The Journal The Authority on Global Business in Japan

For decades, foreign lawyers wishing to practice in Japan have found their hands tied in one way or another. Years of work to encourage change—by the American Chamber of Commerce in Japan (ACCJ), the Gaiben Kyokai (the Foreign Lawyers Association of Japan), and others—coupled with the Japan’s evolving needs on the world stage has resulted in changes, several of which took effect earlier this year.

Foreign lawyers had been forbidden to practice in Japan since the early 1950s, with the exception of a number who had come here soon after World War II and were grandfathered in with a special license.

Starting in the 1980s, foreign lawyers working for Japanese law firms were active in pressing Japan to allow them to practice their home-country law. John Kakinuki and Bob Grondine were active in the effort for decades, working to get the Embassy of the United States, Tokyo, and the United States Trade Representative (USTR) to apply government-to-government pressure, as well as from within the Japanese bar associations.

LEGAL SERVICES COMMITTEE
The ACCJ was involved in many of these efforts. Chris Jacobsen established the Legal Services Committee and, through various eras, has helped guide those efforts through various leadership roles.

In 1987, the initial regime was put into place to open Japan to registered foreign lawyers (gaiben), though it included severe restrictions:

  • Registration as a gaiben required five years’ experience in the home jurisdiction
  • The foreign firm’s name could not be used in the office’s name
  • Advice on third-country laws could not be given
  • Association with Japanese bengoshi was prohibited

Notably, the USTR official who negotiated the opening, Glen Fukushima, later became an ACCJ president.

Additional changes were accomplished following energetic lobbying from the likes of the late Grondine and Kakinuki in 1997, when the law was updated to permit gaiben firms and bengoshi to establish joint enterprises. These were allowed to advise on Japanese legal issues relating to international matters, or those questions involving international clients were involved. The five years’ foreign experience was reduced to three years, of which two had to be spent outside Japan, but not necessarily in the home jurisdiction.

This was progress, but it still did not level the playing field. Matters governed by Japanese law are reserved for the bengoshiso Japanese lawyers only—and could not be handled within a joint enterprise, between foreign and Japanese lawyers.

And then there was still the matter of cumbersome naming requirements for joint enterprises.

GAIBEN KYOKAI
The authorities did not wish a foreign firm’s brand name to be used for the bengoshi part of the joint enterprise. But a close reading of the rules eventually concluded that there was not, in fact, any such bar. In 1998, when Freshfields Law Office named their local office Freshfields Law Office and the Freshfields Foreign Law Office, the reaction of the Japanese authorities was stark.

James Lawden, who spent 37 years with Freshfields Bruckhaus Deringer—18 years in Tokyo—recounts:

“The response of the Japanese authorities to this move was explosive, and the Nichibenren and the Ministry of Justice (MOJ) crawled all over Freshfields records and the relevant docu-mentation, but in the event could find nothing wrong, even though this was not the result they had intended.”

This moved Charlie Stevens, the Freshfields managing partner at the time, to conclude that gaiben needed to organize themselves and create an orga­ni­zation to provide a unified body against challenges from the regulators. He established an orga­ni­zation called the Gaiben Kyokai, or the Foreign Lawyers Association of Japan.

“Initially, the Kyokai was nothing more than an email list and periodic meetings,” Lawden explained. “Its life was precarious but, starting in 2009, a concerted effort was made to put it onto a more sustainable footing. With the help of a number of lawyers of the time—including Jay Ponazecki, Eric Sedlak, and John Kakinuki—a constitution was adopted. It included provisions for a governing board, annual members’ meetings, and up to two co-chairs—ideally one a US lawyer and one a lawyer from another country—to represent all gaiben.”

Besides providing another forum to focus foreign lawyers on effectuating change, the Legal Services Committee met regularly with officials from the USTR and the US Department of Justice to keep the major open points active. Interestingly, through these meetings, they learned that gaiben administration reform had peaked at number 11 on a list of points to be raised by then-US President George W. Bush.

With a formal organization now in place, the identities of all gaiben in Japan was collated and circulation lists were established.

“This led to the Gaiben Kyokai being recognized by the authorities as a reasonably serious trade association, to such an extent that, when the Ministry of Justice and Nichibenren were consulting over the reforms which have resulted in the latest changes to the laws, the Gaiben Kyokai was among the bodies asked to comment,” Lawden said.

The ACCJ Journal asked Eric Sedlak, a partner at K&L Gates, more about the roles that the ACCJ Legal Service Committee and the Gaiben Kyokai played.

