Dispute Resolution in Japan

INDEX: 

1.Ligation and Conciliation
  1.1. Rules on Jurisdiction/Competence
       1.1.1. Source of Jurisdiction Rules
       1.1.2. Jurisdiction in International Cases
       1.1.3. Application of Jurisdiction Rules
              1.1.3.1   Rules Applicable to Persons
              1.1.3.2.  Rules Applicable to Juridical Persons
              1.1.3.3.  Submission
              1.1.3.4.  Contract
              1.1.3.5.  Tort
              1.1.3.6.  Property
              1.1.3.7.  Maritime and Admiralty Actions
              1.1.3.8.  Registrable Rights
              1.1.3.9.  Multiple Defendants
              1.1.3.10. Decedents Estate
              1.1.3.11. Civil Aviation
              1.1.3.12. Corporate Actions
  1.2. Exclusion of Jurisdiction
       1.2.1. Forum Agreements
       1.2.2. Arbitration Agreements
       1.2.3. Sovereign and Diplomatic Immunity
       1.2.4. Exclusive Jurisdiction
  1.3. Non-Exercise of Jurisdiction
       1.3.1. Foreign Pending Actions
       1.3.2. Forum Non Conveniens
  1.4. Choice of Law in International Litigation
       1.4.1. Determination of the Governing Law
	      1.4.1.1. Express Choice
                       1.4.1.1.1. The general rule
                       1.4.1.1.2. Limitations
                       1.4.1.1.3. Incorporation of Laws
              1.4.1.2. Implied Choice
              1.4.1.3. Other Cases
       1.4.2. Application of the Governing Law
              1.4.2.1. Formation of Contracts
              1.4.2.2. Formalities
              1.4.2.3. Capacity
              1.4.2.4. Substantive Effect: Validity,
                       Interpretation and Discharge
              1.4.2.5. Mode of Performance
              1.4.2.6. Remedies
              1.4.2.7. Public Policy
       1.4.3. Application of Foreign Law
              1.4.3.1. Investigation of Foreign Law
              1.4.3.2. Interpretation of Foreign Law
              1.4.3.3. Appeals on Questions of Foreign
                       Law
              1.4.3.4. Where the Existence and Content
                       of the Foreign Law is Uncertain
  1.5. Conservation and Procedural Questions
       1.5.1. Conservation
       1.5.2. Obtaining Evidence Abroad
       1.5.3. Restrain of Other Countries' Litigation
  1.6  Conciliation
       1.6.1. Conciliation Outside the Court
              1.6.1.1. Ad-hoc Conciliation
              1.6.1.2. Institutional Conciliation
              1.6.1.3. Its Pros and Cons of a Conciliation
                       Outside the Court as an ADR
       1.6.2. Conciliation Before the Court
              1.6.2.1. The Civil Conciliation Act (CCA)
              1.6.2.2. Its Process
              1.6.2.3. Its Effects
              1.6.2.4. Its Pros and Cons of a Conciliation
                       Before the Court as an ADR
       1.6.3. Conclusion
2.Recognition and Enforcement of Foreign Judgments
3.Arbitration

1.Ligation and Conciliation

1.1. Rules on Jurisdiction/Competence

1.1.1. Source of Jurisdiction Rules

  1. Statute: The Code of Civil Procedure

    The general rules of competence of Japanese courts are contained in the Code of Civil Procedure(C.C.P.).19 The revised Code of Civil Procedure was enacted in 1996 and will come into force within two years, but the exact effective date is not yet fixed. However even after coming into effect of the revised C.C.P. the discussion in this part will not be affected. These apply domestically or intra-nationally to determine which Japanese court has power to hear a particular case but their application to international cases is less clear. No statute specifically deals with the international competence of Japanese courts.

  2. International Convention

    Japan is not a member of any international convention which specifically deals with jurisdictional rules.

  3. Case-law

    It should be noted that judicial decisions theoretically do not constitute precedents binding the rendering court nor indeed lower courts. This is even true of Supreme Court decisions though they are considered strong persuasive authority in practice.


1.1.2. Jurisdiction in International Cases

  1. The C.C.P.

    As the C.C.P. contains the only territorial competence provisions it would seem to be the relevant source of rules to determine the international competence of Japanese courts. On the other hand there are gaps in the C.C.P. provisions as far as international competence questions are concerned. Moreover the prevailing opinion of commentators is that some rules in the C.C.P. are not appropriate for the determination of international competence questions particularly as the C.C.P. was originally drafted for the intra-national situation and without specifically taking into account international cases.20

  2. Supreme Court's decision of 16 October 1981

    This is the leading Supreme Court decision on the international competence of Japanese courts. The case concerned a Japanese businessman who was in Malaysia on business. While on a domestic flight of Malaysian Airlines System from Penang to Kuala Lumpur the aircraft was hijacked and crashed near Kuala Lumpur, killing the businessman. The contract of carriage was concluded in Malaysia because the ticket was purchased in Kuala Lumpur. The deceased's wife and children brought an action in Japan against Malaysian Airlines seeking damages for breach of contract in that the carrier had failed to safely carry the passenger from Penang to Kuala Lumpur. The deceased's right to damages had, it was claimed, survived for the benefit of the plaintiffs. Malaysian Airlines contended that the Japanese courts were not competent to hear the case. The plaintiffs, however, argued that the Japanese courts had international competence under arts. 4(1) and (3) of the C.C.P. because Malaysian Airlines possessed an office in Tokyo. Competence existed, it was alleged, even though the contract had been concluded in Malaysia and the defendant's Tokyo office had not been involved in the making of the contract.

    In the course of its judgment the Supreme Court made the following points:
    1. Where the defendant is a foreign juridical person25 whose principal office is located in a foreign country, the Japanese courts do not possess international competence as a general rule unless the defendant voluntarily appears.
    2. By way of exception it is reasonable to recognize international competence on the part of Japanese courts irrespective of the defendant's nationality or location if the case concerns land in Japan or if the defendant has a relationship to Japan.
    3. At the present time there are no statutory or written rules nor international conventions or international laws which stipulate what relationship is necessary between the defendant and Japan in order to establish the international competence of the Japanese courts. Where there is no applicable stature or practice in a civil proceeding, judges are obliged to follow the principle of "reasonableness" (Jori).26 It is therefore appropriate to determine the competence of Japanese Courts according to the principle of "reasonableness" (Jori) with the purpose of promoting impartiality between the parties and the ends of a fair and speedy hearing.
    4. In general the principle of reasonableness is met by applying the provisions of the C.C.P. such as arts. 2, 4, 5, 8 and 15 and other articles to determine the international competence of a Japanese court.
    5. In this case since the defendant has an office in Tokyo, it is reasonable to recognize the Japanese courts international competence by applying art. 4(1) and (3) of the C.C.P. even though the defendant is a foreign juridical person having its principal office in a foreign country.

    The Supreme Court accepted that the international competence of Japanese courts should be determined according to the principle of reasonableness with the purpose of promoting impartiality between the parties and the ends of a fair and speedy hearing. This, of course, is in accord with the views expressed by the lower courts in past decisions and with the opinion of the majority of Japanese commentators.27 But the court went on to say that the principle of reasonableness was met by applying the provisions of the C.C.P. such as arts. 2, 4, 5, 8, 15 and other articles to determine the international competence of Japanese courts. This assertion runs counter to the past decisions of the lower courts and the majority of academic opinion.

  3. Remaining questions after the 1981 Supreme Court's decision

    There are however two outstanding questions which are yet to be decided. The first is whether the provisions of the C.C.P. will always be directly applied or whether their application may be limited by reference to the concept of reasonableness. For it is still possible that Japanese courts may decline to assume international competence under an article of the C.C.P. where it is judged that it would not promote impartiality between the parties and the ends of a fair and speedy hearing and is against the principle of reasonableness. It is doubtful whether the qualification could apply to arts. 4(1) and (3) because the Supreme Court applied them unconditionally and without considering any such limitation. But the question of whether the qualification applies to other provisions of the C.C.P. is, it is submitted, left open to future decisions.

    Certainly the view of some Japanese commentators is that the provisions of the C.C.P. can be limited in cases where it is unreasonable to assume international competence though there is some difference between them as to what constitutes reasonableness.28 There is therefore a distinct possibility that the provisions of the C.C.P. other than arts. 4(1) and (3) could be limited in the way suggested. Consequently a party who wished to deny a Japanese court's international competence in a case falling within the provisions of the C.C.P. could argue that the assumption of competence in the case was unreasonable.

