Contract Disputes with Japanese Partners: Can We Sue in Japan Based on Place of Performance or Tort?

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

When contractual relationships with Japanese business partners sour, leading to disputes, a critical strategic decision is where to initiate legal proceedings. If your company is considering suing a Japanese (or even a non-Japanese) partner in Japan, understanding the specific grounds upon which Japanese courts can exercise international adjudicatory jurisdiction is essential. Beyond general jurisdiction based on the defendant's principal place of business, Japan's Code of Civil Procedure (CCP) (Minji Soshōhō, 民事訴訟法) outlines several bases for special jurisdiction, including the place of performance for contractual obligations and the place where a tort (which may overlap with a breach of contract) occurred.

This article explores these specific jurisdictional gateways under CCP Article 3-3, items 1 and 8, and also touches upon related issues such as proving jurisdictional facts and joining multiple claims or parties.

Jurisdiction Based on the Place of Performance of a Contractual Obligation (CCP Article 3-3, item 1 - Keiyaku Saimu Rikō-chi Kankatsu, 契約債務履行地の管轄)

For disputes arising from contracts, Japanese courts may assert jurisdiction if Japan is the place where the relevant contractual obligation was to be performed. CCP Article 3-3, item 1 grants jurisdiction over "an action which relates to a contractual obligation, if the place of performance of the obligation is in Japan, or if, in a case where the place of performance is not stipulated, the law applicable to the contract has been chosen and such law stipulates the place of performance to be in Japan." (Note: The latter part concerning chosen law stipulating performance in Japan is a more precise interpretation; a simpler reading suggests jurisdiction if the place of performance under the chosen applicable law is Japan, or if the place of performance is stipulated in the contract to be in Japan).

Key Features and Limitations:

  1. Applies Only to "Contractual Obligations": This ground is specifically for claims arising out of a contract. It does not, for example, directly apply to tort claims, even if they arise between contracting parties, unless the tort claim itself can be framed as a breach of a contractual duty.
  2. Strict Conditions for Invocation: Jurisdiction at the place of performance (rikō-chi, 履行地) is not broadly available. It is recognized only if:
    • (a) The place of performance for the specific obligation in question is stipulated in the contract itself to be in Japan; OR
    • (b) The parties have chosen the law applicable to the contract, AND that chosen law designates Japan as the place of performance for the obligation. (A more common interpretation is that if the contract designates a governing law, and under that law the place of performance is determined to be Japan, jurisdiction may exist).
  3. Rationale for Limitations: These strict conditions are designed to ensure foreseeability for the defendant. If the place of performance is not agreed upon or determined under a chosen law, it might be fixed by objective choice-of-law rules (like those in AGRAL Article 8, pointing to the law of closest connection). This could lead to jurisdiction in a forum that was not reasonably foreseeable by the defendant at the time of contracting. The CCP drafters sought to avoid such "surprise" forums for place-of-performance jurisdiction.
  4. Identifying the "Obligation in Question": When a breach of contract is alleged, the "obligation in question" is the primary contractual duty that was allegedly breached (e.g., the seller's duty to deliver conforming goods to Japan, the buyer's duty to make payment in Japan). It is not the secondary obligation to pay damages arising from the breach. The place of performance of the original, breached duty is what matters.
  5. Claims for Breach of Warranty (Kashi Tanpo Sekinin, 瑕疵担保責任): Claims based on breach of warranty (e.g., for defective goods) are generally considered contractual in nature for jurisdictional purposes under Japanese PIL and would fall within the scope of "other claims relating to contractual obligations." Thus, if goods were to be delivered to Japan and were defective, a claim for breach of warranty could potentially find jurisdiction in Japan under this rule if the conditions regarding stipulation of performance place or chosen law are met.

If neither the place of performance is specified in the contract to be Japan, nor is there a choice of law clause that leads to Japan as the place of performance, then CCP Article 3-3, item 1 cannot be used as a basis for jurisdiction. Plaintiffs would need to find other grounds, such as the defendant's business activities in Japan or the location of their assets.

Jurisdiction Based on the Place of Tort (CCP Article 3-3, item 8 - Fuhō Kōi-chi Kankatsu, 不法行為地の管轄)

A breach of contract can sometimes also give rise to a tort claim (concurrent liability). In such cases, or for independent tort claims, CCP Article 3-3, item 8 provides for jurisdiction if the "place where the tort was committed" is in Japan.

