Proposed rule change set to allow foreign firms greater access to Japanese market

The Japanese Ministry of Justice (MoJ) is set to relax its rules on foreign law firms, allowing them to become corporations and open multiple offices in the country.

Mark Weeks
Mark Weeks

Lawyers at international firms in Tokyo say the news marks a step in the right direction for the conservative Japanese market, but that further changes are needed to bring them onto an equal footing with domestic lawyers.

The proposed amendments are, at present, still in draft form, but it is expected they will be presented to the country’s ­legislature – the Diet – in the autumn and will come into force in 2012.

How many law firms will take advantage of the new regulations is unclear, although if firms were to open a second office it would most likely be in Osaka, home to many of Japan’s largest companies.

“It definitely gives us more flexibility,” said Mark Weeks, managing partner of Orrick Herrington & Sutcliffe’s Tokyo office, of the proposed changes. “There are a lot of major manu­facturers in eastern Japan, and in Osaka you have Pana­sonic, Denso and ­Toyota. So there are a lot of major companies there, but they’re underserved by the international firms and I think they’d appreciate a major international firm being there.”

But there are drawbacks for firms thinking about forming a corporate entity.

“If the law firm is very profitable in Japan, it can be better for the firm to be taxed as a partnership rather than a corporation because you get certain deductions for each partner,” said Weeks. “Some Japanese firms have got around this by setting up another, ­separate partnership, but I don’t think that global law firms could do this.”

Some lawyers also believe the proposed changes do not go far enough in harmonising the country’s two-tier legal market.

“This new legislation, when implemented, will allow us to have the right that Japanese lawyers already have, and it’s a move in the right direction,” said Hideo Norikoshi, a Linklaters partner in Tokyo. “But I just want to say there are other things that should be taken care of, too.

“The biggest issue for ­foreign lawyers is the complicated process of getting registered when they come to Japan. It takes several months – if you’re lucky – and you also need two years of practical experience working outside Japan after you qualify. It doesn’t make sense because partners in foreign firms in Japan could just as easily supervise young lawyers. Why does the experience have to be outside Japan?”

According to one source close to the Japanese ­market, the reason behind the restrictive rules is to prevent a mass of foreign-qualified lawyers in Japan crowding the private ­practice market.

“The big concern, which is from the Japanese bar more than the MOJ, is that many Japanese nationals have gone abroad and ­qualified in New York or London and then come back, employed by departments of companies,” said the source.

“The bar is ­concerned they’ll start ­practising at firms, and so they’ve created this hurdle.”