    The second question which remains open is whether the principle of reasonableness could be used affirmatively as the basis of international competence in a case not falling within any provision of the C.C.P. It might, for example, be arguable that a Japanese court possesses international competence on the principle of reasonableness in a contract case because say the contract was made in Japan or was governed by Japanese law even though these factors are not express bases of competence under the C.C.P.


1.1.3. Application of Jurisdiction Rules

The Japanese rules as to competence distinguish sharply between persons (that is, natural persons) and juridical persons (artificial persons).30


1.1.3.1 Rules Applicable to Persons

  1. Domicile

    Many civil law countries accept as a general rule that a defendant should be sued in the State of his domicile.31 So too art. 2(1) of the C.C.P. provides that the general forum of a person shall be determined by his domicile.32 The Japanese term is "Jusho" and it has been translated here as "domicile" but the terms "principle residence" or perhaps "permanent residence" could equally be used.

    There seems little doubt that the rule of the C.C.P. predicating competence on domicile applies to international transactions. It has been accepted in previous decisions36 and the 1981 Supreme Court decision37 recognized domicile as a basis of international competence. No Japanese commentator contends to the contrary.

  2. Residence

    Articles 2(2) of the C.C.P. provides inter alia that where a person does not have a domicile in Japan or his domicile is unknown, his general forum shall be determined by his residence. Thus in the circumstances outlined, residence is a basis of competence under the C.C.P. Residence ("Kyosho") is more than mere presence. It does not have to be very long in point of time but the person apparently has to reside at some fixed abode and a transient traveler would not be considered resident even though he may stay at a hotel for a few days.38 The 1981 Supreme Court judgment39 recognized residence as a basis of international competence and the general opinion of commentators is that residence constitutes a sufficient basis.

  3. Last domicile

    Article 2(2) of the C.C.P. provides that where a person does not have a domicile in Japan, or it is unknown, and he does not have a residence or it is unknown, his general forum shall be determined by his last domicile. Thus, where a defendant's present domicile and residence are unknown or are not in Japan but his previous domicile was in Japan, the Japanese courts would be competent on a literal application of the C.C.P. It should be noted that art. 2(2) refers to the last previous domicile and not merely to any previous domicile. While the 1981 Supreme Court decision recognized the previous domicile rule as a basis of international competence most commentators have denied it.40 It certainly seems unreasonable to apply the rule to cases that have no relationship to Japan and which involve transactions that have arisen since the defendant left Japan.


1.1.3.2. Rules Applicable to Juridical Persons

Under Chapter 2 of the Civil Code juridical persons comprise corporations aggregate and juridical foundations. But the C.C.P. makes special provision in relation to partnerships and other foundations. Thus for the purposes of the C.C.P. juridical persons comprise:
  1. Corporation aggregate; viz., a domestic or foreign organization established by a group of individuals for certain purposes. A profit-making corporation such as a business corporation and a non-profit making corporation such as a labour union are included into this category.
  2. Juridical foundation; viz., a domestic or foreign organization to manage property contributed for certain non-profit purposes.
  3. Partnerships (domestic or foreign) constituted by a contract or other legal relationship between two or more individuals for the purposes of making a profit. It should be noted that a partnership is not strictly speaking a juridical person under Chapter 2 of the Civil Code. However it is treated as having a juridical existence similar to that of a juridical person for the purposes of the C.C.P.
  4. Other foundations. Special statute provide for the registration of groups of properties (including factories and other immovable property) at the governmental registration office whereby they became available as securities for loans of money under contract. A registered group of properties is not a juridical person under Chapter 2 of the Civil Code but it is deemed to be a juridical person under the C.C.P. Any corresponding foreign concept involving a group of properties registered pursuant to a foreign statute would in all probability be given a similar juridical existence in Japan.42

The C.C.P. makes the following provision in relation to competence over juridical persons:
    1. Office or place of business

      Article 4 of the C.C.P. provides:
      1. The general forum of a juridical person or any other association or foundation shall be determined by the place of its principal office or principal place of business, or in case there is no office or place of business, by the domicile of the principal person in charge of its affairs.
      2. ...
      3. In regard to the general forum of a foreign association or foundation, the provisions of para. 1 shall apply to the office, place of business or person in charge of the affairs thereof in Japan.

      The reference to the person in charge of the foreign entity's affairs is considered below. Apart from this provision it can be seen that art. 4 predicates competence over juridical persons, associations or foundations on the basis of the situs of their office or place of business. Thus a foreign corporation or partnership which has an office or place of business in Japan is within the competence of the Japanese courts.

      It should be noted that under art. 479(1) of the Commercial Code, a foreign company intending to engage in commercial transactions on a continuing basis in Japan must appoint a representative in Japan and establish an office of business at the residence of the representative or at any other place designated by him. The office and other details must be registered under art. 479(2)-(4). Article 481 prohibits a foreign company engaging in commercial transactions on a continuing basis until it has registered. Article 482 provides that a company which establishes its principal office in Japan or the chief object of which is to carry on business in Japan shall, even though incorporated in a foreign country, comply with the same provisions as a company incorporated in Japan. The Commercial Code, however, imposes no obligation on a foreign partnership to register its office in Japan. Under art. 4 of the C.C.P. the situation of an office or place of business in Japan confers competence on the Japanese courts even, it would seem, if the foreign corporation has failed to register under the provision of the Commercial Code. Fujita 43 cites the Tokyo District Court's decision of 26 April, 1965(44) where a California corporation maintained a temporary field office at the operation center of Japan Air Lines in the Tokyo International Airport Building. Registration under the Commercial Code had not been effected but it was held that the Japanese courts were competent in relation to a suit brought against the corporation.

      In its 1981 decision45 the Supreme Court expressly recognized international competence over foreign juridical persons possessing an office or place of business in Japan. This, of course, was the basis upon which the suit against Malaysian Airlines System was held to be well founded. The situation of an office in Tokyo conferred competence even though the contract had been concluded in Malaysia and was to be performed in Malaysia (involving an internal or domestic flight, as it did). However some commentators contend that competence on the basis of an office or place of business in Japan should be confined to cases where the subject matter of the litigation has some relationship with the defendant's business in Japan.46

    2. Representative

      Japanese courts are competent in actions brought against foreign juridical persons or other associations or foundations which do not have an office or place of business in Japan but which have a representative who is domiciled in Japan. This follows from arts. 4(1) and (3) of the C.C.P. and has been recognized by the Great Court of Cassation,47 Again, however, some commentators argue that competence should be limited to cases which are related to the defendant's business in Japan.48


1.1.3.3. Submission

Japanese law recognizes that a defendant may submit to the jurisdiction by his actions. The most common instance is a contractual agreement to litigate in the forum. Article 25 of the C.C.P. provides:
  1. Insofar as only the first instance is concerned, the parties may decide the competent court by agreement.
  2. The agreement referred t 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.

Thus, a contractual agreement to litigate in Japan constitutes a submission under art. 25 provided that the agreement is valid under its proper law.71

Apart from a contractual agreement to litigate in the forum a defendant may submit to the jurisdiction in other ways. Thus art. 26 of the C.C.P. provides:
Where the defendant proceeds orally to the merits of a suit or makes statements in the preliminary proceedings without making a plea of wrong competence in the court of first instance, the said court shall have the competence thereon.

Thus, if a defendant does not raise a jurisdictional objection he will waive it. Moreover, it will not matter whether or not the defendant was aware that was a jurisdictional objection which could have been raised.77 Article 26 makes it clear that the jurisdictional objection must be asserted at the court of first instance but apparently it does not have to be raised at the first hearing and it is sufficient if it is raised during any initial phase of the suit.78

If a defendant challenges the court's competence he does not submit even if he at the same time contests the merits of the case. The reason apparently is that a Japanese court may not necessarily decide a jurisdictional issue before examining the merits of a case.79

Other acts of the defendant which are inconsistent with denying the court's jurisdiction will constitute a submission. Thus if a defendant enters an unconditional appearance or takes another procedural step such as making application for an extension of time to enter an appearance or making that a party who institutes proceedings as the plaintiff gives to the court jurisdiction to entertain a counterclaim against him provided that it is related to his action.83

Finally, it should be noted that the 1981 Japanese Supreme Court decision84a recognized in its dictum international competence based on submission.


