Modern samurai
“The concept in Japan of a bengoshi,” says James Lawden, “comes from a gentleman or samurai – one who defends people. The word bengo means to defend and shi means a gentleman, and that’s what the Japanese call lawyers. That’s the way of thinking here.”
The idea of a lawyer as someone who actually handles large and complex business deals, on the other hand, is still a relatively recent and alien concept, according to Lawden, who chairs the EBC Legal Services Committee. As the committee states in the EBC’s 2009 white paper, “The status quo reflects the traditional position of lawyers in Japan as court lawyers.”
“Bengoshi were not the sort of people expected to do due diligence on trillion yen deals or carry out the financial documentation for zillion-yen deals,” Lawden says, with a touch of hyperbole, “though this forms an increasing part of their work nowadays.”
The common perception that lawyers belong in courts, not in corporations, helps explain an absence of a limited-liability regime for lawyers in Japan, unlike in other developed countries. This exposes lawyers involved in large corporate transactions to a huge amount of risk if deals go awry.
“All foreign firms have massive amounts of insurance. That’s because a very small mistake at three in the morning can lead to losses of millions of dollars,” says Lawden, partner at the firm Freshfields Bruckhaus Deringer.
Says fellow committee member Peter Kilner, “Other countries have generally recognised this and have accepted the idea of a limited liability partnership.”
Pushing for the introduction of limited liability for lawyers is one of three main advocacy areas for the committee. The others are the registration process and experience required of foreign lawyers, and a restriction that limits foreign law firms, or joint ventures involving foreign firms, to a single branch.
As for limited liability, the committee doesn’t expect to see any progress soon. Introducing such a change would radically shake up the legal profession and, Japan being Japan, making such monumental changes tends to take plenty of time.
But on the issue of registration, a degree of progress, albeit gradual, has been seen.
Foreign lawyers (called gaiben in Japanese) are now required to have at least three years’ working experience in the law of their home jurisdiction, of which two must be outside Japan. That’s an improvement on before 1995 when the stipulated period for experience was five years, of which three had to be spent outside Japan. In addition, the waiting time for approval seems to be shrinking, and now is as short as three or four months, according to Lawden and Kilner.
Yet regardless of how long the period, the requirement on experience doesn’t make any sense to the committee, as the lawyers in question have already been acknowledged by the qualification of their jurisdiction. What’s more, the registration process – during which time the applicant is not allowed to practice law – is time-consuming and creates added cost to the law firm involved.
“Big international firms now tend to move people around a lot. Many associates are moved in for two years. And if you’re spending a year of that time with the application, then it can be a nightmare,” says Kilner, partner at the Clifford Chance Law Office.
The other issue, over branches, also involves a rule that is clearly discriminatory. Japanese lawyers are free to form corporations, or hojin, thereby allowing them to open a number of branches. Gaiben, however, are barred from doing the same. The committee is expecting that new legislation will be introduced this year or next, eliminating this discrimination.
Another source of frustration for gaiben is the involvement in the registration process of the rules and requirements of the Japan Federation of Bar Associations, which come on top of those of the Ministry of Justice. Gaiben are required to register with their local bar associations, and so have additional hurdles to clear.
Ever since 1987, when foreign lawyers were allowed to work in Japan for the first time since the early 1950s, the association has been working out ways of accommodating the gaiben without actually fully accepting them. “It’s like some foreign body that gets into an organism, and then all the existing cells crowd around it and figure out how they can absorb it,” Lawden says with a chuckle. “So they said, ‘Let’s treat them like lawyers, but a funny kind of lawyer.’ We are a sort of an exotic strain of bengoshi.”
But for all the restrictions and discriminatory practices, Lawden and Kilner agree that the practice of corporate law in Japan is now very close to international norms.
Post-war Japan, by contrast, had little need for corporate lawyers. “Until recently, more than 95% of the Japanese lawyers were court lawyers. None of the people staffing companies’ legal departments were actually qualified lawyers,” Lawden explains.
Yet about a decade ago that situation started to change. Japanese corporations are increasingly turning to law firms to help them with their deals. A gauge of the trend is the ever-increasing length of contracts and other legal documentation.
“In the old days, contracts between Japanese companies would typically be about two pages long. But I think now the big Japanese law firms are adopting bigger and bigger business acquisition agreements, for instance, with lots of warranties by the selling company,” Kilner explains.
Figures from the Ministry of Justice show a rapid increase in the number of lawyers. Numbering a mere 5,000 in 1950, there are now roughly 25,000 working lawyers in Japan, including an increase of around 5,000 in the last five years alone.
The number of gaiben is now about 350. Before 1987, when Japan established the gaiben system, the number of foreign lawyers was tiny, limited to those grandfathered when the law changed in the early 1950s.
“Things have certainly improved,” says Lawden, “but it’s a slow process.”