Japan. Country Q&A Japan. Hiroyuki Tezuka and Masako Yajima, Nishimura & Partners. Country Q&A COURTS GENERAL AND GOVERNING LAW

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1 Japan Japan Hiroyuki Tezuka and Masako Yajima, Nishimura & Partners GENERAL AND GOVERNING LAW COURTS 1. Please give a brief overview of general trends in the use of courts, arbitration and other alternative dispute resolution methods for the settlement of large disputes between companies in your jurisdiction. In Japan, litigation is the most commonly used dispute resolution mechanism for the settlement of large disputes between companies. The 1996 amendments to the Code of Civil Procedure (CCP), which took effect on 1 January 1998, encourage the courts to manage cases in a more efficient way by: Clarifying the major issues in dispute at an earlier stage; and Only after this clarification, hearing multiple witnesses consecutively on a single date. Arbitration is still not used frequently, but its popularity is increasing, especially in large international commercial disputes (see Questions 11 to 22). The 2003 Arbitration Law (New Arbitration Law), which came into force on 1 March 2004, is based on the UNCITRAL Model Law on International Commercial Arbitration of 1985, as adopted by the United Nations Commission on International Trade Law on 21 June 1985 (UNCITRAL Model Law) and helps to promote arbitration in Japan. It replaces the previous 110 year-old law. Other forms of alternative dispute resolution (ADR) are used only in limited areas, such as family disputes, disputes on the amendment of rents and small claims. The new Law Concerning the Promotion and Use of Alternative Dispute Resolution was promulgated on 1 December This has introduced a unique system in which ADR service providers must be certified by the government to enjoy certain advantages, such as the ability to suspend the limitation period. Mediation in courts for family and rent-amending disputes are common, as mediation is required before parties can file for litigation. 3. In which court are large commercial disputes most likely to be brought? Generally, large commercial disputes are brought in the district courts; however: The Tokyo District Court has original and exclusive jurisdiction over cases involving patents, utility model rights and rights relating to semi-conductor chips or computer programs for Japan's Kanto region (the eastern half of Japan, including Tokyo). The Osaka District Court has similar jurisdiction over cases for the Kansai region (the western half of Japan) (Article 6, CCP). The Tokyo High Court has original jurisdiction over appeals from these courts (Article 6, CCP). As a part of the Japanese government's policies to facilitate the protection of intellectual property rights, a new high court, which focuses exclusively on intellectual property litigation, is being created to enhance the effectiveness of, and to expedite, litigation in this area. All civil or administrative litigation relating to intellectual property rights will be appealed to this special high court from 1 April The Law of Prohibition of Private Monopoly 1994 (amended 2004) and the Marine Accident Adjudication Law 1947 (amended 2002) give special jurisdiction to the Tokyo High Court (or other courts) for anti-trust and marine accident cases. The answers to the following questions relate to procedures that apply in both the District and High Courts. 4. Is each party to a dispute obliged to disclose all documents in its possession, whether helpful or harmful to its case? 2. If a contract has some connection with your jurisdiction, are there any areas of local law that would apply to the contract irrespective of the choice of law? It is widely accepted that certain mandatory statutes (such as certain provisions of labour law, consumer protection law and competition law) apply regardless of the parties' choice of law. The exact scope of these "absolute mandatory statutes" is not always clear. Each party must produce all requested documents, unless an exception exists (Article 220, CCP) (see Question 5). Other than these exceptions, this requirement applies even to documents that would be harmful to the party's case. In addition, a party can ask the courts to request the holder of a document to produce that document before the party commences court proceedings (Article 132-4, CCP). Although these requests do not compel the holder to produce the document, it is expected that documentary evidence is accessible to parties because of this procedure. CROSS-BORDER HANDBOOKS This article was first published in the Cross-border Dispute Resolution Law Handbook 2005/06 and is reproduced with the permission