1.1.3.4. Contract

Article 5 of the C.C.P. provides that "a suit concerning a property right may be brought before the court situated in the place of performance". The term "property right" (zaisan-kenjo no uttae) includes any claim that can be estimated in monetary terms and therefore encompasses claims for repayment of debts, for damages for tort and for the return of property. It does not include family or status actions such as proceedings for divorce or for the acknowledgment of an illegitimate child. While the term "property right" includes any pecuniary claim or claim that can be estimated in pecuniary terms, art. 5 is generally only used as a basis of competence in contractual actions.

The Supreme Court in its 1981 decision84a recognized art. 5 as an appropriate basis of competence for international transactions though some commentators maintain that art. 5 should not be applied on the international plane.85 Following the view of the Supreme Court the Japanese courts would be competent in a suit concerning an international contract if Japan was the place of performance.

Some difference of opinion has arisen in Japan as to whether art. 5 refers to the place of performance of the original contractual obligation or the place of performance of the obligation that is the immediate object of the suit (generally the obligation to pay damages in the case of a breach of contract). A number of older cases and some commentators support the former view. Thus, in one case it was held that the Japanese courts were competent to hear a suit for breach of contract involving an American and a Japanese corporation on the ground that the contract, to transport oil from New York to Yokohama, though made in New York, was to be performed in Japan.88

The opposing view, which has gained ascendency in recent years, is that the Japanese courts would only be competent if Japan was the place of performance of the obligation to pay damages. This will either be the plaintiff's or the defendant's residence. Japanese law favours the former, while German and French law favours the latter. In a particular case it would seem that the place of performance will be determined by the proper law.87

Leaving aside art. 5 of the C.C.P. it is arguable that the Japanese courts are competent in other contractual actions where Japan is not the place of performance. If the principle of "reasonableness" were accepted as a basis of competence without reference to the provisions of the C.C.P. it could be contended that Japanese courts were competent in respect of actions involving contracts made in Japan or governed by Japanese law.88


1.1.3.5. Tort

Article 15(1) of the C.C.P. provides that a suit relating to tort may be brought before the court of the place where the act was committed. It is a prevailing interpretation that the place where the act was committed includes both the place of effect and the place of accident.

The Supreme Court recognized this rule as a basis of international competence in its 1981 decision98 and no commentators deny its suitability.

For the purposes of Japanese law, torts are defined in arts. 709 to 721 of the Civil Code. They basically fall into three categories:
  1. An individual or juridical person's intentional acts which have caused injury to the defendant or damage to his rights or other legally protected interests.
  2. An individual or juridical person's negligent acts which have caused injury to the defendant or damage to his rights or other legally protected interests.
  3. The defective establishment or maintenance, on the part of an owner, or constructed objects (such as a house, building, wall, road, bridge, dam and storage trunk) which have caused injury to the defendant or damage to his rights or other legally protected interests.

Since product liability is classified as tortious under the Product Liability Law (Law No.85, 1994), art. 15(1) of the C.C.P is applicable to both domestic and international product liability litigation.

In addition to torts Fujita argues that other obligations imposed by law and not dependent on consensual agreement, namely unjust enrichment,99 and management of affairs without mandate,1 should be subjected to the same jurisdictional rule.2


1.1.3.6. Property

Article 8 of the C.C.P. provides:
A suit concerning a property right against a person not domiciled in Japan or whose domicile is unknown, may brought before the court situated in the place where the subject matter of a claim or the security therefor, or any property of the defendant attachable is located.

The term "property right" was previously examined.14 It includes any claim that can be estimated in monetary terms in contrast to proceedings involving the status of persons and other family actions. If applied to the international plane art. 8 would confer competence over defendants who possess property of any nature in Japan. In its 1981 decision15 the Supreme Court in its dictum recognized this competence but there are some commentators who doubt its reasonableness particularly when the value of the defendant's property in Japan is quite small compared to the amount claimed in the suit.16

Article 8 is based on art. 23 of the German Code of Civil Procedure. It is generally regarded as an extreme basis of jurisdiction and the 1968 E.E.C. Convention on Jurisdiction and the Enforcement of Judgments prohibits the assumption of jurisdiction under art. 23 in respect of persons domiciled in E.E.C. states. Not surprisingly some Japanese courts have attempted to limit the use of art. 8 for international transactions.17

There is much less doubt about the international application of art. 17 of the C.C.P. It provides that "a suit relating to immovables may be brought before the court of the place where the object is located". Thus Japanese courts are competent in relation to suits involving immovables situated in Japan. Immovables are defined in art. 86(1) of the Civil Code as "land and things firmly affixed thereto..." Article 86(2) provides that "all other things are movables".


1.1.3.7. Maritime and Admiralty Actions

In Japan the presence of the defendant within the forum does not by itself make the court competent.22 However, in actions based on a maritime lien or ship's mortgage, the presence of the vessel in Japan confers competence under art. 11 of the C.C.P. which provides:
A suit, based on a claim against a ship or any other claim secured on a ship may be brought before the court of the place where the ship is located.

Article 11 of the C.C.P. is therefore to the same effect as the English jurisdictional rule in admiralty actions in rem. However strictly speaking the Japanese provision is not an action in rem for the concept of an action being brought against a rem as defendant is unknown in Japan.24

Various other grounds of competence are set out in the C.C.P. in relation to maritime and related actions. They are:
  1. Suits against crew members of ships

    Article 7 of the C.C.P. provides that:
    A suit concerning a property right against one of the crew may be brought before the court situated in the place of registry of the ship.

    Thus an action against the captain (or other crew member) of a ship registered in Japan can, provided it is of a pecuniary nature, be litigated in Japan.

  2. Suits against owners or charterers of ships

    Article 10 of the C.C.P. mirrors the rule of art. 7 but in cases where the defendant is the owner or charterer. Article 10 provides:
    A suit concerning a ship or voyage against a shipowner, or against any other person utilizing the ship, may be brought before the court of the place of the registry of the ship.

    The Supreme Court recognized this competence in its 1981 decision 25 and no commentator denies its relevance to international claims.

  3. Suits relating to salvage

    Article 16 of the C.C.P. provides:
    A suit relating to salvage may be brought before the court of the place where the salvage was effected or the place where the salvaged ship first touched.

    Thus a suit concerning salvage which was effected in Japan or which was effected elsewhere but where a Japanese port was the first port of call, can be instituted in Japan. Again the Supreme Court recognized this competence in its 1981 decision26 and commentators do not question its reasonableness.

  4. Collisions at sea

    Litigation concerning a claim for damage caused by a maritime collision general average or other accident at sea can be instituted in Japan if a Japanese port was the first port of call after the incident. Article 15(2) of the C.C.P. stipulates:
    A suit for damage due to a collision of ships or any other casualty at sea may be brought the court of the place where the damaged ship first touched.

    This is one of the bases of competence recognized by the Supreme Court in 1981(27) and not denied by any commentator.


1.1.3.8. Registrable Rights

Litigation involving a registration effected under Japanese law can be instituted in Japan. This follows from art. 18 of the C.C.P. which provides that "a suit relating to a registration may be brought before the court of the place where such registration is to be made". Registrable rights cover a diverse group of matters which under Japanese law are required to be registered including rights relating to immovables and ships, industrial property rights (such as patents and trademarks) and certain corporate matters.

The Supreme Court has recognized art. 18 in its 1981 decision28 as an appropriate basis of international competence and it is not contested by any commentators.


1.1.3.9. Multiple Defendants

Article 21 of the C.C.P. provides:
In case several claims are made in one suit, such suit may be brought before any court having jurisdiction over one of such claims in accordance with the provisions of art. 1.

It seems, therefore, that in cases where it is proper to join several defendants, they can all be sued in a Japanese court if any one or more of them is within the competence of the court in accordance with the other provisions of the C.C.P.


1.1.3.10. Decedents Estate

Suits concerning succession to a deceased's estate may be brought in Japan if the deceased died domiciled or resident in Japan.32 In addition, creditors can also sue in Japan if the deceased left property there.33


1.1.3.11. Civil Aviation

Japan is a party to the Warsaw Convention of 1929.36 Article 28(1) provides:
An action for damages must be brought, at the option of the plaintiff, in the territory of the one of the High Contracting Parties, either before the court having jurisdiction where the carrier is ordinarily resident, or has his principal place of business, or has an establishment by which the contract has been made, or before the court having jurisdiction at the place of destination.

