CONTENTS
PRE-ACTION CONSIDERATIONS
PRE-ACTION CONSIDERATIONS
1 Case Analysis
1.1 Cause of action
The first thing to do is to determine whether a potential claimant has a cause of action. A cause of action is the legal basis of a claim. For example, the elements of a cause of action for breach of contract are (a) the formation of a contract between the claimant and the defendant; (b) failure to perform by the defendant; (c) damages and loss to the claimant; and (d) the causation between (b) and (c).
1.2 Burden of proof
The elements of a cause of action must be proved. In civil cases, the required standard of proof is ‘high probability[1]’, which is less stringent than ‘beyond reasonable doubt’ in criminal cases. It is essential that a potential claimant let a lawyer analyse all the evidence to assess whether the potential claimant will be able to discharge the burden of proof. If there is documentary evidence written in a foreign language, the party must prepare Japanese translations of it.
1.3 Limitation
It is also essential to appreciate that the period for issuing proceeding has not elapsed. If this period elapses without proceedings being issued, the case becomes ’statute-barred’. For example, the limitation period for contractual claims expires either: (a) 5 years from the date on which the claimant knows that s/he can exercise the right; or (b) 10 years from the date on which s/he can exercise the right[2].
1.4 Viablility
1.4.1 Identification of defendant
Identification of a defendant will rarely be a matter where a dispute arises between well-established businesses. A defendant may be a limited company, a partnership, or a sole trader. Identification of a defendant often matters where a defendant is doing business through a dummy company or non-existent entity. Particularly, in a fraud case, identifying the defendant will be the first hurdle to commence proceedings.
1.4.2 Defendant’s whereabouts
The defendant’s whereabouts must be found for the statement of claim to be served by the court. If the defendant is a company, its principal office address is publicly accessible on the company register. If the defendant is an individual, lawyers are allowed to investigate his or her domicile on the resident register. Nevertheless, if their whereabouts are not known from public sources, additional investigation will be required. In that case, the claimant should be sceptical of the defendant’s financial strength as well.
1.4.3 Defendant’s solvency
The defendant’s solvency does not matter from the legal point of view. However, it is not worth obtaining a judgment against a defendant on the verge of either liquidation or bankruptcy. If there is doubt as to the liquidity of the prospective defendant, then further enquiries should be made.
1.4.4 Costs
Costs consist of (a) attorney’s fees and (b) disbursements. Disbursements consist of litigation costs paid to the court (i.e. court fees, postage…) and other expenses (e.g. attorney’s travel expenses).
1.4.4.1 Attorney’s fees
Japanese lawyers traditionally work on a quasi-contingency fee basis, consisting of a retainer fee (set at a certain percentage of the claim amount) and a success fee (set at a certain percentage of the award obtained). Pure contingency fee arrangements (‘no win, no fee’) are permitted. Lawyers in large law firms generally work on an hourly rate basis.
Each party must pay its own attorney’s fees, and the unsuccessful party usually is not liable to pay the successful party’s attorneys’ fees. However, in a contractual claim, if the contract states that the unsuccessful party must pay the successful party’s attorneys’ fees, the claimant can claim its attorney’s fees under the contract. In a tort claim, the claimant can claim its attorney’s fees, though limited to 10% of the claim amount, as part of its damages.
1.4.4.2 Litigation costs
The litigation costs are defined under the relevant law[3], including court filing fee, postage expenses, witnesses’ travel expense, and interpreter’s fees (if necessary). The court filing fee depends on the claim amount (see the court filing fee schedule). For example, if a claimant files a claim for ¥30 million in a district court, s/he will be required to pay ¥110,000 for the court fee. S/he will also be required to deposit the court’s postage expenses, which generally amounts to ¥6,000 to 7,000.
The unsuccessful party is liable to pay litigation costs. The judgment allocates the ratio of the litigation costs between the parties. Then, the successful party can file another petition to have the court determine the amount of the litigation costs. If the dispute is resolved by a settlement, the litigation costs usually are not counted.
2 Choice of Forum
If a party wishes to take proceedings against an opponent who is based in Japan, one of the first things that must be considered is the question of jurisdiction. The basic rule is that the defendant must be sued in its local courts. For a company, it means its principal office address. For an individual, it means the place where s/he is domiciled.
Nevertheless, if the parties have agreed that the courts of Japan are to have jurisdiction to settle disputes, proceedings can be taken in Japanese courts.
3 Alternatives to Litigation
International contracts often contain an arbitration or mediation clause requiring the parties to refer their disputes to arbitration or mediation rather than litigation. In the absence of such a clause, the parties in dispute may agree to arbitration or mediation once the dispute has arisen.
