As the pace of corporate development accelerates on a global scale, are Japanese companies sufficiently equipped to deal with international legal affairs? And what can AI possibly bring to this issue?
We asked international lawyer HIGUCHI Kazuma to tell us more about the current state of international legal affairs and the issues surrounding legal translation.
The content on this page is an expanded version of an article of the same title that appeared in the December 2020 issue of the monthly magazine “Business Houmu”
(Interviewer: MATSUMOTO Yoichi, Interbooks Company President)
Not many companies have things in hand there. Even among listed companies, only a handful have a number of in-house lawyers and staff who can speak English at a business level. Some of those companies have sales figures in the realm of hundreds of billions of yen (a few billion US dollars), and yet they don’t usually have more than ten people in charge of legal affairs. And the number of companies that have staff who can perfectly rewrite a contract in English and conduct negotiations is extremely limited.
Above all, pursuing legal proceedings is very expensive, so unless you are dealing with a very large case, it might be more cost-effective not to do so in the first place. You might break even if you get tens of millions of yen (hundreds of thousands of US dollars) out of it, but you will lose money if you only get a few million yen (tens of thousands of US dollars), so in the latter situation it’s natural to feel that the better option would be to not file a lawsuit. That’s why it’s so uncommon to hear of lawsuits initiated in Japan. Granted, you can easily control the cost to a certain extent if you only want to have a Japanese lawyer negotiate on your behalf, and even if you take things a step further and hire a lawyer based in the other country to do it, you can still set an upper limit on the cost. But once you start a legal proceeding such as a lawsuit or arbitration, it’s not easy to drop it halfway through. For disputes within Japan, many lawyers use the traditional approach of asking for a retainer fee and then a contingency fee, which makes it easier to formulate a budget, but overseas lawyers usually charge you by the hour, even for dispute cases. If you were to rely on a domestic lawyer to manage everything on top of that, they also usually work on a time charge basis, so the cost would go through the roof. And then if you’re pursuing an arbitration, the arbitrator’s fee would be a further 50,000 yen (around 450 USD) per hour in addition to the lawyer’s fee. In short, it’s very difficult to initiate a lawsuit here in Japan. For debt collection, you could get away with spending about one or two million yen (about ten to twenty thousand US dollars): Japanese lawyers are familiar with all of this, and if you get a corporate lawyer, it’s easy to negotiate the cost. Outside of Japan, however, a few million yen (tens of thousands of US dollars) will not be enough, and you might find yourself falling short even with some tens of millions of yen (hundreds of thousands of US dollars).
Problematic situations don’t just happen out of the blue—there will always be discussions before they arise, and it’s only if that discussion doesn’t solve anything do you end up thinking, “OK, a lawsuit or an arbitration is the only solution”. And during the “discussion” phase, your only point of reference is your contract. For better or worse, people in Japan have a unique culture based on mutual trust, so even if the contract ends up being insufficient, domestic cases can often be resolved through discussion in some way. But when you are dealing with someone whose language, culture and way of thinking is completely different to yours and you start arguing about what was said or not said, your contract becomes your basis for everything. That’s why contracts are all the more important when it comes to international business relations. I would be interested to know the extent to which people care about this, and the extent to which they are willing to spend money on it.
Prevention is 90% of the purpose of making a proper contract. Of course, it’s important to have an advantage in the event of a court case, but at that stage you’re already shouldering a considerable burden in the fact that it’s gone to court at all. The meaning of prevention from a contract is twofold: to prevent disputes from happening in the first place, and if they happen regardless, to be able to use them to your advantage during the negotiations that happen before starting legal procedures.
The importance placed on the contract itself can depend on your business partner. Europe and the United States both have a culture of placing great significance on contracts. The importance of something being “written in the contract” is completely different there, so if what you’re saying is written in the contract, you might find that they concede the point easily. On the other hand, Japanese people will often say, “I thought I didn’t need to write this on the contract for you to understand it”, but this argument doesn’t work with western companies: even if you say “but that was written in an e-mail”, they will reply “yes, but it wasn’t in the terms of the contract”. In contrast, emerging countries such as those in Asia tend to be less mindful of contracts, but this doesn’t change the fact that the content of the contract is the starting point of any discussion. You cannot be careless with the contract just because the other party disregards it: instead, you should make the contract content as advantageous for yourself as possible, which will help you out later.
In cases such as dispute cases, policies can vary greatly between different lawyers, so it’s a good idea to seek out opinions from other lawyers. Even in prevention cases such as those that involve making contracts, every lawyer will be unique as to how precisely they can consider and reflect on their clients’ needs and circumstances: in other words, the contract will be different depending on the lawyer who makes it. Some lawyers will advise you about which conditions are to be respected at all costs and which can be subject to a compromise during negotiations—that is, its important clauses—all the while considering the balance and weight of the overall contract. Others will only look at the text superficially, telling you where the problems and risks are, but leaving the rest up for you to decide. I think that the latter is quite common because it makes things easier for the lawyer in a way, but I don’t believe that it meets the clients’ actual needs.
You could say that this depends on our ability, as lawyers, to give advice that goes a step further whilst also taking responsibility for what we say and being prepared for the risks. After all, we don’t want our clients to say “I only did this because my lawyer said this and that” afterwards, so it’s really tempting to just tell them, “I told you about all the risks. The rest is up to your managerial decisions.” This approach works well enough for a company that is able to make good judgments, but in reality, most companies are left frustrated thinking, “Well, I actually wanted you to tell me how I can go about this…”. As lawyers, I think we are expected to give specific advice such as “you can concede on this point, but make sure you go through with that one” or “if you are going to concede, make sure to start the discussion with this tone”. However, if we are going to take risks as lawyers, we first need to have a trusting relationship with our clients.