The Convention applies to "international carriage" which is defined in art. 1(2). Article 28(1) sets out the place where suits against carriers involving such carriage can be brought. In any particular case if Japan is one of the places listed in art. 28(1) the Japanese courts are apparently competent without more.37.


1.1.3.12. Corporate Actions

Articles 12, 13 and 14 of the C.C.P. provide that suits by a corporation (or other juridical person) against a member, or between members or by a creditor against a member may be brought before the court of the place where the general forum of the corporation is located. The general forum is, under art. 4, the place where the principal office or principal place of business is situated.


1.2. Exclusion of Jurisdiction

There are situations recognized in both Japanese and Australian law where a court will not hear a case even though competence or jurisdiction exists under the above rules.


1.2.1. Forum Agreements

It is commonplace for parties to include in an international contract a forum clause, that is, a clause stipulating that suits are to be instituted in a court or courts of a particular country.44 Where the chosen forum is the local country then the clause operates as a submission to the jurisdiction. Where the chosen forum is foreign then, provided the clause is phrased in a way so as to exclude suits elsewhere,45 the clause can be relied upon to prevent the institution of suits locally.

Article 25 of the C.C.P. has already been considered in relation to submission.46 It upholds the validity of forum agreements in general terms. If applied to international forum agreements as has been done frequently, 47 then it gives force to a forum clause. Where the chosen forum is Japan then the clause operates as a submission which confers competence on the Japanese courts. However, clauses designating non-Japanese courts are also give effect with the result that Japanese courts will not hear suits brought in breach of such clauses.

Before a forum clause can be relied upon under art. 25 it must be in writing and must be based on a particular legal relationship. It does not, however, matter if the forum agreement is included in the principal contract or if it is made at a subsequent stage.

The Supreme Court has upheld the validity of forum clauses designating non-Japanese courts as the appropriate forum.48 The Court said that such clauses will be given effect subject to a number of qualifications:
  1. Formal validity
    The clause must be in writing and must clearly indicate the designation or a particular foreign court. However, the parties' signature of execution of the writing is not essential.49

  2. Additional requirements
    1. A forum agreement designating a foreign court will not be enforced if the Japanese courts have exclusive international competence over the case.50
    2. The designated foreign court must have jurisdiction over the case under its own laws.

In general the opinion of commentators in Japan supports the approach of the Supreme Court51 but some argue that the requirements of writing should not be essential provided that the parties' intention is clear.


1.2.2. Arbitration Agreements

The Japanese courts have long recognized the validity of arbitration agreements whether governed by domestic law53 or foreign law.54 Moreover Japan has ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and has concluded several bilateral treaties of friendship, commerce and navigation with various countries which recognize the validity of arbitration agreements. These ratified international conventions and treaties constitute part of Japanese domestic law under art. 98(2) of the Japanese Constitution. In consequence a Japanese court will, upon application by a defendant, refrain from hearing an action brought in the breach of an arbitration agreement. No Japanese commentator opposes this attitude.


1.2.3. Sovereign and Diplomatic Immunity

It is of course trite law that foreign sovereigns and diplomats enjoy immunity from local jurisdiction at least in certain circumstances. The relevant principles of public international law constitute a part of domestic Japanese law according to art. 98(2) of the Japanese Constitution.

Foreign sovereigns, heads of government and diplomatic agents and their families as well as foreign governmental instrumentalities66 enjoy immunity from judicial process in Japanese territory. Such immunity may be held waived in Japan, for example, by the person entitled to immunity voluntarily resorting to Japanese courts67 and perhaps even by doing commercial or trading activities in Japan.68 Nor will immunity be acknowledged in cases concerning an immovable located in Japanese territory.69


1.2.4. Exclusive Jurisdiction

Japanese commentators and courts contend that certain jurisdiction is exclusive and can only be exercised by the courts of a particular country.

One instance concerns actions involving immovables. Japanese courts claim exclusive jurisdiction over actions involving land in Japan even if the defendant is a foreign sovereign.74 Likewise the Japanese courts have conceded to foreign courts exclusive jurisdiction over immovables located in the foreign territory.75

Another instance of exclusive jurisdiction that is probably recognized in Japan concerns patents and other industrial property rights which are regarded as exclusively belonging to the place of registry.78

Suits involving corporate internal affairs may, under Japanese concepts, exclusively belong to the courts of the state of incorporation.80


1.3. Non-Exercise of Jurisdiction


1.3.1. Foreign Pending Actions

In Japan art. 231 of the C.C.P. prohibits the institution of a second suit in relation to a case already pending before the courts. But a district court has held that this provision only applies to suits pending before Japanese courts. Consequently suits could be instituted in Japan in relation to matters already being litigated in a foreign court.59 As yet there is no higher court decision on this point but some commentators support the conclusion of the district court.60 The possibility of international double litigation and therefore multiple judgments creates problems in relation to the enforcement of foreign judgments.61


1.3.2. Forum Non Conveniens

There is no provision in the C.C.P. on forum non conveniens. But the Supreme Court's view that international competence should be tested by reference to standards such as impartiality between the parties and the ends of a fair and speedy hearing may open the way to take into account considerations of forum non conveniens. Indeed some commentators consider that forum non conveniens is relevant in determining the international competence of Japanese courts.65


1.4. Choice of Law in International Litigation

1.4.1. Determination of the Governing Law

1.4.1.1. Express Choice

1.4.1.1.1. The general rule

Where a contract contains a choice of law clause there can be little doubt about the parties' intention as to the governing law. Japanese courts have accepted the principle of party autonomy in such cases with the result that in general, and with but few exceptions, the parties choice is respected.

The attitude of Japanese courts in giving effect to contractual choice of law clauses under art. 7(1) of the Horei is shown in cases such as the Supreme Court's decision of 28 November, 1975, the Tokyo High Court's decision of 24 February, 1969 and the Tokyo District Court's decision of 31 October, 1962.

The supreme Court's decision of 28 November, 1975(21) concerned a distributorship contract entered into between a Japanese distributor and a Danish manufacturer. The contract designated Danish law as the governing law and the Supreme Court in a dictum indicated that Danish law applied.

The Tokyo High Court's decision of 24 February, 1969(22) was to the effect that Japanese law governed a contract made between a Japanese carrier and a foreign shipper at Genoa since the bill of lading expressly stipulated Japanese law as the governing law.

In its decision of 31 October, 1962(23) the Tokyo District Court upheld a choice of law clause designating United State law as the governing law in a contract for the supply of military goods made between the United States government and a Japanese manufacturer in Japan.


1.4.1.1.2. Limitations

Japanese courts determine the limits of party autonomy in accordance with their own principles of private international law. The Japanese position is justified on the basis that art. 7(1) of the Horei refers to the substantive law of the chosen jurisdiction and not to the whole body of laws, including the conflictual principles, of such jurisdiction.29 Accordingly, the law of the chosen jurisdiction is not relevant in determining the validity of a choice of law clause and the matter falls to be decided in accordance with the Horei, the conflictual rules of the forum.

Likewise there is no credible suggestion that a law other than the lex fori determines the efficacy of a choice of law clause because the question is solely one of the interpretation of the forum's choice of the law rule.

The Horei does not expressly prescribe any limitations on party autonomy and the Osaka High Court held in its decision of 18 October, 1962(31) that the parties enjoyed freedom to stipulate the governing law under art. 7(1) of the Horei unless the application of the foreign jurisdiction's law chosen by the parties would contravene Japanese public policy or good morals. The prevailing opinion of commentators is consistent with this view and supports an unlimited party autonomy to stipulate the governing law except where application of the chosen law would contravene the public policy or good morals of Japan under art. 30 of the Horei. Where the chosen law is not applied under art. 30 of the Horei, on the ground of contravention of public policy or good morals, then the contract is subjected to the law of the place of acting under art. 7(2) of the Horei on the basis that the intention of the parties is deemed uncertain.32

It is also understood that the parties may choose the law of any jurisdiction and that their choice is not limited to the law of their domicile or nationality, the law of the jurisdiction which has the most significant contacts with the matter in dispute or a law having some reasonable relationship with the dispute or the contract.


