Japan - Dispute Resolution Guide 2016
Legal News & Analysis - Asia Pacific - Japan – Dispute Resolution
13 January, 2016
Japan is a civil law jurisdiction. The supreme law of Japan is the Japanese Constitution (kempo), which came into force on 3 May 1947. Apart from the constitution, the cornerstones of Japanese legislation are the Civil Code, the Code of Civil Procedure (CCP), the Criminal Code, the Code of Criminal Procedure and the Commercial Code.1,2 In addition to the six major sources of law, there are individual laws that cover limited areas. Ministry circulars and local regulations are also regarded as sources of law. Case law also represents a significant part of Japanese law. In particular, Supreme Court judgments are regarded as one of the main sources of law in Japan.
1 The Commercial Code in this context includes the Companies Act and the relevant enforcement laws. The draft amendments to the section on the law of obligations in the Civil Code, which will include the modernization of the section and also prior case law, was approved by the Cabinet on 31 March 2015 and will be enacted and come into effect in approximately three years (2018). Furthermore, in March 2015, the advisory committee to the minister of justice drafted an interim proposal to amend the sections related to transportation and maritime commerce in the Commercial Code.
2 “The Special Act on Civil Litigation Procedure for Collective Recovery of Property Damages by Consumers” was promulgated on December 11, 2013 and will come into effect within three years from the date of the promulgation. The Act also establishes a limited version of the class action system, in which remedies are available only for consumers who have directly suffered property damage. In this limited version of the class action system, the Act only permits actions to be taken by certain organizations that have been certified by the government on behalf of consumers. Once the court finds a “common obligation,” (an obligation having the same features and conditions, owed by one obligor to multiple victims in the same matter) consumers are invited to “opt-in” to the procedure, however, the action will be dismissed if the defendant has properly undertaken a product recall.
Japan has a three-tiered court system. In ordinary civil and criminal cases the case is first heard by the District Court. The party may appeal against a judgment of the District Court to the appellate court. If the party is not satisfied with the judgment of the appellate court, it may appeal to the Supreme Court if the grounds for an appeal exist. Two levels of appeal are allowed against an original judgment.
District Courts are the primary court of first instance. District courts have original jurisdiction over ordinary civil and criminal cases. The District Court also hears appeals against the decisions and judgments of the summary courts (see below) in civil cases. A single judge usually presides over cases brought before the District Court. In some significant cases, a bench of three judges must hear the case.
Large district courts such as those located in Tokyo and Osaka have specialized divisions. For instance, the District Court of Tokyo has divisions specializing in administrative, traffic, intellectual property, bankruptcy and labor cases.
Appellate Courts (High Courts)
Appellate courts are located in eight major cities: Tokyo, Osaka, Nagoya, Hiroshima, Fukuoka, Sendai, Sapporo and Takamatsu. Each high court has its own territorial jurisdiction and some high courts have branches. There are six branches throughout Japan. In addition, in April 2005, the Intellectual Property High Court was newly established as a special branch of the Tokyo High Court, which exclusively handles cases relating to intellectual property.
High courts, except for the Intellectual Property High Court, have jurisdiction over appeals filed against judgments rendered by district courts in the first instance or family courts. In addition, a high court has original jurisdiction over administrative cases on election, insurrection matters and similar matters. The Tokyo High Court also has exclusive original jurisdiction over cases to rescind decisions of quasi-judicial agencies such as the Fair Trade Commission.
The Supreme Court
The Supreme Court is the highest court in Japan. It is located in Tokyo and comprises 15 justices, including the chief justice. The Supreme Court sits either in full bench, or petit bench with three or more justices. Each case is first assigned to the petit bench.
However, the case must be transferred to the full bench where (1) an appellant claims that a law, order, regulation or administrative decision is unconstitutional; (2) the Supreme Court considers a law, order, regulation or administrative decision to be contrary to the Constitution; and (3) the Supreme Court decides to deviate from one of its own precedents.
