The rise of ADR in Japan

A number of alternative dispute resolution procedures are available and recognised in Japan – including expert determination, mediation, conciliation, and multi-track dispute resolution processes (ie a combination of different dispute resolution mechanisms such as arbitration and expert determination). Peter Godwin, Managing Partner of Herbert Smith Freehills GJBJ, Tokyo, reviews the increase in ADR usage in certain sectors, as well as the rise of dispute escalation provisions and agreements to negotiate in good faith.

Sector-driven ADR

As covered in our previous update, since the introduction of the Act to Promote Alternative Dispute Resolution in 2007, financial ADR, which provides a mechanism to resolve financial disputes using mediators who have specialised industry knowledge, has proven popular in Japan. The appeal of using ADR processes which involve specialists (such as engineers, construction experts and lawyers and others from the industry) also extends to Construction ADR; so much so that mandatory conciliation and mediation procedures are commonly included in construction contracts. Another area in which ADR is growing in popularity is intellectual property, where using professionals with specific industry experience, such as chemical, mechanical and electronic engineering, is seen as a real benefit of the process.

Dispute escalation provisions

As ADR processes have developed in Japan, dispute escalation provisions have become more common in commercial contracts. These provisions are enforceable under Japanese law and require parties to attempt to resolve disputes though ADR before commencing arbitration or litigation, such as for example by requiring parties to attend mediation or conciliation before being entitled to commence arbitration. The advantage of this is that if the parties are able to resolve their dispute through the ADR process, they will avoid the expense of arbitration or litigation.

Agreements to negotiate in good faith

In addition to escalation provisions which require the parties to engage in formal ADR – such as mediation or conciliation – before commencing dispute proceedings, it has for some time been very common to see a requirement in Japanese contracts that parties must "agree to negotiate in good faith" if a dispute arises, before taking any further steps. Such a provision would be unenforceable under English law as a mere agreement to agree, but in principle is enforceable under Japanese law. In this context, the more formal ADR processes which are developing in Japan can be understood to be a furtherance of and complementary to the practice of pre-action negotiation which is already well established in Japan. We anticipate that ADR will continue to be a popular and ever more used dispute resolution/dispute avoidance mechanism in Japan.

For further information or advice on this topic, please contact Peter Godwin.