Procedure12）), but if certain grounds are prima facie

alleged, the inspection can be restricted (Article 92, same Code13）). Nondisclosure orders
granted in cases which concern trade secrets, or private information that should be protected.

In addition, although this article does not make a distinction between criminal and civil

cases, a criminal conviction is, by itself, information about the defendant's criminal record.
Criminal conviction records are held by the local government and investigative agencies, andare not, in principle, public. Indeed, there is a law that mandates publication of criminal

records in cases that have been disposed of, but with strict restrictions14）. A comprehensive

disclosure of criminal convictions would be tantamount to disclosing information on criminal
records. In addition, criminal judgments are sometimes issued on an anonymous basis. In

such cases, if the arrest of the person concerned is reported under his or her real name, it isquite easy identify the individual, defeating the purpose of an anonymous judgment. Case

records of criminal cases disposed of are also limited by extensive grounds for nondisclosure,unlike civil cases.

For reference, recent French law provides a general policy for open data about judicial

decisions in civil, administrative and criminal procedures15）. A report16） of policy submitted byProfessor Loïc Cadiet analyzed widely and deeply the merit and risk of open data policy injudicial decisions, and proposed legislation to allow the disclosure of all judicial decisions, butwith anonymization and some sensitive information sealed. The French government madesome laws to realize this proposal in 201917）.

Therefore, under the current legal framework, it is generally difficult to make criminal

judgments open to the public. On the other hand, for civil judgments, where open data is thedefault rule, some measures must be taken to protect privacy and trade secrets, such as12）Any person may file a request with the court clerk to inspect a case record.
13）If the party to a case makes a prima facie showing of the following grounds, the court, at the petition of said
party, may rule to limit the persons that may request to inspect or copy the part of said case record in which therelevant confidential information is entered or recorded, that may request to be issued an authenticated copy,transcript, or extract of that part of the case record, or that may request to reproduce that part of the case record(hereinafter referred to as "Inspection, etc. of the Confidential Portion") to the parties to the case:(i) a material piece of confidential information about the private life of a party is entered or recorded in the caserecord, and a third party's Inspection, etc. of the Confidential Portion of the case record would be substantiallydetrimental to that party's social life;(ii) a trade secret (meaning a trade secret as prescribed in Article 2, paragraph (6) of the Unfair Competition
Prevention Act;
14）Act about the terminated criminel procedure records. Article 4 provide its openess to the public but withrestrictions.
15）This policy is based on the article 20 of the Act for Digital republic (Loi no 2016-1321 du 7 octobre 2016 pourune République numérique).
16）Loïc Cadiet, «L'open data des décisions de justice», Rapport à Madame la garde des Sceaux, ministre de laJustice, 2017. This report is published at the French Supreme Court website: https://www.courdecassation.fr/
venements_23/relations_institutionnelles_7113/archives_9896/ministere_justice_8545/decisions_justice_8546/
17）Loi n o 2019-222 du 23 mars 2019 de programmation 2018-2022 et de réforme pour la justice. This law isfollowed by the decree: Décret no 2020-797 du 29 juin 2020 relatif à la mise à la disposition du public des décisions
des juridictions judiciaires et administratives.

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partial confidentiality, anonymization, or limiting the scope of disclosure according to theattributes of the user. The use of XML technology is necessary for this purpose. These arelikely to be expensive to implement, as, even if the cost of digitization can be ignored (since

judicial decisions are usually in digital format), the procedures for XML conversion andconfidentiality measures will likely be costly.

Ⅲ．Open data a work in progress in JapanThe Japanese civil judicial system has been navigating the process of digitalization18）. Until

2019, lawyers and judges worked only with paper-based or face to face communication. Even

now, all judicial decisions are issued on paper and physically signed by the judges. After 2019,
digital communication has been partly allowed and electronic filing system will be introduced

totally or partly. This change, a necessary condition for the open data policy, is currently
underway, and is expected to be fully implemented by 2025.

More recently, a new public-private framework has been instituted for the creation of open

data on civil judgments. Called the "Project Team to Study the Creation of Open Data on Civil

Judgments", this body has been established under the Legal Research Foundation of the Japan
Federation of Bar Associations19）. With an unprecedentedly wide range of participants,

including lawyers, legal researchers, information analysis experts, and the relevant ministries

and agencies, especially judges, a practical project, including a demonstration experiment,
has been launched.

It is hoped that the study will progress in the right direction, and realize the ideal of open

data of judicial precedents, with the minimum necessary protections. This will go a long way
in improving Japanese legal culture and its transparency.

18）See. Yasutaka Machimura, Information Technology and Civil Justice in Japan, 86 Seijo Law Review, 361,
available at http://id.nii.ac.jp/1109/00005748/
19）https://www.jlf.or.jp

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Introduction of IT in Civil Court Procedures in Japan

Professor, Kyoto University

Masatoshi Kasai

Ⅰ．Outline(1) Status Quo

In Japan, under the Code of Civil Procedure, which was enacted in 1996 and enforced in

1998, courts may conduct preparatory proceedings, which are pre-trial proceedings forarranging issues and discussing evidentiary matters, in a way that enables the court and bothparties to communicate with one another at the same time through audio transmissions if oneof the parties appears in person before the court on that date of the proceeding. In “written
preparatory proceedings” which are proceedings for arranging issues and discussing

evidentiary matters through the submission of briefs or other writings without the appearanceof the parties, the judge may consult both parties in a way that enables the court and bothparties to communicate with one another at the same time through audio transmissions.

When examining a witness who resides in a distant location, the court may examine thewitness so as to enable communication with the witness through audio and visualtransmissions.

The amendment of the Code of Civil Procedure in 2004 created a provision enabling online

submissions. However, online submissions have not yet been authorized due to the lack ofSupreme Court rules on this issue, except with respect to the ‘demand procedure’ which is
conducted by court clerks.

Therefore, a plaintiff who wishes to file a suit must bring the written complaint to the court

counter or send it by mail. During the proceedings, parties may submit documents to thecourt using facsimile, in addition to bringing them directly to the court counter or sending by
mail. Case records are also in paper form.
(2) Current Movement

In response to the government's "Future Investment Strategy 2017", the “Commission for

IT Adoption in Court Procedures" under the Cabinet Secretariat, released a report titled “IT

Adoption in Court Proceedings – Towards the Realization of the Three E” in March 2018.1） The

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report discussed the adoption of e-court, e-filings, and e-case management in a step-by-stepfashion in three phases. The e-court component would be realized in phases 1 and 2 throughthe expansion of the use of IT tools and the amendment of laws. During phase 3, civil court
procedure would allow e-filings and e-case management using a new IT court system.

According to the report, in phase 1, IT tools such as web conferences would be usedproactively to the extent possible under the current law. Courts throughout the country havebeen carrying out this proposal, expanding the use of web conferences which has resulted in

the efficient arrangement of issues and evidence in civil cases. This expansion of web
conferences in the court context has been utilized, coincidently, as a measure to mitigate theeffects of the Covid-19 pandemic.

Further, in response to consultation with the Minister of Justice, the expert committee of the

Judicial Council began to study and deliberate in 2020 with the aim of preparing a report on

an amendment of the Code of Civil Procedure for the Judicial Council.2, 3） The committee is
expected to release its final report by early 2022. After the Minister of Justice receives the

reply from the Judicial Council, the government is expected to submit a bill for the amendmentof the Code of Civil Procedure to the Parliament in 2022.

This amendment of the Code of Civil Procedure is supposed to deal with various IT issues,

such as web-based oral arguments without parties appearing before the court, online filings
and online services utilizing the case management system, examination of documentary

evidence by way of inspecting the electronic data filed with the system, and judgments
uploaded to the system.

Ⅱ．E-court(1) Phase 1

As stated above, e-court is the main subject of phases 1 and 2.

In phase 1, judges, court clerks and lawyers are all expected to implement what is possible

under current law as provided in the Code of Civil Procedure. Specifically, phase 1 is expectedto actively involve IT tools such as web conferences to arrange issues and evidence of thecases. The parties and judges can exchange audio, video, electronic files, etc., in both or
multiple directions using the Internet in web conferences.

Nine courts (the Intellectual Property High Court and the District Courts of Tokyo, Osaka,

Nagoya, Hiroshima, Fukuoka, Sendai, Sapporo, and Takamatsu) began to use IT tools, suchas web conferences, in preparatory proceedings for arranging issues and evidence in February1）The government's "Future Investment Strategy 2018" approved the approach reported by the Commission.
2）Prior to the consultation, in December 2019, the "Study Group on IT adoption for Civil Court Procedures” issued
its final report "Toward the realization of IT Court", which analyzed many legal aspects which could involve various
legal issues.
3）In March 2020, the Liaison Committee of Relevant Ministries and Agencies on the Promotion of Reform of the
Civil Justice System compiled the "Promotion of Civil Justice System Reform", stating that it is necessary toconsistently promote IT adoption of civil court procedures from the standpoint of realizing a civil justice system withhigh international competitiveness.

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1032020, a move that was followed by five district courts (the District Courts of Yokohama,
Saitama, Chiba, Kyoto, and Kobe) in May, and thirty-seven district courts in December.

Consequently, all of the main offices of the fifty district courts throughout the country began

to use IT tools for arranging issues and evidence until the end of 2020. This operation will be
expanded to branch offices of district courts throughout the country in 2021. In all, these IT
tools were used in around 6,200 civil cases in January 2021.4）

In this phase 1, a web conference for arrangement of the issues and evidence of the casemay proceed with a judge in the courthouse and attorneys for both parties somewhere elsesuch as their offices, or, as is permitted under the current law, a judge and one of theattorneys in the courthouse with the other attorney somewhere else.

It seems that many lawyers involved in such proceedings feel comfortable with the ability tosmoothly communicate through the web conferencing system, which saves time and cost for
court appearances.5）(2) Phase 2

Phase 2 assumes that both parties are able to use web conferences to conduct oral

arguments and preparatory proceedings without appearing before the court, which is notallowed under the current Code of Civil Procedure. Under the current law, parties may notpresent their case without appearing before the court on the date for oral argument except on
the first date, and preparatory proceedings should be held with appearance of at least one
party. Therefore, in phase 1, consultation by “written preparatory proceedings” , which can be

conducted without both parties appearing would be used in lieu of web conferencing.
However, this use of written preparatory proceedings is not as the law expected. In addition,
parties who wish to settle their cases must use other types of proceedings to reach asettlement because parties may not come to a settlement by written preparatory proceedings.

The expert committee of the Judicial Council is now considering an amendment of the Codeof Civil Procedure which would enable courts to hold dates for oral argument and preparatory
proceedings without in-person appearances. This amendment would make civil litigation

proceedings more expeditious without impacting fairness. In that case, the date for oral
argument would be conducted in an open court where parties appear on screen, consistent
with the Constitution of Japan which mandates that a date for oral argument be conductedpublicly.