The Supreme Court is responsible for the consistent interpretation and application of law in Japan. As a court of appeal, it reviews mainly appellate court judgments. In exceptional cases, a judgment of the District Court can be appealed directly to the Supreme Court. For example, in civil cases both parties may agree to bypass the appellate court and appeal to the Supreme Court directly from the District Court.
The Family Court is a court specializing in family affairs and juvenile delinquency. Family courts and their branches are located in the same places as district courts. In addition, local offices of the family courts are located at the sites of 77 summary courts.
Summary courts have jurisdiction over minor criminal and civil cases. In civil cases, summary courts handle cases involving claims that do not exceed JPY1,400,000. The procedure adopted by the Summary Court is identical to that of the District Court.
Language of the Courts
Court proceedings are conducted in Japanese. Translators are provided for witnesses who do not speak Japanese. All non-Japanese documents submitted to the court must be submitted with a Japanese translation.
Legal Profession The hoso
Members of the Japanese legal profession are referred to as the hoso. Most Japanese judges are “career judges” who join the court immediately after completing legal training. Public prosecutors are also recruited directly from the Legal Training and Research Institute.
Members of the hoso are required to pass the same national bar examination and must undergo training in the Legal Research and Training Institute. Regardless of their future profession, members of the hoso receive the same training at the institute. However, upon completing training at the Legal Training and Research Institute, individuals may choose to become a judge, public prosecutor or attorney.
The Cabinet appoints judges of the appellate courts, district courts, family courts and summary courts from a list prepared by the Supreme Court. The Supreme Court assigns judges to specific courts. Appellate court judges are promoted from among district court and family court judges.
Anyone who has passed the uniform state examination and finishes his or her training at the Legal Training and Research Institute can be appointed as a public prosecutor. Judges and assistant judges, as well as law professors and associate professors, are qualified to become public prosecutors under certain conditions.
The present Law regulating Attorneys was enacted in 1949. Attorneys are registered with local bars that collectively form the Japan Federation of Bar Associations (Nichibenren).
The Japan Federation of Bar Associations has an ethical code modelled on the American Bar Association Canons of Professional Ethics. The Bar is given the power to admit its own members, and bring disciplinary actions against them. Disciplinary action can be taken against members who have violated the rules of the local bar or the Japan Federation of Bar Associations, or have discredited or disrupted the order of the Bar.
In addition to general practitioners, there are various other legal professionals who perform functions related to legal issues. Tax attorneys, patent attorneys, judicial scriveners as well as in-house legal counsel perform functions which, in some other common-law countries, are normally performed by attorneys.
Foreign attorneys who are allowed to practice in Japan are called “registered foreign lawyer” (gaikoku-ho jimubengoshi). In order to qualify as a registered foreign lawyer, foreign attorneys must apply to the Ministry of Justice for a license. There are various requirements, including a sound financial basis on which they can conduct business properly and reliably; an adequate coverage for professional risks; and good legal or professional standing in the jurisdiction of primary qualification. The scope of practice of registered foreign lawyers is generally limited to the law of their own jurisdiction (the jurisdiction of their primary qualification) and does not extend to Japanese law or the laws of other jurisdictions.
Procedure for Claims
Commencement of Proceedings
A plaintiff initiates a claim by submitting a written complaint or petition to the district or summary court, depending on the value of the alleged claim. The court fee is paid at the time this document is submitted.
The fee is based on the value of the claim. The court then reviews the claim and sends a copy of the claim to the named defendant, together with a notice to appear in court by a certain date. If the defendant does not appear at the first hearing, the court will not necessarily enter a default judgment, but may do so in the case of minor disputes such as an application for a small claims order.
Japan has introduced some discovery measures. First, there is an interrogatory-like discovery device called Inquiries Between Parties (toujisha shoukai), which entitles a litigating party to furnish the opposing party with questionnaires concerning relevant factual issues. Such interrogatory is also available prior to filing of civil action. Furthermore, the court may, upon a motion of a party, order pre-action dispositions to collect evidence such as a request for submission of a document, a commission to government offices or other bodies for an investigation, etc., after hearing the opinions of the other party. The court may decide when the evidence concerned will be necessary for the proof of the case once is filed and that collection of the evidence by the party making the motion alone will be difficult. Second, a litigating party may seek an order of the court for production of documentary evidence held by the opposing or third party, called Document Production Order (bunsho teishutsu meirei). Finally, while Japan does not allow a deposition outside the courtroom, a litigating party may request the judge to summon witnesses from the opposing or third party, in addition to offering its own witnesses, for testimony in the court.