2 Japan Dispute Resolution 2005/06 5. Are any documents privileged (that is, they do not need to be shown to the other party)? In particular, would documents written by an in-house lawyer (domestic or foreign) be privileged in any circumstances? There is no concept of lawyer-client privilege that applies to all documents. However, documents are protected from disclosure under a duty of confidentiality in the following situations (Article 220, CCP): If it is possible that the document holder (which includes third parties as well as the parties to the dispute), his spouse, or a relative would be prosecuted based on information contained in the document. If the document contains a secret obtained in the course of performance of a duty by an official, and disclosure might be against the public interest. If the document contains information obtained in the course of performance of a duty by a doctor, lawyer or other professional under a duty of confidence, or involves technological or professional secrets, and the professional or the holder of technological or professional secrets has not been released from the duty. If the document is for the sole use of the holder (this does not include documents used by officials on behalf of their organisations). If the document relates to criminal or juvenile protection proceedings. Documents written by lawyers are confidential and, therefore, protected. Those written by in-house lawyers who are Japanese lawyers or foreign lawyers licensed to practise in Japan (Gaikoku Hou Jimu Bengoshi) are also protected. In addition to the protection of confidential documents provided by the CCP, documents in litigation for the infringement of patents, other intellectual property rights, or trade secrets that are protected by the Unfair Competition Prohibition Law 1993 (amended 2004) can be withheld if the document holder has a good reason to refuse disclosure. Although "good reason" does not have an explicit definition, this is generally interpreted to refer to instances where a document contains a "technological or professional secret" and is used in the course of, or is relevant to, a party's business activities. 6. Are court proceedings confidential or public? If public, are there any circumstances in which the proceedings will be confidential (or any information will be kept private)? to the infringement of intellectual property rights. This new rule will apply when a party, its agent, or one of its employees must be examined in relation to a trade secret in order for the court to reach a proper judgment on the allegation of the infringement. On the unanimous decision of the judges, the court can hold a closed session and prevent any of these people from making a statement in open court, if disclosing the trade secret in open court would clearly adversely affect the business activities of the party. 7. What remedies are available? Are any of these available at an interim stage (that is, before the full trial)? Under the formal court procedure, which is used in litigation, an oral hearing is held in open court (with witnesses if necessary) and a judgment (hanketsu) is issued. This judgment can be appealed to the High Court and then the Supreme Court. The remedies in commercial disputes are available using three types of judgment: Judgment (kyufu hanketsu). This provides for remedies such as compensatory damages, eviction, repossession of land or property, restitution, permanent injunctions and specific performance. Declaratory judgment (kakunin hanketsu). This declares the state of affairs between the parties to resolve a disputed fact (for example, whether a party is obliged to make a payment). A declaratory judgment cannot be enforced and if a party seeks a monetary payment or specific performance, it must obtain an ordinary judgment. Formative judgment (keisei hanketsu). This creates new legal relations between the parties. This type of judgment is only used in special limited cases, such as revocation of a shareholders' resolution in a shareholders' meeting of a company. The following remedies are available at an interim stage, under the Code of Civil Provisional Remedies 1989 (amended 2003): Provisional attachment (kari sashiosae). This temporarily detains a debtor's property to prevent the debtor from disposing of it. Provisional disposition (kari shobun). There are two types: provisional disposition in relation to the subject matter in dispute (keisobutsu ni-kansuru kari shobun). This prevents the respondent from disposing of the assets in dispute or exercising rights attached to them. Remedies available in this disposition also include prohibitory and mandatory injunctions (preventing the respondent from taking certain steps or requiring it to do certain things); Court proceedings are public unless the court decides that this would be detrimental to public policy (Article 82, Constitution). However, if proceedings are kept confidential for public policy reasons, the judgment and award will be made public. On 1 April 2005, a new rule will be effective for litigation relating provisional disposition temporarily determining the state of affairs between the parties (kari-no chii-o-sadameru kari shobun) (a temporary declaratory judgment). This is used, for example, when a contract is terminated without cause to re-establish the validity of the contract temporarily so that the dispute can be resolved. 122 CROSS-BORDER HANDBOOKS This article was first published in the Cross-border Dispute Resolution Law Handbook 2005/06 and is reproduced with the permission

