Can We Agree on a Foreign Court for Disputes with a Japanese Company, or Will a Japanese Court Accept Jurisdiction if We Sue There?

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

In international business dealings, proactively addressing potential dispute resolution mechanisms is a hallmark of sound contractual practice. One key aspect of this is determining which country's courts will have the authority to hear any disputes that may arise—an issue known as international adjudicatory jurisdiction. Parties often seek to achieve predictability and control over this by including jurisdiction agreements (also known as choice of forum clauses) in their contracts. Alternatively, even without such an agreement, a party's actions in court proceedings can sometimes establish jurisdiction.

This article explores how Japanese law, under its Code of Civil Procedure (CCP) (Minji Soshōhō, 民事訴訟法), treats agreements on international jurisdiction and the concept of establishing jurisdiction by appearance (submission to jurisdiction), particularly in the context of disputes involving Japanese companies or occurring in Japan.

Choosing Your Forum: Agreements on International Jurisdiction (CCP Article 3-7)

Japanese law, in line with modern international commercial practice, generally respects the autonomy of parties to agree on the courts of a specific country to hear disputes arising from their legal relationship. This is enshrined in CCP Article 3-7 (Kokusai Saiban Kankatsu no Gōi, 国際裁判管轄の合意).

The Principle and Rationale:
The core idea is that parties should be free to select a forum they deem appropriate, which enhances predictability and allows them to choose a neutral venue or one with particular expertise. The chosen court does not necessarily need to have a close factual connection to the dispute itself; for example, parties from different countries might choose the courts of a third, neutral country.

Formal Requirements (CCP Article 3-7, paragraphs 2 and 3):
To ensure clarity and prevent surprise, Japanese law imposes certain formal requirements for a jurisdiction agreement to be valid:

  1. Relating to a "Specific Legal Relationship": The agreement must pertain to lawsuits based on "a specific legal relationship" (ittei no hōritsu kankei, 一定の法律関係). This means broad, all-encompassing agreements that are not tied to a particular contractual or other defined legal relationship might not be upheld.
  2. In Writing: The agreement must be made in writing (shomen, 書面). However, CCP Article 3-7, paragraph 3 clarifies that an agreement made by way of an "electromagnetic record" (e.g., email exchanges, electronically accepted terms and conditions) which clearly evidences the agreement is deemed to be in writing. This aligns with modern commercial practices and is similar to requirements for arbitration agreements.

Substantive Validity and Limitations:
While party autonomy is respected, it's not absolute:

  • Chosen Foreign Court Lacks Power (CCP Art. 3-7(4)): An agreement designating a foreign court becomes ineffective if that chosen court "cannot exercise jurisdiction legally or in fact." This could occur if, for example, the chosen foreign court declines jurisdiction under its own laws, or if the court system in that country is non-functional due to war or other disruptions, effectively denying access to justice. In such cases, Japanese courts may hear the case if another basis for Japanese jurisdiction exists.
  • Conflict with Japan's Exclusive Jurisdiction Rules (CCP Art. 3-10): If an agreement purports to grant jurisdiction (exclusively or otherwise) to a foreign court over a matter for which Japanese courts have exclusive jurisdiction under CCP Article 3-5 (e.g., certain IP rights registered in Japan, internal affairs of Japanese corporations, registration of real property in Japan), that agreement will be void to the extent it conflicts with Japan's exclusive jurisdiction.
  • "Grossly Unreasonable and Contrary to Public Policy": While not explicitly stated in Article 3-7 for all cases, a landmark Supreme Court judgment (November 28, 1975, Minshū Vol. 29, No. 10, p. 1554) indicated that an exclusive jurisdiction agreement for a foreign court could be deemed invalid if it is "grossly unreasonable and contrary to public policy (kōjo hō, 公序法)." This provides a residual judicial oversight, although the threshold for such a finding is very high, especially in B2B commercial contracts between sophisticated parties. Mere inconvenience or higher litigation costs in the chosen foreign forum are generally insufficient.
  • Impact on "Special Circumstances" Dismissal: If parties agree on exclusive jurisdiction for Japanese courts, a Japanese court cannot then dismiss the case based on "special circumstances" under CCP Article 3-9 (which otherwise allows dismissal if hearing the case in Japan would impair fairness or prompt justice). The parties' explicit choice for Japan overrides this discretionary dismissal.

Establishing Jurisdiction by Appearance (Submission to Jurisdiction - CCP Article 3-8)

Even if there's no prior agreement on jurisdiction, or if Japan would not otherwise have jurisdiction, a Japanese court can acquire jurisdiction if the defendant "appears" and submits to its authority. This is known as jurisdiction by appearance or submission (Ōso ni yoru Kokusai Saiban Kankatsu, 応訴による国際裁判管轄).