Upon the conclusion of the proceedings the court costs will be borne by the unsuccessful party. However, lawyer’s fees are not recoverable except in certain limited cases (e.g., traffic accident cases).
Commercial litigation in Japan usually takes six to twelve months to complete in the first instance at the district court level. Cases involving complex issues or many parties may take longer, such as 18 months or more.
The general rule regarding time limitations is set out in the Civil Code. The Civil Code provides that certain rights will expire if not pursued within 10 years from the date that the right arose. The right becomes void after 10 years have passed from the date that the right first arose. The time period is calculated from the date that the right holder demands performance or from when the provisional disposition is made, or from the date when the party owing the right acknowledges its obligation. A plaintiff must make a claim within this prescribed period. However, special provisions can apply in particular cases.
For example, a claim in tort must be brought within three years of the date that both the damage and the defendant was identified. However, the period cannot exceed 20 years from the date of the incident.
Remedies for Breach of Contract
In the case of breach of contract, the Civil Code provides for three types of remedies where an obligor fails to perform an obligation: (1) right to demand performance; (2) recovery of damages; or (3) rescission of the contract. The primary remedy is performance of the obligation (as well as an injunction to compel the performance of an obligation not to do something). However, recovery of damages is the most common remedy.
Right to Performance under Contract (riko seikyu ken)
In order to have performance of an obligation enforced, an obligee need only prove the fact of non-performance on the due date of performance. Seeking performance does not deprive the obligee of its right to seek damages simultaneously.
Right to Damages (songaibaisho seikyu ken)
The second type of remedy available under Japan’s Civil Code system is the recovery of damages. In the event of an obligor’s non- performance, the obligee may obtain damages either as a substitute for the right of performance (e.g., cases of impossibility of performance) or in conjunction with an order for specific enforcement (e.g., cases of delay in performance). Moreover, the damages remedy is also available when a contract is rescinded due to the obligor’s default. The scope of liability of damages is subject to adequate causation.
Right to Rescission (kaijo ken)
The third type of remedy available to the obligee in the event of non- performance of a contract is rescission. When a contract is rescinded, both parties are discharged of their contractual duties and the rescinded contract is deemed not to have existed from the beginning. Consequently, upon rescission, a party who has received something from the other party based on a contract loses the right to retain it. Having lost the right to retain the object of the dispute, the party who received the money or other property under the agreement must return it to the other party to the contract. Essentially, this remedy is based on the doctrine of unjust enrichment (futoritoku).
Remedies Designated by Contract
The Civil Code classifies all statutory provisions into required rules and optional rules. Required rules are mandatory provisions from which the parties to the contract may not deviate. Optional rules are
Asia Pacific Dispute Resolution Guide 2016 subject to modification by the parties. Matters concerning indemnification and warranties are optional, as long as a party does not act in bad faith. Thus, the parties are free to determine the scope of indemnification in their agreement. Whether or not the court will enforce such indemnification clauses will depend on the court’s assessment of the reasonableness of the clause.
The Civil Code provides that the remedy for a tort is compensation for the loss. However, case precedents provide that in certain special circumstances, such as public nuisance and ongoing violation of privacy or human rights, other remedies such as an injunction may be granted.
A plaintiff may apply for the following types of interim remedies (orders):
(a) provisional attachment (kari sashiosae) to freeze a defendant’s assets in order to secure a monetary claim;
(b) provisional disposition (kari shobun) to preserve property which is the object of the claim; and
(c) provisional disposition (chii-hozen no kari shobun) to temporarily establish an “interim relationship,” e.g., interim declarations of legal rights, coupled with orders to preserve those rights pending trial and rendering an injunction order.
