Server: Spry-SafetyWEB-Server-NT/1.2a Date: Wed, 31 Dec 1997 20:24:26 GMT Content-Type: text/html Content-Length: 38732 The Kitahama Law Office - International Commercial Litigaiton in Japan
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Note: The following paper was presented to the sixth annual meeting and conference of the Inter-Pacific Bar Association in Manila on May 3, 1996. In the future, please look here for additional informational materials regarding the Japanese legal system.



International Commercial Litigation in Japan

  

Introduction

The Japanese legal system represents an example of a civil law jurisdiction which has been heavily influenced by the adoption of significant amounts of statutory law. Litigation, while a recognized and commonly practiced form of dispute resolution, is implicitly not seen as socially desirable, and therefore, is not greatly fomented in policy or practice. Thus, foreign litigants may find that the trial process in Japan, while potentially an avenue of recourse for the resolution of commercial conflicts, is not likely to be the optimal or most desirable means.

While virtually all attorneys would like for their clients to be able to avoid litigation in a foreign jurisdiction, in practice it is not always possible. With this fact in consideration, the following summary will attempt to highlight practical considerations and specific problem areas regarding commercial litigation in Japan which has international aspects.


I. Service of Process

Code of Civil Procedure, Article 160:
Service upon an individual or entity within Japan will be performed in the manner set out in the Code of Civil Procedure (CCP), article 160(1). In accordance with this provision, the court handles all aspects of service after the filing of the complaint.

Hague Convention on the Service of Process:
Service upon an individual or entity outside Japan can be effected under the provisions of the Hague Convention on Service of Process or the Hague Convention on Civil Procedure, depending on which treaty the country where service is to be made has signed. Japan is a signatory to both, and where possible, the provisions of the Convention on Service of Process will be followed. There are no particular pitfalls to be aware of and no particular comments in this regard are required, as the court handles all matters related to service.


II. Enforcement of Foreign Judgments

Code of Civil Procedure, Article 200:
Requirements for enforcement and recognition of foreign judgments are set out in CCP article 200
(2). The primary requirements for recognition are that the Japanese defendant received proper service, the terms of the foreign judgment are not contrary to the public order or good morals of Japan, and that comity toward a like judgment rendered by a Japanese court would exist in the courts of the country which issued the judgment in question. If all of the CCP article 200 requirements have been met, an enforcement judgement will be rendered(3).

Settlements and other court orders are included in the concept of "judgement" under article 200 if they have the same effect as a final and conclusive judgement in the country where they were issued. As for service of process, personal service on a Japanese defendant inside Japan is never valid. It will render a foreign judgement unenforceable. Service by mail in Japan may be valid if a complete and accurate translation is attached, Judgement of March 26, 1994 (Tokyo Dist. Ct.).

The public order exception is, perhaps, the most problematic aspect of article 200. It can come into play in commercial litigation. For example, in a relatively recent case, Judgement of June 28, 1993 (Tokyo High Ct.), an American court's award of punitive damages against a Japanese defendant was found to be within this exception and, thus, unenforceable. The punitive damages were deemed a kind of penal provision outside the scope of actual civil damages and, therefore, contrary to the court's policy regarding the assessment and allocation of civil damages.

Foreign judgements which are based upon evidence taken inside Japan in a manner which violates the treaties or agreements mentioned in Section VI, infra, may not be recognized, based on this public order exception. Whether the improperly taken evidence must be either outcome determinative or material to the result of the foreign judgement for the exception to apply has yet to be decided.

Application of the public order exception is generally seen in the area of family law. In one highly- reported case, Judgement of November 15, 1993 (Tokyo High Ct.), the court declined to enforce a foreign judgment which awarded custody of a child to the father, who lived outside of Japan, where the child had lived for several years in Japan with the mother and spoke only Japanese (and not the native language of the father).