Key Features:

  1. "Place Where the Tort Was Committed": This phrase is interpreted broadly under Japanese PIL to include both:
    • The place where the wrongful act itself was committed (kagai kōi-chi, 加害行為地).
    • The place where the result (harm or injury) of the wrongful act occurred (kekka hassei-chi, 結果発生地).
  2. Cross-Border Torts (Kakuchi Fuhō Kōi, 隔地的不法行為): If the act and the result occur in different jurisdictions, a Japanese court can have jurisdiction if either place is in Japan. However, if jurisdiction is asserted based only on the result occurring in Japan (while the act occurred elsewhere), there's an important qualification: the occurrence of the result in Japan must have been "ordinarily foreseeable" by the defendant. This is an objective standard, not based on the defendant's actual foresight.
  3. Direct and Primary Result: The "result" occurring in Japan must be a direct and primary consequence of the tortious act, not a remote or indirect financial loss.
  4. Scope of Torts: This ground applies to a wide range of torts, including negligence, intentional torts, and can also be relevant for claims framed under product liability or business torts where specific jurisdictional rules for those torts do not exist independently of this general tort ground. It can also be used for claims seeking an injunction to prevent future tortious acts.

For example, if a foreign company makes misrepresentations outside Japan that induce a Japanese company to enter into a detrimental contract, and the Japanese company suffers financial loss in Japan as a direct result, Japan might be considered the kekka hassei-chi. Jurisdiction would then depend on whether that loss in Japan was ordinarily foreseeable by the foreign company.

Proving Jurisdictional Facts (Kankatsu Gen'in Jijitsu no Shōmei, 管轄原因事実の証明)

A practical challenge arises when the facts that form the basis for jurisdiction (e.g., that Japan was the place of performance, or that a tort occurred/had effects in Japan) are themselves disputed and overlap with the substantive issues of the case.

  • Court's Ex Officio Investigation: Generally, the court investigates matters of jurisdiction on its own initiative (shokken chōsa, 職権調査).
  • Standard of Proof: When jurisdictional facts are intertwined with the merits, Japanese case law, notably a Supreme Court decision on June 8, 2001 (Minshū Vol. 55, No. 4, p. 727), has established a standard requiring proof of an "objective factual relationship" (kyakkanteki jijitsu kankei). This typically means the plaintiff must prove, to a degree similar to that required for the merits, the objective facts connecting the dispute to Japan (e.g., for a tort, that an act by the defendant caused harm to the plaintiff's legally protected interest within Japan). This can be a significant hurdle at the jurisdictional stage.
  • Academic Debate: Some legal scholars argue for a lower standard, such as prima facie proof (ichō no shōmei, 一応の証明) of jurisdictional facts, to avoid pre-judging the merits. However, the Supreme Court's "objective factual relationship" standard currently prevails.

Jurisdiction over Consolidated Claims (Joinder of Claims - CCP Art. 3-6 - Heigō Seikyū no Kankatsu, 併合請求の管轄)

If a Japanese court has jurisdiction over one claim against a defendant, it might also be able to hear other related claims against the same defendant, or claims involving other related parties, under the rules for joinder.

  1. Objective Joinder (Same Plaintiff, Same Defendant): If a Japanese court has jurisdiction over a primary claim, it may also exercise jurisdiction over other claims by the same plaintiff against the same defendant if those other claims are "closely related" (missetsu na kanrensei, 密接な関連性) to the primary claim. This promotes judicial economy.
  2. Subjective Joinder (Multiple Plaintiffs or Defendants): This is more restrictive. If there are multiple plaintiffs or defendants, a Japanese court can hear claims involving parties over whom it might not otherwise have independent jurisdiction only if:
    • There is a close relationship between all the claims; AND
    • The rights or obligations that are the subject of the lawsuit are common to those parties, OR they arise from the "same factual and legal cause" (dōitsu no jijitsujō oyobi hōritsujō no gen'in, 同一の事実上及び法律上の原因).
      The requirement for the "same factual and legal cause" is stringent. For example, if multiple defendants are sued as joint tortfeasors for the same harmful event, this condition might be met. However, simply having claims arise from the same broad set of business dealings might not be enough if the legal bases for liability differ significantly for each defendant.