Arbitration at the Japan Commercial Arbitration Association (JCAA) is worth considering, particularly if the amount in dispute is no more than ¥300 million. The expedited arbitration procedure under the JCAA rules allows the parties to obtain a final award within 3 months (if the amount in dispute is ¥50 milllion or less) and within 6 months (if the amount in dispute is more than ¥50 million) from the appointment of the arbitrator, which is much speedier than litigation.
4 Choice of Court
4.1 Court structure
Japan has a three-tiered judicial system. In most cases, a district court will be the court of first instance. A judgment given by a district court can be appealed to the High Court and then the Supreme Court. Civil claims of ¥1.4 million or less are generally tried at a summary court in the first instance.
Disputes involving intellectual property rights (i.e. patents, utility model rights…) are subject to the exclusive jurisdiction of the IP Division of either the Tokyo District Court or the Osaka District Court.
4.2 Court personnel
Judges are generally appointed from among legal apprentices who have no experience practising law. Summary court judges are generally appointed from among experienced judicial clerks. As the quality of summary court judges varies, lawyers often add nominal claims to a small claim to make it exceed ¥1.4 million, whereby the case will be tried at a district court.
4.3 Fast track
4.3.1 Demand for payment
Demand for payment (shiharai tokusoku) is the fastest way to obtain an enforceable order by the court[1]. These proceedings are designed to be used if the debt is undisputed and has arisen from standard transactions (e.g. a loan agreement, a sales and purchase agreement).
A court clerk reviews a motion at a summary court without a hearing, and the court followingly sends a ‘demand for payment’ to the debtor. If the debtor does not file an objection within 2 weeks, the creditor may further file a motion for a declaration of provisional execution. The court then sends a ‘demand for payment with a declaration of provisional execution’ to the debtor. Again, if the debtor does not file an objection within 2 weeks, the creditor can enforce the debt against the debtor’s assets.
Meanwhile, if the debtor files an objection during the 4 weeks, the case is forwarded to the district court (or the summary court if the claim amount is ¥1.4 million or less), and an ordinary lawsuit will start.
4.3.2 Labour tribunal
The labour tribunal is designed to resolve an individual employment dispute in a timely and effective manner[1]. The tribunal consists of one qualified judge and two laypersons who specialise in employment relations. Proceedings at the labour tribunal are usually held for up to three hearings in which the tribunal must attempt mediation before rendering a decision. In most cases, a dispute is resolved either through mediation or tribunal’s decision within 3 months from filing a claim.
4.3.3 Small claims
Expedited proceedings are available to a claim of ¥600,000 or less[4]. The judge generally gives a judgment immediately after the first oral hearing. The parties are usually required to appear to give oral evidence at the hearing. The defendant may object to the expedited proceedings, whereby the case will be sent to ordinary proceedings.
EARLY ACTION
5 Pre-Action Correspondence
5.1 Demand letter
There are no pre-action protocols to be followed by Japanese lawyers. However, it is common practice to send a demand letter by a special type of mail service (naiyo shomei) to negotiate a settlement before issuing proceedings. Such a letter has the effect of interruption of the limitation periods if followed by an issue of proceedings within 6 months from the receipt of the letter[5].
5.2 Interest
A claimant can claim interest for late payments at the rate agreed in the contract. If there is no agreed interest, a claimant still can claim the statutory interest at 3% per year, whether pre-action or post-action.
5.3 Negotiations
Negotiations may be conducted either orally or in writing. However, as we have no concept equivalent to ‘without prejudice’ in common law jurisdictions, the negotiations can be referred to in court at a later stage.
6 Settlements
6.1 Settlement/Payment plan
A settlement means an agreement with a debtor that the creditor forgives a part of the debt, generally exchanging for one lump-sum payment. A payment plan means an agreement with a debtor that the debtor pays the debt in instalments within an extended timeframe. These terminologies are often exchangeably used, and a settlement can be a long-term payment plan (i.e. instalment agreement).
6.2 Pre-action settlements
If parties reach a settlement before the issue of proceedings, they normally record its terms in a formal settlement agreement. However, an out-of-court settlement is not enforceable unless prepared in the form of a notarial deed (kōsei shōsho).
7 Preparation for Court Proceedings
7.1 Company certificate
If a party is a company, it must prove the authority of the representative to act on behalf of the company. Parties generally submit a certified copy of the company certificate to prove s/he is the director of the company.
7.2 Power of attorney
If a lawyer is acting for a party under a power of attorney, the lawyer must prove its authority by submitting the original copy of the power of attorney.