1.4.1.1.3. Incorporation of Laws

A distinction is drawn between the choice of a governing law in a contract and the mere incorporation of some provisions of a foreign law into a contract. The latter is only a shorthand way of setting out terms and conditions in a contract and does not constitute an express selection of the governing law. It follows that the validity of the incorporated provisions would fall to be determined by the governing law which may or may not be the same as the legal system from which the incorporated laws are taken.
The Japanese position is illustrated by the decision of the Court of Appeal of Tokyo of 27 December, 1932.42 The court held that a marine insurance contract made in Japan between a Japanese insurance corporation and a foreign shipper was governed by Japanese law even though the marine insurance policy issued under the marine insurance contract provided that "This insurance is understood and agreed to be subject to English law and usage as to liability for and settlement of any and all claims". The court reasoned that such clause of the marine insurance policy was construed to express the parties' intention to incorporate English law as the terms of the marine insurance policy and such incorporation of a foreign law into a contract was valid under Japanese law. The court also held that such incorporation of a foreign law into a contract as part of its terms did not imply an intention on the part of the contractors to designate the foreign law as the governing law of the contract.

The distinction between the incorporation of laws and choice of law clause has a practical effect in relation to the application of the relevant laws.

For example, Anglo-Australian courts apply an incorporated law as it existed at the date the contract was made,44 whereas the proper law is applied as it exists from time to time.45 In Japan, however, it may be that the parties enjoy the freedom to choose as the governing law the laws of a legal system as they existed at the date the contract was made.46 This is on the basis that the parties enjoy complete autonomy to choose the governing law under art. 7(1) of the Horei subject only to the public policy and good morals reservation of art. 30. However there is no Japanese case nor commentators opinion in point.


1.4.1.2. Implied Choice

Even if there is no governing law clause in a contract some of the surrounding circumstances relevant to the contract may sometimes indicate an implied intention of the parties on choice of law. The Horei however is silent as to whether such an indirectly ascertained parties' intention is covered by art. 7(1).

  1. Court decisions

    Japanese courts have applied art. 7(1) of the Horei to give effect to an implied intention of the parties in the following cases relating to international business transactions. These decisions are typical examples of how Japanese courts ascertain an implied intention of the parties as to choice of law.

    In its decision of 11 September, 1953(47) the Tokyo High Court held that Iranian law governed an oil concession contract between the Iranian government and an English oil corporation. The court reasoned that in a contract made between a government and a private party the parties must have impliedly agreed to the law of the government applying in the absence of a specific choice of law clause.

    The Tokyo District Court in its decision of 21 April, 1961(48) held that the laws of the United States and California applied to a contract for the carriage of goods by sea from Japan to Los Angeles. The bill of lading, issued in Japan, provided that it would have effect subject to the provisions of the Carriage of Goods by Sea of the United States and the corporation which issued the bill had its main office in San Francisco. These circumstances indicated an implied intention on the part of the parties that American law governed. At the same time the court held that Japanese law applied to a letter of guarantee issued in connection with the bill of lading by the Japanese shipper to the American carrier's branch in Japan.

    In its decision of 9 April, 1962(49) the Maebashi District Court held that the parties impliedly chose Japanese law to govern a contract for the sale of real estate between a Japanese seller and a Korean buyer because both parties lived in Japan and the real estate was situated in Japan.

    In its decision of 18 December, 1964(50) the Tokyo District Court held that Japanese law impliedly governed a sales contract between a Panamian seller and an American buyer because the Panamian seller had its office in Japan, the goods were located i Japan, the contract was to be performed in Japan and the Panamian seller did not contest the American buyer's contention that Japanese law governed.

    The Tokyo District Court held in its decision of 26 April, 1965(51) that the law of the United State or California governed an employment contract made between a California corporation (the employer) and an American (the employee). THis was implied from the fact that the contract was made in California between American parties and on condition that the employee should maintain his domicile within the United States and its territory to avoid foreign governmental regulation of the conditions of employment.

    In its decision of 9 July, 1967(52) the Tokyo District Court held that the laws of the United States and New York governed an employment contract made between a New Jersey employer and an American employee. This was implied from the facts that the contract was made in New York City, the remuneration was expressed in United States dollars and that part of it was to be paid in New York City.

    In its decision of 4 March, 1969(53) the Tokyo District Court held that Japanese law governed a contract for the loan of money made between certain Americans and a Japanese. This was implied from the circumstances that the parties intended to use the money under the contract for doing business in Japan and that the parties agreed to repay the money in Japan.

    The Tokyo District Court held in its decision of 14 May, 1969(54) that Japanese law applied to a contract for the lease of a house made in Tokyo between American parties. The implicaition that Japanese law governed rested on the facts that the contract was made in Japan and the house was located in Japan.

    In its decision of 5 August, 1969(55) the Osaka High Court held that Japanese law governed a contract made in Osaka between an Indonesian and a Japanese corporation for the lease of office space. This was implied from the facts that the contract was made in Japan and that the office space was in a building located in Japan.

    In its decision of 8 April, 1970(56) the Tokyo District Court held that Japanese law governed a contract for the loan of money made at Shanghai, China, between a Chinese and a Japanese governmental agency. This was implied from the fact that a governmental agency was a party to a contract with a private person and the contract did not contain an express choice of law clause.

    The Osaka District Court held in its decision of 28 March, 1972(57) that Japanese law governed a sales contract made at Chicago between a Japanese manufacturer and an American distributor. Neither party had contested the implied application of Japanese law at the court hearing.

    Finally the Supreme Court in its decision of 20 April, 1978(58) upheld a decision of the Tokyo High Court that Japanese law governed a time deposit contract made between the Japanese branch of a Thai bank and a Chinese living in Japan. The implication arose from the fact that the Japanese branch of the Thai bank was doing business under the license of the Japanese government and from the fact that the contract was of an adhesive kind embodied in a standard form contract used for domestic banking transactions in Japan.

  2. Rules deducible from the court decisions

    It is possible to deduce a number of rules from the various court decisions. In the first place when a party to a commercial contract is a government or governmental agency and the other party is a private party, the law of the jurisdiction to which the government or governmental agency belongs will be applied. This is shown in the Tokyo High Court and District decisions of 11 September, 1953 and 8 April, 1970.

    In contracts relating to a real estate, the law of the place where the real estate is located will be applied as is shown in the Maebashi District Court's decision of 9 April, 1962 and the Tokyo District Court's decision of 14 May, 1969.

    Contracts containing clauses which refer to a specific law, such as paramount clause in a bill of lading or a jurisdiction or arbitration clause, are governed by the law of the jurisdiction concerned as is shown by the Tokyo District Court's decision of 21 April, 1961.

    If an employment contract is made between foreign parties, the law of the place where the employment contract is made will be applied as is shown in the Tokyo District Court's decisions of 26 April, 1965 and 9 July, 1967. Even if the parties' intention cannot be gathered from the circumstances which existed at the time the contract was made but subsequent circumstances which occur after that time enable an intention to be imputed to the parties, then these later circumstances can be taken into account as shown in the Tokyo District Court's decision of 18 December, 1964 and the Osaka District Court's decision of 28 March, 1972.

  3. The prevailing opinion of commentators

    In general, commentators support the judicial attitudes shown in the abovementioned decisions and are of the view that:59
    1. the fact that the party intention is not explicitly expressed does not always mean that the parties' intention is not certain, and
    2. therefore the parties' implied intention should be sought by considering the type, content, nature and objects of a contract, the status of the parties, the existence of a jurisdiction or arbitration clause and other subjective and objective factors relating to the contract.


1.4.1.3. Other Cases

Article 7(2) of the Horei provides that if the intention of the parties is uncertain, the law of the place of acting shall govern. Accordingly in its decision of 9 October, 1962(74) the Supreme Court upheld a lower court's decision to apply Japanese law as the law of the place where the contract was made under art. 7(2) of the Horei to a partnership contract made in Japan between two American attorneys living in Japan since there was no indication of the parties' intention in the contract nor was it disclosed by the surrounding circumstances. Likewise in its decision of 11 November, 1964(75) the Osaka District Court applied Japanese law as the law of the place where the contract as made, under art. 7(2) of the Horei, because the parties' intention was uncertain. The contract concerned was a sales contract made in Japan between a Japanese seller and an American buyer. In order to apply art. 7(2) of the Horei it is necessary to ascertain the place of acting. It is obvious when the parties are located in the same place but it is not so apparent in cases where the parties are located in different jurisdictions. In this regard art. 9(1) of the Horei provides that if an intention is expressed to a person in a place having a different law, the place from which the expression of intention is despatched is deemed to be the place of acting. Article 9(2) of the Horei stipulates that the creation and effect of a contract are governed by the law of the place from which the offer is made, and if the offeree, at the time of acceptance, does not know from where the offer is made, then the place of the offerors' domicile is deemed to be the place of acting.