CCP Article 3-8: "A court of Japan shall have jurisdiction over an action if the defendant has made arguments on the merits or has made statements in preparatory proceedings without objecting to the court's lack of jurisdiction."

Key Points:

  • The Act of Submission: Jurisdiction is established if the defendant actively participates in the proceedings by arguing the substance of the case (the "merits") or makes substantive statements during preparatory stages, without first or simultaneously raising a formal objection to the court's jurisdiction.
  • Rationale: This is based on the idea of implied consent or waiver. By engaging with the merits of the case before a Japanese court without protest, the defendant is deemed to have accepted that court's authority to adjudicate the dispute.
  • Preserving Jurisdictional Objection: To avoid submitting to jurisdiction, a defendant who believes a Japanese court lacks jurisdiction must raise a formal jurisdictional objection before or at the same time as making any arguments on the merits. If the objection is made properly, proceeding to argue the merits conditionally (i.e., "if the court finds it has jurisdiction, then our defense on the merits is X, Y, Z") does not constitute submission.

Special Protections for Consumers and Employees Regarding Jurisdiction Agreements

Reflecting a policy to protect typically weaker parties, Japanese law places significant restrictions on the validity of pre-dispute jurisdiction agreements in consumer contracts and individual employment contracts. These are found in CCP Article 3-7, paragraphs 5 and 6.

Consumer Contracts (CCP Article 3-7, paragraph 5):
A pre-dispute agreement on jurisdiction in a consumer contract is valid only if:

  1. It designates a court in the country where the consumer had their domicile at the time the contract was concluded; OR
  2. The consumer is the one who initiates the lawsuit in the agreed-upon court (whether in Japan or a foreign country); OR
  3. The business operator sues the consumer in the agreed-upon court, and the consumer invokes the agreement (i.e., consents to jurisdiction there at that point).

If an exclusive jurisdiction agreement for a foreign court does not meet these conditions, it will generally only be treated as a non-exclusive jurisdiction agreement by a Japanese court. This means the consumer could still sue in Japan if Japanese courts otherwise have jurisdiction (e.g., based on the consumer's domicile in Japan under CCP Article 3-4, paragraph 1).

Individual Employment Contracts (CCP Article 3-7, paragraph 6):
Similar restrictions apply to pre-dispute jurisdiction agreements in individual employment contracts. Such an agreement is valid only if:

  1. It designates a court in the country where the place of work (rōmu teikyō-chi, 労務提供地) was located at the time the employment contract terminated; OR
  2. The employee initiates the lawsuit in the agreed-upon court; OR
  3. The employer sues the employee in the agreed-upon court, and the employee invokes the agreement.

Again, if an exclusive jurisdiction agreement for a foreign court does not meet these conditions, it will generally only have effect as a non-exclusive agreement if a Japanese court is seized of the matter and otherwise has jurisdiction (e.g., based on the place of work being in Japan under CCP Article 3-4, paragraph 2).

Post-Dispute Agreements: These restrictions generally apply to agreements made before a dispute has arisen. Agreements on jurisdiction made after the dispute has materialized are usually considered valid, as both parties are then presumed to be aware of the specific circumstances and implications of their choice.

Brief Note on Jurisdiction for Provisional Remedies

It's also relevant to note that Japan's Civil Provisional Remedies Act (Minji Hozen Hō, 民事保全法), Article 11, provides for jurisdiction in Japan over applications for provisional remedies (like attachments or preliminary injunctions) if:

  1. A Japanese court has jurisdiction over the main (substantive) action; OR
  2. The property to be attached or the subject matter in dispute is located in Japan.

Importantly, Japanese courts can grant provisional remedies concerning assets in Japan even if there is an exclusive jurisdiction agreement for a foreign court for the main dispute, or an arbitration agreement with a foreign seat. This is to ensure that assets in Japan can be preserved pending resolution of the merits elsewhere. (See, e.g., Asahikawa District Court, Provisional Disposition, February 9, 1996, Hanrei Jihō No. 1610, p. 106).

Analyzing Scenarios

Let's examine how these principles apply, using adapted scenarios from Case 30, No. 28 of the reference material.

