Japan is a pro-arbitration country with a number of arbitral institutions and organizations. The most commonly used institution for commercial arbitration is the Japan Commercial Arbitration Association (the “JCAA”). Its Arbitration Rules were recently amended in order to make arbitration more useful and affordable for parties.
Civil and Commercial Arbitration in Japan
Civil and commercial arbitration in Japan is governed by Arbitration Law No. 138 of 2003 (the “Arbitration Law”), which became effective in 2004. The Arbitration Law is based on the UNCITRAL Model Law on International Commercial Arbitration 1985.
The UNCITRAL Model Law was amended in 2006, but the Arbitration Law does not incorporate these changes. On 21 June 2019, the Japanese Federation of Bar Associations issued a recommendation proposing that the 2006 amendments be reflected in the Arbitration Law.
The Arbitration Agreement in Japanese Law
Pursuant to Article 2 of the Arbitration Law, an arbitration agreement is an agreement “by the parties to submit to one or more arbitrators the resolution of all or certain civil disputes which have arisen or which may arise in respect of a defined legal relationship (whether contractual or not) and to abide by their award (hereinafter referred to as ‘arbitral award’).”
Chapter II of the Arbitration Law is dedicated to arbitration agreements.
There are both formal and substantive requirements for an arbitration agreement to be valid. An arbitration agreement is only valid when its subject matter is a civil dispute. It must be in writing and signed by all parties. Article 13(2) of the Arbitration Law specifies that an arbitration agreement can be signed electronically. The reference in a contract to a separate document containing an arbitration clause is sufficient to have a valid arbitration agreement only if it is in writing.
Contrary to the UNCITRAL Model Law, under the Arbitration Law, arbitration agreements involving consumers and businesses can be unilaterally terminated by consumers:
“A consumer may cancel a consumer arbitration agreement. Provided, this shall not apply in the event that the consumer is a claimant in arbitral proceedings based on the consumer arbitration agreement.”
Pursuant to Article 4 of the Supplementary Provisions of the Arbitration Law, arbitration agreements concerning individual labor-related disputes are also null and void.
Constitution of the Arbitral Tribunal in Japan
Pursuant to Article 2 of the Arbitration Law, an arbitral tribunal means “a sole arbitrator or a panel of two or more arbitrators, who, based on an arbitration agreement, conduct proceedings and make an arbitral award in respect of civil disputes subject thereto.”
The parties are free to determine the number of arbitrators. If no agreement is reached, the Arbitration Law imposes a tribunal composed of three arbitrators when there are two parties in the arbitration. The Arbitration Law does not impose any citizenship or professional conditions for being an arbitrator.
If one of the parties fails to appoint an arbitrator within 30 days of the request to do so, a local court may appoint an arbitrator upon the request of a party.
Pursuant to Article 18(3) of the Arbitration Law, arbitrators have the obligation to be independent and impartial:
“When a person is approached in connection with its possible appointment as an arbitrator, it shall fully disclose any circumstances likely to give rise to justifiable doubts as to its impartiality or independence.”
There are two grounds under which an arbitrator can be challenged, namely:
- The arbitrator does not possess the qualifications agreed by the parties; and
- Circumstances exist that give rise to doubts as to his or her impartiality or independence.
The Arbitration Law refers to the principle of competence-competence under Article 23, i.e., an arbitral tribunal is competent to rule on its own jurisdiction.
If agreed by the parties to the arbitration, the arbitral tribunal can attempt to assist with negotiations towards an amicable settlement.
Enforcement of Arbitral Awards in Japan
Recognition and enforcement of arbitral awards is governed by Chapter VIII of the Arbitration Law.
To enforce an arbitral award, the Arbitration Law does not make a distinction between a domestic and a foreign award. Both have the same effect as a final court decision:
“An arbitral award (irrespective of whether or not the place of arbitration is in the territory of Japan; this shall apply throughout this chapter) shall have the same effect as a final and conclusive judgment.”
Japan is a contracting State to the Convention on the Recognition and Enforcement of Foreign Awards 1958 (the “New York Convention”). The conditions under which an award can be enforced in Japan are similar to the ones imposed by the New York Convention.
To enforce an arbitral award, a party needs to apply to a court for an enforcement decision and provide:
- A copy of the arbitral award;
- A document certifying that the copy is identical to the arbitral award; and
- A Japanese translation of the arbitral award (if not rendered in Japanese).