Ⅲ．E-filings and E-case management(1) Overall Concept

In phase 3, which would have to be implemented by amendment of the Code of Civil
4）See, Civil Affairs Bureau of the Ministry of Justice, Supplementary Explanation to the Interim Draft forAmendment of the Code of Civil Procedure, etc. (Introduction of IT), Feb. 2021, at 55.
5）See, Kazuhiko Yamamoto, et al., Discussion on Introduction of IT into Civil Court Procedures ‒ Current
Situation and Issues in the Phase 1, Jurist 1554, Feb. 2021, at 58-72.

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Introduction of IT in Civil Court Procedures in Japan

Procedure and the Rules of Civil Procedure, parties would be able to file a complaint andsubmit other documents online to the court utilizing the case management system (e-filing).
Case records would be electronically prepared, which could be accessed online by the parties,
and dates for oral argument would be also designated with electronic data without using

paper (e-case management). Judgments would be uploaded to the case management system.

The case management system should be user-friendly, and an IT support system should becreated to deal with digital divides. In other words, it is necessary to ensure each person will

not be hindered from getting sufficiently involved in the proceedings even when he or she is
not familiar with IT. This is especially important given that civil litigation may be filed,answered, and conducted by a party pro se in every court in Japan.
(2) New Proceedings Implementing IT

If the amendment of the Code of Civil Procedure is completed in line with the report of theStudy Group and current deliberations of the expert committee of the Judicial Council, thenew proceedings utilizing IT tools would proceed as follows:First, the plaintiff would be able to file the complaint online with the court. An issue now

being discussed is whether the online filing should be mandatory or optional. Options are (i) afully mandatory system in which plaintiffs will not be allowed to file paper complaints except

where there are unavoidable grounds for doing so; (ii) a mandatory system for attorneys
whereby attorneys may not file a complaint on paper but plaintiff pro se can file a complaint
either online or on paper; or (iii) a fully optional system, in which the plaintiff can choose filingonline or on paper.

Second, the parties will be able to pay the filing fee and other fees online.

Third, the service to the defendant of the complaint and the summons regarding the firstdate of oral argument should be printed in paper form and sent by mail, in principle. Thatsaid, a system is under consideration whereby the complaint and summons are served byuploading them to the case management system with notification to the defendant’s email
address which has been provided to the court previously.

Fourth, in proceedings for the arrangement of issues and evidence, each party is not

required to appear in the courthouse and instead may attend the date for the proceedings
online from their office or home.

Fifth, the court can examine witnesses outside of court using web conferences if it is difficult

for the witness to appear before the court or when the consent of the parties is obtained.

Sixth, the parties would be able to reach a settlement using web conferences during thecourse of the proceedings without appearing before the court.

Seventh, the court makes a judgment in electronic form, renders it in the public courtroom,

and uploads it to the case management system.

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105

TMI Associates constantly endeavors to meet the needsof its clients and society as a whole by utilizing its
comprehensive internal and external networks in newand emerging legal practice areas.

23rd Floor, Roppongi Hills Mori Tower, 6-10-1 Roppongi, Minato-ku
Tokyo 106-6123, Japan
Tel: +81(0)3-6438-5511 Fax: +81(0)3-6438-5522
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TOKYO / NAGOYA / OSAKA / KYOTO / KOBE / FUKUOKA / SHANGHAI / BEIJING / HO CHI MINH CITY /HANOI / YANGON / SINGAPORE / PHNOM PENH / BANGKOK / SILICON VALLEY / LONDONCollective Redress to Recover Consumer Damage in Japan―Present system and the direction of its amendment―
Professor of Law at Kobe University＊

Takuya Hatta

Ⅰ．Introduction
On November 24, 2020, the new directive on representative actions for the protection of

the collective interests of consumers was endorsed by the European Parliament1）. Many

European countries have already adopted legislation to realize collective redress throughjudicial procedure2）. The U.S. is famous for its class action scheme3）. Other countries such as

Brazil and Canada also have such legislation4）. Japan is no exception to this worldwide trend

and is now equipped with collective redress schemes for both injunction and remedy ofdamage for the sake of the consumers.

This essay focuses on the latter and addresses its problems and examines possible

solutions. I argue that Japan’ s new system has faced a fatal situation from the outset and isin urgent need of emergency “surgery” if it is to flourish.

I begin with an outline of the present system (II.), then examine its problems and the

direction of the possible amendment to address such problems (III.), and lastly drawing out
some conclusions based on the examination (IV.).

Ⅱ．The Japanese scheme for collective redress to recover consumer damage
Collective redress for consumer damage was established by the new enactment of ‘Act on

Special Measures Concerning Civil Court Proceedings for the Collective Redress for Property

Damage Incurred by Consumers’ ( ‘Consumer Procedure Special Measures Act’ ; and,* Professor of Law at Kobe University. This essay is the result of a research funded by JSPS KAKENHI Grant
Numbers JP20K01369, JP20H01422 and JP20K20743.
1）See https://data.consilium.europa.eu/doc/document/ST-9573-2020-REV-1/en/pdf (English).
2）See Stefaan Voet, 'Where the Wild Things Are'. Reflections on the State and Future of European Collective
Redress in Anne L.M. Keirse & Marco B.M. Loos (eds.), Waves in Contract and Liability Law in Three Decadesof Ius Commune (Intersentia, 2017) at 105, 109 (English).
3）Id at 106.
4）Paul G. Karlsgodt (ed.), World Class Actions (Oxford University Press 2012) at 56, 121 (English).

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107hereafter, ‘CPSMA’ )5） on December 4, 2013, which went into effect on October 1, 20166）.

This new procedure is said to be modeled after the Brazilian and French models7）.

The aim of the new procedure by CPSMA is the monetary redress of the damage suffered

by a considerable number of consumers.
1. Standing

The standing to use this procedure is limited to entities called ‘Specified Qualified Consumer

Organizations’ (hereafter ‘SQCOs’ ) (Art. 3.1, 65.1 of CPSMA). They are Qualified Consumer

Organizations (hereafter ‘QCOs’ )8） that meet further requirements and are approved by thePrime Minister to use this procedure (Art. 2.10, 65.4～6). On the respondent side, basically,
only the enterprise which is alleged to have caused the damage shall be the defendant (Art.
3.3 of CPSMA), excluding the directors of such enterprises.
2. Structure of the procedure

The procedure consists of two stages. The first stage is the Litigation Seeking Declaratory

Judgment on Common Obligations. It is a litigation seeking declaratory judgment as to theexistence of the cause common to wronged consumers (such as the existence of an unlawful

act on the side of the enterprise that caused damage to consumers). The judgment as theresult of this litigation shall be binding on the defendant enterprise, all the SQCOs including theplaintiff and the affected consumers who take part in the second stage (Art. 9 of CPSMA)9）.

The second stage is the Proceeding for the Determination of Claims. This is a proceeding todetermine the existence and the amount of the claim each affected consumer has against thedamaging enterprise. This stage is twofold: 1) Simple Determination Proceeding; and 2)
Proceeding of Litigation after the Objection.

The first step, Simple Determination Proceeding, is a procedure before the court but is lessburdensome and more simplified than the ordinary court proceeding and proceeds as follows:1) commencement of proceeding upon the petition by the SQCO which was the plaintiff in thefirst stage, followed by 2) filing of claims of affected consumers by this SQCO, then followedby 3) approval or disapproval of this claim by the defendant enterprise (if the defendant
approves the claim, the procedure for this claim ends here), ending in 4) the decision by the5）English translation of this law can be obtained by http://www.japaneselawtranslation.go.jp/law/detail/?vm=
04&re=01&id=2727. Last date of visit: 09/03/2021.
6）For more details of the procedure, see Shouhishachou Shouhishaseidoka (ed.), Ichimonn Ittou Shouhisha Saiban
Tetsuzuki Tokureihou (Shoujihoumu, 2014) (Japanese); Yamamoto, Kazuhiko, Kaisetsu Shouhisha Saiban Tetsuzuki
Tokureihou (Koubundou, 2d ed., 2016) (Japanese) (hereafter ‘Yamamoto’); id , Special Proceedings for the Collective
Redress for Property Damage Incurred by Consumers — About So-Called “Japanese Class Action” , The Japanese
Y earbook of I nternational L aw 169 (2018) at 61 (English) (here after ‘Yamamoto’); M achimura Y asutaka ,Shousetsu Shouhisha Saiban Tetsuzuki Tokureihou (Minjihoukenkyukai, 2019) (Japanese).
7）See Yamamoto, supra note 6 at 173; Yamamoto, supra note 6 at 58, 63.
8）QCOs are consumer organizations given qualification by the prime minister to file collective injunction lawsuit toprotect consumers according to the Consumer Contract Law, etc. As of March 9, 2021, there are 21 QCOs in Japan.
9）This means that the judgment to decline the plaintiff’s petition doesn’t bind the consumers since there would be no
second stage procedure to be commenced. Yamamoto, supra note 6 at 173.

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Collective Redress to Recover Consumer Damage in Japan―Present system and the direction of its amendment―

presiding court to determine the (non-)existence and the amount (if any) of the filed claims.

Only the SQCO who filed the petition to open this first step can file the claims of each affectedconsumer on his/her behalf and it requires delegation by him/her to do so.

When an objection is filed against the above-mentioned decision by the court, the second

stage goes to the second step (when no objection is filed, the procedure ends there and theclaim will be final): Proceeding of Litigation after the Objection. In this procedure, theexistence and/or the amount of the claim which became the target of the objection shall be

tried in the ordinary court proceeding. Standing to file an objection against the decision
ending the first step and to start this litigation is given to the defendant enterprise, thepetitioner SQCO, and the target consumer whose claim was the object of determination.
3. Possibility of settlement

The possibility of settlement in the procedure is also twofold. In the first stage (Litigation

Seeking Declaratory Judgment on Common Obligations), the plaintiff SQCO and the defendant

enterprise can only settle the case with a stipulation when they agree on the existence or the
non-existence (of part) of the common cause (Art. 10 of CPSMA). It is not possible to settle

the case by agreeing on the amount of payment for each affected consumer in the firststage10）. In the second stage, the plaintiff SQCO and the defendant enterprise can reach asettlement on the amount of payment for each consumer who participates in the procedure.
4. Structure as “opt in”

The basic concept here is the “opt-in” system, which has always been the bottom line forthe collective realization of rights in Japanese Civil Procedure. The idea here is to facilitate thedelegation of power by the consumers by making it possible for the consumers to decide after
the possibility of winning becomes quite certain by the favorable judgment in the Litigation
Seeking Declaratory Judgment on Common Obligations11）.

Ⅲ．Evaluation of the present system
1. Overview.