Analyzing a Scenario

Let's consider an adapted scenario from Case 30, No. 27 of the reference material:

  • Facts: Company A (Japanese) purchased electronic components from Company B (a Country X corporation). These components, manufactured by Company C (a Country Y corporation), were allegedly defective. Company A incorporated these parts into its own products, which were then sold in Japan. These products subsequently failed, causing Company A to suffer losses. Company A wishes to sue Company B (for breach of contract/warranty) and Company C (for tort/product liability) in Japan. Neither B nor C has an office or assets in Japan. The A-B contract has no choice of law or jurisdiction clauses.
  • Analysis:
    1. Company A vs. Company B (Contract/Warranty Claim - related to PDF Problem (1)):
      • Place of Performance (CCP Art. 3-3, item 1): If the A-B contract stipulated that Company B was to deliver the electronic components to Company A's facility in Japan, then Japan would be the place of performance for B's primary obligation. In this case, a Japanese court would have jurisdiction over A's claim against B.
      • If the contract did not specify Japan as the place of delivery for B's components, and there was no choice of law clause pointing to Japanese law which in turn would stipulate Japan as the place of performance, then this specific jurisdictional ground would not be available. Company A would need to establish another basis for jurisdiction over Company B (e.g., if B "carries on business in Japan" under item 5, which is not evident from these limited facts).
    2. Company A vs. Company C (Tort/Product Liability Claim - related to PDF Problem (2)):
      • Place of Tort (CCP Art. 3-3, item 8):
        • Place of Wrongful Act (Manufacture): The defective components were manufactured by Company C, likely in Country Y. So, Japan is not the place of the act.
        • Place of Result: Company A's products (incorporating C's components) failed in Japan, and Company A suffered business losses (e.g., repair costs, lost sales) in Japan. This harm occurring in Japan could be considered the "result" of C's alleged tort.
        • Foreseeability: Was it "ordinarily foreseeable" by Company C (the component manufacturer in Country Y) that its components would be incorporated into products sold in Japan and that defects could cause harm there? This would depend on facts such as C's knowledge of the supply chain, whether it knew its components were destined for products aimed at the Japanese market, and the general distribution patterns for such components. If such foreseeability is established, Japanese courts could have jurisdiction over C.
    3. Company A vs. Company B and Company C (Joinder - related to PDF Problem (3)):
      • Assume Japan has jurisdiction over A's claim against B (e.g., based on place of performance in Japan), but, independently, no jurisdiction over A's claim against C. Can Company C be joined to the suit against B in Japan?
      • For subjective joinder (adding C as a co-defendant), CCP Art. 3-6 requires that the claims against B and C arise from the "same factual and legal cause" or that the obligations are "common."
        • Same Factual Cause: Both claims stem from the defective electronic components. This part might be met.
        • Same Legal Cause/Common Obligation: A's claim against B is contractual (breach of sales contract/warranty). A's claim against C is tortious (product liability). These are different legal causes. The obligations are not "common" in the sense of joint liability under the same legal theory.
        • Therefore, based on a strict interpretation, joining Company C to the suit against Company B under Art. 3-6 would likely be difficult if C is not otherwise subject to Japanese jurisdiction. The claims, while factually linked, have distinct legal bases.
    4. "Special Circumstances" (CCP Art. 3-9): In all instances where jurisdiction is found (e.g., against B based on performance in Japan, or against C based on foreseeable harm in Japan), the court would still need to confirm that no "special circumstances" exist that would make litigation in Japan unfair or an impediment to proper justice. Given that the ultimate products were sold and failed in Japan, and Company A is Japanese, it is less likely that "special circumstances" would lead to dismissal if a primary jurisdictional ground is met, but it remains a background consideration.

Conclusion

Securing jurisdiction in Japan for contract disputes with international partners often hinges on specific connecting factors detailed in the Code of Civil Procedure. The place of performance of a contractual obligation (under strict conditions) and the place where a tort occurs (including where its foreseeable results are felt) are key grounds. However, plaintiffs must be prepared to prove the facts supporting these jurisdictional claims, potentially to a high standard. While joinder rules offer some scope for consolidating related matters, their requirements, especially for bringing in additional parties, are specific. Finally, even with a technical basis for jurisdiction, the overarching principle of "special circumstances" allows Japanese courts to decline jurisdiction if hearing the case in Japan would be inappropriate, ensuring a balance between access to justice and inter-party fairness.