Japan: a black hole for legal advice?

November 17, 2020 | By Julius Melnitzer

“Bizarre” is how Steven Maddex, a Canadian lawyer, describes his five years in the legal department at a jewellery company in Kyoto.

“Most Japanese business people view lawyers’ roles as perfunctory at best,” says Maddex. “Many of the lawyers are unlicensed, have only a basic understanding of the law, and are not capable of performing significant legal analysis to the degree expected in the West,” Maddex says.

The upshot is that there are few practical reasons for businesses in Japan to seek legal advice.”

Picture of Steve Maddex
Steven Maddex says many business people in Japan expect lawyers to rubber stamp their decisions.

This, Maddex found, was true even though NIWAKA, where he worked, was a substantial business with about $90 million in annual sales.

Also significant is the fact that litigation between Japanese companies is very rare.

“Whether a contract is good or bad or whether risks exist or don’t exist mean nothing to many Japanese businesses,” Maddex says. “To them, a contract is more a formality that suggests the parties are earnest in their dealings – the fact that the contract exists is much more important than what it says.”

In the West, of course, parties anticipate that problems may occur down the line. They frequently seek counsel early, as the precise wording of a contract can be critical to a deal. Not so in Japan.

“In a typical transaction, the business side will handle the negotiations and determine for themselves what their legal needs are,” Maddex explains.

This includes whether they need a contract, whether the contract should be comprehensive, and whether they are content with any standard forms presented to them.

“Once they’ve decided what their legal needs are, the business side will investigate problems and decide on a solution,” Maddex says. “At that point, and only if they feel they need legal input, will they ask for the lawyer’s permission to go ahead.”

When consulted, lawyers at NIWAKA did only a “rough analysis” of the information provided and generally approved the solution determined by the business side.

“The lawyers rubber stamp the business side’s strategy without independent legal analysis,” Maddex says. “At companies like NIKAWA, managers make the decisions, and lower-rank employees, including lawyers, may not question them.”

While that might work in the context of domestic operations, significantly greater risks can arise when businesses develop multi-national ambitions. Indeed, NIWAKA, seeking a North American and global footprint as keys to the company’s long-term viability, hired Maddex – who went to law school in Arkansas and worked at large firms in Houston for nine years before returning to practise in Ontario – specifically to assist with U.S. legal issues.

The job turned out to be an exercise in frustration.

Soon after he started in 2015, Maddex discovered that the managers of the U.S. subsidiary had submitted a U.S. work visa for a Japanese employee. The application contained statements that appeared to be inaccurate. In a related matter, another employee, based in Los Angeles, had illegally overstayed his visa.

Maddex took the problems to a manager, who responded that there were occasions when it was “OK to overlook the law, particularly when is it too difficult to comply”. Another executive told Maddex he must be wrong because “It would be impossible to operate our business if the law is it what you say it is”.

“In other words, because the company had decided on its course, management expected my analysis to comply – not disagree,” Maddex recalls. “After that, the executives made it clear that they wanted me to obey their orders – no matter what that might entail.”

But Brad Richards, the managing partner of Haynes and Boone, LLP’s London office, who has extensive global cross-border experience, says the situation differs at large Japanese corporations.

“The legal departments in these corporations are much more sophisticated,” he said in an email. “They typically have U.S.-trained lawyers on their staff, they draw outside counsel from large corporate law firms (both inside and outside Japan), and their knowledge of and concern with complying with the law is sophisticated.”

But Haynes acknowledges Maddex’ assertion that the Western way of thinking about lawyers does not correspond with Japanese expectations.

“Bureaucrats (trained to write and then follow the rules) have a big influence,” he writes. “Traditionally, a lawyer was someone you consulted only after a problem had become unsolvable. Thus, our notion of a lawyer helping with business planning and drafting documents often seems like an unnecessary expense to Japanese companies, particularly smaller ones.”

However that may be, Maddex points out that as Japan’s population ages, more Japanese companies will look to foreign markets, including Canada.

“Canadians need to understand that the Japanese may not entirely comprehend the legal significance of their transactions,” he said. “They should not assume that the Japanese have fully vetted the legal issues, consulted with competent legal counsel, or completely appreciate the advice counsel may have given.”

Most distressingly, perhaps, Maddex warns Canadians consulting Japanese lawyers not to expect “fully competent” legal advice.  

“Because business litigation is so rare in Japan, sophisticated legal counsel, particularly with respect to cross-border legal issues, are likewise rare,” he says.

Still, Maddex continues to love the country and the language. He makes his home in Osaka.

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Julius Melnitzer is a legal affairs journalist, writing coach and media trainer for lawyers. Readers can reach him at julius@legalwriter.net or at https://legalwriter.net/contact

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