3 Japan 8. How long does it take to obtain judgment after formal commencement of proceedings? 10. To what extent, if any, is the loser liable to pay the winner's costs? The average time to obtain judgment after formal commencement of proceedings at district court level was 9.3 months in 1998 (Supreme Court of Japan Report, 8 December 1999). This figure includes default judgments. The average time in contested cases (involving procedures such as trials) was 21 months. In order to reduce these time periods, the following legislation was passed in the summer of 2003: The Law for Making Proceedings Faster 2003 (Saiban-no Jinsokuka ni-kansuru Houritsu). This requires the government, courts, Japanese Bar Association and parties involved in litigation to try to expedite proceedings. Under the law, the target time for obtaining judgment in trial courts is two years or less. The 2003 amendments to the CCP. These require the court to draw up a trial schedule for expedited and effective proceedings, if the issues involved in the case are very complicated (Article 147-3, CCP). The Supreme Court has commented that it ultimately expects the average time for general civil cases to be reduced to about 12 months. The winning party's actual litigation expenses are not generally fully reimbursed by the losing party. Lawyers' fees Each party must pay its own lawyers' fees in accordance with the agreement in place with its lawyers. The losing party is not liable to pay the winning party's lawyers' fees unless they can be claimed under contract or tort law and payment is ordered by a court. Cases where a court orders the losing party to pay the winning party's fees are rare. Government authorities are currently discussing the introduction of a new system under which the losing party would be liable for the lawyers' fees of the winning party, if agreed by the parties after the commencement of litigation and provided that both parties are represented by lawyers. Other costs The losing party is liable to pay the other litigation expenses, such as stamp fees and witnesses' travel expenses (Article 61, CCP). When each party is successful in some claims, but not in others, the court can apportion the expenses between them at its discretion (Article 64, CCP). 9. How much does litigation cost? (Please give a broad overview of legal fee structures. For example, do local lawyers commonly use task-based billing? Are fees fixed by law?) Litigation costs are made up of: Lawyers' fees. Other litigation expenses incurred by the parties and the court in progressing the case. Lawyers' fees are determined by mutual agreement between the lawyer and the client, although they must be fair and reasonable (Article 87, Articles of Association for the Japanese Federation of Bar Associations (Nihon Bengoshi Rengokai Kaisoku)). Fees may be based on an hourly rate, a contingency fee arrangement (where the lawyer is paid an additional amount, independently of remuneration, if the case is successful), or a combination of both. ARBITRATION 11. Are there any arbitration bodies in your jurisdiction that are commonly used for the resolution of large commercial disputes? (Please give details.) The Japan Commercial Arbitration Association (JCAA) (the Japanese counterpart of the American Arbitration Association) is the leading arbitration body in Japan for the resolution of large commercial disputes. Historically, the JCAA's focus has been on international commercial arbitration, and it has attempted to update its Commercial Arbitration Rules 2004 and practices to bring them in line with standards in modern arbitration jurisdictions (for example, permitting foreign claimants to initiate arbitration by filing requests in English only, without Japanese translations). The JCAA is also making efforts to expand into domestic arbitration and mediation. In general domestic cases, lawyers' fees are calculated according to the amount of the claim. For example, if the claim exceeds Y300 million (about US$2.9 million), there is an initial fee of 2% of the claim and a contingency fee of 4%. Fees for large or international commercial cases are often based on hourly rates, since it is difficult to predict how long they will last and, therefore, the amount of legal work required. Other litigation expenses are set out in the Civil Litigation Costs Law 1991 (amended in 2004). These mainly depend on the amount of the claim and are paid as stamps on filing. For example, if the amount of a claim is Y1 billion (about US$9.7 million), the stamp fee is about Y3 million (about US$29,300). International commercial arbitration cases conducted in Japan under the Arbitration Rules of the International Chamber of Commerce (ICC) appear to be increasing. However, the Japan national committee of the ICC does not provide secretarial or administrative services for ICC arbitrations in Japan. This means that, in each case, the parties must directly contact the Secretariat of the International Court of Arbitration of the ICC in Paris. Arbitration services are also provided by local Japanese Bar Associations. In addition, many of the maritime arbitrations are handled by the Tokyo Maritime Arbitration Commission of the Japanese Shipping Exchange. CROSS-BORDER HANDBOOKS This article was first published in the Cross-border Dispute Resolution Law Handbook 2005/06 and is reproduced with the permission