Parallel Litigation:
One tactic commonly used by Japanese defendants in order to block enforcement of a foreign judgment is to file parallel litigation in a Japanese court. That is, proceedings are commenced against a Japanese defendant in a foreign court. The Japanese defendant then files in a Japanese court, seeking a declaratory judgment which absolves him of any liability to the party who is the plaintiff in the foreign court. An enforcement judgement will not be issued if there is a prior final judgement on that matter rendered by a Japanese court. Thus, any individual or entity seeking to rely on the enforcement of a foreign judgment in a Japanese court in order to obtain their relief should be aware of this tactic and the potential need to appear and defend against Japanese declaratory judgment proceedings.


III. Obtaining Jurisdiction

Jurisdiction in International Cases:
In determining whether it will take jurisdiction over a case which has foreign elements, a Japanese court will consider both black-letter law and the appropriateness of the forum. If the provisions of the CCP on jurisdiction are consistent with there being a Japanese forum, then the court must also examine the swiftness and fairness of any judgement it would render in comparison with that which would be rendered by other available forums, Judgement of October 26, 1981 (Sup. Ct.). Lower Courts tend to weigh considerations regarding fairness and appropriateness rather more heavily than those regarding compliance with CCP provisions.

Summary Courts vs. District Courts:
There are Summary Courts in the Japanese Court system. They are, however, courts of quite limited jurisdiction. The amount in controversy must be less than nine hundred thousand yen (¥900,000). Thus, in practice, for most commercial litigation with international aspects, the court of first impression will be one of Japan's District Courts.

Which District Court:
Japan's District Courts are allocated one to each Prefecture. The Supreme Court has authority to set up and maintain branches of the District Courts
(4). This is done based upon geographical and historical factors. The primary item of concern is that it not be too inconvenient for residents of any locale to attend court.

The proper District Court in which to file will generally be the one in the district where the defendant resides or is located (5). Rule-based exceptions to this principle can be found in articles 3-34 of the CCP, and some of these are derived from or related to this basic principle. However, the exceptions carry important tactical considerations and are frequently employed to obtain a desired forum other than that where the defendant is located. CCP articles 1-34 apply equally to foreign and/or extraterritorial plaintiffs. The nationality or location of the plaintiff generally will not affect District Court selection.


IV. Governing Law and Its Validity

Forum Selection Agreements:
Forum selection agreements are very widely upheld by Japanese courts. Domestic forum selection agreements must be written and must identify the matter(s) to which they apply, CCP, article 25
(6). If the agreement is to be international in scope, it need not satisfy the requirements of CCP, article 25, but the court of a specific country must be explicitly designated in a document or documents prepared by one or both parties, such that the existence and content of an agreement are clear, Judgement of November 28, 1975 (Sup. Ct.).

In addition to the above, forum selection agreements which act to preclude the jurisdiction of Japanese courts and which designate a specific foreign court as the court of first impression will be valid only if the following two requirements are satisfied. The first is that the matter in question must not be within the exclusive jurisdiction of the Japanese courts. This is determined by fundamentally the same considerations as those used in deciding whether or not to accept jurisdiction in an international case (see Section III., supra.). The second requirement is that the court designated by the agreement would, independently, under the law of that forum, have jurisdiction over the matter in question, Judgement of November 28, 1975 (Sup. Ct.).

Choice of Law Agreements:
Choice of law agreements relating to commercial contracts are also widely upheld
(7). In other areas of law, such as torts and real property, the Hourei (Law Concerning the Application of Laws in General) will apply, as explained below. There is a public order exception to the application of foreign law, much like the one discussed above in relation to the recognition of foreign judgments(8). An often cited case applying this exception, Judgement of June 6, 1985 (Tokyo High Ct.), involved divorce. The court declined to apply the otherwise applicable Philippine law on the grounds that it did not permit divorce(9). Given the precedent cited above regarding American punitive damage awards it does not seem unlikely that the conflict of laws public policy exception could find application in a commercial case. In any event, parties should promote the greatest degree of certainty possible and incorporate forum selection and choice of law provisions into all agreements.

Law Concerning Application of Laws in General:
Unless there is a valid choice of law agreement relating to a commercial contract, Japanese conflict of laws provisions come into force. These provisions are embodied in the Law Concerning Application of Laws in General. This code has only thirty-four articles, yet is one of the most difficult to interpret. It sets out "rule-based" principles of law selection with criteria such as place of act, nationality, domicile, most significant relationshiop, etc., being determinative. Various subjective elements can come into play in interpreting these rules so, again, it should be emphasized that in all contracts it is best for the parties to promote certainty and agree in advance on applicable law and the appropriate forum.