We must say that usage of collective redress scheme for damage is very low. As of June 1,
10）Yamamoto, supra note 6 at 187; Yamamoto, supra note 6 at 188-195; Shouhishachou Shouhishaseidoka, supranote 6 at 54.
11）Yamamoto, supra note 6 at 178.
12）Two of them reached a (partially) favorable judgment for the plaintiff which went final and are currently under
the first step of the second stage. One is Tokyo District Court Judgment on March 6, 2020, Shouhishahou News 124(2020) at 308 (Japanese). See also Matsuda Tomotake, Shouhisha Saiban Tetsuzuki Tokureihou niyoru Kyoutsu Gimu
Kakuninn Soshou Dai-ichigou (Toukyochisai Hanketsu) no Kaisetsu , NBL 1167 (2020) at 50 (Japanese). The other is
Saitama District Court Judgment on February 26 2021 (http://saitama-higainakusukai.or.jp/topics/
pdf/210226_01_01.pdf. Last date of visit: 01/06/2021)(Japanese). One of the other LSDJoCO suits was dismissed by
Tokyo District Court with a judgment on May 14 2021 (reason: not meeting the requirement of predominance. See 2.
(a) below) and is currenty under appeal. The last one is still pending in the first instance.

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1092021, seven and a half years from the enactment of CPSMA, and four years and 8 months fromits enforcement, there are only three SQCOs in Japan and there has only been four cases of
Litigation Seeking Declaratory Judgment on Common Obligations filed by SQCOs12）.

The reason could be attributed to two factors. One is that the system is too restrictive. The

other is that the financial foundation of consumer organizations, which form the basis of
SQCOs, is very week.

2. Restrictive nature of the procedure

The restrictive nature of the procedure appears in two manners.

(a) Safeguards

The collective realization of rights entails the risk of abuse. Safeguards are necessary if

abusive lawsuits are to be suppressed. But there is a dilemma in the sense that the moresafeguards you create, the more difficult the usage of the procedure will be. The Japanesecollective redress scheme for damage equips itself with as many safeguards as possible fromthe viewpoint of a) the entity qualified to pursue the procedure on the plaintiff side, b) the
objective scope of the procedure and c) allocation of the cost.

As for a), only the SQCOs, which turn out to be as few as three at present, have suchqualification and not the affected consumers. There is also a double restriction in the sensethat SQCOs must be QCOs first13）.

As for b), only monetary claims with the base of consumer contract can be filed (Art. 3.1 of CPSMA)

and damage on life or physical body, mental damage, consequential damage and lost profits are

excluded from the damage that can be recovered (Art. 3.2 of CPSMA)14）. Also, tort claims cannot bebased on special laws that relax the conditions for such claims (Art. 3.1.5 of CPSMA).

Predominance is also a requirement for the claims to be lawfully accepted (Art. 3.4 of

CPSMA). The requirement of predominance means that the issues necessary to clarify thecause common to the affected consumers (which shall be examined in the first stage) need to
predominate compared to the issues unique to each affected consumer (which shall be
examined in the second stage)15）.

As for c), it is of note that the cost of giving individual notice to the affected consumers of

the ongoing procedure which takes place in the beginning of the second stage to gather theirdelegations to file their claims is borne by the SQCO side16）. The cost of notice can beprohibitively high in the cases with many affected consumers, and since the cost of eachnotice is fixed, the proportion of the notice fee is bound to be high if the amount of the claimof the affected consumers is low. By the guideline of supervision set forth by the Consumer
Affairs Agency17）, the SQCOs are required to pay to the delegating consumers at least half of13）Yamamoto, supra note 6 at 172.
14）Yamamoto, supra note 6 at 173.
15）Yamamoto, supra note 6 at 173.
16）Shouhishachou Shouhishaseidoka, supra note 6 at 110.
17）https://www.caa.go.jp/policies/policy/consumer_system/collective_litigation_system/about_qualified_consumer_organization/guidelines/pdf/guidelines_190201_0003.pdf (last date of visit: March 9 2021) (Japanese).

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Collective Redress to Recover Consumer Damage in Japan―Present system and the direction of its amendment―

the amount of their claims as the result of the procedure. The fact that SQCOs must bear thecost of notice works as a restraint when SQCOs decide on the cases to put forward with thisprocedure, combined with the fact that SQCOs have scarce financial resources18）.
(b) Restrictive possibility of settlement in the first stage

As explained above (supra II.3.), the parties can only enter into settlement about theexistence or the non-existence of the common obligation and cannot make a settlement overthe concrete claims of affected consumers at the first stage. The reason for this regulation is
attributed to the structure in which the first stage only deals with the abstract obligation of

the defendant enterprise common to the affected consumers and the plaintiff SQCO is not

empowered by law nor each affected consumer to dispose of his/her concrete claim19）. But

those who participated in the legislation admit that this regulation significantly undermines
the possibility of settlement in the first stage20）. It is said that empirical data from overseas

show that most cases of collective redress end with settlement and the possibility ofsettlement is one of the keys to the success of the procedure21）. The limitation on the firststage settlement works as a formidable obstacle against the success of this procedure.
3. Weakness of financial foundation of the consumer organizations in JapanThe scale of consumer organizations in Japan is quite small and most of the QCOs are said

to have much fewer than 1000 members22）. QCOs that have more than 10 million yen(approximately 90,000 US$) in deposits are few. The activity of QCOs are almost 100%
dependent on the volunteer work of the participants including lawyers23）.

The fact that consumer organizations (including SQCOs) have scarce financial resourcesmeans that if a SQCO fails to recover the cost of the procedure, such as the cost of notice24）,that it had to pay during the course of the procedure, it could be detrimental to the existenceof the organization, so that SQCOs cannot risk bringing such cases to justice in which theamount or the possibility of recovery is low25）.
4. Necessity for amendment

All the analysis shown before in this chapter shows the necessity for change if the system

intends to work. In fact, lawmakers themselves seem to have anticipated this dysfunction tosome extent and put a review clause in the law, which stipulates the obligation on the part of

the government to review the regulations of the law including the objective scope of theprocedure considering the situation of consumer damage and the performance by SQCOs,
18）Machimura, supra note 6 at 160-163. See also infra 3..
19）Shouhishachou Shouhishaseidoka, supra note 6 at 54; Yamamoto, supra note 6 at 189.
20）Yamamoto, supra note 6 at 189.
21）Id at 188-189; Yamamoto, supra note 6 at 187.
22）Machimura, supra note 6 at 26.
23）Isobe Kouichi, Tekikakushouhishadantai heno Kitai to Kadai , Houritsu no Hiroba 69-12 (2016) at 29 (Japanese).
24）See supra 2. (a).
25）Machimura, supra note 6 at 165-166.

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111etc., and to take appropriate measures based on the review when it deems necessary (Art. 5of the Supplementary Provisions of CPSMA).

In light of this review clause, there have been two proposals for the amendment of the law

from the side of protectors of consumers: one is a joint proposal by the three SQCOs26） andthe other is by the Japan Federation of Bar Associations27）. To pick up aspects of the proposals
that are of interest to this article28）, the following deserve attention:

1. To allow the settlement in the first stage in which the parties agree that the defendant

pay a certain amount of money to those affected consumers who participate in thesecond stage without clarifying the existence of the common obligation,

2. To abolish the limitation of the objective scope of the procedure explained in 2. (a)above,

3. Expansion of standing on the defendant side to include the directors of the damaging
enterprise who are co-responsible,

4. To make the defendant bear the cost of notice in the second stage, and5. Introduction of the opt-out system.
5. Prospect of amendment

The above-mentioned proposals can be classified into (a) measures to increase thepossibility of settlement in the first stage (:1.) and (b) measures to loosen the safeguards (:2,3, 4, 5.).

(a) Amendment to allow monetary settlement in the first stage (1.)

In order to enhance the workability of the procedure, allowing the SQCOs and the defendant

enterprise to enter at the first stage into a settlement that resolves the claims of the affectedconsumers who participate in the second stage without clarifying the existence of the common

obligation seems to be of urgent necessity, considering that the workability of settlement is
the key for the success of this procedure29） and that there is said to be a strong demand inpractice for such settlement30）.

Settlements in the first stage that include the resolution of individual clams can also betheoretically justified. The main reason for denying the possibility of such settlement in the26）Made public on July 2 2019. http://www.coj.gr.jp/iken/pdf/topic_190716_01.pdf (last date of visit March 9 2021)(Japanese).
27）Made public on July 16 2020. https://www.nichibenren.or.jp/document/opinion/year/2020/200716.html (last dateof visit: March 9 2021) (Japanese).
28）The other proposed amendments are: 6) allowing SQCOs not to commence the 2nd stage or to give individual
notice when the property of the defendant enterprise is expected to be too scarce or when it agrees to make selfrepayment, 7) giving SQCOs the right to file for bankruptcy of the damaging enterprises, 8) obligating the respondent
enterprises to report the status of self-repayment when it agrees to do so with the SQCOs outside of the procedure,9) allowing the settlement to pay to a third public interest body, 10) obligating the administrative body to provide
SQCOs with information over the respondent enterprises, such as the location of their properties, 11) expansion of
the plaintiff measures to collect evidence, 12) introduction of IT into the procedure, 13) development of collective
ADR conducted by National Consumer Affairs Center and introduction of IT into it.
29）See supra 2. (b).
30）Yamamoto, supra note 6 at 192 n. 160.

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Collective Redress to Recover Consumer Damage in Japan―Present system and the direction of its amendment―

present law was the lack of empowerment of SQCOs to dispose of consumers’ rights, but thissettlement can be legally constructed and justified as a contract for the benefit of a third
person, which will have effect on the consumers only if and when they take part in the second
stage, even if the plaintiff SQCO is not empowered at the time of the settlement31）.
(b) Amendments to loosen the safeguards(i) Abolishment of the objective limitation (2.) and expansion of the defendant standing (3.)

Among the proposed abolishment of the objective limitation of the scope of the procedure,

abolishing the exclusion of special law tort claims seems justifiable since the lawmakers’
reason to adopt this limitation saying that inclusion of it would disrupt the balance of interest
between the parties32） is too obscure and the criticism that the provisions of the special laws

about tort only deal with the material aspect which is not touched by the new procedure33）

seems more persuasive.

But the proposal to abolish other limitations (allowing only monetary claims with the base of acontract, exclusion of certain types of damage) seems difficult to follow. The reason for such
limitation comes from the two-stage structure of the procedure with the one-sided effect of thejudgment in the first stage only to the benefit of the affected consumers34）. Because of these
two features, the defendant enterprise bears a heavy burden in the sense that it will havedifficulty in assessing the total amount of disadvantage caused by losing at the first stage, andeven if the defendant puts maximum effort and wins the first stage, it still cannot avoid beingsued by individual consumers. From this, the lawmakers decided to allow only those cases
where the defendant can relatively easily foresee the total amount of payment caused by theloss at the first stage, and excluded the kinds of damage the amount of which is highly

dependent on each affected consumer35）. Without change of such basic structure, it is difficult
to justify the sort of amendment to include the kinds of cases and damage which make proper
estimation of the financial damage difficult for the defendant enterprise. So total abolishment of

the objective limitation seems difficult to implement. The only way possible shall beacknowledging the sorts of case that ensure such defendant’ s estimation one-by-one36）.