4 Japan Dispute Resolution 2005/ Is an arbitration agreement binding? Must an agreement meet any form or content requirements to be valid? In both domestic and international cases, the Japanese courts give effect to a valid arbitration agreement. An arbitration agreement is valid if: Its subject matter is a dispute (or disputes) capable of resolution by settlement between the parties. Agreements made for potential future disputes must relate to a defined legal relationship and can only apply to disputes arising from that relationship. (Divorce and separation disputes cannot be arbitrated in Japan.) It is in writing. Exchanged facsimiles and arbitration agreements made by way of electronic or magnetic records (for example, ) are considered to have been made in writing (New Arbitration Law). tribunal can conduct the arbitration in the manner it considers appropriate, subject to the provisions of the New Arbitration Law; for example: The arbitral tribunal must provide the parties with sufficient advance notice of each hearing. All pleadings, evidence documents and other records supplied to the arbitral tribunal by each party must be made available to all other parties involved. The arbitral tribunal must arrange to make available to all the parties all expert reports and other evidence documents on which it relies to make its decision. 15. To what extent, if any, is pre-hearing discovery/disclosure available? Special rules apply in relation to consumer and individual employment arbitration (Supplementary Provisions, New Arbitration Law). 13. Are there any restrictions on the number or method of selection of arbitrators? No, the parties are free to agree on the number and selection method of the arbitrators. In most circumstances, the parties agree to abide by certain institutional arbitration rules, such as ICC or JCAA rules. In the absence of an agreement, it is advisable (but not compulsory) to make express provision for these matters in the individual arbitration agreement. If there are two parties and they fail to agree on the number of arbitrators, the New Arbitration Law provides for three arbitrators to be appointed. Each party chooses one arbitrator and a third arbitrator is then chosen by the two appointed arbitrators. If a party fails to select an arbitrator within 30 days of request by the other party, or if the two appointed arbitrators cannot select a third within 30 days of request by the parties, the court will, on application by the requesting parties, make the appointment. The New Arbitration Law does not contain any detailed rules on evidence; therefore: The parties are free to make provision in the procedural rules, either providing for or limiting pre-hearing document disclosure. If provision is not made, the arbitral tribunal decides the issue, based on its power to conduct the arbitration in the manner it considers appropriate. Practically, where the arbitral tribunal consists of Japanese lawyers, the procedure often resembles Japanese civil litigation, where only limited document discovery is available. However, in recent years, an increasing number of international cases have been handled by non-japanese arbitrators, where the arbitral tribunal may order production of a fairly broad scope of documents from the parties. Pre-trial discovery by way of deposition is extremely rare. Arbitral tribunals do not have the power to compel discovery, although they can make adverse inferences if a party refuses to co-operate without justifiable cause. 14. What procedural rules are arbitrators likely to follow? Can parties determine the procedural rules that apply? The parties are free to agree on the procedure to be followed by the arbitral tribunal, subject to certain public policy provisions. For example, each party must be treated equally and be given a full opportunity to present its case (Article 25, New Arbitration Law). It is common for the parties to make express provision for a recognised body of rules to govern the procedure, although they are free to draft their own rules. If no express provision is made in the arbitration agreement and the parties fail to agree on the procedural rules, the arbitral 16. Is arbitration confidential? It is widely accepted that arbitration should be confidential unless otherwise agreed by the parties. Some institutional arbitration rules (such as the JCAA Rules) impose confidentiality obligations on the arbitrators, as well as the parties and their representatives. However, there are no statutory provisions requiring that arbitration be conducted on a confidential basis. Therefore, unless the arbitration rules of the institution agreed by the parties provide for confidentiality, an express provision should be included in the arbitration agreement if confidentiality is important to the parties. 124 CROSS-BORDER HANDBOOKS This article was first published in the Cross-border Dispute Resolution Law Handbook 2005/06 and is reproduced with the permission