V. Survey of Governing Law and Jurisdiction

National Law vs. Prefectural Law:
Japan's government is structured in a hierarchy of administrative divisions from the Capital and Prefectures to subdivisions like cities, towns, and villages
(10).

Determining hierarchy and application of laws within the Japanese system is quite simple. In all cases where National law conflicts with Prefectural or Municipal law, the National law will be controlling(11). In cases where no conflict appears, the Prefectural or Municipal law may apply. Generally, land development and environmental protection are the primary areas regulated by the Prefectures and Cities.

Preferences in the Law:
It can fairly be said that in large cities like Tokyo and Osaka, a higher degree of "internationalization" exists within the legal profession. That is, a larger percentage of professionals speak English or some other foreign language, have some experience working or studying abroad, or have had some degree of involvement with international transactions of one sort or another. While on the face of the situation, there should be no substantive difference between commencing suit in the Tokyo District Court or that of Aomori, in fact, an obvious difference in the nature of the legal community in such disparate places will, in certain respects, be experienced.

Also, the Tokyo and Osaka District Courts have special divisions for patent law cases. Again, the locality should not affect the law to be applied. However, specialization, naturally, does have its effects on jurisprudence. If a matter involves certain international or intellectual property aspects, if possible, it might be best to take advantage of the resources available in one of the more developed jurisdictions.


VI. Taking Evidence

Hague Convention on the Taking of Evidence:
Japan is a signatory to the Hague Convention on Civil Procedure of 1954 and has entered into several bilateral treaties regarding the taking of evidence. Where there is a bilateral treaty, its terms will apply, unless it was executed prior to the Convention of 1954. Otherwise, the party seeking evidence must be eligible to apply the terms of the Convention on Civil Procedure if it wishes to obtain evidence extraterritorially. Japan is not a signatory to the Hague Convention on the Taking of Evidence.

Judicial Means:
Article 4 of the Minji Soshou Kisoku (Rules of Civil Procedure) provides that parties should conduct intensive pretrial investigations, such as interviewing witnesses and examining other evidence
(12). In practice attorneys should always completely investigate the evidence available to them prior to filing suit(13). However, it is not at all uncommon for material evidence to be obtained, by various means, after the commencement of litigation.

Japan has no method for seeking written replies under oath to written questions from the opposing party. Nor is it possible to request the opposing party to admit to a statement or opinion of fact or to the application of law for the purposes of the pending action. The only admissions that exist under Japanese law arise where a party fails to controvert a statement of fact in a pleading or in court, as provided in article 257 of the CCP(14).

Japanese law provides no device to obtain the testimony of opposing or nonparty witnesses who will not permit themselves to be voluntarily interviewed prior to trial. For witnesses who are unavailable to testify at trial, Japanese CCP article 343 and the articles that follow provide that a party may make a motion to the court for the preservation of evidence. Such a motion must indicate the parties, the facts to be proved, the evidence to be discovered, and the reasons for the preservation of the evidence. Motions to preserve evidence may even be initiated prior to naming the opposing party to the suit, and in such event, the court will appoint a special representative for the other party. However, if the witness is available at the time of trial, and the other party has made a motion to preserve testimony, the court will examine the witness at trial, regardless of the existence of his or her preserved testimony(15).

This type of motion may also be used to request the production of documents from either a party or a non-party if the moving party can show that there is a high risk the documents will be altered or destroyed after the filing of a complaint. The party from whom the documents are requested will have no obligation to produce unless the documents are within the CCP Article 312 categories discussed below(16).

The following three categories of documents may be requested for compulsory production under CCP article 312:

  1. The party in possession of the document has referred to it in the litigation;
  2. The party who has the burden of proof has a legal right (pursuant to laws other than the CCP) to demand the delivery or the inspection of the document; or
  3. The document has been prepared for the benefit of the requesting party or relates to a legal relationship between the requesting party and the holder of the document.

These three categories are vague and, therefore, have been the source of many discovery disputes(17).