There are a number of court decisions which furnish examples of the application of these provisions. The Osaka District Court held in its decision of 11 March, 1921(76) that the law from which the offer was made (Japanese law) applied under art. 9(2) of the Horei to a contract for the sale of cotton made by mail between a Japanese corporation and an Indian. The original offer to sell the cotton at a stated price was made by the Indian party to the Japanese corporation. The latter purported to accept the offer but at a different price and the Indian party confirmed the acceptance. The Osaka court concluded that the original offer had been rejected and that the Japanese corporation's "acceptance" at a different price constituted a new offer which was made in Japan.

In its decision of 27 March, 1970(77) the Tokyo District Court held that French law, as the law of the place of acting, applied under art. 7(2) of the Horei to a contract for the collection of a bill of exchange which was made in Paris between a French bank and a Japanese corporation's Paris agent. The court reasoned that the parties were not located in different places for the purpose of art. 7(2) because it was the domicile of the agent not of the principle which was relevant.

In its decision of 18 April, 1977(78) the Tokyo District Court applied Japanese law, as the law of the place of acting, to an irrevocable letter of credit issued in Japan by a Japanese bank at the request of a Japanese corporation in favour of an Egyptian corporation as beneficiary. The court held that the parties' intention was uncertain because there was no governing law clause in the letter of credit and both the law of the place where the letter of credit was issued (Japanese law) and the law of the place where the letter of credit was to be performed (Egyptian law) could reasonably be implied as the governing law. In these circumstances the law of the place where the letter of credit was issued had to be applied under art. 9(1) of the Horei.


1.4.2. Application of the Governing Law

1.4.2.1. Formation of Contracts

The term "formation" encompasses issues relating both to the fact and the reality of an agreement between the parties. Whether the parties have reached agreement in fact is determined by application of the rules relating to offer and acceptance. If there is an ostensible agreement in this sense it may nevertheless not be a genuine agreement because of mistake, fraud or duress. Such issues go to the reality of the agreement.

There is little doubt in Japan that issues of this nature relating to the formation of a contract are referred to the law governing the contract in general. Thus in its decision of 30 September, 1960(13) the Tokyo District Court held that a contract made in Japan between two Americans was voidable due to the duress of one of the parties under Japanese law which governed the contract. Likewise the Hiroshima High Court held in its decision of 28 June, 1963(14) that the acquisition of a Japanese ship by a Korean at an auction was void under Japanese law, which governed the auction, because of the Korean's mistaken belief that he could legally obtain ownership of the Japanese vessel in spite of the fact that it was prohibited by Japanese law.

The prevailing opinion of commentators supports the view that the governing law of a contract, determined under arts. 7 and 9 of the Horei, applies to all aspects of a contract's formation.15


1.4.2.2. Formalities

Formal requirements appertain to the external side of the making of a contract and relate to the expression as opposed to the content of the legal obligation. Requirements of particular words, attestation by a notary public or before witnesses and the like are matters of form.

Regarding this point article 8(1) of the Horei provides that the formalities of a juristic act are governed by the law governing the effect of the act. This is a reference back to the law governing the contract in general as determined in accordance with arts. 7 and 9 of the Horei. But an alternative is provided by art. 8(2). It stipulates that:

"Notwithstanding the provisions of the preceding paragraph, compliance with the formal requirements of the law of the place of acting is sufficient, except where a juristic act establishes or disposes of a right in rem or a right requiring registration."


1.4.2.3. Capacity

The capacity of a person to contract is not referred to the governing law of a contract but is determined in accordance with the law of his nationality. This rule is prescribed by art. 3(1) of the Horei. However under art. 3(2) an alien who is of full capacity according to Japanese law but lacks capacity under the law of his nationality, is regarded as having full capacity in relation to juristic acts done in Japan.

In relation to corporations, the prevailing opinion of commentators in Japan is that the capacity of a corporation to act and questions relating to the authorization of contracts and their due execution by the corporation are governed by the law of the place of incorporation. However where a corporation lacks capacity under its law of incorporation the contract will be upheld if the corporation possesses capacity under the lex locus actus and the other party contracted in good faith and would suffer damage if the contract was invalidated under the law of incorporation.26

The only Japanese case in point is the decision of the Supreme Court of 15 July, 1975.(27) There it was held that questions relating to capacity, authorization and execution of a contract were governed by the law of New York State where the corporation was incorporated. However, the corporation also had its principal office in that state and therefore the case says nothing about the choice of law rule in situations where a corporation's place of incorporation and principal office are in different jurisdictions.

In relation to contracts made through agents different considerations arise. In Japan there is not statutory provision dealing with contracts made through agents. In its decision of 2 September, 1959(33) the Kobe District Court held that a contract made through an agent was, in general, governed by the law governing the authorization. However, if the law of the place where the contract was made held the principal responsible to the third party in the circumstances then the relationship between the principal and the third party was governed by the law of the place where the contract was made.

The Kobe Court's decision has the support of one commentator.34 Another submits that a contract made through an agent is governed by the governing law of the contract made through the agent.35 A third submits that a contract made through an agent is governed by the law of the place where the contract was made.36


1.4.2.4. Substantive Effect: Validity, Interpretation and Discharge

There is little doubt that the governing (proper) law ascertained in the way described above37 determines the validity and substance of the obligation created by the contract and its discharge.

Thus, if it is alleged that the whole contract or a particular clause thereof is void the matter is referred to the governing (proper) law. For example, in its decision of 26 April, 1965(39) the Tokyo District Court held that a "no action clause" of a motor accident insurance policy made in Japan between an American and a foreign insurance corporation was valid under Japanese law which governed the motor accident policy.

The interpretation and discharge of a contract also fall to be regulated by the governing (proper) law. In its decision of 4 March, 1955(40) the Osaka District Court honoured Japanese trade custom in considering whether delivery was delayed under a sales contract made in Japan between a Japanese buyer and a foreign seller because Japanese law was the governing law of the sales contract.

In its decision of 29 November, 1956(41) the Tokyo District Court held that the discharge of a voyage charter party made in Japan between a Panamian shipowner and a Japanese charterer was governed by Japanese law which governed the charter party. In its decision of 10 November, 1962(42) the Kobe District Court held that a seller could discharge a contract for the sale of beef made by correspondence between a New Zealand seller and a Japanese buyer under Japanese law which governed the contract because the buyer did not open a letter of credit for the seller prior to shipment.


1.4.2.5. Mode of Performance

The substance of the contractual obligation must be distinguished from the mode of its performance. For example the substantive obligation may be to pay $A100,000; that is the measure of the liability. But whether that obligation has to be discharged by paying Australian currency or the equivalent amount in Japanese currency does not affect the substantive obligation but merely goes to the mode of its discharge. Again, relatively minor matters such as the time of day at which the debt must be discharged and sometimes the place do not really go to the substance of the obligation but only relate to the mode of its performance.

There is no doubt that the governing (proper) law of the contract regulate the substance of the obligation44 but the mode of its performance is not necessarily regulated by that law. In Japan there is no statutory provision specifying which law governs the mode of performing a contractual obligation. In its decision of 9 November, 1921(45) the Court of Appeal of Tokyo held that the mode of repayment under a loan contract made in California between two Japanese was not regulated by Californian law, which governed the contract, but by Japanese law as the law of the place where repayment was to be performed (the lender being located in Japan at the time repayment was due).

The prevailing opinion of commentators in Japan is that in the absence of evidence that the parties intended another law to apply, the mode of performing a contract is governed by the law of the place where the obligation is to be performed.46 Accordingly, the business days, the business hours, the currency to be used in payment, the unit of weights and measures, and so on, in Japan are determined by Japanese law.


