Will privately-supplied legal dispute resolution keep growing in Japan?

Author: Luke Nottage, University of Sydney

Privately-supplied alternative dispute resolution (ADR) services are increasing in Japan. This is partly explained by a  shift in self-image among many bengoshi lawyers, linked to the increasing presence of corporate law firms.  In 2004, the ‘Law to Promote the Use of Out-of-Court Dispute Resolution Procedures’ which followed a Judicial Reform Council (JRC) recommendation in 2001, was rapidly enacted.

Despite its slow start, this law has been successfully promoting privately-supplied ADR services.

Court-annexed mediation and recent improvements in the litigation process have, however, met with a conservative backlash among bengoshi.

The election of the new Japan Federation of Bar Associations (JFBA) President is likely to further hinder the growth of private ADR services and institutions. To combat this, private suppliers will need to develop niche markets promoting more facilitative (not evaluative) forms of ADR. This is a common characteristic of ADR in Australia, developed in response to ballooning litigation costs.

The reform debates regarding the 2004 Law highlighted a view that promoting ADR was consistent with the rule of law – the ultimate aim of judicial sector reform. ADR could complement court proceedings if it could bring disputing parties closer together ‘in the shadow of the law’, supplemented by an improved system of courts (and predictable substantive law). ADR could also advance the vision of the JRC (and the government generally) of more informed and active citizens, taking greater responsibility for their own actions rather than passively relying on guidance from public authorities.

A second debate that emerged, particularly within the Study Group set up in late 2001 to propose concrete elements of the new legislation to promote ADR, was whether ADR providers should be licenced, certified or completely deregulated. (For both debates and the following summary of the outcomes, see Yamada, Aya (2009) ‘A.D.R. in Japan: Does the New Law Liberalize A.D.R. from Historical Shackles or Legalize It?’, Contemporary Asia Arbitration Journal 2 at 15-16).

Ultimately the Group and the Law provided a MoJ certification scheme. The rationale was that this was needed to promote public trust in ADR, given already the active use of Court-annexed conciliation on the one hand, and on the other the continuing involvement of yakuza gangsters and other undesirable providers of dispute resolution ‘services’ in Japan. This view prevailed over those who argued that liberalisation would have been more consistent with promoting private ADR and the broader deregulatory program of the government. Liberalisation was also seen as too great a shift from the status quo, which was close to licencing: Art 72 of the Lawyers Law (criminally) prohibited legal services provided other than by bengoshi except when (i) not offered on a (continuing) business basis, (ii) a legitimate act, or (iii) other legislation provided differently.

The Law’s certification scheme represented a compromise aimed to placate bengoshi by coming within exception (iii), while appealing to those sceptical about excessive government control over the ADR services industry. It offers a ‘carrot’ (to encourage certification by ADR providers) rather than using a ‘stick’ (forcing providers to get licenced before they provide services). Providers do not need to become certified, although then there is a risk that they may violate the Lawyer’s Law unless they fit within another exception to Art 72. But if they do get certified, they obtain three specific advantages:

  1. If their procedure ends without the parties settling and one sues within a month, the prescription period is calculated as if the suit had been brought on the date the claim was filed with the certified ADR procedure (Art 25);
  2. If a suit is pending but parties agree to use the certified procedure or it is already underway, the court may suspend litigation proceedings for up to four months (Art 26; cf court-annexed conciliation, where there is no time limit);
  3. Parties can use certified ADR instead of the court-annexed system (Art 27) if other legislation requires conciliation before litigation (eg land or building rent disputes under Civil Conciliation Law Art 24-2(1) or divorces under the Domestic Relations Adjudication Law – kaji shimpan ho).

Certification also shows the public that the private institution (or individual) has fulfilled minimum standards detailed in Art 6, and is not disqualified under Art 7 (for example, a yakuza member). These standards are mostly procedural and mostly consistent with international standards.

After a slow start (only 5 by November 2007) there has been an almost exponential growth in certified ADR providers (26 by January 2009 and 61 by March 2010).

There is no comprehensive data on whether certification has led to increased filings and cases being resolved through these providers of ADR (which the law defines as processes to encourage settlement, thus excluding arbitration from its scope). Anecdotal evidence suggests that this has not yet occurred, and that public knowledge and trust remains lower than for court or government-administered ADR. Businesses, however, do seem to be settling cases more often at an earlier stage through the certified bodies (or even in direct negotiations) in order to avoid a formalised mediation process .

A second effect is a growing diversification in ADR providers. Many certified are smaller and/or newer bodies specialising, for example, in labour or social security related disputes. The Japan Industrial Counselors Association also adopts a more facilitative style of mediation, in contrast to Court-annexed (and even Bar Association Centre) evaluative mediation. Other government agencies have become more interested in privately-supplied ADR. For example, METI in 2008 allowed those certified under the MoJ to obtain further METI certification to become involved in mediations under the Law on Special Measures for Industry Revitalisation.

Thirdly, due to the certification standards the providers have become more conscious about the need for transparency and structure in designing and implementing ADR processes. For example, in the industry-association based PL ADR Centres for consumers’ product defect related claims (two of which are now certified), many cases have been resolved without proceeding to a cheap but formal mediation thanks to Centre staff engaged in ‘shuttle diplomacy.’ They are, however, now more conscious of the need to maintain due process standards (including confidentiality, adopted voluntarily by the centres) even at this stage.

Lastly, networking is emerging among ADR providers. For example, the (certified) Osaka Bar Association tries to work with other providers, as do some of the Ho-terasu offices. Mediators registered under the Civil Conciliation Law are also starting to up-skill through training offered by private certified ADR providers.

These changes may seem small, but they are very significant. They will encourage the involvement of bengoshi in privately provided ADR, although not necessarily so much in Bar Association ADR Centres. Yet the traditional, court-annexed ADR is extremely well-established due to its long history, public trust in the judiciary, and low cost (with registered mediators so far accepting low wages for the honour and opportunity of serving in civil conciliation law proceedings).

Another challenge to (even certified) privately-provided ADR services comes from a further round of reforms to the Code of Civil Procedure, in effect from 2004. This opens more avenues to the courts and may also make it easier to settle disputes within the litigation process. For example, these amendments:

  • – allow parties to seek opinions from expert advisors before formally lodging suit;
  • – encourage more use of expert witnesses (kanteinin) during proceedings; and 
- introduce a system of ‘expert commissioners’ (semmon i’in) who can provide explanations in writing or orally before the parties and, with their consent, even attend settlement conferences to facilitate settlement or attend witness examinations to ask questions.

This article is adapted from a post in the ‘Japanese Law and the Asia Pacific’ blog.

LuKe Nottage is Associate Professor at Sydney University Law School and founding Co-Director of the Australian Network of Japanese Law (ANJeL).