By the same reason, the proposal to expand the defendant standing to include the directorsof the enterprises (3.) shall also be difficult to follow because, as much as the practicalnecessity to include directors in the procedure is recognizable since there is a tendency inmalicious enterprises to escape compensation by moving the ownership of the assets of theenterprise to individual directors37）, lawmakers intentionally limited the standing to theenterprises by deciding that only enterprises, whose overwhelming status in relation to the31）Kakiuchi Shusuke, Kyoutsu Gimu Kakuninn Soshou oyobi Kan-i Kakutei Tetsuzuki ni Okeru Wakai , Hou no
Shihai 182 (2016) at 82 (Japanese).
32）Shouhishachou Shouhishaseidoka, supra note 6 at 29; Yamamoto, supra note 6 at 104.
33）Machimura, supra note 6 at 40-41.
34）See supra note 5 with the corresponding text.
35）Yamamoto, supra note 6 at 179-182; Yamamoto, supra note 6 at 93-95.
36）Yamamoto, supra note 6 at 187.
37）Machimura, supra note 6 at 63 n. 121.

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113consumers is acknowledged by the Consumer Contract Act to justify the special treatment ofconsumers in the material law, can be forced to endure the procedure with heavy burden on
the defendant side38）.

But the limitation of the objective scope of the procedure indicates that the interests that thislaw purports to protect are not purely limited to those of the affected consumers. As written

above, necessity for limitation comes from the two-stage structure and the one-sided effect of

the judgment. And the predominance of the common issue39） is required to ensure that thesecond stage is expeditious and not burdensome. All these aim to facilitate the participation of
the affected consumers. This means that the lawmakers decided to realize the facilitation of theconsumers over the sacrifice of the full recovery of each consumer. But there has been no

indication that such decision is optimal and indispensable for the protection of the affectedconsumers. The lawmakers’ decision seems difficult to justify if you only count the affectedconsumers as the object of protection by the law, but becomes easier to justify if you include
the public interests of the consumers (or society) as a whole to enjoy a sound and safe market,
since by limiting the scope of the recovery and making the procedure simple and easy to use, it

shall be easier to litigate the problematic acts of enterprises using this procedure, which works
to enhance the de facto effect on enterprises to improve their behavior40）.

(ii) Re-allocation of the cost of notice (4.) and introduction of opt-out system (5.)

This recognition of public interest as the aim of the procedure shall work to facilitate thejustification of the proposals to allocate the cost of notice to the defendant (4.) and to
introduce an opt-out system (5.).

As for the cost of notice, the lawmakers decided against making the defendant bear it

because the cost of notice was categorized as the cost of gathering the plaintiffs and therefore
cannot be included in the cost of the procedure41）. But there is already an indication thatconsidering the fact that the notice takes place after the court’ s recognition of the common

obligation, it is fair to make the defendant bear its cost42）. In addition to that, recognizing thestake of public interests in the procedure shall make it possible to categorize the cost of notice
not as the cost of gathering the plaintiffs but as the necessary cost of the procedure since theprocedure will not stand without the participation of the affected consumers.

There are several ways to realize the opt-out system (including establishing a special one

stage opt-out track for cases with small claims), but the introduction of the opt-out principle

in the second stage maintaining the basic two-stage structure with the one-sided effect of thejudgment seems justifiable, although there are several details that require clarification43）. Thisis since the one-sided effect of the first-stage judegment on the consumers alleviates the38）Yamamoto, supra note 6 at 183, n. 51.
39）See supra 2. (a).
40）See the explanation by Yamamoto, supra note 6 at 171, 185 n. 60, 188.
41）See Yamamoto, supra note 6 at 275.
42）Ibid .; Machimura, supra note 6 at 171.
43）It shall be necessary to establish the rule to calculate the total amount of the claims of the affected consumers to
be recovered by the procedure. It is also necessary to establish a rule as to the treatment of the claim of the affectedconsumers who didn’t opt out but didn’t come to collect the money from the SQCOs either.

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Collective Redress to Recover Consumer Damage in Japan―Present system and the direction of its amendment―

negative effect of the opt-out system on the affected consumers as it decreases the possibilityof plaintiffs losing the case. And here also, the recognition of the public interests in theprocedure works to justify the introduction of such amendment, since it presents a factor as

the basis to force the disadvantages resulting from “opt-out” system (exercise of the rightwithout express consent and possibility of losing the case) on the side of the affectedconsumers44）.

(iii) the order of implementation of the amendments

Among these possible amendments, it would be advisable to start with 3. (making thedefendant bear the cost of notice), because it is presently said to be the tightest bottleneckthat is hindering the effectiveness of the procedure. If this does not change the situation, thenconsideration of the “opt-out” system should proceed45）.
6. Financial basis of SQCOs.

The weak financial basis of SQCOs was also one of the big reasons to hinder the use of theprocedure, which also requires change and such change cannot be realized without
governmental commitment such as subsidy. Here again, the recognition of the public interests

to be realized by the procedure works as the theory to back up such special treatment of
SQCOs46）.

Ⅳ．Conclusion
The procedure for collective redress of consumer damage is now facing a deadly situationand in need of serious surgery if it is to survive47）. The surgery to abolish the limitation on theobjective scope of the procedure seems difficult to implement as long as the basic structure of

the present system is untouched, but maintaining this structure opens the way to recognize
public interests as an important stake of this procedure. This would pave the way for the re-allocation of the cost of notice, which should be the first of the “surgeries” that should takeplace. Another surgery which is of urgent necessity is expanding the possibility of settlementin the first stage and nothing practical or theoretical is preventing this.

Along with that, effort should be given to strengthen the financial foundation of the SQCOs

or QCOs in general through governmental commitment, which shall also be justified by the44）For a theoretical analysis, see Hatta Takuya, Shouhisha Saiban Tetsuzuki Tokureihou no Toujishatekikaku no
Kanten karano Bunseki , in: Chiba Emiko et al. (eds.), Shudanteki Shouhisharieki no Jitsugen to Hou no Yakuwari(Shoujihoumu, 2014) at 390-391 (Japanese).
45）Scholars point out the expansion of the plaintiff standing to include the affected consumers as a possible item foramendment (see Yamamoto, supra note 6 at 186-187; Yamamoto, supra note 6 at 324; Machimura, supra note 6 at158), but it should come into consideration after the 2 amendments mentioned in the text turn out to be insufficient.
46）See Machimura, supra note 6 at 171-172, 178; Yamamoto, supra note 6 at 186.
47）The highly restrictive nature of the present Japanese system has its reasons in that, without it, the new system
would have been impossible even to have emerged in light of the strong anxiety and opposition posed by the business
community. But it is not to be denied that this restrictive nature is causing the near-death situation of the present
system and needs changes.

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recognition of the public aspect of the procedure.

Japanese consumer collective redress still has a long way to go. Japan took an important

step forward by enacting this procedure. Now is the time to take another leap forward to
make it work for consumers.

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Managing Investment Disputes with Mediation

Associate Professor of Law, Waseda University; Professor of Law, Rikkyo University; Independent Arbitrator and Mediator

James Claxton

International investment treaties create favorable conditions for foreign investment. They

commonly provide that states will not discriminate in favor of domestic investors and thatinvestments will be treated in accordance with international standards independent ofdomestic laws. These commitments and others would have little practical relevance without
an effective means of resolving disputes over compliance. Arbitration between investors andthe foreign states hosing their investments has become a leading means of dispute resolution.

There are more than 3,000 treaties with investment protections.1） Japan has concluded 30

bilateral investment treaties and an additional 19 treaties with investment provisions, mostcontaining arbitration clauses.2） These treaties endow Japanese investors with special rights

and also expose Japan to claims by foreign investors. Japan-affiliated investors have brought

at least eight arbitrations under investment treaties3） while Japan is a respondent in one

arbitration at the time of this writing.4） Japan has meanwhile continued to conclude newinvestment treaties with arbitration clauses even as investment treatymaking has slowed inother parts of Asia.

The number of investor-state arbitrations has risen steadily over the past thirty years to a

total of more than 1,100 cases.5） Geopolitical events, including a financial crisis in Argentina
1）United Nations Conference on Trade and Development (UNCTAD), Investment Policy Hub, International
Investment Agreements Navigator at https://investmentpolicy.unctad.org/international-investment-agreements. This
website is the source for data about treaties cited in this article.
2）The figures in this citation do not include treaties that have been signed but not ratified. All figures cited in thisarticle where accurate as of 1 March 2021.
3）Cases by Japan-affiliated investors include Macro Trading Co, Ltd v. People’s Republic of China (ICSID Case
No. ARB/20/22), SMM Cerro Verde Netherlands B.V. v. Republic of Peru (ICSID Case No. ARB/20/14), Itochu
Corporation v. Kingdom of Spain (ICSID Case No ARB/18/25), Bridgestone Americas, Inc and Bridgestone
Licensing Services, Inc v. Republic of Panama (ICSID Case No ARB/16/34), Eurus Energy Holdings Corporation v.
Kingdom of Spain (ICSID Case No ARB/16/4), JGC Corporation v. Kingdom of Spain (ICSID Case No ARB/15/27),
Nusa Tenggara Partnership BV and PT Newmont Nusa Tenggara v. Republic of Indonesia (ICSID Case No
ARB/14/15), and Saluka Investments BV v. The Czech Republic (UNCITRAL).
4）Japan faces its first known investment treaty arbitration, as UNCITRAL tribunal is quietly put in place to hear
Asian energy investors’ claims , Investment Arbitration Reporter, 3 February 2021.

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117and a rollback of renewable electricity incentives in Spain, have sparked rafts of claims. Some

speculate that the COVID-19 pandemic may have the same effect. Emergency measurestaken by states to mitigate the effects of the pandemic and subsequent measures to promoteeconomic recovery, which could have discriminatory effects on investors, may expose statesto arbitrations.6）

Mediation offers a means to settle investment disputes that may be more efficient andprivate than arbitration. Even where settlement is not possible, mediation may be used tosimplify arbitrations by disposing of some claims or points of contention between disputants.
This article provides a survey of investor-state mediation with an emphasis on the flexible useof mediation and the conditions that contribute to successful mediations.

１．Promotion of Investment Mediation
The experience of three decades of investment arbitration practice has led to criticisms of

the system. Many commentators argue that arbitration proceedings are too long and costly,7）and some argue that private arbitrators should not sit in judgment over states.8） The

reckoning has encouraged stakeholders to consider how mediation might be used to avoid or
simplify investment arbitrations.

The International Centre for Settlement of Investment Disputes (ICSID), an institution of

the World Bank, administers most investor-state dispute resolution proceedings. While ICSID

has conducted 819 arbitrations at the time of this writing, the center’ s conciliation services
have only been used in 13 cases.9） There is little public information available about mediations
occurring outside of the ICSID system because mediations tend to be confidential.