The application for an enforcement decision can only be made before the following courts:
- the district court designated by the agreement of the parties;
- the district court having jurisdiction over the place of arbitration (only when the designated place of arbitration falls within the jurisdiction of a single district court); or
- the district court having jurisdiction over the general forum of the counterparty in the relevant case.
The enforcement decision rendered by the competent local court can be appealed.
Grounds to Set Aside an Arbitral Award in Japan
The conditions to set aside an arbitral award are found in Chapter VII of the Arbitration Law.
A party attempting to set aside an arbitral award needs to apply to a court (listed above) within three months following the date on which the party had received the notice of the arbitral award. The grounds under which an arbitral award can be set aside are:
- the arbitration agreement is not valid due to limits to a party’s capacity;
- the arbitration agreement is not valid for a reason other than limits to a party’s capacity under the law to which the parties have agreed to subject it;
- the party making the application was not given notice as required by the provisions of the laws of Japan in the proceedings to appoint arbitrators or in the arbitral proceedings;
- the party making the application was unable to present its case in the arbitral proceedings;
- the arbitral award contains decisions on matters beyond the scope of the arbitration agreement or the claims in the arbitral proceedings;
- the composition of the arbitral tribunal, or the arbitral proceedings, were not in accordance with the provisions of the laws of Japan;
- the claims in the arbitral proceedings relate to a dispute that cannot constitute the subject of an arbitration agreement under the laws of Japan; or
- the content of the arbitral award is in conflict with public policy or good morals of Japan.
Most of the provisions of the Arbitration Law regarding arbitral procedures can be modified by agreement between the parties. However, certain provisions under the Arbitration Law are mandatory, such as the equal and fair treatment of the parties. If such mandatory provisions are not followed by the parties or the arbitral tribunal, it is possible to apply to the court to set aside the arbitral award.
Investment Arbitration in Japan
Japan is a party to 31 reported bilateral investment treaties, with the following countries:
Armenia; Bangladesh; Cambodia; Egypt; China; Colombia; Hong Kong; Iran; Iraq; Israel; Kazakhstan; Kenya; Korea; Kuwait; Laos; Australia; Brunei; Chile; India; Indonesia; Malaysia; Mexico; Mongolia; Philippines; Singapore; Switzerland and Thailand.
Japan does not have a model bilateral investment treaty and has not published official commentary concerning the intended meaning of its treaties.
Japan is not party to the Mauritius Convention on Transparency in Treaty-based Investor-State Arbitration (2014).
There are no recent cases in Japan that address relevant questions that might arise during an investor-State arbitration. Indeed, Japan has never been a party to an investor-State arbitration.
Being a party to the Energy Charter Treaty, certain Japanese investors have brought claims against other States pursuant to the ECT. Recently, an ICSID arbitration was also initiated against China by a Japanese investor under the 1988 Japan-China BIT.
 Commercial Arbitration Rules (2019).
 Draft of the outline for legislation of the Acts reflecting the UNCITRAL Model Law on International Commercial Arbitration with amendments as adopted in 2006.
 Arbitration Law No. 138, Article 13(1).
 Arbitration Law No. 138, Article 13(2): “The arbitration agreement shall be in the form of a document signed by all the parties, letters or telegrams exchanged between the parties (including those sent by facsimile device or other communication device for parties at a distance which provides the recipient with a written record of the transmitted content), or other written instrument.”
 Arbitration Law No. 138, Article 13(3).
 Arbitration Law No. 138, Supplementary Provisions, Article 3(2) – Exception Relating to Arbitration Agreements Concluded between Consumers and Businesses.
 Arbitration Law No. 138, Supplementary Provisions, Article 4 – Exception Relating to Arbitration Agreements Concerning Individual Labor-related Disputes
 Arbitration Law No. 138, Article 2(2).
 Arbitration Law No. 138, Article 16(2).
 Arbitration Law No. 138, Article 17.
 Arbitration Law No. 138, Article 18(3).
 Arbitration Law No. 138, Article 45(1).
 Arbitration Law No. 138, Article 45(2).
 Arbitration Law No. 138, Article 46(2).
 Arbitration Law No. 138, Articles 46(4) and 5.
 Arbitration Law No. 138, Article 46(6).
 Arbitration Law No. 138, Article 44.
 Arbitration Law No. 138, Article 25: “(1) The parties shall be treated with equality in the arbitral proceedings. (2) Each party shall be given a full opportunity of presenting its case in the arbitral proceedings.”
 Japan ratified the Energy Charter Treaty on 23 July 2002. It entered into force on 21 October 2002.