Whether or not the court will award a particular interim remedy will depend on whether the plaintiff can demonstrate an underlying claim, and an imminent risk that any eventual judgment would be rendered valueless without provisional protection. An applicant will be required to make a substantial security deposit to the court to obtain such interim orders.
Appeals may be made on questions of law to the appropriate court. An appeal may be made at any time prior to the expiry of the applicable appeals limitation period.
The appeal courts will review the case, including all the evidence submitted to the court below. However, they tend not to call for witnesses who have already testified in the earlier trial, unless the appeal court is especially doubtful of their previous testimony. The availability and procedure for an appeal will depend on the level of the court to which the appeal is made. In general, the losing party in the first instance may appeal to a higher court with appropriate jurisdiction over the case. The appeal is taken in writing. The document must be affixed with the appropriate fee stamps and filed with the court of first instance within two weeks of the day of service of the judgment on the appellant.
In general, the availability of an appeal to the Supreme Court is limited to avoid burdening the court with an excessive caseload. The Supreme Court accepts appeals at its own discretion. In criminal cases the only grounds for appeal to the Supreme Court are errors in the interpretation of the Constitution, breaches of the Constitution and deviation from precedents. In civil cases the grounds for appeal are errors in the interpretation of the Constitution and other breaches of the Constitution, provided however that the Supreme Court may accept certain appeals where there has been a deviation from precedents and where important issues concerning the interpretation of law arise.
Enforcement of Judgments
The Law of Civil Execution provides several methods to enforce judgments. The methods of enforcement will differ according to whether the subject of performance is tangible property, and whether the subject is a monetary claim or not.
Attachment of Property
In the case of tangible property, the court bailiff may take possession of movable objects. The court may declare that immovable property be attached. In addition, claims against third parties can be attached. The asset may then be sold or transferred to the creditor.
This method of enforcement is appropriate when enforcement of payment of money is sought. For this method of enforcement, the court appoints an administrator to manage the property of the defendant and distributes any profits derived from that property to the creditor.
By this method of enforcement, the court orders a third party to do something at the cost of the defendant. This method is available for the enforcement of performance where the subject of performance is a non-monetary claim.
There are also methods of indirect enforcement. In such cases, the court may order a party to refrain from some action to do something (i.e., orders an injunction), and may impose fines until the defendant complies. This method is available for the enforcement of non- monetary claims.
Generally, the enforcement of performance is not available where performance has become impossible or where, in cases of improper performance, repairs or replacements cannot be made.
Recognition and Enforcement of Foreign Judgments
In order to enforce a foreign judgment in Japan, the plaintiff must seek a judgment for execution in a Japanese district court. The requirements for the execution of a foreign judgment in Japan are set out in the CCP. Pursuant to Article 118 of the CCP, a foreign judgment will be considered valid in Japan if the following conditions are met:
(a) the jurisdiction of the foreign court is sustainable under international civil jurisdiction rules of Japanese law, ordinance or a treaty;
(b) the defendant whom the judgment has been made against has been properly served with a summons, or has appeared and presented the merits of their case;
(c) the contents of the judgment, and the procedure in which the judgment is rendered, are not contrary to the “public order” or “good morals” of Japan; and
(d) there is a reciprocal “guarantee.”
With regard to item (b), “service” refers to the service of process in accordance with the CCP. With regard to item (c), the Supreme Court of Japan has held that an order for punitive damages made by a foreign court is contrary to the public order of Japan. It should also be borne in mind that in relation to item (d), where there is no reciprocity agreement between the two countries with regard to the enforcement of judgments, the question of whether or not there is a “reciprocal guarantee” will be decided according to Japanese case law. The issue of “reciprocal guarantee” was discussed by the Kobe District Court (judgment dated 22 September 1993) in a case regarding the enforcement of a Hong Kong judgment in Japan. In this case, the court held that since Hong Kong judgments were based on common-law principles similar to the basic principles upon which Japanese court cases were decided, there existed a “reciprocal guarantee.” The Supreme Court of Japan subsequently upheld the decision of the Kobe District Court on 28 April 1998.