8 Interim remedies
An interim remedy can be obtained before proceedings are issued. Interim remedies include ‘provisional attachment’ whereby the applicant can freeze the respondent’s asset to secure the collection of their claims. The provisional attachment will be explained more in detail in 8.1.1 below. Other remedies include ‘provisional injunction to determine the provisional legal relationship between the parties’ (for example, an injunction to prohibit a wrongful dismissal).
8.1 Provisional attachment
8.1.1 Purpose
Provisional attachment (kari sashiosae) is an interim remedy available to secure the enforcement of a monetary judgment[1]. Even if you have obtained a winning judgment, you cannot enforce the judgment if the defendant conceals their assets or absconds with money. This order prevents the other party from disposing of their assets.
In practice, a provisional attachment puts pressure on the other party to seek a settlement even before the main proceedings are issued. For example, if the debtor company’s bank account is attached, it could face several penalties on its banking transactions with the bank.
8.1.2 Procedures
A provisional attachment may be obtained before the main proceedings are issued. The court orders provisional attachment without prior notice to the respondent. The court grants provisional attachment if the applicant has demonstrated the applicant’s rights and the necessity of freezing, specifying a concrete asset owned by the respondent. A provisional attachment order can be obtained within a week if the applicant has submitted sufficient evidence in good time.
8.1.3 Security deposit
The court requires the applicant to deposit security money to protect the respondent from irresponsible action. The security deposit generally amounts to 20-30% of the amount in dispute. For example, if the amount of the monetary claim is ¥10 million, the court is likely to require ¥2-3 million as security.
PROCEEDINGS
9 Statement of Claim
9.1 Contents of the statement of claim
The claimant must state all facts necessary for establishing a complete cause of action. The statement of claim needs to set the legal basis on which the claim is based. Therefore, there is a need to cite the Act and the provision number. Evidence can be attached to a statement of claim. Generally, it is advisable to attach all the material evidence to it.
10 Issuing Proceedings
A party who wishes to start proceedings must hand in or send a statement of claim to the appropriate court office. If the court finds any failure to comply with the formalities in the statement of claim, it normally urges the claimant to amend it before striking it out. If the court is satisfied with its compliance with the formalities, it then serves the statement of claim on the defendant. Proceedings are commenced when the statement of claim is duly served to the defendant. For limitation purposes, however, the relevant date is the date when the court receives the statement of claim.
11 Service of the Statement of Claim
The court serves the statement of claim together with a notice of summons to the first hearing date by a special type of mail service (tokubetsu sotatsu). The first hearing date is set around 4 to 6 weeks from the service of the statement of claim. The claimant cannot personally serve the statement of claim on the defendant.
11.1 Service by publication
If the defendant’s whereabouts are unknown, the claimant may file a petition for service by publication (koji sōtatsu). In practice, the court is unwilling to serve by publication. The claimant will be requested to show that it has made every effort to find their address, including site visits.
Once approved, the court will serve the statement of claim by posting the notice on a notice board in court. The statement of claim is deemed served on a defendant in Japan in 2 weeks and on a defendant outside of Japan in 6 weeks[1].
12 Defence
A defence must be submitted by the deadline set by the court, which usually is one week before the first hearing date. The defence must answer each allegation in the statement of claim by way of admission, non-admission or denial, whereby the judge and the parties can identify the issues in dispute.
12.1 Security for costs
If a claimant has no office or address in Japan and the defendant applies, the court will order the claimant to provide security to cover the expected litigation costs[6]. In practice, this application is rarely used because the litigation costs for the defendant are nominal.
13 No Extensive Disclosure
There is no general obligation on a party to show the other party the contents of documents. In particular, a party is not obliged to produce evidence adverse to itself either to the court or the other party. Also, there are no extensive document requests in Japan. However, a party can request the court to order the other party or a third party to produce certain documents, specifying information such as a summary of the document and the fact to be proved[7]. The court typically asks the requested party to produce the document voluntarily before issuing an order.
14 The First Oral Hearing Date
The court determines the date of the first oral hearing, consulting the claimant’s availability alone. The date is normally set around 4 to 6 weeks from the service of the statement of claim. The defendant is not obliged to attend the first hearing as long as a defence is filed by that date.
14.1 Rights of audience
Japanese law allows a party to represent itself in any civil lawsuit. Attorney-at-Law (bengoshi) who are admitted to practice law in Japan can appear and conduct proceedings in court on behalf of their client. There is no distinction between barristers and solicitors. Foreign lawyers who register to practice law in Japan cannot appear and conduct proceedings in court but can do so in international arbitrations.