“Our positions paralleled those of the ACCJ and the European Business Council,” he said, noting that Lawden had chaired the European Business Council (EBC) Legal Committee at the same time Sedlak had chaired or co-chaired the ACCJ Legal Services Committee. “Having the additional organization gave us another means by which we could approach the Ministry of Justice, Diet members, and Nichibenren. It also added the weight of representing gaiben who were not necessarily ACCJ or EBC members.”

Bengoshi Kaikan (lawyers’ office building) in Tokyo

MORE PROGRESS
As Japanese commerce grew and the country looked to the future, the Cabinet established in 2001 the Justice System Reform Council. The June 2001 report of that council led the MOJ to establish 12 study commissions to examine the various Reform Council proposals, including one tasked with examining how bengoshi and gaiben could be allowed to work together more effectively to the benefit of Japan’s economy and society.

Vicki Beyer, then of Morgan Stanley, and Hideo Norikoshi, then of Linklaters, participated in that Internationalization Study Commission, which concluded that bengoshi and gaiben should be allowed to operate law firms together without any particular restrictions and that gaiben should be allowed to employ bengoshi.

“There were various interests represented in the study com­mission’s membership,” Beyer explained. “And, while the bengoshi contingent continued to struggle with the idea of closer cooperation between bengoshi and gaiben, in the end, the business interests represented concluded—as the original Justice System Reform Council had—that the positive effects of such cooperation outweighed the concerns expressed by the bengoshi.”

Kakinuki, Sedlak, and Ken Lebrun served on later study groups, and the Legal Services Committee took the step of suggesting members to the MOJ in advance.

Law schools were established, and the ratio of those passing the shihoshiken increased from just three percent, which produced roughly 700 new bengoshi every year, to about 20 percent.

Also, as part of these reforms it became possible, in 2005, for bengoshi to form partnerships with gaiben (but not their international firms), and the concept of a bengoshi hojin (or bengoshi corporation) was introduced, enabling bengoshi firms to establish more than one branch.

Interestingly, there was also a growing class of foreign-qualified lawyers who were Japanese nationals or Japanese speakers.

“At a certain level of seniority—and certainly if they were ever going to become partners in the Japanese offices of their firms—they needed to become gaiben,” Lawden said. “Otherwise, bengoshi could argue that, not being gaiben, they were prohibited from engaging in legal practice in Japan.”

This led to pressure in another area that is being revised in this year’s amendments: time practicing abroad.

“The requirement of two years’ experience outside Japan to become qualified as a gaiben was a real irritant, as it meant uprooting an associate, and possibly their family, for two years, as well as imposing them on another of the firm’s offices, which might well not see the benefit,” Lawden explained. “Pushing for change in this area has been a focus since the 2005 reforms in all position papers written for the ACCJ and the European Business Council. The latest reforms have reduced this to one year, which should make the process much more manageable.”

Sedlak noted this as particularly beneficial. “The most positive impact is that non-Japanese firms can hire junior lawyers knowing that they will have to place them for only one year, instead of two, at an office outside Japan. For lawyers joining as midlevels, they can start work in Japan after only one year of practice in the home jurisdiction. This tends to be at an age where they have more flexibility, both personally and professionally.”

The Ministry of Justice eased rules on foreign lawyers in May.
Photo: 663highland

UPDATED ACT
In May, the MOJ’s Judicial System Department (JSD) released the Act on the Amendment Part of the Act on Special Measures concerning the Handling of Legal Services by Foreign Lawyers. This followed another consultation process in which the main foreign participants were Lebrun, now of Davis Polk, and Reiko Sakimura of Clifford Chance.

The amendment:

  • Expands the scope of foreign counsel representation in interna­tional arbitration, such as where governing law is other than Japanese law
  • Establishes provisions on representation in international mediation by registered foreign lawyers
  • Reduces the required period of overseas experience
  • Enables joint corporations comprising bengoshi and gaiben to be established (to take effect November 2022)

The changes were necessitated, the JSD said, by the growing demand for foreign legal services in line with an increase in international business transactions.

“There is a need to develop an infrastructure that will pro­mote active recourse to international arbitration,” the JSD stated in the document. Japanese and other multinationals prefer to arbitrate in better-established, more flexible arbitration centers, with about 400 cases being filed in Singapore and 260 in Hong Kong in 2018, compared with just 10–20 in Japan.

The basic policy plan for 2019, agreed upon by the Cabinet of then-Prime Minister Shinzo Abe, states: “The government will promote the development of infrastructure towards further activation of international arbitration such as enhancement of the registered foreign lawyer system,” as well as “establish a dispute-settlement infrastructure that includes the prompt amendment of the Foreign Lawyers Act aimed at promoting active recourse to international arbitration, thereby driving overseas expansion by Japanese companies.”