In soccer, for example, there are people with more dynamic playstyles who are good at shooting goals but who can’t play defense well, people who specialize in defense but who can’t score, and people whose playstyle is a balance between offense and defense. Every player is unique, and the position they play is most suited to their skillset . In reality, balance and modulation are what really matter. We need to take both the trees and the forest into account; we need to defend whilst waiting for an opportunity to attack. In a contract, for example, if it looks like the person will sign it readily we can make the content more bullish, but if we’re writing something that we know will be rejected, we’re aware that we’ll end up losing speed regardless, so we write only the important parts thoroughly and tone down the other ones. The balance expected of us really depends on the client and business in this way. It’s a collaborative process, so in order to do a good job when the time comes, it’s important to communicate with our clients on a daily basis and to cultivate a relationship where there’s no hesitancy or discomfort when contacting each other. I want to tell people that they should think about whether their current lawyer is someone they feel unable to speak to freely, and that the above is something they should consider if so (laughs).
The other day I was speaking with a number of people in charge of legal affairs, including ones from listed companies, and they did say that they were struggling with the workload required for translation and the fluctuation in content that comes with it. Most companies translate the majority of English contracts into Japanese in order to approve them internally, and it turns out that many have adopted AI machine translation for this purpose, so there’s the sense that things have become more convenient in that regard. However, AI can’t be used to correct content, so they seem to still be struggling with this aspect.
AI is extremely useful for getting a quick overview of a contract that was submitted in English or any other foreign language—and it’s both fast and cheap! But this approach works only for getting the gist of the content. For example, if you made corrections to a translated Japanese version and wanted those nuances to be reflected in the original English version, it would be difficult to find an AI that could handle that task for you. And, of course, AI cannot engage in negotiations with the other party in your stead. When I ask people how they are doing these tasks, they all reply, “We do that ourselves, but feel very insecure about it”.
It’s the job of a lawyer to make corrections from a legal point of view and to ensure that the language used is accurate. But I also feel that a good translator could provide a translation that is both appropriate and possesses a considerable degree of accuracy. In documents such as contracts, the smallest nuance is important, so if the Japanese translation is not accurate enough, accurately reflecting corrections back into the English version will also be difficult.
The concept of using AI as a complement is also applicable to legal translation: I believe that AI machine translation could also be used as a way to check for mistakes such as omissions, even if the translation itself is generally done by humans.
It doesn’t translate some parts?
We receive a lot of requests to write contracts in English, and in a lot of cases clients give us a document that was pre-translated by someone in their company who has a reasonable command of English. They are essentially trying to save significant amounts on manpower and cost this way, but in reality, the amount of work it takes to verify if the English translation is accurate is almost the same as the amount it takes to translate the document from scratch. It’s not so much a problem if it just involves roughly following the meaning of blocks of text, but if you have to compare everything word for word, it takes a huge amount of time. Likewise, the checking process will be quick if the accuracy of the English translation is close to 100%, but it will take much longer if you have to keep constantly stopping to figure out its meaning. So the truth is that whether the cost will go down or not depends on the quality of the translation received. In this sense, it would ultimately be much easier to have the translation done by a translation company so that its accuracy is guaranteed. Not only would you not have to worry about its reliability, you would also be saving on costs. Of course, I’m saying this assuming that the translation company in question and its translators do things properly.
To give an example, if you want a template for an English version of a contract that is based on an existing Japanese version, it is common to get an accurate English translation of the Japanese version done first, and then check and correct the content to ensure it meets overseas specifications.
Only lawyers can make the content match overseas specifications, so there are two ways of going about things. One is to ask a lawyer to start from the English translation stage, and then the other is to first commission an English version from a translation company, and then submit it to a lawyer alongside the Japanese version. While the specifics depend on the relationship between companies and their chosen lawyer, the second approach usually costs less if it’s done as a one-off request. If they chose me, I could reduce the cost by cooperating with Interbooks (laughs), but if they ask a lawyer to work on the translation too, the cost will naturally increase. So I think that companies are more likely to reduce costs by first asking a translation company to produce an English version, and then having a lawyer make revisions based on that. The amount of profit the lawyer makes will decrease, though (laughs).
Going forward, companies will have to combine the use of both machine translation and translation companies. When you compare the two, humans are no match for AI anymore in terms of speed and cost, but the quality of machine translation will never reach 100% no matter how much its accuracy improves. Although I think that using machine translation is fine in cases where speed and cost are what matter most, I believe that it’s dangerous to rely on it too much for situations where content accuracy and quality are important, and that it would still be best for these cases to be handled by humans. That’s why there will always be a need for human translation. To compensate, humans will have to keep working hard to refine their ability to deal with the aspects AI cannot handle.
Not really, since corporate activity has been put on a halt on a global scale this year.
At least from my perspective, I had the impression that cases related to inbound travel were increasing, probably in part due to the upcoming Olympic Games.
I imagine that this was probably also due to the relaxation of immigration policies, allowing people to transfer money from overseas not only for tourism but also for business purposes. That said, I don’t believe we can become a hub like Singapore or Hong Kong, since we are always one step behind due to taking half measures towards things like taxation. The coronavirus outbreak hit just as I had the impression that inbound travel from places like China, India and Europe was picking up...
As Japan’s birth rate declines and its population ages, stimulating inbound demand is necessary to preserve the economy. This holds true even if the Olympics get canceled. And if we see a rise in inbound demand, there will be even more opportunities to do business with foreign companies within Japan. Although some of these companies have a Japanese person in charge and use contracts written in Japanese, it’s not uncommon for them to use contracts written in English if they are managed by a foreigner, even though they’re conducting business in Japan. Even if you, as a company, then rush to try and hire English-speaking staff in response, if you end up being unable to find staff right away, you’ll have no other choice than to rely on the translation process.