In 2004, Japan’s arbitration system was completely overhauled. Japan has modernized its outmoded arbitration law and brought it in line with the UNCITRAL Model Law.
In principle, only civil disputes that may be resolved by settlement between the parties may be submitted to arbitration in Japan.
In international cases, the Japan Commercial Arbitration Association (JCAA)3 and the International Chamber of Commerce (ICC) are the arbitral institutions that are used in Japan. Maritime matters are largely handled by the Japan Shipping Exchange (JSE), which was established in 1921. While traditionally, Japanese companies have preferred the JCAA, recently, there is a trend toward the increasing use of ICC arbitration.
Japan is party to a number of bilateral investment treaties, including a treaty with China that provides for the resolution of investment disputes by arbitration. Japan is also a party to the 1965 Convention on the Settlement of Investment Disputes (ICSID).
Role of Courts in Arbitration
In Japan, the role of the courts in arbitration is very limited. If the court determines that the arbitration clause in the agreement is valid, it will generally refuse to accept a motion by one of the parties to proceed with litigation.
3 In the first amendment since 2004, the new JCAA Commercial Arbitration Rules came into effect on 1 February 2014, which include the newly established “Emergency Arbitrator” provisions, provisions relating to mediation taking place during the course of an arbitration and expedited procedures as well as amendments to the rules related to interim measures by arbitral tribunals.
The Arbitration Law allows the court to “assist” a party in determining the place of arbitration if it is not clearly set out and where “there is a possibility” that the place of arbitration might be Japan. Another provision allows the court to appoint an arbitrator, particularly if “either party has a place of business in Japan.” Finally, Article 35 of the Arbitration Law allows the tribunal (on its own volition or through application by a party) to seek the assistance of the court in taking evidence.
Enforcement of Arbitration Awards
Recognition and enforcement of an arbitral award, irrespective of the place of arbitration, is governed by Articles 45 and 46 of the Arbitration Law of Japan (Arbitration Law). Article 45 of the Arbitration Law sets out the conditions for the recognition of an arbitral award and Article 46 sets out the necessary procedures for the application of an enforcement decision based on the arbitral award.
Conditions for the Enforcement of an Arbitral Award
An enforcement decision shall be obtained before an arbitral award may be enforced. Under Article 45, an arbitral award shall have the same effect as a final and conclusive judgment unless any of the following grounds (for refusal of recognition) are present:
(a) The arbitration agreement is not valid due to limits to a party’s capacity;
(b) The arbitration agreement is not valid for a reason other than limits to a party’s capacity under the law to which the parties have agreed to subject it (or failing such agreement, the law of the country under which the place of arbitration falls);
(c) A party was not given notice as required by the provisions of the country under which the place of arbitration falls;
(d) A party was unable to present its case in the arbitral proceedings;
(e) The arbitral award contains decisions on matters beyond the scope of the arbitration agreement or the claims in the arbitral proceedings;
(f) The composition of an arbitral tribunal or the arbitral proceedings were not in accordance with the provisions of the law of the country under which the place of arbitration falls;
(g) The arbitral award has not yet become binding, has been set aside or suspended by a court of the country under which the place of arbitration falls;
(h) The claims in the arbitral proceedings relate to a dispute that is not arbitrable under the laws of Japan;
(i) The content of the arbitral award would be contrary to the public policy or good morals of Japan.
Power to Appeal and/or Set Aside Award
Under the Arbitration Law, an application for the setting aside of an arbitral award is the sole means of appeal against an arbitral award. The grounds for setting aside are very similar to the grounds under Article 34(1) of the Model Law, and the language is almost identical to the grounds for refusal of recognition as set out above (apart from item [vii]). An application for setting aside may not be made after three months have elapsed from the date of receipt of notice of the arbitral award or if the enforcement decision has become final and conclusive.
Mediation (choutei) is recognized as a method of dispute resolution. This method of dispute resolution is often used in family dispute resolution cases (e.g., divorce cases). However, it is rare for this type of dispute resolution to be adopted in international cases.
For further information, please contact:
Wynn Pakdeejit, Partner, Baker & McKenzie