5 Japan 17. How far will the local courts intervene to assist an arbitration (for example, by granting an injunction or by compelling witnesses to attend)? The local courts' role is generally supervisory and supportive. Under the New Arbitration Law, they can provide assistance in the following areas: The arbitral tribunal or a party (with the consent of the arbitral tribunal) can request court assistance in collecting evidence (including research, witness and expert testimony, document production orders and inspection). The court then acts in accordance with the procedures provided for in the CCP, under which it can compel witnesses to attend and testify under oath. Unless otherwise agreed by the parties, the arbitral tribunal can order any party to take any interim or preliminary measure of protection that the tribunal considers necessary in relation to the subject matter of the dispute. However, these orders are not enforceable. The existence of an arbitration agreement does not prevent the court from granting preliminary relief before or during the arbitration proceedings. For example, where a party needs enforceable preliminary relief from the court, or where there is an urgent need for preliminary relief before the arbitral tribunal is constituted, the party can apply to the court for relief. The court can appoint an arbitrator if a party or the partyappointed arbitrators (where they need to appoint a third arbitrator) fail(s) to make the appointment in a timely fashion (see Question 13). 19. Can the parties effectively exclude any right of appeal to the local courts? An arbitral award cannot be appealed to the local courts, but can be set aside by the courts on certain limited grounds. The New Arbitration Law has narrowed and clarified the grounds for setting aside arbitral awards by adopting, almost verbatim, the grounds for setting aside or refusing the enforcement of arbitral awards under the UNCITRAL Model Law (Article 34) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (New York Convention) (Article 5). The parties cannot exclude or expand the right to seek to set aside an arbitral award. 20. Will an arbitration award be enforceable in other countries? Whether an arbitral award made in Japan is enforceable in another country depends on the law of the country in which enforcement is requested. However, since Japan is party to the New York Convention, most arbitration awards made in Japan are enforceable in other signatory states. 21. What is the likely cost and duration of arbitration proceedings? The cost and duration of arbitration proceedings vary significantly depending on the size and complexity of the case. 18. What is the danger of local courts intervening to frustrate the arbitration? Can one party stall proceedings by frequent court applications? The powers of the national courts to intervene in an arbitration are limited to those matters specifically set out in the New Arbitration Law (for example, to challenge or remove an arbitrator, and to set aside an arbitral award) (see Question 17). These powers are, in general, supervisory and fairly restricted. For example, where a party challenges the jurisdiction of the arbitral tribunal, the arbitral tribunal initially rules on its own jurisdiction. Within 30 days of this ruling, the party can ask the national court to decide whether the tribunal has jurisdiction, but the tribunal is still free to continue the arbitral proceedings and make an award pending the court decision. Also, under the New Arbitration Law, the relevant procedure for court intervention is always the order procedure (kettei). This is a relatively quick procedure, used in preliminary injunction cases and other cases which require a speedy resolution, in which a decision is issued without the oral hearing used in the formal procedure (see Question 7) (the decision can also only be appealed to the High Court). As a result, it would be difficult for one party to effectively stall arbitration proceedings by frequent court applications. Generally, arbitration can be less expensive and quicker than litigation, partly because an arbitral award cannot be appealed. However, arbitrators' fees can be quite expensive. The New Arbitration Law provides that: The arbitrators can receive fees in accordance with the parties' agreement. If there is no agreement, the arbitral tribunal decides the fees, provided that they are reasonable. The allocation of costs paid by the parties in connection with the arbitration is made in accordance with the parties' agreement. If there is no agreement, each party bears its own expenses. 22. Is your country party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (New York Convention) and/or the European Convention on International Commercial Arbitration of 1961 (Geneva Convention)? Japan is party to the New York Convention. CROSS-BORDER HANDBOOKS This article was first published in the Cross-border Dispute Resolution Law Handbook 2005/06 and is reproduced with the permission