Scenario 1: Commercial Contract with an Exclusive Foreign Jurisdiction Clause (Adapted from Problem 1)

  • Facts: Company A (Japanese) and Company B (a wine seller from Country X) enter into a contract for the sale of high-quality bottled wine. Delivery is to be in Yokohama, Japan. The contract contains a clause granting exclusive jurisdiction to the courts of Country Y (a third country) for any disputes. A dispute arises over the quality of the wine delivered to Yokohama. Company A sues Company B in a Japanese court.
  • Analysis:
    • Company B's Defense (Jurisdiction Clause): Company B will likely raise the exclusive jurisdiction clause for Country Y courts as a defense to Company A's suit in Japan.
    • Company A's Arguments against the Clause: Company A argues that Country Y has no substantial connection to the contract, the claim amount is relatively small, and litigation in Country Y would be unreasonable and disproportionately costly for both parties.
      • No Connection Needed: Under CCP Article 3-7, the chosen forum (Country Y) does not need a direct connection to the dispute or parties. Neutral forums are permissible.
      • Unreasonableness/Cost: In a commercial B2B contract between presumably sophisticated parties, arguments about inconvenience or cost are generally very difficult to sustain to the point of invalidating an exclusive jurisdiction clause, unless it reaches the high threshold of being "grossly unreasonable and contrary to public policy" (as per the 1975 Supreme Court precedent). A small claim amount relative to potential litigation costs in a distant forum might be a factor in assessing gross unreasonableness, but it's a high bar.
    • If Country Y Courts Cannot Exercise Jurisdiction (CCP Art. 3-7(4) - related to Problem 1(2)): If it turns out that the courts of Country Y cannot or will not exercise jurisdiction (e.g., under their own domestic jurisdictional rules, or if the court system is factually unavailable), then the jurisdiction agreement designating Country Y becomes ineffective. In such a case, Company A could pursue its claim in a Japanese court if Japanese courts have an independent basis for jurisdiction (e.g., based on the place of performance – delivery of wine – being in Yokohama, under CCP Article 3-3, item 1).
    • Appearance by Company B (related to Problem 1(3)): If Company B first objects to the Japanese court's jurisdiction based on the Country Y clause, and then, in the alternative or after its jurisdictional objection is overruled, proceeds to argue the merits of the wine quality dispute, this does not constitute submission to jurisdiction under CCP Article 3-8. The initial objection preserves its jurisdictional challenge.

Scenario 2: Employment Contract with a Foreign Jurisdiction Clause (Adapted from Problem 2)

  • Facts: Company C (incorporated and based only in Country Z) hires Ms. D (a Japanese national residing in Japan) to conduct market research in Japan. Their employment contract contains a clause stating that all disputes relating to the contract shall be brought exclusively before the courts of Country Z. After a year of working in Japan, Company C dismisses Ms. D due to its own financial difficulties. Ms. D sues Company C in a Japanese court, challenging the dismissal and seeking unpaid wages and confirmation of her employment status. Company C invokes the jurisdiction clause, seeking dismissal.
  • Analysis:
    • Validity of the Jurisdiction Clause (CCP Art. 3-7(6)): This is a pre-dispute jurisdiction agreement in an individual employment contract.
      • The agreed forum is Country Z, which is not Japan (the place of work, rōmu teikyō-chi).
      • Ms. D (the employee) is suing in Japan, not the agreed Country Z. Company C (the employer) is invoking the clause.
      • Therefore, the conditions under CCP Article 3-7, paragraph 6 for upholding the exclusive effect of the Country Z clause are not met.
    • Effect of the Clause: The exclusive jurisdiction clause for Country Z will likely be treated by the Japanese court as, at most, a non-exclusive jurisdiction agreement. It cannot, by itself, oust the jurisdiction of Japanese courts if they otherwise have it.
    • Japanese Court's Jurisdiction: Ms. D was performing her work in Japan. Under CCP Article 3-4, paragraph 2, Japanese courts have jurisdiction over actions brought by an employee against an employer if the "place of work" is in Japan. Thus, the Japanese court likely has jurisdiction over Ms. D's claim, and the Country Z jurisdiction clause will not prevent this.

Conclusion

Japanese law grants parties considerable freedom to agree on the forum for their international disputes, a principle that enhances predictability in cross-border commerce. However, this autonomy is balanced by essential formal requirements to ensure genuine consent, rules of reason to prevent manifestly unjust outcomes (such as when the chosen court is unavailable), and robust special protections for weaker parties like consumers and employees. Furthermore, the doctrine of jurisdiction by appearance ensures that a party who voluntarily litigates the merits before a Japanese court without objection is generally bound by that court's authority. Understanding these nuances is crucial for drafting effective dispute resolution clauses and for navigating jurisdictional challenges in litigation involving Japanese entities or connections to Japan.