In addition, Japanese CCP article 313 requires that requests for production be made by a motion that identifies the document, summarizes its contents, identifies the holder of the document, specifies the fact to be proved, and sets forth one of the three CCP article 312 categories listed above. This means that a party may not make a blanket request for the production of an entire category of relevant documents in the possession of an opposing party(18).

The Bengoshi Hou (Lawyers Law) grants the power to local bar associations to issue letters of inquiry. The bar association issues such letters upon the request of an individual attorney. The matters addressed in a letter must relate to a potential case or claim, but are not otherwise limited in scope. Otherwise confidential municipal records on alien registration are often submitted to attorneys through this means. There is no sanction or penalty for failure to answer this type of letter.

Thus, to the extent that a potential litigant has enough evidence after the pretrial investigation to successfully prosecute a case, then such a case can be filed(19).


VII. Comparison of Court Systems and Practices

Civil Trial Procedure:
The first action to initiate a lawsuit is the filing of a written complaint. The complaint is filed in the District Court of the proper jurisdiction and venue. However, Content-Certified Registered Mail is often used to warn a prospective defendant of impending litigation, seek settlement, and, thereby, avert an actual filing
(20).

There is a filing fee based on the amount of the claim. This fee is recoverable from the defendant if the plaintiff prevails. Filing fees progressively increase with the amount of damages alleged in the complaint. The Minji Soshou Hiyou to ni Kansuru Houritsu (The Law Concerning Civil Litigation Costs, Etc.) provides the following schedule of filing fees:

The Amount of the Claim Court Fee

up to 300,000 yen / 500 yen for each 50,000 yen
over 300,000 yen and up to 1 million yen / 400 yen for each 50,000 yen
over 1 million yen and up to 3 million yen / 700 yen for each 100,000 yen
over 3 million yen and up to 10 million yen / 1,000 yen for each 200,000 yen
over 10 million yen and up to 100 million yen / 1,000 yen for each 250,000 yen
over 100 million yen and up to 1 billion yen / 3,000 yen for each 1 million yen
more than 1 billion yen / 10,000 yen for each 5 million yen

Filing fees that progressively increase with the amounts alleged in the complaint act to discourage large damage claims and litigation in general in Japan(21).

The next step in the case is for the District Court judge to order the parties served in the manner discussed above. Commencement of suit is limited by a five year statute of limitations for business transactions.

In the first hearing, or Dai Ikkai Kouhan Kijitsu, only attorneys need appear. In this oral proceeding, or Koutou Benron, the complaint is stated and then answered orally. In most cases the attorneys simply state their claims "as written in the complaint". All related defenses and counterclaims may be stated, as well. Witness testimony and documentary evidence may even be provided. For a defendant, failure to either appear or submit an answer results in the entry of a default judgment(22).

From the second hearing onward, documentary evidence and written arguments are submitted. Subsequent hearings are held approximately every month. After several hearings, the judge hears witness testimony. Usually, plaintiff's witnesses are first and then the defendant's, but the judge may change the order of witnesses at his discretion. Adversary questioning may occur, although judges themselves may question witnesses extensively. It is the proactive duty of the court to find the truth(23).

There is no ex officio taking of evidence. It must be offered by the parties. There are no rules of evidence, however. Any evidence is "admissible" if tendered. There is no jury system. All trials are to the court.

The quantity of evidence provided at this point may be enough to result in a decision in simpler cases. Otherwise, additional days will be fixed for witness examination at roughly one to three month intervals. The judgment comes approximately one month after hearings are closed (on the average around eleven months after the initiation of suit)(24).

The judge may set a date for Wakai, or conciliation, after all the evidence has been taken and before the decision has been rendered, although wakai can be proposed by the court, or even the parties, at any time in the proceedings. If a party seeks wakai, though, it does not commence as a matter of right. It is solely within the court's discretion. In any event, conciliation is not a required part of the case. Information put forth in wakai is not to be considered as evidence by the court, but the trial judge does preside over the conciliation proceedings. In practice, oral proceedings and conciliation proceedings are more and more coming to be combined.

The judgment comes into existence when it is declared in open court. Cases are frequently settled. Long appeal times (usually two years at a minimum) favor out of court settlement.