There have been a variety of recent efforts to respond to the low rate of reported investment

mediations by promoting mediation through legal,10） regulatory,11） and institutional 12）means.

States including China, Indonesia, Malaysia, and Singapore have meanwhile committed toprioritize mediation for investment disputes. These initiatives coincide with a rise in interest ininternational commercial mediation punctuated by the conclusion of the Singapore Convention

on mediation13） and the publication of a revised model law meant to encourage the5）UNCTAD, Investment Dispute Settlement Navigator: full data release as of 31 July 2020 at https://investmentpolicy.unctad.org/investment-dispute-settlement.
6）See, eg, Peru warned of potential ICSID claims over covid-19 measures , Global Arbitration Review, 9 April
2020.
7）Eg, Damages and costs in investment treaty arbitration revisited , Global Arbitration Review, 14 December 2017
(noting that the median length of arbitration proceedings was 4 years and 4 months with median costs of approximately
USD 4.2 million for claimants and USD 3.4 million for respondents for arbitrations from 2013 to May 2017).
8）Eg, United Nations Conference on Trade and Development, IIA Issues Note: Reform of Investor-State Dispute
Settlement: in Search of a Roadmap (No. 2, June 2013), page 9.
9）ICSID case information at https://icsid.worldbank.org/cases/case-database.
10）Eg, Indonesia-Australia Comprehensive Economic Partnership Agreement (entered into force on 5 July 2020).
11）Eg, International Bar Association Rules for Investor-State Mediation, Article 14.23(1).
12）Eg, ICSID’s Role in Advancing Investor-State Mediation at https://icsid.worldbank.org/news-and-events/blogs/
icsids-role-advancing-investor-state-mediation.

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Managing Investment Disputes with Mediation

modernization and harmonization of domestic legislation on mediation.14）

２．Comparative Benefits of Mediation
Where successful, mediation tends to be more time and cost efficient than arbitration and ismore likely to preserve relations between disputants. These comparative benefits are
particularly resonant in investment disputes because investment arbitration tends to be

protracted and costly and because investments may take many years to realize, making
sustained working relations important. Mediation may also be an attractive alternative toarbitration because it is more likely to be confidential.

Mediation may otherwise offer comparative advantages over unmediated settlement

negotiations. Disputants that are unwilling to negotiate directly may be open to correspondthrough the medium of a mediator. Mediators may, in turn, improve communications byshifting the focus from legal arguments to the parties’ long-term interests and by assistingwith risk analysis of claims and defenses. A mediator who understands the different
perspectives of investors and states may also be able to address misunderstandings that havecontributed to disputes.

３．Mediation Processes
Mediation is practiced and denominated differently across jurisdictions. Mediators, forexample, differ in their willingness to express opinions on the merits of disputants’ arguments.

They may also have procedural preferences, for instance, about joint and separate meetingwith parties and the use of co-mediation. The lack of consistency extends to the terminology
used to describe the process.
3.1

Mediation“Mediation” is a broad term that describes the use of a person or persons to help disputants

negotiate more effectively. Mediation rules tailored to investment disputes, including thosepublished by the International Bar Association15） and draft rules published by ICSID,16） do not13）United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore
Convention), United Nations Commission on International Trade Law (UNCITRAL), Report of UNCITRAL, Fiftyfirst session, U.N. Doc. A/73/17 (2018) at Annex I (Singapore Convention). This treaty facilitates the cross-borderenforcement of mediated settlement agreements. See, eg, J. Claxton, The Singapore Convention for Mediation: From
Promotion to Workable Standards by Way of New York , 42 Comparative Law Yearbook of International Business2020.
14）Model Law on International Commercial Mediation and International Settlement Agreements Resulting fromMediation of the United Nations Commission on International Trade Law, Annex II, United Nations, General
Assembly Resolution 73/199, United Nations Convention on International Settlement Agreements Resulting fromMediation, U.N. Doc. A/RES/73/199.
15）IBA Rules for Investor-State Mediation (2012) at https://www.ibanet.org/MediaHandler?id=C74CE2C9-7E9E4BCA-8988-2A4DF573192C.

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119define mediation or proscribe a detailed mediation process. Article 8 of the IBA Rules
stipulates that “mediation shall be conducted in accordance with the parties’ wishes and withthe assistance of the mediator” while Article 20(3) of the ICSID Rules calls on the mediatorand parties to draw up a procedural protocol together.

This open-textured approach leaves the features of the mediation process to the discretionof mediators and disputants. Mediators are thus free to be more or less evaluative of the
disputants’ positions and may determine the nature and sequence of meetings with parties

subject to the parties’ preferences. This approach is consistent with the rules of mediation
published by dispute-resolution institutions including the Japan Commercial Arbitration
Association17） and the Japan International Mediation Center-Kyoto.18）
3.2

Conciliation

Both “conciliation” and “mediation” are used to describe facilitated negotiations.

“Conciliation” in common usage sometimes suggests a process that is more regulated andcomparatively formal. Yet there is a modern trend, visible in the Singapore Convention and in
United Nations reports,19） to de-emphasize differences between the terms. More relevant isthat mediators and conciliators do not have the power to impose decisions on disputants as

do arbitrators and judges. Any settlement reached in mediation will be on terms that the
disputants voluntarily set for themselves.

Provisions for conciliation in investment treaties commonly refer to conciliation rules

promulgated by ICSID, which endow that conciliation process with distinctive features.20）
ICSID Convention conciliations are facilitated by three-member conciliation commissions21）
that issue reports at the close of the proceedings which may include recommendations to theparties.22） The rules also provide procedures for challenging the jurisdiction of conciliationcommissions and for disqualifying conciliators.23） Some commentators speculate that thesefeatures have discouraged parties from resorting to ICSID conciliation because the process issimilar to ICSID arbitration but offers no binding resolution at the end of the proceedings.
3.3

Mixed-Mode Procedures

There is growing interest in combining the best features of mediation and arbitration into asingle dispute-management system.24） Hybrid models may take various forms with different16）ICSID, Working Paper #4, Proposals for Amendment of the ICSID Rules, Vol. 1 Feb 2020, ICSID Mediation Rules.
17）JCAA, Commercial Mediation Rules 2020, Article 21.
18）JIMC-Kyoto, The Institutional Mediation Rules, 2018, Article 5.
19）Eg, UNCITRAL Working Group II, Dispute Settlement, Report of 68th session, 5-9 February 2018, 2018A/
CN.9/WG.II/WP.205, page 4 (evidencing a lack of emphasis on distinctions between conciliation and mediation byreplacing the former term with the latter because “mediation” is “a more widely-used term”).
20）ICSID maintains both the ICSID Convention Conciliation Rules and the ICSID Conciliation (Additional Facility)
Rules. The conditions for jurisdiction under the rules are different.
21）ICSID Convention Conciliation Rules, Rules 2-5.
22）ICSID Convention Conciliation Rules, Rules 30 and 32.
23）ICSID Convention Conciliation Rules, Rules 9 and 29.

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Managing Investment Disputes with Mediationlevels of integration. Tiered dispute resolution clauses are already used in treaties, forexample, to encourage disputants to attempt mediation before arbitration. Mediation can also

be used in parallel with arbitration. There may be particular occasions over the course ofarbitration when settlement comes within closer reach that are conducive to mediation,
perhaps after the disputants’ positions have been brought into sharper focus by memorials
and evidence but before resources have been spent on document production and hearings.

Some encourage even greater integration between mediation and arbitration. The same

person or persons might act both as arbitrator and as mediator of the same dispute as iscommon in some domestic jurisdictions. This process is often criticized on the grounds thatparties may not speak openly with a mediator who could latter judge their dispute. Anotherproposal is that a standing mediator with access to party evidence and hearings be madeavailable to mediate claims and issues as arbitration progresses.25）

４．Commencing Mediation
Consent is a cornerstone of mediation. The process is voluntary in the sense that parties are

not required to resolve their disputes in the course of mediation. The decision to mediate isalso voluntary in most circumstances. There are, however, some investment treaties that giveeither investors or states the choice to commence mediation as a right.26）
4.1

Mandatory Mediation by Investors

Empirical evidence suggests that investors suppor t mandator y mediation before

arbitration.27） A number of investment instruments, mostly older generation treaties, include

recourse to conciliation under ICSID conciliation rules or rules published by the Nations

Commission on International Trade Law (UNCITRAL).28） The effect of these provisions is that
conciliation is mandatory at the option of investors.

Japan has concluded an unusually high number among Asian states of treaties with

provisions for ICSID conciliation. However, there is reason to presume that investors will not24）Eg, T. Stipanowich, Arbitration, Mediation and Mixed Modes: Seeking Workable Solutions and Common Groundon Med-Arb, Arb-Med and Settlement-Oriented Activities by Arbitrators (2020), Harvard Negotiation Law Review,
Forthcoming, Pepperdine University Legal Studies Research Paper No. 2020/25 at https://ssrn.com/
abstract=3689389.
25）Eg, J. J. Coe Jr., Toward a Complementary Use of Conciliation in Investor-State. Disputes - A Preliminary
Sketch (2005) 12 UC Davis Journal of International Law & Policy 7, page 42.
26）On compulsions to mediate generally, see J. Claxton, Compelling Parties to Mediate Investor-State Disputes: No
Pressure, No Diamonds? (2020) 20 Pepperdine Dispute Resolution Law Journal 78.
27）School of International Arbitration, Centre for Commercial Law Studies, Queen Mary University of London and
the Corporate Counsel International Arbitration Group, 2020 QMUL-CCIAG Survey: Investors’ Perceptions of
ISDS (2020) at page 24 (indicating that 34% of respondents “somewhat favour” mandatory mediation prior toarbitration while 30% “strongly favour” mandatory mediation).
28）Eg, Agreement between the Government of the Republic of Singapore and the Government of the Socialist
Republic of Vietnam on the Promotion and Protection of Investments (entered into force on 25 December 1992)
providing for proceedings under the UNCITRAL Conciliation Rules (1980) in Article 13.2.

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121avail themselves of this option in light of the features of ICSID conciliation previously

considered and also because these treaties give investors the choice of arbitration orconciliation.29） An investor choosing conciliation on these terms may be understood to forgo

the right to arbitrate. The effect would be that the investor has no way to resolve a dispute
under the treaty if conciliation does not result in settlement.
4.2

Mandatory Mediation by States

Treaties tend not to give states the right to compel investors to mediate their claims. Twotreaties concluded in 2020, however, provide that the states party to the treaties have theright to require investors to attempt conciliation as a pre-condition to arbitration.30） Investors

making claims under these treaties do not have the same right to compel conciliation.