14.2 Absence
The defendant is not obliged to appear on a date for the first hearing as long as a defence is filed by that date. However, if a defence is not filed and the defendant does not appear, the alleged facts in the statement of claim are deemed to have been admitted by the defendant. The court will then give the winning judgment for the claimant.
14.3 Publicity
Oral hearings are held in a courtroom, which is open to the public. Preparatory proceedings, where substantial discussions are often conducted, are held in a meeting room or via web/phone conference, which is closed to the public.
14.4 Access to case files
Case files and court records are publicly accessible for inspection[8]. Additionally, those who show a prima facie interest in the case can make copies of them[9]. If the case files contain confidential personal information or a trade secret, the parties may request the court to issue an order prohibiting any third party from accessing them.
15 Subsequent Hearings
After the first oral hearing, the court typically holds preparatory proceedings to identify the issues and evidence. The parties are allowed to exchange briefs and evidence to prepare for hearings. These hearings are held once every 4 to 6 weeks at court or via web/phone conference. There is no limit on the number of hearings and exchanges of briefs. While the court can dismiss allegations and/or evidence that have not been presented in a timely manner and have caused a delay in proceedings[10], it generally allows parties to submit briefs and evidence until the parties have exhausted arguments.
16 Court Mediated Settlement
Before a case proceeds to the stage of a witness examination, the judge generally attempts to mediate a settlement between the parties. In practice, judges are highly motivated to conclude a settlement to reduce their workload, and most disputes are settled before a judgment is given. A court settlement is enforceable, unlike an out-of-court settlement.
17 Examination of Witnesses
The parties submit witness statements before the court decides who should be called to give oral evidence. In practice, the witness statement works as the evidence-in-chief, and the witness is often asked to confirm that it is true to shorten direct examination. The witness will then be cross-examined by the other party and the judge. After third party witnesses are examined, the parties will usually be examined. If oral evidence is given in a foreign language, Japanese interpretation must be arranged. Opinion evidence is not admissible except for expert witness.
18 Judgment
Once the examination of witnesses is completed, the hearings will be closed. Then, the judge must render their judgment within 2 months from the closing date[11]. The parties are not obliged to appear on the date of the delivery of a judgment. In practice, most lawyers only ask the court clerk the main text of the judgment on the phone immediately after the judgment is given. A certified copy of the judgment will be served within 2 weeks from the date of the delivery of the judgment.
19 Enforcement
19.1 Enforcement of monetary judgments
If the defendant fails to abide by the judgment, the claimant will have to enforce the judgment. Enforcement requires new proceedings that are different from the main proceedings. An execution officer handles the enforcement of judgments. Enforcement of a monetary judgment includes: (a) seizure and an auction of immovable property (i.e. real estate); (b) seizure and an auction of movable property; and (c) attachment and execution of an unsuccessful party’s rights against a third party (e.g. receivables).
19.2 Enforcement of foreign judgments
Foreign judgments are potentially enforceable in Japan. The judgment creditor must take two steps to enforce a foreign judgment: (i) applying to the court for an enforcement judgment and (ii) applying for enforcement proceedings. Step (ii) is the same as domestic judgments, which only take a matter of days. In step (i), the court reviews whether the judgment is satisfied with the requirements, including the requirement that ‘a guarantee of reciprocity is in place’ between Japan and the jurisdiction, under the law[1]. The court is not allowed to review the substance of the foreign judgment. Applications are made with notice and will usually take 6 months to a year.
20 Appeals
A party in a district court at first instance can appeal to the High Court. An appeal must be made within 2 weeks from the receipt of a certified copy of the judgment[12].
Note:
[1] It is formulated that ‘[i]t is necessary and sufficient that the judge has been persuaded of the truthfulness to the degree that an average person would not have doubt’ (Supreme Court, 24 October 1975)
[2] CC, Article 166(1)
[3] The Act on Cost of Civil Procedure
[4] CC, Article 368
[5] CC, Article 153
[6] CCP, Article 75
[7] CCP, Article 221
[8] CCP, Article 91(1)
[9] CCP, Article 91(3)
[10] CCP, Article 157(1)
[11] CCP, Article 251
[12] CCP, Article 285
Statutes
- The Civil Code (Act No. 89 of 1896) (‘CC‘)
- The Code of Civil Procedure (Act No. 109 of 1996) (‘CCP‘)
- The Act on Cost of Civil Procedure (Act No. 40 of 1971)
You can find English translations of these statutes here: Japanese Law Translation
Published on 24 April 2021