In addition, there was a risk that the finding of a gaiben arbiter be challenged in Japan as technically “practicing law.” The new amendment recognizes the scope of matters where a gaiben is entitled to participate.

COMPLEX PROCESS
Among members of the American Chamber of Commerce in Japan (ACCJ) Legal Services & IP Committee, this year’s changes are welcome, as they show recognition of the growing importance of gaiben. But they do not represent arrival at a final destination.

Co-chair Scott Warren, a partner at Squire Patton Boggs, explained how hard it is to get a gaiben license in Japan.

“I did not get one for the first 25 years of my stay here, as I was holding in-house or managing director roles at legal technology companies,” he said.

“When I joined the law firm, I needed to apply, and the process took nearly a year. One of the things I had to provide was a letter from my old law firm in Los Angeles proving my six years of experience in California. Unfortunately, the firm had dissolved, so I had to dig up the old managing partner for a signature. Fortunately, he was still alive. Otherwise, I am not sure I could have qualified.”

Catherine O’Connell, who co-chairs the committee with Warren and is founder of Catherine O’Connell Law, said her experience was similar.

“Before setting up my practice in 2018, I was in house and had to trace back the partner in New Zealand who supervised my work there for seven years,” she explained. “The firm had gone through multiple mergers since. I found him. He had cancer. Fortunately, he was still alive and was able to provide the verification I needed.”

But the story doesn’t end there. Because of the many mergers, records were not available, so the firm was hesitant to provide the letter.

“It was a stressful time,” she continued. “That last-merged firm still had to give me another letter to evidence the various mergers that had taken place, and they had to link the partner to the earlier firm as they were preparing to do that.

Finally, the pieces of the puzzle were connected enough for the MOJ. This was hard going, but I got there.”

These stories exemplify why change is needed.

Sedlak told The ACCJ Journal that the 2020 revisions to gaiben law address many of the problems, but not all. “The application process remains too cumbersome, time-consuming, and non-transparent,” he said.

“In Singapore, once the firm is registered, the foreign lawyer registration requires only a visa application, one or two extra documents, and a week to 10 days longer than the visa appli­cation. In Japan, a smooth application takes four months and can require two to three centimeters of original documents.”

He said that the Legal Services & IP Committee plans to continue pressing this point with the MOJ, Nichibenren, and members of the Diet.

MORE LAWS IN ENGLISH
In another sign that Japan is getting serious about updating its legal system where gaiben are concerned, the MOJ announced in August that it will update the English translations of the country’s business laws and regulations.

Some 1,070 laws are to be part of the update, including 770 for which translations have already been released and 300 that are currently available only in Japanese. Completion of the project is slated for 2022.

Key laws that will be updated include:

  • Companies Act
  • Regulation for Enforcement of the Insurance Business Act
  • Cabinet Office Order on Disclosure of Corporate Affairs

For historical perspective, only about 200 laws and regu­lations were available in English in 2009. With four times that number available today—and 300 more being added—Japan is working to make doing business in the country easier for global companies. Doing so is essential for Prime Minister Yoshihide Suga’s push to develop Japan into a global financial hub.

EFFORT PAYS
Looking back at the long road to this year’s revisions, Kakinuki observed: “The system has changed considerably, and for the better. Both Japanese and foreign clients will receive an effective mix of legal services as a result, but many of the recent changes could have been put in place long ago.”

Warren said, “This shows that—although the pace of change can sometimes be painfully slow—through focused and con­sistent efforts by a dedicated group of people, and asso­ciations in support, real and necessary change can be accomplished.” And O’Connell added, “This is a great accomplishment by all those involved and shows that chipping away slowly and steadily brings results.”

WANT TO LEARN MORE?

Join the free event Revised Foreign Lawyers Act and Efforts to Activate International Arbitration.

When: November 18 from 3:00 to 5:00 p.m.
Format: Join in person or online by Zoom
Venue: JIDRC-Tokyo Toranomon Hills Business Tower 5F
 
English and Japanese translation will be provided.
 
Register: http://bit.ly/gaiben-event
 
Hosted by the Ministry of Justice, Japan Federation of Bar Associations, and Japan International Dispute Resolution Center, supported by the ACCJ Legal Services & IP Committee.

 

Christopher Bryan Jones is Editor-in-Chief of The ACCJ Journal. Originally from Birmingham, Alabama, he has lived in Japan since 1997.
The changes were necessitated by the growing demand for foreign legal services in line with an increase in international business transactions.