by Martin Foster / disputed disputes
disputed disputes
Japan adopts international arbitration
norms, leaves ADR issues unresolved.
A
fter almost three years of discussion,
Japan on November 19 passed a law
aiming to formalize the nonaggressive,
nonconfrontational approaches to dispute
settlement known as Alternative Dispute
Resolution (ADR).
ADR provides an informal, flexible, quick and
inexpensive format for parties to discuss their issues,
clear up misunderstandings, find areas of agree-
ment and incorporate them into a final resolution.
For businesses involved in complex negotiations and
relationships, it is a handy mechanism that can
prevent relatively minor disagreements from
plunging both sides disastrously into prolonged,
bitter and expensive court battles. Failure to
introduce a viable ADR process in Japan may
therefore hinder expansion of foreign direct
investment. Unfortunately, in the view of
international observers, the new law leaves key
problems unsolved.
Participants in the 11-member ADR Exploratory
Committee (Kentoukai) of the government’s Task
Force on Judicial Reform highlight a number of
sticking points.
Perhaps the most contentious issue is that, while
not specifically restricting the provision of medi-
ation services to attorneys-at-law, the law (despite
considerable resistance within the committee)
incorporates the government proposal that ADR
service providers be certified.
One of the criteria for receiving certification from
the Ministry of Justice (MOJ) is that if the mediator
is not a lawyer, he or she is required to take advice
from a lawyer on problems that require specific
legal knowledge, explains Koichi Miki, attorney-at-
law, professor at Keio University and a member of
the Kentoukai.
30 / accj journal / february 2005
“To obtain certification, the mediator must have
a relationship with an attorney-at-law,” he adds.
The need for certification effectively perpetuates a
broad monopoly on law-related activities in Japan by
an exclusive clique of attorneys-at-law numbering
around 21,000, a Kentoukai member says. Japanese
attorneys-at-law are protected by Article 72 of the
Attorneys Law, which has been in place since 1949
and provides for jail sentences of up to two years or
a fine of ¥3 million in cases where non-lawyers
repeatedly engage in law-related business for
which they receive remuneration.
“Everything reverts back to clause 72,” Miki says.
“That is the main problem.”
The seriousness of the problem was illustrated
by the recent arrest of Steven Gan, president of
Advance & Associates Co., Ltd., who was accused
of encroaching on Article 72 by attempting to
improve the way debts are collected in Japan. The
case was a wake-up call for those conditioned to
believe that Japanese authorities are good
legislators but poor enforcers.
Worldwide, ADR is not law
For the international business community, the
question of whether ADR will function efficiently
and openly turns on the issue of how such services
are classified and who can provide them. While
ADR may be conducted with the intention of
resolving legal or quasi-legal issues, standards
nearly worldwide state that the right to act as a
mediator, or neutral, is separate from the practice
of law. In fact, non-lawyers practically developed
the field of ADR.
Licensing may cripple the healthy development of
ADR in Japan by setting up new barriers and
building new and unnecessary costs into the legal
system, western observers say. They argue that the
system should be more open and flexible, with non-
lawyers having the right to mediate without being
licensed by the government.
“By requiring MOJ certification, ADR will center
not on the private sector, but on the government,”
Miki says.
A Viewpoint issued by the ACCJ’s Arbitration and
ADR Task Force called for the new law to clarify
that dispute-resolution institutions and other ADR
neutrals are not practicing law, and are therefore
not in violation of Article 72 of the Attorneys Law.
Failure to do so has set up the possibility that any
dispute-resolution process here not presided over
by a Japanese lawyer may be challenged overseas
as illegal. However, an influential coalition
spearheaded by the ACCJ has blocked that
eventuality, at least with respect to arbitration,
which is included in many international contracts.
The ACCJ, the European Business Community
(EBC), the Japan Subcommittee of the East Asia
Branch of the Chartered Institute of Arbitrators
(CIArb), the German Institute of Arbitration
(Deutsche Institution für Schiedsgerichtsbarkeit
[DIS]), the Foundation for International Dispute
Resolution (FIDR) and the Foreign Lawyers
Association of Japan have unanimously urged the
Japanese government to permit all persons and
organizations to work freely in arbitration,
mediation, and other forms of ADR and dispute
avoidance. For many western observers, the
certification requirement underscores a Japanese
penchant for over-regulation. “The Japanese
government has very little sympathy for
unregulated activity in the private sector,” says
Richard A. Eastman of Holland & Knight LLP.
