JAPAN REFORMS LAWS AFFECTING FOREIGN LAWYERS: A WIN FOR JAPANESE COMPANIES

On 20 May 2020, the House of Representatives in Japan passed a bill to expand the Act on Special Measures concerning the Handling of Legal Services by Foreign Lawyers (外国弁護士による法律事務の取扱いに関する特別措置法) (the “2020 Gaiben law”). This is significant for two reasons. First, it allows foreign lawyers to act in a broader range of arbitrations. And second, it reduces the post-qualified experience required for foreign lawyers to be registered in Japan. This 2020 Gaiben law will take effect from 29 August 2020.

Arbitration practice in Japan

If a party finds itself in dispute, the starting position is that it can choose the lawyer it wants, unless there is some good policy reason to the contrary. One such example might be that arguing a case before the Tokyo District Court should probably be done by a Japanese-speaking and Japanese qualified lawyer.

By extension, Japanese law provides that international lawyers cannot conduct “domestic arbitration” in Japan; foreigners are restricted to practicing “international arbitration”.

On the face of it this sounds like a simple distinction. But when is an international dispute actually “domestic”?

Imagine the situation where two Japanese subsidiaries of large European companies enter into a contract in English; where the negotiations were directed from Europe; and where the parties agreed to ICC arbitration in English. Is this an international or domestic arbitration? And that questions matters. Because if it is considered domestic then those large European companies may want the freedom to use their own choice of international counsel, and if they can’t do that in Japan, may avoid the problem entirely by moving their arbitrations away from Japan. We have seen that happen in the past. It is an obvious point, but worth stating explicitly: moving disputes away from Japan to avoid Japanese law is bad for arbitration in this country.

The 2020 Gaiben law now allows foreign lawyers to act in what were once considered “domestic arbitrations” (i.e. between Japanese companies) if there is an international connection. This includes arbitrations where:

• the governing law is not Japanese law;
• arbitrations between domestic companies if one of the companies is more than 50% owned by a foreign company; or
• the seat of arbitration is outside Japan.

Foreign lawyers are now also able to represent clients in international mediation in Japan under the 2020 Gaiben law.

These reforms widen choice for consumers of arbitration and should be considered a win for Japanese companies.

Post-qualification work experience required

Before the amendment, three years post-qualification work experience (two years of which must be overseas) was required before a foreign lawyer (gaikokuho jimu bengoshi (“GJB”) or 外国法事務弁護士) could provide advice in Japan. This has the effect of restricting choice for consumers because law firms could not hire freely.

Now, whilst the requirement for three years post-qualification experience remains, the 2020 Gaiben law allows up to a two years provision of service in Japan with one year post-qualification overseas work experience. This is a step in the right direction, and a welcome step for foreign talents to establish their practice in Japan.

If you would like to discuss any of the above, please contact Peter Godwin, Regional Head of Practice (Kualalumpur), Christopher Hunt, Partner, Rebecca Pang, Associate, or your usual Herbert Smith Freehills contact.