Of roughly some 145,000 cases filed in a year(25):

  • Some 47% reached judgment
    - Of these approximately: 27% are contested; 20% are not contested; 0.02% other
  • Some 32% are settled
  • Some 16% are withdrawn
  • Some 5% are waived, admitted, or other

Appeal:
Japanese civil procedure entitles litigants to a trial de novo on appeal, complete with new evidence, and a full review of legal issues at the Supreme Court. As a result, the average appealed case lasts more than five years, and cases extending over seven to ten years are not unusual
(26).

Kouso is the first appeal and is an appeal as a matter of right. It may be based on any grounds. Trial procedures continue. Additional evidence or causes of action may be admitted. The First Appeal must be filed within two weeks after service of the trial judge's decision(27).

The first Kouso hearing takes place, at the earliest, three months after filing. In most cases, First Appeal takes only about two or three hearings, which makes about five months from the time of the trial decision to that of the appeal decision. However, if additional witness testimony and evidence are to be submitted, the appeal procedures can become quite protracted. The success rate is between twenty and thirty percent(28).

For Joukoku, or Second Appeal, the grounds are limited to Constitutional error or an error in the law which clearly affects the outcome of the case. This is an appeal to the Supreme Court. This level of appeal will add to the case, on the average, an additional year beyond the result of the First Appeal.


VIII. Hot Topics in the Jurisdiction

Reform of the Code of Civil Procedure:
Currently, several reforms of the Code of Civil Procedure are being discussed and proposed. The most recent Ministry of Justice Outline was published this January and, within the next one or two years, there will likely be some moderate changes. The probable areas of reform are:

  • Non-public proceedings (which may include conciliation) will be authorized in order to formulate and crystalize issues more quickly and easily.
  • The scope of document discovery will be widened.
  • Parties will be authorized to make written inquiry of opposing parties regarding matters necessary for the formation of their case.
  • The Supreme Court will be given wider discretion in and expedited procedures for the dismissal of appeals.

As time passes, more details concerning the specific terms of these reforms will become available.


Conclusion

Of course, because of limitations on time and space in any presentation such as this, not all desirable material can be covered. However, the foregoing should provide some idea of how to shape your expectations, as well as let you know of some cautionary areas when entering into any commercial litigation in Japan. You have my thanks and if I can be of any further assistance, please do not hesitate to contact me with either your questions or comments at:


Kenji Nakashima, Esq.
Kitahama Law Office

Keihan Yodoyabashi Building, 4th Floor
3-2-25, Kitahama, Chuo-ku
Osaka 541, Japan
Telephone: 81(6)202-1088
Facsimile: 81(6)202-1080
e-mail (Japanese or English): LDT03765@niftyserve.or.jp
e-mail (English Only): Kitahama@compuserve.com

  
  



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Endnotes

  1. Code of Civil Procedure, art.160 provides: "Except as otherwise provided by law, service shall be made by the court under its own authority." (Back to Text)

  2. Code of Civil Procedure, art. 200 provides: "A foreign judgment which has become final and conclusive shall be valid only upon the fulfillment of the following conditions: (1) That the jurisdiction of the foreign court is not prohibited by law, court order, or treaty; (2) That the defeated defendant, if Japanese, has received service of summons, any other orders necessary to commence process, public notice excluded, or has appeared in the action of his own accord without receiving service; (3) That the judgment of the foreign court is not contrary to the public order or good morals of Japan; (4) Comity exists in the issuing country." (Back to Text)

  3. Minji Shikkou Hou (Law of Civil Enforcement), art 24. (Back to Text)

  4. Saibansho Hou (Court Organization Law), art. 31. (Back to Text)

  5. Code of Civil Procedure, art. 1 provides: "A suit shall be commenced under the jurisdiction of the court located where the defendant's general forum is." and Code of Civil Procedure art. 2 provides: "The general forum of a person shall be determined by his domicile." See also Code of Civil Procedure arts. 3-34. (Back to Text)