“More rules seem to be the answer to any
problem,” adds another knowledgeable observer.
Needless to say, however, Japan is a sovereign state
with the right to legislate in its own style and in its
own favor.
“I have always told Japanese government officials
in the course of these negotiations that if we are
asking for anything that is contrary to Japan’s
public interest, then just ignore us,” says Hunter
Hale of Hunter Hale International G.J.B.J.
Red herrings
Japanese lawyers are unlikely to get rich from
mediation. “Our feeling is more along the lines of:
Someone has to do it; and we feel we are in a good
position to do so,” says Kentoukai member Yoshiko
february 2005 / accj journal / 31

“To obtain certification, the mediator must have
a relationship with an attorney-at-law.”
Takagi, an attorney-at-law with Tokyo-based Mori
Hamada & Matsumoto.
“I see mediation-based work as little more than
pro bono,” says Naoki Idei, an attorney-at-law
admitted in Japan and the state of New York who
works for Kojima Law Offices.
The concept of out-of-court dispute resolution
has existed for centuries in Japan and has been a
subject of great fascination for scholars trying to
explain why so many Japanese seem reluctant to
resort to the formal court system. One ostensible
reason for certification is to prevent the intrusion of
criminals into the mediation process.
“One of the most successful forms of out-of-
court settlement in Japan is that run by the crime
syndicates acting as jidan-ya or seiri-ya [both related
to settlement of debts],” says an informed source,
without being convinced that any of this will
squire & sanders
change. “Criminals have been doing it for years,
and are unlikely to stop now.”
Mediation and arbitration
The Kentoukai decided early in the process to focus
on mediation, after an earlier committee with many
of the same members had developed a new
Arbitration Law. In March last year, when Japan
dropped its century-old arbitration law, it became
the 45th country to adopt the UN Commission on
International Trade Law (UNCITRAL) Model Law on
international commercial arbitration.
In mediation, decision-making power stays in the
hands of the disputants, and the mediator has no
authority. In arbitration, disputes are submitted to
the decisions of others.
For the international business community in
Japan, operating in a legal environment not based
on Anglo-American law, arbitration and mediation
have been considered indispensable to dispute
resolution. For example, both were used to settle
hundreds of battles over software rights between
IBM Corp. and Fujitsu Ltd. in the late 1980s. The
two companies faced a plethora of disputes over
costs payable by Fujitsu for IBM software, and
hundreds more over intellectual property rights.
The companies began by using arbitration, but
disputed disputes
wound up redesigning the system. They developed
a unique program not only for consensual dispute
resolution, but also for dispute avoidance.
Previously, organizations such as the Tokyo
Maritime Arbitration Commission and the Japan
Commercial Arbitration Association had a long
history of settling arbitration cases without using
lawyers exclusively as neutrals.
Unresolved problems
The activities of these existing arbitration
organizations, according to Idei of Kojima Law
Offices, would be interpreted by legal authorities as
justifiable action, and they are highly unlikely to be
exposed to litigation under Article 72.
Not clarifying the status of arbitration in ADR,
however, would leave service providers in a gray
area that could make it difficult, if not impossible,
to enforce their decisions outside Japan.
“Arbitration decisions reached in Japan could be
resisted in a non-Japanese court on the grounds
that the selection of the arbitrator was illegal and
contrary to public policy in Japan, especially if one
party demands that,” says Hale, who nevertheless
sees a victory on the arbitration front in a
statement by Ushio Yamazaki, secretary general of
the Legal System Reform Promotion Office. On
November 18, at the House of Councilors Legal
Affairs Committee Hearing, Yamazaki told Toshiko
Hamayotsu of the New Komeito party, in a long
statement negotiated with the MOJ and the Diet,
that “arbitration conforming to the new
Arbitration Law does not appear to violate Article
72 of the Attorneys Law.”
“This is a real step forward in that it creates an
implied exemption of international arbitration from
the scope of Article 72,” says Hale. “It helps bring
Japan further into line with international norms.”
Keio University’s Miki still sees Article 72 as “very
political” and problematic in terms of ADR.
“Many people believe this is likely to be a terrible
law that doesn’t touch on the basics,” he says.
Long-term Japan resident Martin Foster is a freelance
journalist, editor and translator.
february 2005 / accj journal / 33