1.4.2.6. Remedies

In Japan the quantification of damages is governed by the law governing the contract. Thus in its decision of 9 August, 1960(52) the Tokyo District Court held that the quantification of damages caused by a seller's non-performance of a sales contract was to be determined by Japanese law because it governed the sales contract which had been made in Tokyo between two foreigners. To the same effect is the decision of the Tokyo District Court of 31 October, 1962.53 The case concerned a contract for the sale of military goods concluded between a Japanese manufacture and the United states army. It was held that the amount of damages caused to the United States army by the Japanese manufacturer's partial non-performance of the contract was to be calculated according to the governing law of the contract which was United States law.54

The question whether interest is payable as damages is referred to the governing law in Japan. Thus, in its decision of 17 October, 1967(55) the Tokyo District Court held that the interest rate applicable to damages caused by the non-performance of a contract fell to be determined by the governing law of the contract since the payment of interest was ancillary to the contract. The Tokushima District Court, in its decision of 16 December, 1969(56) held that the interest rate and period for which interest was payable in relation to damages caused by the non-performance of a contract was to be determined by the governing law of the contract.

Sometimes a contract contains a clause specifying the amount of damages or penalty to be paid on default. There has been no court decision in Japan on the validity of such a provision in an international commercial transaction. Article 420 of the Civil Code of Japan58 stipulates that such clauses are effective. Accordingly an agreement between the parties on the liquidated damages or penalty payable is sure to be effective as long as the contract is governed by Japanese law and the case is heard in Japan.

The stoppage of goods in transitu is another remedy which may be available to a seller. In its decision of 6 October, 1920(60) the Great Court of Cassation of Japan held that the seller's right of stoppage of goods in transitu was valid under English law which governed a contract for the carriage of goods by sea made in the United States.

In its decision of 20 April, 1978(62) the Supreme Court of Japan held that the formation and effect of a contract for creating a pledge on a time deposit made in Japan between a Thai bank and a Chinese living in Japan was governed by Japanese law which governed the time deposit contract. Under Anglo-Australian law a contract for the pledge of a movable would be governed by its proper law, but the actual assignment of an interest in the movable property would be governed by the lex situs.63


1.4.2.7. Public Policy

The public policy limitation on the governing law's application is found in art. 30 of the Horei in Japan but there is no legislative definition of public policy and good morals.

There is no reported case in Japan involving an international business transaction where the governing law, ascertained under art. 7 of the Horei, was denied application on the ground that it violated the public policy and good morals of Japan. The prevailing opinion of commentators is to the effect that Japanese public policy and good morals, under art. 30 of the Horei, is not simply violated by the fact that the application of the governing law contravenes a mandatory provision of a Japanese statute. The application of the governing law only violates the public policy limitation if it seriously damages the legal order of Japanese society under its private law.64


1.4.3. Application of Foreign Law

1.4.3.1. Investigation of Foreign Law

Assuming that a contract is governed by foreign law there arises the questions of who has the obligation to prove the foreign law and what happens if the foreign law is not satisfactorily established. In this regard Japan follows the civil law approach, which places a substantial obligation on the judge.72

The Horei contains no stipulation on the question of whether Japanese courts should investigate by itself the existence and content of a foreign law which is the governing law of a contract. There also is no other relevant statutory provision in Japanese law.

In its decision of 12 April, 1960(73) the Osaka District Court held that the existence and content of a foreign law which was the governing law of the case should be evidenced by the party who argued that the foreign law was the governing law since the question which law was the governing law was closely connected to the party's claim. The court therefore denied the party's claim when he failed to evidence the existence and content of the governing law.

The prevailing opinion does not agree to the above decision of the Osaka District Court.74 It submits that the court should investigate the existence and content of the governing law since the Horei makes it obligatory for the court to apply the governing law determined under the Horei even if the governing law is a foreign law.75

There is no other court decision on this point and it is hazardous to judge the judicial attitudes from only the abovementioned decision. However, it is prudent from a practical viewpoint for the party arguing that foreign law is the governing law of a case to furnish the court with evidence of the existence and content of the foreign law to the best extent that it can. In this regard it is submitted that not only written law but also case law and the prevailing opinion of commentators should be included as evidence of the foreign law provided it relates to the substantive law of the foreign jurisdiction.76


1.4.3.2. Interpretation of Foreign Law

In Japan there are no statutory provisions nor court decisions on how Japanese courts should interpret foreign laws which are applicable as the governing law of a contract. The prevailing opinion submits that Japanese courts should interpret a foreign law as the relevant foreign court interprets it.80


1.4.3.3. Appeals on Questions of Foreign Law

There is no statutory provision in point in Japan and only one old decision of the Great Court of Cassation of 20 December, 1905.82 It suggests that it is not possible to appeal on the ground that the lower court misapplied the foreign law. The present Supreme Court has not indicated its attitude. However in some cases83 the Supreme Court itself ascertained the content of the governing foreign law and this attitude suggests that it will accept an appeal based on the misapplication of the governing foreign law.

The prevailing opinion is also against the above-mentioned decision of the Great Court of Cassation, and submits that the misapplication of the governing foreign law is against the Horei which requires the right application of the governing foreign law by the court and therefore is appealable to the Supreme Court.84


1.4.3.4. Where the Existence and Content of the Foreign Law is Uncertain

In Japan there is no statutory provision on the question of what a court should do if, after investigation, it finds that the existence and content of the foreign law is uncertain. There is no court decision which discusses this question in relation to international business transactions but some decisions advert to it in the context of matrimonial or family problems. In some of these cases the court applied the rules which it judged to be most reasonable and suitable for the foreign law.87 However, the prevailing opinion of commentators submits that the law which is deemed to be the most similar to the foreign law should be applied.88


1.5. Conservation and Procedural Questions

1.5.1.Conservation

The remedies of provisional attachment and garnishment are created and exist only by virtue of local law, and the general rule is that questions of garnishment and attachment are decided by the law of the forum since this is a procedural matter. The law of the forum determines the validity and regularity of the proceedings, and whether the property is subject to, or is exempted by statute from, attachment or garnishment.

Under the Civil Conservation Law (Law No.91 of 1989) one of the disputed parties can file an unilateral petition for the provisional attachment of the object in dispute or garnishment for the court having the jurisdiction on the dispute or the object in dispute.

This unilateral petition can be decided by the court at the court's discretion without a hearing on whether or not that attachment or garnishment should be granted if the court judge from the petitioner's evidence that such provisional attachment or garnishment is urgently necessary in cases where the means of satisfaction of unsecured debts are liable to be removed beyond the jurisdiction, improperly disposed of, concealed, or otherwise placed beyond the reach of creditors.

But if the court thinks it is necessary, the court can order the petitioner to deposit an appropriate amount of money or equivalent security to the designated office of the Ministry of Justice.

If the object in dispute or the garnishee exists outside of the Japanese territory, whether this provisional attachment or garnishment is available or not is not clear. Because there is no statutory provision and no courts' decision on this point. Some commentators are negative since the Japanese courts can not have the jurisdiction over the object in dispute or the garnishee under the Japanese rules of courts' jurisdiction. But others are positive in consideration that the international trend is becoming positive and such provisional attachment or garnishment is necessary from the practical viewpoint.

A provisional injunction can be granted at the institution of suit, to restrain the defendant from doing or continuing some act in the circumstance which is almost similar to that of the provisional attachment or garnishment under the Civil Conservation Law.


1.5.2. Obtaining Evidence Abroad

Japan is a contracting party to the 1954 Convention relating to Civil Procedure and to other bilateral treaties regarding this point. But the 1970 Convention on the Taking Evidence Abroad in Civil or Commercial Matters has not yet been ratified by Japan. Obtaining evidence abroad therefore is possible under the conditions which are stipulated by the applicable convention or treaty.


1.5.3. Restrain of Other Countries' Litigation

Since there is no statutory provision and so far has been no court's decision on this point, it is not clear whether the Japanese courts can order the party to restrain foreign litigation. Commentators have not discussed this point.


1.6 Conciliation

Although a large number of international commercial disputes has been referred to arbitration in Japan, most of domestic commercial disputes are not brought into courts but also not into arbitration. They are usually resolved by conciliation.

Two kinds of conciliation is available in Japan. One is conciliation outside the court and the other is conciliation before the court, and conciliation outside the court is further divided into ad-hoc conciliation and institutional conciliation.


1.6.1. Conciliation Outside the Court

1.6.1.1. Ad-hoc Conciliation

A conciliator(s) is appointed by the parties' agreement and mediates between the parties with or without showing its own idea for settlement. If the parties success to agree a amicable settlement, it legally becomes a compromise outside the court. If the parties fails, they are free to refer their dispute to arbitration or to court litigation.