These mandatory conciliation provisions do not provide procedural details or refer toconciliation rules. It is also unclear what disputants must do to satisfy the condition, namely
whether meeting with a conciliator to discuss the process is enough or whether further steps
must be taken.31） As a consequence, disagreement about compliance will be a matter for

arbitrators to decide where the underlying dispute proceeds to arbitration.
4.3

Mediation by Agreement after a Dispute Arises

Investors and states can plainly agree to mediate their disputes even where mediation is

not included as an option in investment treaties. Yet even where mediation is in the sharedcommercial interest of the disputants, it may be difficult to reach agreement to mediate oncea dispute has arisen.

Empirical evidence suggests that states are more likely to resist settlement than investors.

Respondent states may reject mediation because they see political risk in agreeing to makevoluntary payments to a complaining foreign investor. States may prefer instead to leave theclaims to be judged by arbitrators, thereby shifting responsibility for the outcome.32） Relatedly,

media attention and fear of public criticism may harden the resolve of states to proceed toarbitration.33） There may also be internal administrative obstacles including onerous
procedures for obtaining budgetary approval for settlements.34）29）Eg, Japan and Turkey Agreement concerning the reciprocal promotion and protection of investment (withprotocol)(signed on 12 February 1992), Article 11.1.
30）Indonesia-Australia Comprehensive Economic Partnership Agreement (entered into force on 5 July 2020),
Article 14.23(1) and the Hong Kong-United Arab Emirates Bilateral Investment Treaty (entered into force on 6
March 2020)(HK-UAE BIT), Article 8(3).
31）The Indonesia-Australia Comprehensive Economic Partnership Agreement provides that a state “may initiate aconciliation process” in Article 14.23(1) while the Hong Kong-United Arab Emirates Bilateral Investment Treaty
provides that a state may “submit[ed] to the competent authorities of that Contracting Party or arbitration centres
thereof, for conciliation” in Article 8(3).
32）S. Chew, L. Reed and J. Christopher Thomas, Report: Survey on Obstacles to Settlement of Investor-State
Disputes , National University of Singapore Centre for International Law Working Paper 18/01 (September 2018)(NUS Report), page 13.
33）NUS Report, pages 17-19.
34）NUS Report, page 19.

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５．Conditions for Successful Mediations
The feasibility of mediation will largely depend on the circumstances of a dispute and theattitudes of the disputants. The availability of supporting resources may also contribute todetermining whether mediation will be attempted and whether it will be successful.
5.1

Time to Mediate

Investment treaties tend to encourage amicable dispute resolution by providing thatinvestors must wait a determined time after a dispute has arisen before commencing
arbitration. This waiting period offers disputants an opportunity to negotiate out from under
the cloud of imminent arbitration. Some treaties expressly encourage disputants to mediate
during the waiting period or even before the start of the waiting period.35）

If the waiting period in a treaty is too short, parties may be discouraged from attempting

mediation before arbitration. Timing may be particularly determinative where states face
investor claims for the first time as they may not have systems in place to identify, assign,and evaluate those claims. Time may also be needed to secure a budget and appoint outside
counsel, possibly requiring a public tender. The implication of these factors is that the waiting

period may be easily exhausted before a respondent state is able to meaningfully respond toclaims.

The duration of the waiting periods varies across investment treaties. About 85% of Asianinvestment treaties concluded over the past decade provide a waiting period of six months
measured from notice of a dispute.36） A treaty between Hong Kong and the United ArabEmirates that entered into force in 2020, for example, provides for a waiting period of up to

12-months and a dedicated 6-month period for conciliation37） triggered by a formal notice ofclaims.38）

Several of Japan’ s recent treaties, by contrast, provide for a six-month waiting period

measured from “events giving rise to the claim” .39） These treaties do not require investors to

notify respondent states that the waiting period has begun but rather require that notice of

the intention to arbitrate be given at least 90 days before a request for arbitration can be
filed.40） The combined effect of these provisions is that states facing investor claims under35）Eg, Proposal for a Council Decision on the conclusion of the Investment Protection Agreement between theEuropean Union and its Member States, of the one part, and the Socialist Republic of Viet Nam of the other part(signed on 30 June 2019), Article 3.29.
36）J. Claxton, Faithful Friend and Flattering Foe: How Investment Treaties Both Facilitate and Discourage
Investor–State Mediation , 2020 Asian Journal on Mediation 34, page 39.
37）Hong Kong-United Arab Emirates Bilateral Investment Treaty (entered into force on 6 March 2020), Articles
8(3) and 8(5).
38）Hong Kong-United Arab Emirates Bilateral Investment Treaty (entered into force on 6 March 2020), Article 8.2.
39）Eg, Agreement between Japan and Georgia for the Liberalisation, Promotion and Protection of Investment(signed on 29 January 2021), Article 23.6; Agreement between Japan and the Republic of Armenia for the
Liberalisation, Promotion and Protection of Investment (entered into force on 15 May 2019), Article 24.4; Agreement
between the Argentine Republic and Japan for the Promotion and Protection of Investment (signed on 12 January2018), Article 25.4.

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123these treaties may be unaware of pending arbitration until receipt of notice of the intention toarbitrate only three months before the filing of arbitration. This may have the practical effectof undermining the prospects of mediation before any arbitration.
5.2

Access to Information

Mediation may be unlikely where a claimant investor does not provide sufficient information

about its claims to enable the respondent state to perform a meaningful risk analysis. Further

to this point, a state may be unable to secure a budget for mediation internally if the quantumof the claims is uncertain or unsupported by evidence. The effect of a lack of information may
be that the prospects for mediation are greater after arbitration has begun and information is

exchanged, though adversarial posturing of the disputants at that point may make agreement
difficult to achieve.

Many investment treaties require investors to provide information about their claims to

respondent states before arbitration is possible. The bilateral investment treaty between Hong
Kong and the United Arab Emirates considered above obligates investors to specify the factualand legal basis of claims as well as the provisions of the treaty alleged to have been breached,
the remedy sought, and the quantum of damages claimed.41） These details must be provided
with the notice that triggers the commencement of the waiting period. Other treaties requiredifferent types of information including supporting documentation,42） details about how claims
will be funded,43） evidence to demonstrate that an investor has jurisdiction under the relevant

treaty,44） and proof that the activity that gave rise to the dispute qualifies as an investment
under the treaty.45） Such details may assist states in the evaluations of claims and makemediation more likely before arbitration where the information is received early in theevolution of a dispute.
5.3

Qualified Mediators

Investor-state disputes oppose the private interest of businesses with the public interests ofstates. The involvement of states as parties raises a number of issues less common incommercial mediations including political accountability and concerns about the legal impactof any settlement on future state practice. State agents may also face complicated procedures40）Agreement between Japan and Georgia for the Liberalisation, Promotion and Protection of Investment (signed on
29 January 2021), Article 23.5; Agreement between Japan and the Republic of Armenia for the Liberalisation,
Promotion and Protection of Investment (entered into force on 15 May 2019), Article 24.3; Agreement between theArgentine Republic and Japan for the Promotion and Protection of Investment (signed on 12 January 2018), Article
25.3.
41）Hong Kong-United Arab Emirates Bilateral Investment Treaty (entered into force on 6 March 2020), Article 8.2.
42）Eg, Agreement Between Hungary and the Kingdom of Cambodia for the Promotion and Reciprocal Protection of
Investments (entered into force on 30 August 2017), Article 8.2.
43）Eg, Agreement between the Slovak Republic and the Islamic Republic of Iran for the Promotion and Reciprocal
Protection of Investments (entered into force on 30 August 2017), Article 15.5(a)(ii).
44）Eg, Australia–China Free Trade Agreement (entered into force on 20 December 2015), Art 9.11.1(1)(a).
45）Eg, Agreement between the Slovak Republic and the Islamic Republic of Iran for the Promotion and Reciprocal
Protection of Investments (entered into force on 30 August 2017), Article 15.5(b).

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Managing Investment Disputes with Mediation

to authorize any settlement agreement. Such conditions underscore the importance of
selecting a mediator or mediators who understand the perspectives of both investors andstates.

There are various ongoing efforts to build capacity among international investment

mediators. A United Nations group working on investment-dispute reform has affirmed theimportance of increasing the number of mediators who understand international investment

disputes.46） A compendium of stakeholders, including ICSID, has meanwhile been offering

investment mediation trainings online and at locations around the globe.47）
5.4

Procedural Framework

The provision of arbitration in investment treaties almost invariably provides investors withthe choice of different sets of procedural rules. By contrast, most investment treaties do notmention mediation by name, and very few provide rules of mediation with the exception ofprovisions for ICSID conciliation. This may leave questions among disputants about the natureof the mediation process that may affect their perceptions about the standing of mediation asa means of dispute resolution compared with arbitration.

A small number of treaties provide rules of mediation procedure and mediator codes ofconduct to support the mediation process.48） At the institutional level, ICSID is preparing a setof mediation rules, mentioned above, that have fewer procedural formalities than its

conciliation rules and that are available for use by a wider range of disputants.49）UNCITRAL ismean while revising its rules of conciliation for the first time since they were published in
1980.50） Such regulatory initiatives should clarify the mediation process and affirm its
legitimacy in the minds of potential users.
5.5

Flexible Use of Mediation

Mediation outcomes may improve where disputing parties take advantage of the inherent

flexibility of the mediation process. Mediation can be a mode of dispute resolution but also ameans of simplifying and expediting arbitrations by settling claims and issues short of global
settlement. Mediation can likewise be used flexibly over time before, during, and even after
arbitration as a means of avoiding litigation over the enforcement of arbitration awards.

A forthcoming report on the use of mediation after arbitration suggests that settlement46）UNCITRAL Working Group III, Virtual Pre-Intersessional Meeting, 9 Nov 2020 background paper “The Way
Forward for Mediation as a Reform Option for ISDS”, paragraphs 127-129.
47）The trainings are offered with the support of ICSID, the Centre for Effective Dispute Resolution, theInternational Mediation Institute, and the International Energy Charter. See the ICSID website at https://icsid.
worldbank.org/news-and-events/news-releases/investor-state-mediator-training.
48）Eg, European Union-Singapore Investment Protection Agreement (signed on 15 October 2018) Article 3.4(1),Annex 6 and Annex 7; and European Union–Vietnam Investment Protection Agreement (signed on 30 June 2019)
Article 3.31(1), Annex 8 and Annex 10.
49）ICSID, Working Paper #4, Proposals for Amendment of the ICSID Rules, Vol. 1 Feb 2020, ICSID Mediation
Rules.
50）UNCITRAL Note A/CN.9/WG.III/WP.190, paragraph 39 at https://undocs.org/en/A/CN.9/WG.III/WP.190.

