Can My Company Agree on Where to Be Sued in Japan? The Rules on Jurisdiction Agreements

In the world of commerce, predictability is a prized asset. When drafting contracts, particularly those with international dimensions, one of the key clauses that can contribute to this predictability is the jurisdiction agreement, also known as a forum selection clause. This provision allows parties to pre-determine which country's courts, or even which specific court, will have the authority to hear disputes arising from their contract. Japanese law, like that of many other jurisdictions, recognizes the validity of such agreements, but subject to specific rules and conditions. Understanding these rules is crucial for businesses seeking to manage litigation risk and ensure that potential disputes are handled in a mutually acceptable or strategically advantageous forum.

I. Understanding Jurisdiction by Agreement (Gōi kankatsu - 合意管轄) in Japan

A. The Concept and Its Rationale

Jurisdiction by agreement, or Gōi kankatsu (合意管轄) in Japanese, allows parties to a legal relationship to choose, by mutual consent, a court or courts that will have jurisdiction over lawsuits arising from that relationship. This principle is an extension of party autonomy, allowing businesses and individuals to proactively manage one aspect of potential future disputes.

The rationale behind upholding such agreements includes:

• Enhancing Predictability: Parties know in advance where they might sue or be sued, which aids in risk assessment and legal planning.
• Promoting Efficiency and Convenience: Parties can choose a forum that is convenient for them, has particular expertise, or whose language and procedures are familiar.
• Facilitating International Trade and Commerce: The recognition of forum selection clauses is vital for smooth international business transactions, providing a degree of certainty in cross-border dispute resolution.

B. Domestic Jurisdiction Agreements (Code of Civil Procedure, Art. 11 - 民事訴訟法第11条)

Article 11 of Japan's Code of Civil Procedure (Minji Soshō Hō 民事訴訟法) governs jurisdiction agreements pertaining to domestic litigation (i.e., where Japanese courts are chosen).

1. Formal Requirements:
   • Agreement by the Parties for the Court of First Instance: The agreement must pertain to jurisdiction for the court of first instance. Parties cannot, by agreement, dictate which appellate court will hear appeals.
   • Concerning a Lawsuit Based on a "Specific Legal Relationship" (Tokutei no hōritsu kankei ni motozuku uttae 特定ノ法律関係ニ基ク訴): The agreement cannot be a blanket conferral of jurisdiction for any and all future disputes between the parties, regardless of nature. It must relate to disputes arising from a particular, identifiable legal relationship, such as a specific contract or a defined set of transactions.
   • Must Be in Writing (Shomen 書面): This is a strict requirement. The term "in writing" has been interpreted to include electronic forms like emails or agreements made via a website, provided there is a clear record of the agreement and the parties' intent. However, clarity and irrefutability of the electronic record are key.
2. Types of Agreements and Their Effects:
   • Non-Exclusive Jurisdiction Agreements (Hi-senzoku-teki gōi kankatsu 非専属的合意管轄): This type of agreement adds the chosen court(s) to the list of statutorily competent courts. The plaintiff can still choose to sue in any other court that has jurisdiction under general statutory rules (e.g., defendant's domicile, place of performance). It provides an additional option rather than restricting existing ones.
   • Exclusive Jurisdiction Agreements (Senzoku-teki gōi kankatsu 専属的合意管轄): This agreement designates a specific court (or courts) as the sole venue for disputes. If valid, an exclusive jurisdiction agreement effectively ousts the jurisdiction of other courts that might have statutory jurisdiction. To be considered exclusive, the agreement must clearly indicate the parties' intention to exclude other venues. Japanese courts tend to require fairly explicit language to infer exclusivity in purely domestic agreements, although the trend is towards respecting party intent.
3. Limitations:
   • Cannot Oust Mandatory Exclusive Jurisdiction: If a specific law mandates that a particular type of case must be heard by a specific court (e.g., certain company law matters, some intellectual property cases having exclusive jurisdiction in the IP High Court), parties cannot override this by agreement.
   • Public Policy and Unfairness: While less commonly invoked in purely commercial domestic agreements between sophisticated parties, agreements that are grossly unfair or contrary to public policy might be challenged, though the threshold is high.
   • Consumer and Employment Contracts: Specific laws (e.g., the Consumer Contract Act) may restrict or invalidate jurisdiction clauses in consumer contracts or employment agreements that unilaterally disadvantage the consumer or employee by designating a remote or inconvenient forum. This is generally less relevant for B2B contracts.

II. International Jurisdiction Agreements (Kokusai saiban kankatsu no gōi - 国際裁判管轄の合意) (Code of Civil Procedure, Art. 3-7)

Article 3-7 of the Code of Civil Procedure specifically addresses the validity and effect of agreements that designate either a Japanese court or a foreign court to have jurisdiction over international disputes. This provision is highly significant for international businesses.

A. Recognition and Validity in Japan
Japanese law generally recognizes and enforces international jurisdiction agreements, reflecting Japan's participation in international commerce and its adherence to principles of party autonomy in international dispute resolution.

B. Requirements for International Agreements
The requirements are broadly similar to those for domestic agreements:

• The agreement must be in writing (or evidenced in writing, including electronic forms that can be converted into tangible written form).
• It must concern a lawsuit based on a specific legal relationship.
• It must designate a specific court or courts of a particular country.

