Shinzo Abe’s economic policies and fluctuations in global markets have impacted Japan in a variety of ways. Incoming employment law reforms, recent regulatory scandals and austere financial circumstances are turning Japanese corporate culture away from its established dogmas. Where the corporate titans of Toshiba or Panasonic would have once gritted their teeth through distress, they are now disposing of non-core assets to foreign investments funds; where boards of directors would have huffed and puffed at regulatory fines, they are now proactively consulting counsel to establish fine-tuned transparency and whistle-blowing protocols.
One of the most notable areas of metamorphosis within Japan is its progressive mastering of dispute resolution, particularly those disputes that have a cross-border element. Japanese corporate culture has traditionally kept clients from engaging in dispute resolution, making domestic contentious work traditionally rare and typically placing Japanese companies on the defendant end of international litigation. However, both local and international law firms in Japan have repeatedly reported a marked uptick in cross-border disputes and international arbitration mandates on behalf of foreign and domestic clients.
The island nation’s ageing and shrinking population continues to push corporate interests beyond its border towards China, Europe and the United States where growing markets promise greater financial opportunities and expansion. But international arbitration clauses are a staple of any international or partnership transaction and Japanese clients are having to adapt quickly to their prominence.
‘Japanese companies and law firms now pay closer attention to potential disputes’, explains Mugi Sekido, dispute resolution partner at Mori Hamada & Matsumoto. ‘In M&A transactions, for example, it is essential to be able to prove that the terms and conditions of a deal were fairly and reasonably agreed upon through transparent negotiations. Solid evidence of this is therefore prepared pre-emptively throughout the transaction process.’
In 2012, the US Department of Justice pursued a group of Japanese manufacturers on the grounds of cartel behaviour in the autoparts industry, thereby starting a series of landmark antitrust actions widely credited as being one of the main catalysts of the international litigation space in Japan. Not only have these disputes exposed Japanese companies to the enforcement of foreign and international regulations but the ensuing class-actions seeking compensation for losses suffered at the hands of anticompetitive behaviour has also had an impact.
A thriving projects industry is typically synonymous with high-value construction disputes, and big Japanese conglomerates find themselves at the centre of multi-million Japan Commercial Arbitration Association (JCAA) proceedings. The volume and spread of wind and solar power generation projects in Japan make it an attractive prospect for international investors, while Japanese heavyweight industrials are among the most common stakeholders in power projects in emerging markets in Africa and South East Asia. And, of course, the incoming Tokyo 2020 Olympic Games has also generated appealing construction schemes for multi-jurisdictional parties to fight over. These were made all the more significant by the thriving real estate market in Tokyo where high prices and a reluctance to acquire and dispose of assets only raise the stakes.
Another notable factor driving Japanese companies towards litigation is their awakening to the value and importance of intellectual and industrial property. Bonnie Dixon, partner at Atsumi & Sakai, partially credits this to the presence of foreign specialists: ‘American firms have done a great job explaining to Japanese clients the value of intellectual property and the importance of enforcing their patents abroad.’
So what next for disputes in Japan? The Abe government is currently attempting to transform the country into an attractive alternative to the popular Hong Kong and Singapore arbitration seats by building the International Arbitration Centre in Tokyo (IACT). This centre will focus on the one-stop resolution of multi-jurisdictional SEP disputes, such as the iconic Apple v Samsung case, through the cooperative efforts of officials from key jurisdictions.
This push was further illustrated by a recent series of recommendations by the Justice Ministry to ease regulations surrounding the activities of gaiben – foreign lawyers registered in Japan. Gaiben are extremely restricted in what they are legally allowed to do within Japan; they can advise on foreign laws but are not permitted to participate in international arbitration conducted overseas, for example. The proposed reforms would remove some of the limitations placed on gaiben, giving them the liberty to jointly establish firms with local bengoshi practitioners in the hopes this would attract more international expertise to the island nation.
Some are less-than-optimistic about Japan’s odds, however: ‘While the JCAA is pushing for the establishment of international arbitration facilities in Kyoto, nobody will come to Japan until it becomes clear that foreign lawyers – whether they practice in Japan or not – can intervene in arbitration
proceedings in Japan,’ says Dixon.
‘Legislation to permit that is under discussion, but by the time these are implemented, Japan will be much too far behind to compete with Hong Kong, Singapore and, more recently, Malaysia, as a popular forum for arbitrations.’ By contrast, Sekido is more confident: ‘Tokyo will have to offer something unique to stand out next to Hong Kong and Singapore, but there is an interesting endeavour there.’ Japan’s adaptation to international standards may take a few more years to fully realise but its corporate world is increasingly breaking down the barriers separating it from the rest of the world. With the prospect of the Olympics, the IACT, and fundamental legal reforms it is safe to wonder whether Japan’s history of relative socio-economic isolationism is reaching its conclusion.