An ad-hoc conciliation has been not popular for resolution of commercial disputes in Japan, since it is not easy for the conciliator or the parties to manage the conciliation procedure.


1.6.1.2. Institutional Conciliation

The Japan Shipping Exchange, Inc.(JSE), The Japan Commercial Arbitration Association(JCAA) and I.C.C. are offering necessary service for managing conciliation of international or domestic business disputes under their Conciliation Rules.

These institutions are offering an important assistance to the parties in the appointment of conciliator(s). Under I.C.C.'s Conciliation Rules the conciliator is always appointed by I.C.C. and the parties can not appoint their conciliator by their agreement. On the contrary, in case of JSE or JCAA the parties can appoint the conciliator(s) by their agreement, and the institution can appoint the conciliator(s) only if the parties request it or fail to appoint the conciliator(s) by their agreement.

The conciliator's function and the legal result of conciliation are almost same to those of an ad-hoc conciliation, but there are some differences. Under Conciliation Rules of both JSE and I.C.C. the parties are prohibited to introduce in any judicial or arbitration proceeding as evidence or in any manner whatsoever (a) any views expressed or suggestions made by any party with regard to the possible settlement of the dispute, (b) any proposals put forward by the conciliator, and (c) the fact that a party had indicated that it was ready to accept some proposal for a settlement put forward by the conciliator. This prohibition is intended to stimulate the parties to refer their dispute to conciliation before going to arbitration or court litigation.

Under JSE's conciliation Rules the amicable settlement of the dispute can be converted from a compromise outside the court into an arbitral award which is enforceable by court, if the parties request it. Just after successful finish of the conciliation proceeding, the parties start an arbitration proceeding by appointing the conciliator(s) to arbitrator(s), and the arbitrator(s) ends the arbitration proceeding at once to make an award incorporating the content of the amicable settlement.


1.6.1.3. Its Pros and Cons of a Conciliation Outside the Court as an ADR

An amicable settlement which comes out form a conciliation outside the court is a compromise outside the court and has the similar legal effect as a conclusive evidence on the legal relation between the parties.

Further conciliation outside the court is a simple, speedy, not open and cheap method of ADR. The conciliator can flexibly adopt appropriate and practical resolution according to the individual nature of the dispute, since the conciliator has no obligation to apply any law to the substance of the dispute and to follow any procedural law in the conciliation process.

On the other hand the conciliator can not expect any assistance from the court, even if a person concerned refuses to submit evidence to the conciliator or to appear before the conciliator as a witness. A court litigation is also necessary if any of the parties to the conciliation does not voluntarily perform its obligation under the amicable settlement if it is not converted into an award.


1.6.2. Conciliation Before the Court

1.6.2.1. The Civil Conciliation Act (CCA)

In 1951 CCA (Law No.222, 1951) was enacted to integrate several similar statutes relating to conciliation of civil and commercial disputes. The earliest statute was enacted in 1922 for conciliating disputes arising out of continuous relationship such as land-lease, house-lease or farm tenancy.

Art.1 of the CCA stipulates that its purpose is to settle amicably a civil or commercial dispute not by strictly applying law but by applying the general justice and fairness and befitting to actual circumstances of the dispute.

A conciliation under the CCA is called a conciliation before the court since the conciliation is conducted by a conciliation committee organized by the court. In this regard it is distinguished from a conciliation outside the court which is carried out by the conciliator(s) appointed by the parties or by a conciliation institute.


1.6.2.2. Its Process

Conciliation before the court is commenced either on application by a disputing party or by a court's order if the court finds the dispute brought into the court is suitable for conciliation.

A disputing party can make its application for conciliation either before starting a court litigation or even while a court litigation is pending. If the party's application or the court's order is made while the court litigation is pending, the pending court litigation is suspended until the termination of the conciliation process.

Upon the party's oral or written application for conciliation or the court's order submitting the case to conciliation, a conciliation committee is organized by the court. If the court considers it appropriate, the conciliation committee can be composed of a judge(s), but if the party requests it, a judge and not less than two commissioners are appointed from the outside of the court under art.5 of the CCA.

If the committee deems it necessary, the committee can order the party or any related person not to transfer the right or item(s) disputed or not to change its status quo under art. 12 of the CCA.

The committee fixes a date for conciliation and summons the parties and the person(s) concerned or having interest in the dispute. Where the summoned party or person fails to appear on the date without any justification, the court imposes a non-penal fine under art.34 of the CCA.

The conciliation process is usually held in the court, but the committee can select a suitable place outside the court if necessary, but in principle is not open to the public. The parties and interested person(s) can appear in the conciliation process in person with or without their counsel.

In addition to hearing the parties' statements the committee can, on its own authority, investigate facts and take evidence from the party, expert and administrative agency, and summon witness. The committee attempts to identify the true nature of the dispute, makes clear the points at issue and confers with the parties so as to lead the dispute toward an amicable settlement.


1.6.2.3. Its Effects

Where an amicable settlement is reached between the parties and the committee decides the settlement appropriate, the settlement is put on record by the court and becomes a compromise before the court.

If the committee deems the parties' settlement inappropriate, or if there is no possibility for the parties to reach an amicable settlement, the committee can terminate the conciliation process, unless the parties agree in advance and in writing to accept the committee's determination. If the said parties' agreement is available, the committee prepares the terms of conciliation, which terms are put on record by the court and become a compromise before the court, and the conciliation process is terminated.

Even where the conciliation process is terminated without successful result, the court can render upon its authority such an ruling which it thinks necessary for the settlement of the dispute after consultation with the committee members. Either party or any interested person(s) can file an objection to the court's ruling within two weeks from the date when the party has been notified the ruling by the court. If an objection is filed within the period, the ruling loses its effect, but if no objection is filed within the period, the ruling becomes final as a compromise before the court.

Where the conciliation process is terminated without the court's ruling or the court's ruling loses it effect, the pending court litigation will start again, and if the party brings an action with respect the dispute to the competent court, the action deems to have been brought to the court on the date when the conciliation process started.


1.6.2.4. Its Pros and Cons of a Conciliation before the Court as an ADR

A conciliation before the court is a simple, speedy, not open and cheap method of ADR, and is the most popular and effective ADR in Japan.

The number of the newly filed cases of the conciliation before the court is about 74,000 in 1991, and this number has increased gradually in these 45 years after the World War II. On the average this number has been about 30% of the newly filed civil cases.

About 55% of the cases of the conciliation before the court has been successfully settled by the parties' compromise.

The average duration of the case of the conciliation before the court is 8 to 9 months, which is shorter than 12 months for the stage of a district court in case of a court litigation.

The fee of the conciliation before the court, which fee is paid to the court, is determined according to the amount of dispute, but roughly speaking is about 60% of the case in a court litigation.

A disadvantage of the conciliation before the court is that the parties can not appoint the conciliator(s) by their agreement, and the quality of a conciliation committee member is not always suitable for a commercial dispute since their fee is nominal and too small for appointing an able businessman or business lawyer to a conciliation committee member.


1.6.3. Conclusion

From the foregoing discussion it could be concluded that a compromise before the court and a conciliation before the court have been the most effective and practical means of ADR in Japan. At the same time a conciliation before the court turned out to be unable to satisfy completely all needs of the parties to commercial disputes.

Under the present Civil Conciliation Act the parties' wish to appoint a conciliator(s) who is most suitable for the nature of their dispute by their agreement can not be fulfilled.

Furthermore if it becomes necessary for the parties to enforce in a foreign jurisdiction the result of a compromise before the court or a conciliation before the court which is registered in a Japanese court's record, there is required an enforcement procedure for a foreign judgment, the requirements of which are not easy to be met by the parties.

In this connection it should be noted that the Japan Shipping Exchange Inc. which is the oldest arbitration institution in Japan has enacted its Conciliation Rules in this year so as to overcome these difficulties.

Under JSE's Conciliation Rules the parties can appoint a conciliator(s) by their agreement and the result of the conciliation can be converted into an arbitral award, which is easily enforceable in a foreign jurisdiction under the 1958 New York Convention.

It is too early to evaluate the JSE's conciliation at this stage, but could be predicted that more commercial disputes of not only domestic nature but also international nature will be resolved by a conciliation outside the court, and that both conciliation outside the court and conciliation before the court will increase their importance as ADR in Japan.


2.Recognition and Enforcement of Foreign Judgments


3.Arbitration




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