Japan eases restrictions on foreign lawyers

The amendments:

• expand the range of international arbitration cases in which foreign lawyers are permitted to act;
• reduce the overseas work experience requirement for qualification as a Registered Foreign Lawyer; and 
• enable lawyers to form Joint Corporations comprising both Japanese qualified Attorneys at Law and Registered Foreign Lawyers.

The amendments follow Cabinet decisions in June 2019 to promote the use of international arbitration in Japan and to meet the increasing demand for foreign law services in Japan as international business transactions increase.  

The amendments on representation in international arbitration and mediation and on the work experience requirement took effect on 29 August 2020. The amendments on Joint Corporations are expected take effect by no later than 29 November 2022.

Expansion of the range of arbitrations in which foreign lawyers are permitted to act

Under Japanese law, foreign lawyers cannot act in domestic arbitrations, and can act only in arbitrations that fall within the definition of an "International Arbitration Case" in the Foreign Lawyers Act.

Prior to the amendments, an "International Arbitration Case" was defined narrowly as a civil arbitration case which is seated in Japan and in which any of the parties have an address, a principal office or head office in a foreign jurisdiction.

In other words, foreign lawyers could only act in arbitrations where at least one of the parties was a foreign individual or entity. A foreign lawyer was not able to act in an arbitration between two Japanese entities, even if one or both of those entities was a subsidiary of, or was owned by, a foreign entity, or even if the substantive law that applied to the dispute was not Japanese law. In such cases, a party's choice of legal representation was limited to local Japanese counsel. There were concerns that this may discourage international corporations from choosing Japan as a seat for potential arbitrations which may involve their Japanese subsidiaries.

The amendments to the Foreign Lawyers Act expand the definition of "International Arbitration Case" to include the following cases:

• where more than 50% of the voting shares or equity interest of any of the parties to the arbitration are held by persons who have an address or a principal office or head office in a foreign jurisdiction and comparable cases designated by the Enforcement Order of the Ministry of Justice;
• where the substantive law of the dispute as agreed between the parties is not Japanese law; or
• where the place of the arbitration is in a country other than Japan.

Therefore, as of 29 August 2020, foreign lawyers are able to act in arbitrations involving Japanese subsidiaries of foreign entities (where a foreign entity (or entities) owns more than 50% of the voting shares or equity interest of any of the parties, including cases of indirect ownership provided for in the Ministerial Order). Foreign lawyers will also be able act in arbitrations where the substantive law of the matter in dispute is not Japanese law. 

Relatedly, the amendments also introduce provisions that allow foreign lawyers to act in "International Mediation Cases", namely, mediation and conciliation cases relating to commercial disputes in the following cases:

• where any of the parties have an address, a principal office or head office in a foreign state; 
• where more than 50% of the voting shares or equity interest of any of the parties are held by persons who have an address or a principal office or head office in a foreign jurisdiction; or
• where the substantive law that applies to the dispute as agreed between the parties is not Japanese law. 

Foreign lawyers are permitted to act in these international arbitration cases and international mediation cases where:

• the foreign lawyer is a registered foreign lawyer in Japan; or 
• the foreign lawyer who is not registered in Japan and is practising outside Japan is requested or undertakes in the foreign jurisdiction in which he or she practises to act on the case. 

Foreign lawyers are still restricted from acting in certain arbitrations in Japan (namely, arbitrations that do not fall within the definition of "International Arbitration Case"). This is unlike the position in other popular arbitral seats in Asia such as Hong Kong and Singapore, where foreign lawyers are permitted to act in any arbitration including domestic arbitrations and arbitrations involving local law. Nevertheless, the amendments considerably ease the previous restrictions and are likely to be welcomed by international corporations with Japanese subsidiaries who may be potential parties to arbitrations in Japan, and by international arbitration practitioners.  

Reduction of overseas post-qualification experience for Registered Foreign Lawyer qualification

To qualify as a Registered Foreign Lawyer in Japan, a foreign lawyer must have at least three years of post-qualification experience in the jurisdiction where he/she is qualified (i.e., outside Japan).

Prior to the amendments, a maximum of one year of post-qualification experience in Japan could be counted towards the three-year post-qualification experience requirement.

While there is no change to the three-year post-qualification experience requirement, the amendments allow a maximum of two years (rather than one year) of post-qualification experience in Japan to be counted towards the post-qualification experience requirement. 

This is beneficial to foreign lawyers starting their careers in Japan, who will now only need to spend one year (rather than two years) overseas in order to meet the three-year post-qualification experience requirement to qualify as a Registered Foreign Lawyer in Japan.

Establishment of Joint Corporations

In addition to the traditional law firms established as partnerships, there are currently two categories of incorporated law firms in Japan: (i) Legal Professional Corporations (comprising Japanese qualified Attorneys at Law as members); and (ii) Registered Foreign Lawyer Corporations (comprising Registered Foreign Lawyers as members). While Japanese qualified Attorneys at Law and Registered Foreign Lawyers can jointly form a law firm as a partnership (known as Foreign Law Joint Enterprises), they are currently not able to form such law firms in corporate form.

The amendments provide for a new category of incorporated law firms, namely, Joint Corporations, comprising both Japanese qualified Attorneys at Law and Registered Foreign Lawyers as members. Registered Foreign Lawyers practising in Joint Corporations will still only be able to engage in practice concerning foreign laws. One practical advantage for lawyers in using the corporate form is that incorporated law firms can open branches throughout Japan, while non-incorporated law firms (partnerships) may only have one office within Japan. 

Conclusion

Overall, the amendments to the Foreign Lawyers Act are a welcome development. The expansion of the range of arbitrations in which foreign lawyers are permitted to act is certainly a positive step towards promoting international arbitration in Japan, while the relaxation of the requirements relating to overseas post-qualification experience and the establishment of Joint Corporations will likely attract more overseas lawyers to practise in Japan.