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rates are high while arbitration is underway, particularly where mediation is used early in thearbitration process.51） Consistent with these findings, some treaties remind disputants thatmediation can be used at any time.52） Leading institutions also encourage disputants keep theflexibility of the mediation process in mind in recommendations and guidelines.53）

The flexibility of mediation has particular potential in online proceedings, which havebecome common for cross-border disputes in the time of the COVID-19 pandemic. Without

the need for all parties to be physically present at the same place at the same time, mediation

hearings can be convened, reconvened, and separated into smaller meetings more easily.54）

This versatility may remove practical obstacles to mediation and enable greater customizationof the process.

６．Conclusion
Investment mediation can be used to avoid arbitration or to make arbitration more cost andtime efficient. The likelihood of mediation of a given dispute will depend on its particularfeatures and also, perhaps, the attendant resources available. ICSID’ s promulgation ofmediation rules and ongoing investment mediator trainings may help to fill any gap. Provisions
for dispute resolution in investment treaties can also encourage mediation with waiting
periods and provisions that seek to ensure that states are informed about the claims againstthem at an early stage in the dispute-resolution process.

Party assumptions about the proper timing and role of mediation may also be a factor in its

frequency. The potential of mediation to avoid arbitration is widely recognized. Attention has
been shifting among some to the use of mediation after arbitration is underway, the use of
hybrid systems that combine arbitration and mediation,55） and the use of mediation to manage

disputes before they turn into claims.56） These applications may improve the prospects formediation in a wider range of circumstances.

51）Mediation in Arbitration: Insights from the London Chamber of Arbitration and Mediation/Herbert Smith
Freehills Survey, 2 February 2021 at https://hsfnotes.com/adr/2021/02/02/mediation-in-arbitration-insights-fromthe-london-chamber-of-arbitration-and-mediation-herbert-smith-freehills-survey.
52）Eg, European Union-Singapore Investment Protection Agreement (signed on 15 October 2018), Article 3.4(1).
53）Eg, International Energy Charter, Guide on Investment Mediation, Section 2.1 (stating that under the Energy
Charter Treaty disputants “are free to agree to use good offices, structured negotiation, mediation or conciliation
using existing mechanisms or even agreeing on a tailor-made mechanism”.
54）See, eg, J. Claxton, The Latent Blossoming of Remote Mediation , Kluwer Mediation Blog, 16 December 2020 at
http://mediationblog.kluwerarbitration.com/2020/12/16/the-latent-blossoming-of-remote-mediation.
55）Eg, the Mixed Mode Task Force of the International Mediation Institute. See https://imimediation.org/about/
who-are-imi/mixed-mode-task-force.
56）UNCITRAL Note A/CN.9/WG.III/WP.168, paragraph 22 at https://undocs.org/en/A/CN.9/WG.III/WP.168

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Utilizing Third-party Funding in Japan—Issues Regarding the Attorney Act and the Basic
Rules on the Duties of Practicing Attorneys
Momo-o, Matsuo & Namba

Momo-o, Matsuo & Namba

Attorney-at-Law, admitted in Japan and the State of New York

Attorney-at-Law, admitted in Japan

Junya Naito

Motomu Wake

Ⅰ．Foreword
Third-party funding ( “TPF” ) in the world of legal disputes has grown increasingly

prevalent. TPF involves financers who provide legal fees and other expenses to potential

claimants of disputes and, in the case of success, receive a certain portion of the economic
benefit as a return on their investment.

TPF has developed from the perspective of facilitating access to the legal system, especiallyin common law jurisdictions where litigation costs tend to be high. In recent years, theimportance of TPF has increased in international arbitration,1） where costs borne by theclaimant are likely to be huge due to arbitrators’ remuneration and the general rule ofinternational arbitration whereby the legal fees and expenses are borne by the losing party.

Potential claimants may hesitate to commence arbitration because of concern over such costs.
TPF can reduce such hesitation.

Because of the importance of TPF, it is fair to say that potential users of arbitration (e.g.,

parties who negotiate an arbitration clause) would view the legality of TPF and thetransparency of regulations regarding TPF as one of the important factors to choose the placeof arbitration.2） In common law jurisdictions, traditionally, TPF was regarded illegal as it fellwithin the tortious act of champerty or maintenance. But there is an international trend tolegalize TPF through court precedents or legislation. For example, Singapore and Hong Kong(frontrunners in Asia in terms of inviting international arbitration), have resolved uncertainty
about legality through legislation.

The Japanese government has consistently recognized the importance of international

arbitration. In 2017, it established the “Liaison Conference of Relevant Ministries and1）Tatsuya Nakamura, Daisansha-Shikinteikyō to Chūsai-Tetsuzuki (Third-party Funding and Arbitration
Proceedings ), Kokushikan-Hōgaku Vol. 50 (2017), p. 1.
2）See, Aoi Inoue, Third Party Funding in International Arbitration—The perspective from Japanese Law ,JCAA Newsletter No. 39 (2018), pp. 4-5; and Michihiro Nishi, Third Party Funding no Shikumi to KokusaiChōryū (Mechanism and International Trends of Third-party Funding ), Business-Hōmu June 2019, p. 123.

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127Agencies for the Invigoration of International Arbitration” ( “Liaison Conference” ) to develop
a necessary foundation for the strengthening of international arbitration in Japan.

Furthermore, in the “Follow-up to the Growth Strategy” (the Japanese Cabinet decision on
July 17, 2020), it was decided to “accelerate the review of arbitration-related legislation witha view to invigorate international arbitration,” and the Legislative Council of the Japanese
government established the Arbitration Law System Subcommittee on September 17, 2020.

As for TPF, in “Possible Measures for Invigoration of International Arbitration” (2018), theLiaison Conference mentioned the study of the utilization and regulation of TPF as one of thepossible measures to strengthen international arbitration to which a Japanese company is aparty. However, since then, we have not come across any public information stating that the
government has proceeded with any organized studies on TPF.

We are of the opinion that TPF can be an important and useful tool to enable parties accessto international arbitration and, therefore, should be introduced in Japan. That said, there areseveral legal and ethical issues that need to be addressed before doing so. Specifically, theapplication of laws and regulations such as Bengoshi Hō ( “Attorney Act” ) and rules on
ethics, described in Bengoshi Shokumu Kihon Kitei (the Basic Rules on the Duties of Practicing
Attorneys; “Basic Rules on the Duties” ) issued by the Japan Federation of Bar Associations( “JFBA” ) should be carefully reviewed, so that the activities concerning TPF are not incontravention of existing laws and regulations.

As the business of TPF is new to Japan, current laws and regulations including the Attorney

Act and the Basic Rules on Duties do not assume its existence. In this sense, there arelimitations to examine the legal and ethical issues regarding TPF under existing laws andregulations. However, it may be worth examining the issue of legality for the sake of future
discussions. From such perspective, this paper examines the following issues based on thepremise that three parties (TPF users who are (potential) claimants; TPF providers; andBengoshi (attorneys registered in Japan, hereinafter, “Attorneys” ) are involved in the usageof TPF:- The legality of TPF under Japanese law (Section Ⅱ. below); and- Issues in relation to the Basic Rules on Duties (Section Ⅲ. below).

Ⅱ．The legality of TPF under Japanese law
In general, the following three provisions are cited when the legality of TPF under Japanese

law is discussed:3）3）See, Nakamura, supra note 1, pp. 34-35; Inoue, supra note 2, pp. 3-5; Daniel Allen & Yuko Kanamaru,
The Third Party Litigation Funding Law Review: Japan , (https://thelawreviews.co.uk/edition/the-thirdparty-litigation-funding-law-review-edition-4/1235490/japan); Nobuhisa Hayano, Nihon deno ChūsaiTetsuzuki ni okeru Third Party Funding no Katsuyō nitsuite (About Utilization of Third-party Funding in
Arbitration Proceedings in Japan) , ADR Forum Vol.7 (2021), pp. 64-70; and Tom Glasgow et al., Nihon ni
okeru Third Party Funding no Jissenteki na Katsuyō ni mukete (For Practical Utilization of Third-party
Funding in Japan) , Business Law Journal July 2019, pp. 64-65.

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・A rticle 72 of the Attorney Act (Prohibition of the provision of legal services by nonAttorneys);・Article 73 of the Attorney Act (Prohibition against the enforcement of assigned rights as abusiness); and・Article 10 of the Trust Act (Prohibition of Trust for Suit).
Whether or not TPF violates these provisions will ultimately depend on the specific facts

such as the content of each individual TPF contract between the TPF user and the TPF

provider, and the circumstances concerning the particular TPF such as the acts of the TPF
provider. However, at least as long as the TPF provider only provides funds to the TPF user
and the TPF provider receives a share of the economic benefit that the party receives fromthe outcome of the dispute, it is unlikely that the TPF provider is regarded as violating Article
72 or 73 of the Attorney Act or Article 10 of the Trust Act.4）

There are several issues that should be examined as to whether TPF would violate theabove provisions. First, some TPF contracts allow TPF providers to intervene in the decision-

making process regarding the disputes such as acceptance of settlement agreement or
deciding on the content (terms and conditions) of the settlement agreement.5） Suchintervention by the TPF provider in the decision-making process may be regarded as a

violation of the Attorney Act because it falls within handling of legal affairs (Article 72) orassignment of the rights in dispute (Article 73).6） Considering such risk of violation, without alegislative solution, it would be questionable whether the legality of a TPF provider’ sintervention in the decision-making process on the dispute settlement can be guaranteed.

Second, Article 72 of the Attorney Act prohibits non-Attorneys from appraising legal cases

for the purpose of obtaining compensation. There is a question as to whether examining andassessing the prospect of the dispute subject to a TPF contract may constitute a violation of
Article 72 of the Attorney Act. Although the internal review and appraisal by and within the

TPF provider would not fall under the definition of “appraisal,” 7） providing the results to the

TPF user may be regarded as “appraisal” for the “purpose of obtaining compensation” as it
relates to the TPF business, even if the “appraisal” itself is free of charge.

Third, Article 72 of the Attorney Act also prohibits “act[ing] as an intermediary” of legal

service “for the purpose of obtaining compensation.” Therefore, if a TPF provider intervenes

between a TPF user and its Attorney “for the purpose of obtaining compensation” and is
involved in the making of a retainer agreement between a TPF user and its Attorney, the TPF

provider may violate Article 72 of the Attorney Act and, further, the Attorney may violate
Article 27 of the Act (the latter will be explained in detail in Section Ⅲ. (2) below).

Even if the TPF provider is not compensated from “act[ing] as an intermediary” per se , it4）See Id.
5）See Hayano, supra note 3, p. 71.
6）See Inoue, supra note 2, p. 4; Nishi, supra note 2, p. 123; Hayano, supra note 3, p. 68; and Tom
Glasgow et al., supra note 3, p. 65.
7）See Hayano, supra note 3, pp. 67-68.

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should avoid being involved in the making of a retainer agreement between the TPF user and

its Attorney, because such act could be regarded as “act[ing] as an intermediary for the
purpose of obtaining compensation.”8） On the other hand, if the TPF provider only “introduces”

the TPF user to an Attorney, it would not be considered as “act[ing] as an intermediary.”