  6. Code of Civil Procedure, art. 25 provides: "...[T]he parties may decide the jurisdictional court by agreement. 2. The agreement referred to in the preceding paragraph shall not be valid unless it is made in writing and is made in respect to a suit based on a particular legal relation." (Back to Text)

  7. Hourei (Law Concerning the Application of Laws in General), art. 7 provides: "As regards the formation and effect of a juristic act, the question as to the law of which country is to govern shall be determined by the intention of the parties." (Back to Text)

  8. Hourei, art. 33 provides: "If the law of a foreign country is to govern, and the application of certain provisions of such law is contrary to public order or good morals, those provisions shall not apply." (Back to Text)

  9. See also Judgment of July 20, 1984 (Sup. Ct.), where the court declined to apply Korean law to the property division in a divorce case because it did not provide for the division of earnings made during the marriage. (Back to Text)

  10. These are called, respectively: To (one) - the Capital; Dou (one) - an historic administrative division remaining from the Taika reforms of the mid-seven hundreds. The one Dou, Hokkaido, retained its designation throughout the Meiji land reforms, incorporation into the Fu/Ken system in 1922, and its official recognition as the equivalent of a Prefecture in 1946; Fu (Two) - Prefecture-like entities which encompass the Osaka and Kyoto metropolitan areas. Originally, Tokyo was also designated a Fu. The Fu were, at the time of their creation during the Meiji Era land reforms, intended to represent the major urban centers of the nation. They are, in all important respects, the equivalent of Prefectures; Ken (forty-three) - Prefectures, the basic regional units of government in Japan. In 1871, during the Meiji reforms, the feudal lords surrendered their landholdings to the Emperor, who then created the new administrative divisions called Prefectures. These Prefectures correspond roughly to the feifdoms, called Han, of the Edo Period; Shi (Many) - Cities, recognized based upon population and centralization requirements. Individual Prefectures may impose further limitations; Chou (many) - Towns, recognized based upon Prefectual requirements; Son (many) -Villages, all other land outside Cities and Towns.

    It should be noted that Ku, or Wards, the administrative units within municipalities, generally do not have legislative authority. However, within Tokyo, the Capital, Wards are viewed as the equivalent of municipalities. In this instance, the Wards are vested with law-making ability and Ward-made law generally receives the same treatment as that made by municipalities. (Back to Text)

  11. The Japanese Constitution of 1947, art. 94. The question primarily arises when Prefectural or Municipal law imposes more strict regulation on the same act or activity than does national law. (Back to Text)

  12. Cohen, Understanding the Incidence of Litigation in Japan: A Structural Analysis, 25 The International Lawyer 443-454, at 444. (1991). (Back to Text)

  13. Id., at 444. id., n.6, "Minji Soshou Kisoku (Rules of Civil Procedure) art. 4 provides: 'The parties must carefully examine the facts of the case including witnesses and other evidence beforehand to make thoughtful allegations and prove their cases.' Supreme Court Rule No. 2 of 1961 (amended), art. 4." (Back to Text)

  14. Id., at 445. id., n.10, Code of Civil Procedure art. 257 provides: "The facts which a party confesses in court or facts which the court finds obvious need not be proved." (Back to Text)

  15. Id., at 445-46. (Back to Text)

  16. This type of request is often used in medical malpractice cases. (Back to Text)

  17. Id., at 446. (Back to Text)

  18. Id., at 447. (Back to Text)

  19. Id.. (Back to Text)

  20. Isono, Business and Japanese Judicial Practice, 51 (1994). (Back to Text)

  21. Cohen, supra, at 453. (Back to Text)

  22. Isono, supra, at 53-54. (Back to Text)

  23. Id., at 54.Back to Text

  24. Id.. (Back to Text)

  25. Saikou Saibansho Jimu Sonkyoku (Supreme Court General Secretariat), Shihou Toukei Nempou (Annual Report of Judicial Statistics), 118 (1994). (Back to Text)

  26. Ramseyer, The Costs of the Consensual Myth: Antitrust Enforcement and Institutional Barriers to Litigation in Japan, 94 The Yale Law Journal 604, 634 (1985). (Back to Text)

  27. Isono, supra, at 56. CCP art 36. (Back to Text)

  28. Id.. (Back to Text)

  
  



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