C. Effect of an International Jurisdiction Agreement Designating a Japanese Court
If an international agreement validly confers jurisdiction on a Japanese court, that court will generally have jurisdiction.

D. Effect of an International Jurisdiction Agreement Designating a Foreign Court
If an international agreement validly confers exclusive jurisdiction on a foreign court, Japanese courts will generally decline jurisdiction if a lawsuit is brought in Japan in contravention of that agreement. The defendant can raise the existence of such an exclusive foreign jurisdiction agreement as a defense.

E. Presumption or Interpretation of Exclusivity in International Agreements
Unlike purely domestic agreements where exclusivity might require very explicit wording, there's a stronger tendency in international contexts for courts to interpret a jurisdiction clause naming a specific country's courts as intended to be exclusive, unless specified otherwise. This aligns with the goal of providing certainty in international dealings. However, clear drafting is always preferable.

F. When International Jurisdiction Agreements May Be Invalidated or Disregarded by Japanese Courts
Despite the general principle of upholding such agreements, Article 3-7 provides grounds upon which a Japanese court may disregard an agreement conferring exclusive jurisdiction on a foreign court:

1. The designated foreign court lacks the legal capacity to exercise jurisdiction under its own laws. (e.g., the chosen court simply cannot hear the type of case).
2. The agreement is "extremely unreasonable and contrary to public policy" in Japan (ichijirushiku fugōri nishite kō no chitsujo ni hansuru 著シク不合理ニシテ公ノ秩序ニ反スル). This is a high threshold but could apply if, for example, the chosen forum is entirely unconnected to the parties or the dispute, and its choice effectively denies one party a reasonable opportunity to present their case (e.g., due to extreme costs, political instability, or lack of due process in the designated forum).
3. The case falls under Japan's mandatory exclusive international jurisdiction. For example, actions concerning rights in real property located in Japan, or certain intellectual property registration matters, are typically considered subject to the exclusive jurisdiction of Japanese courts, and parties cannot agree to oust this.

G. Key Case Law: The Chisako Sale Case (Supreme Court, November 28, 1975 - Minshu Vol. 29, No. 10, p. 1554)
This landmark Supreme Court decision, predating the current Article 3-7 but influential in its development, dealt with an exclusive jurisdiction clause in a bill of lading designating a foreign court. The Court held that such clauses are, in principle, valid, provided they are not contrary to public policy. It emphasized that public policy considerations should involve an assessment of factors like the fairness of the clause, the relative bargaining power of the parties, the foreseeability of litigating in the chosen forum, and whether the clause effectively deprives a party of access to justice. While Article 3-7 now provides more specific statutory grounds, the underlying principle of balancing party autonomy with fairness and public policy remains relevant.

III. Drafting Effective Jurisdiction Clauses for Business Contracts

Careful drafting is essential to ensure a jurisdiction clause achieves its intended purpose.

• Clarity and Precision: Clearly identify the chosen court(s) or the city/country whose courts will have jurisdiction. Avoid ambiguity (e.g., "courts of Europe" is too vague).
• Specify Exclusivity: If exclusive jurisdiction is desired, use explicit language such as "The parties agree that the [City, Country] courts shall have exclusive jurisdiction..." If non-exclusive jurisdiction is acceptable, that can also be stated.
• Scope of the Clause: Define what types of disputes are covered. Should it be "all disputes arising from or in connection with this Agreement," or something narrower or broader? Consider tort claims related to the contract as well.
• Governing Law: While the jurisdiction clause is separate from the governing law clause of the main contract, ensure they are consistent and do not create unintended conflicts. The law governing the contract may influence the interpretation of the jurisdiction clause itself if not otherwise specified.
• Practicality and Enforceability:
  • Choose a forum that is reasonably connected to the parties or the transaction.
  • Consider the language of the proceedings, the availability of legal representation, the likely costs, and the time to judgment in the chosen forum.
  • Crucially, consider the enforceability of judgments from the chosen forum in jurisdictions where the defendant has assets.

IV. Relationship with Other Jurisdictional Grounds

• Interaction with Statutory Venues: A valid exclusive jurisdiction agreement will generally override non-exclusive statutory grounds for jurisdiction. If the agreement is non-exclusive, it adds to the plaintiff's options.
• No Effect on Subject-Matter Jurisdiction: Parties cannot, by agreement, confer subject-matter jurisdiction on a court that inherently lacks it under the law (e.g., agreeing that a Summary Court in Japan, which handles small claims, should adjudicate a multi-million dollar dispute that falls under District Court jurisdiction).
• No Effect on Mandatory Exclusive Jurisdiction: As stated, if the law prescribes that a specific type of case must be heard only by a particular court (e.g., certain actions concerning Japanese real estate in the court where the property is located), parties cannot contract out of this.

Conclusion

Jurisdiction agreements are a powerful tool for managing litigation risk and enhancing predictability in business relationships, both domestically within Japan and in international transactions. Japanese law generally respects party autonomy in choosing a forum, provided the agreement meets statutory requirements of form and specificity, and does not contravene fundamental principles of public policy or mandatory exclusive jurisdiction. For businesses, this means that well-drafted jurisdiction clauses are likely to be upheld. However, careful attention to the details of the agreement, the nature of the potential disputes, and the specific legal framework governing both domestic and international jurisdiction agreements is essential to ensure these clauses are effective and achieve their intended strategic purpose.