Arbitration in Japan

By Peter Harris

Haig OghigianHaig Oghigian

J@pan Inc interviewed Haig Oghigian, one of Japan’s leading arbitration lawyers from Baker & Mckenzie GJBJ Tokyo Aoyama Aoki Koma Law Office, about the growing trend towards using arbitration to resolve commercial disputes. He has acted as counsel and arbitrator in over 35 cases.

Has there been a substantial growth in arbitration in Japan?

Absolutely. In large part this is due to what you might term the ‘soft recession’ of the last 10 years—companies are less prepared to leave money on the table and more prepared to fight for their money. More broadly, another key reason is the result of the rapidity of economic globalization; the percentage of trade that involves parties from at least two different countries has grown exponentially in the last 20 years.

What makes arbitration more suitable for the solution of international disputes?

The international space is where arbitration really comes into its own. In particular, when you have a contract where the parties are of different nationalities arbitration is unquestionably the best option. If a dispute arises for example between a US company and a Japanese company, the Japanese company does not want to go through the US court system and visa versa. Arbitration offers an international alternative where the rules are simple, the process is thorough and settlement, one way or another is normally guaranteed within 6 to 12 months.

What other advantages are there of using arbitration over the local court system?

In commercial disputes, arbitration is the best way to resolve the issue for three key reasons.

1. It’s faster. Anyone who has used a court system in a foreign country knows that trials can take a very long time, and there is often no deadline by which a trial must be concluded—you can end up in a Jarndyce vs. Jarndyce type situation— and then there’s possibility of an appeal. Arbitration settlements cannot be appealed which may at first sound worrying but the fact is that most businesses, whatever the outcome, want to draw a final line under a dispute, and move on. While the costs of arbitration are rising, the fact that most arbitration organizations settle disputes in a timeframe of 6 to 12 months, means it can ultimately be a cheaper option.

2. It’s private. Neither party wants other companies or the media knowing their private business. Arbitration takes place behind closed doors; this also keeps out external factors such as politics that should really have no impact on the outcome.

3. All arbitrations awards are recognized under the New York Convention (NYC). This 1958 treaty, now with 165 countries as signatories, means that the outcome of the dispute can be converted into a document recognized by law in any country in which the other party has assets. This makes arbitration not only safe, but a shortcut to getting a decision valid in the relevant localities without having the headache of going through a review by an alien court system. There is no equivalent of the NYC for foreign court judgements, for those there is often in effect, a second trial on the merits.

Is there anything special about arbitration involving Japanese companies?

Arbitration is becoming more common in Japan, just as it is in other countries. One reason why the Japanese seem to have taken to it is that while they tend to be averse to litigation generally, arbitration is seen as a softer option. Two parties that take a dispute to court in Japan are unlikely to have much hope of preserving a working relationship—for example, it’s unlikely that Bull-dog and Steel Partners are sending Christmas cards to one another. However, arbitration is less confrontational—it’s private, the arbitrator has access to all information and unlike in court proceedings, the person making the judgment is usually an expert in the area in question.

What advice can you give to companies with regards to arbitrations?

Companies either don’t really want to know about arbitration, or they want to know everything about it. Those who fall into the latter category are normally involved in one. It is critical to have thought about arbitration before it happens and many firms neglect to do so. When a deal is in the final stages people tend not to think about what will happen if the deal goes sour; we often call the arbitration clause the ‘champagne clause’—it can get neglected in the excitement of closing a deal. In reality, it is worth making sure that this clause is watertight and effective. In-house counsel should take this clause very seriously and not wait until there is a crisis to start thinking about arbitration. Indeed, governments will not normally provide guarantees on export finance unless there’s an arbitration clause in the contract.