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Japan opens more “international” arbitrations to Registered Foreign Lawyers

Sustained attempts have been made in recent years to entice commercial parties to choose Japan as a venue for resolving commercial disputes. The Japan Commercial Arbitration Association’s update of its arbitration rules in 2019 to provide for emergency arbitration and joinder of proceedings, as well as the opening of state-of-the-art JIDRC hearing facilities in Osaka in 2018 and in Tokyo in March this year, are but two examples.

As to representation in arbitrations in Japan, since the mid-1990s Registered Foreign Lawyers (or gaiben) have had rights of representation in “International Arbitration Cases” by virtue of the Act on Special Measures concerning the Handling of Legal Services by Foreign Lawyers (the Foreign Lawyers Act).

Notwithstanding such measures, Japan continues to lag significantly behind its Asian neighbours, notably Singapore and Hong Kong, as the preferred destination for the resolution of international commercial disputes. Accordingly, in an attempt to further broaden the appeal of Japan as an international arbitration destination, the Japanese Government has passed amendments to the Foreign Lawyers Act to come into effect on 29 August 2020, which will broaden Registered Foreign Lawyers’ rights of representation in international arbitration proceedings. We set out below a summary of those changes and how they will impact choice of counsel in arbitrations that take place in Japan.

Current rights of representation

The Foreign Lawyers Act regulates the provision of legal services by foreign-qualified lawyers in Japan, including by excluding foreign lawyers from appearing before Japanese courts, and limiting the provision of legal opinions only in relation to a foreign lawyer’s jurisdiction of qualification. Registered Foreign Lawyers—who meet the qualification and registration requirements under the Foreign Lawyers Act—are, however, permitted to “represent [clients] regarding the procedures for an International Arbitration Case (including the procedures for settlement resulting from an International Arbitration Case […])” (see Art 5(3).

An “International Arbitration Case” is defined in the Foreign Lawyers Act as:

(a)  a civil arbitration case;
(b) conducted in Japan; and
(c) including at least one party whose address (in the case of an individual) or principal or head office (in the case of an entity) is outside of Japan.

This definition, however, gives rise to a notable practical difficulty: if both parties to proceedings are Japanese companies, Registered Foreign Lawyers will not have rights of representation even where one or both parties are owned by a parent company incorporated outside of Japan. That non-Japanese law governs the proceedings and/or foreign arbitral rules (such as the ICC, SIAC or HKIAC Rules) apply to the proceedings does not change this position. (Interestingly, restrictions have not been applied to lawyers based outside of Japan, who, in principle, have been free to serve as counsel in international arbitrations in Japan.)

Changes to the Foreign Lawyers Act

The Japanese Government in May 2020 passed amendments to the Foreign Lawyers Act, inter alia, to cure this issue as it pertains to Registered Foreign Lawyers’ representation of parties in international arbitrations in Japan.

From 29 August 2020, Registered Foreign Lawyers will be able to represent clients in arbitrations with all Japanese parties where there is a sufficient international nexus. Such nexus will be satisfied where: (a) one of the parties to the proceedings is more than 50-percent owned by a non-Japanese company; (b) the parties have agreed to a foreign governing law; and/or (c) Japan is the venue for the arbitration but the seat is abroad. (The venue is the location where a hearing is held, while the seat is the jurisdiction whose arbitral law applies to the proceedings.)

Also, both Registered Foreign Lawyers and foreign lawyers not based in Japan will now be able to represent parties in international mediations where: (a) the mediation is commenced by private businesses such as a corporate entity (or an individual who is a party to business contract(s)) against another corporate entity (or entities or individual(s)); and (b) there is a sufficient international nexus similar to that are outlined above with respect to international arbitration.

Finally, the Foreign Lawyers Act’s post-qualification experience requirements have been amended to make it easier for foreign lawyers in Japan to become Registered Foreign Lawyers. At present, foreign lawyers are required to have three or more years’ post-qualification experience, with a maximum of one year of practice in Japan allowed to count towards the total. The Foreign Lawyers Act now increases this limit to two years of experience in Japan, thus making it easier for more junior lawyers practising in Japan to qualify as Registered Foreign Lawyers.

Authors: Nicholas Lingard (Partner), Joaquin Terceño (Counsel), Karen Kong (Associate), David Perrett (Practice Manager, International Arbitration, Asia)