Ⅲ．Issues in relation to the Basic Rules on Duties(1) Introduction

The Basic Rules on Duties, along with the Attorney Act, establish the code of ethics andconduct for Attorneys. Attorneys are prohibited from acting in violation of the Attorney Act
and the Basic Rules on Duties. It should be highlighted, however, that even if an Attorney isregarded as violating the Basic Rules on Duties, it does not mean that the Attorney is
automatically subject to a disciplinary action by the Bar Association. The legal ground for the
Bar Association to impose a disciplinary action on an Attorney is Article 56, Paragraph 1 of the
Attorney Act, and a disciplinary action is imposed based on the determination of whether the
Attorney has substantively “impaired his/her own integrity” under Article 56, Paragraph 1 of

the Attorney Act.9） Therefore, even in cases where an Attorney’ s act is not clearly identified

as a violation of an individual provision of the Basic Rules on Duties, the Attorney could be
subject to a disciplinary action as long as the Attorney is deemed to have engaged in“impairing his/her own integrity.” 10）

Therefore, in the following, we will focus on how the specific provisions of the Basic Rules

on Duties regulate TPF and Attorneys' involvement with TPF, and will also refer to thepossibility of a disciplinary action based on the application of Article 56, Paragraph 1( “impairing his/her own integrity” ) to the act of the Attorney.

(2) Article 27 of the Attorney Act and Article 11 of the Basic Rules on Duties

Article 27 of the Attorney Act prohibits an Attorney from “undertak[ing] cases referred to by

a person who is in violation” of Articles 72 or 73 of the Attorney Act.11） Article 11 of the Basic
Rules on Duties further broadens this regulation under the Attorney Act, and prohibits

Attorneys from “accept[ing] a referral of a client from a person who has violated theprovisions of [Articles 72 or 73] of the Attorney Act or a person who has reasonable grounds
to be suspected that he/she has violated these provisions, using such person in violation. . . .”A TPF provider tends to have a chance to refer a (potential) TPF user to an Attorney

because, by its nature, a TPF provider has established contact with a TPF user who needs an

Attorney for legal proceedings. Nevertheless, even if an Attorney recognizes that the referring8）See Hayano, supra note 3, p. 68.
9）See the Ethics Committee of the Japan Federation of Bar Associations, Kaisetsu Bengoshi-ShokumuKihon-Kitei (Commentary on the Basic Rules on the Duties of Practicing Attorneys) , Preface and p. 221(3rd ed. 2017).
10）See Id ., p. 18.
11）We do not refer to Article 74 here because of its irrelevance to this article.

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person is a TPF provider, it does not necessarily mean that the Attorney recognizes thereferring person has violated Articles 72 or 73 of the Attorney Act.

As for the requirement of “us[ing] such person,” the mere involvement of an Attorney in the

representation of a dispute financed by a TPF provider would not be regarded as “us[ing] such

person.” However, if an Attorney induces a potential client together with a TPF provider, or isinvolved in the making of a TPF contract between the TPF provider and the TPF user, suchaction could be regarded as “us[ing] such person.”(3) Article 12 of the Basic Rules on Duties

Article 12 of the Basic Rules on Duties prohibits an Attorney from “apportion[ing] fees inrespect of his/her duties between a person who is not an Attorney.”

As already mentioned, the TPF provider will receive a share of the economic benefit that the

TPF user obtains from the outcome of the legal dispute. If the TPF user pays both the “share”

to the TPF provider and “fees” to the Attorney separately, it would be difficult to deem that
the Attorney “apportion[s] fees in respect of his/her duties” with the TPF provider. Even if the

Attorney is also a party to the TPF contract and the client (TPF user), the Attorney and the
TPF provider agree on the distribution of economic benefits should the client win the case,such arrangement—as long as the share to the TPF provider and the fees to the Attorney areclearly divided—cannot be deemed to immediately violate Article 12 of the Basic Rules on

Duties. However, for the avoidance of doubt, it is preferable that an Attorney should refrainfrom being a party to the TPF contract and should receive its fees directly from the client (TPF
user).

(4) Article 13 of the Basic Rules on Duties

Ar ticle 13 of the Basic Rules on Duties prohibits an Attorney from “pay[ing] any

compensation or any other consideration for a referral of a client” (Paragraph 1) and“receiving compensation or any other consideration for a referral of a client” (Paragraph 2).

A violation of Paragraph 1 of this Article should be found when there is a link between thereferral of a client by a TPF provider and the compensation paid by an Attorney or vice versa.
However, even if such link is not clearly found, it may be regarded as falling under “impairing

his/her own integrity” under Article 56, Paragraph 1 of the Attorney Act. Accordingly, it isadvisable to avoid schemes in which the Attorney directly pays money to the TPF provider orvice versa (including legal fees).

(5) Article 14 of the Basic Rules on Duties

Article 14 of the Basic Rules on Duties prohibits an Attorney from “encourag[ing] orutiliz[ing] fraudulent transactions, violence or other illegal or unjust acts.” If the conduct of a

TPF provider constitutes a violation of the Attorney Act, a violation of this Article may betriggered in cases where an Attorney, knowing the TPF provider’ s violation, assists the TPF
provider in the making of the TPF contract.

The fact that an Attorney knew of the illegality of the “act” is a prerequisite for the violation

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of this Article.12） However, even if the Attorney—due to negligence—did not know about theexistence of illegality or injustice, and the Attorney has encouraged or utilized the illegal or

unjust act, the Attorney may be regarded as falling under “impairing his/her own integrity”
under Article 56, Paragraph 1 of the Attorney Act.13）(6) Article 15 of the Basic Rules on Duties

Article 15 of the Basic Rules on Duties prohibits an Attorney from “engag[ing] in, or

participat[ing] in, any business which is contrary to public policy or any other business which
undermines integrity.” A violation of this Article would not be established unless a TPF

provider’ s business is contrary to public policy and, furthermore, an Attorney is involved in
the management of the TPF provider’ s business.
(7) Article 22 of the Basic Rules on Duties

Article 22 of the Basic Rules on Duties requires that an Attorney “shall perform his/herduties respecting the client’ s intention with regard to the purpose of the engagement.”

When TPF is used, there may be disagreements between the client and the TPF provider as

to, e.g., whether to commence settlement negotiations, accept a settlement proposal or whatterms should be included in the settlement agreement. As a matter of course, the client of
the Attorney is the TPF user, not the TPF provider. The Attorney should always respect theintention of the TPF user, and not the TPF provider’ s intention. Prioritizing the intention of
the TPF provider over the client’ s may constitute a violation of this Article.
(8) Article 23 of the Basic Rules on Duties

Article 23 of the Basic Rules on Duties prohibits an Attorney from “divulging to others or

utilizing any confidential information which may come to his/her knowledge in the course ofduties with respect to the client without justifiable grounds.” 14）

Since a TPF provider has an interest in the outcome of the legal dispute it has funded,15） it

often asks or even demands an Attorney to report on the substantive and procedural progressof the dispute. Because responding to such request would constitute divulging “confidential

information” to others, an Attorney needs justifiable grounds (e.g., the client’ s consent) to doso, or otherwise the Attorney’ s actions may violate Article 23.16）(9) Article 25 of the Attorney Act and Articles 27 and 28 of the Basic Rules on Duties

Article 25 of the Attorney Act and Articles 27 and 28 of the Basic Rules on Duties prohibit an

Attorney from undertaking certain types of cases from the perspective of conflicts of interest12）See the Ethics Committee of the Japan Federation of Bar Associations, supra note 9, p. 32
13）See Id .
14）Article 23 of the Attorney Act also stipulates the Attorney's duty of confidentiality. The following
discussion would also apply to the Attorney's duty of confidentiality to the client under the article.
15）See Tom Glasgow et al., supra note 3, p. 61.
16）See the Ethics Committee of the Japan Federation of Bar Associations, supra note 9, p. 62.

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vis-à-vis the client.

As stated in (7) above, for an Attorney representing a TPF user, the TPF provider is not a“client” (similarly, for an Attorney representing a TPF user’ s counterparty, the TPF provider is
not a “counterparty” ). Therefore, with regards to the relation between an Attorney and a

TPF provider, the mere fact that an Attorney represents a party of a case in which TPF is used

does not itself trigger the restriction of Article 25 of the Attorney Act and Articles 27 and 28 of
the Basic Rules on Duties. However, when TPF is used in a dispute, an Attorney should be

careful about conflicts of interest among the parties and the TPF provider, considering thepossible application of Article 56, Paragraph 1 of the Attorney Act which provides for“impairing his/her own integrity.”

Ⅳ．Conclusion
To reiterate, TPF has increased in importance in relation to international arbitration, and its

role is expected to increase even more in the future. To achieve the Japanese government’ sgoal of invigorating international arbitration in Japan, the utilization of TPF will be an
important factor.

As outlined in Sections Ⅱ. and Ⅲ. above, it would be imprudent to assume that TPF isentirely prohibited under the current laws and regulations in Japan including the Attorney Act

and the Basic Rules on the Duties. However, the uncertainty surrounding TPF’ s legality will

be an obstacle in the entry of TPF providers and procurement of its services in the Japanesemarket. In addition, because Attorneys play an important role in the type of disputes in which

TPF is utilized such as international arbitration, clear rules and regulations regarding the

involvement of Attorneys should be introduced to avoid the risk of Attorneys being exposed toa violation of the Attorney Act and the Basic Rules on Duties. Consequently, we opine thatspecific legislation regarding TPF would be necessary to ensure the legality of TPF. Further, it
would be desirable for the JBFA to establish certain rules such as guidelines for theinterpretation of the Basic Rules on Duties as they are applied to TPF.

It is our sincere desire that this paper will aid future discussions surrounding TPF and its

legality in Japan.17）

17）The authors would like to thank Mr. Teruoki Ninomiya for his invaluable comments.

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A Message from JCAA
President

Kazuhiko Bando
It is our pleasure to publish the second volume of the Japan
Commercial Arbitration Journal this September. We would like to extend
our thanks to all contributors to this journal.
This journal features articles on the JCAA’ s rules, internationalcommercial arbitration, mediation and litigation with special focus on
Japan. It aims to introduce the latest trends in arbitration, mediationand litigation in Japan. It would be our great delight if you find thisjournal helpful.
I n 2021, w i t h t h e k i n d c o l l a b o ra t i o n o f r e n o w n e d e x p e r t s i narbitration, the JCAA has amended the JCAA Arbitration Rules andlaunched the new Appointing Authority Rules. We believe these rules
will further streamline the dispute resolution process. Also, we would
like to take this opportunity to express our gratitude to everyone who
contributed to these rules.
We will continue to do our utmost to take our services to the nextlevel, and your continued support will be vital to our success.

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Japan Commercial Arbitration Journal VOL.2［2021］ ISSN 2435-9726

The Japan Commercial Arbitration Association (JCAA)
www.jcaa.or.jp