How Are Disputes Over Joint Public Works Projects Between Local Governments Resolved in Japan?

Japanese Attorney at Law - Bengoshi L.L.

• 5 min read

In Japan, addressing large-scale public needs like waste management, water treatment, or regional transportation often requires multiple municipalities to work together. These joint projects can span years, even decades, involving complex negotiations, shared funding, and the creation of special inter-governmental councils. But what happens when, after years of collaboration and significant financial investment, a key partner suddenly pulls out?

This scenario is not just a practical problem; it's a complex legal one. A change in political leadership in one town or city can lead to an abrupt policy reversal, causing a meticulously planned regional project to collapse. For the remaining municipal partners, this can mean millions of dollars in sunk costs and a return to square one.

This article explores the legal and administrative remedies available when a Japanese municipality unilaterally withdraws from a long-term joint project agreement. Using a case study of a regional waste management plan that fell apart, we will analyze the grounds for suing another municipality for damages and examine the non-litigious mechanisms designed to resolve such inter-governmental disputes.

The Case Study: The Collapse of a Regional Waste Management Plan

To illustrate the legal framework, consider a situation based on a real-world dispute.

The Factual Background

Two cities and one town, after more than a decade of joint negotiations aimed at creating a regional waste processing system, form a formal council to oversee the project. They commission expensive feasibility studies, draft a basic plan, and sign a memorandum of understanding (覚書, oboegaki) outlining their intent to establish a joint administrative body to run the future facilities. Based on this collaborative plan, they successfully apply for and receive a multi-million-yen grant from the national government, and the town begins spending its portion on geological surveys and environmental assessments for a proposed site.

The project appears to be moving forward until a mayoral election is held in the town. A new mayor is elected on a platform that includes withdrawing from the regional plan in favor of in-town waste processing. Shortly after taking office, the new mayor, despite opposition from his own town assembly, unilaterally notifies the other two cities that the town is withdrawing from the agreement. The inter-governmental council dissolves, the regional project collapses, and the national grant money must be repaid.

The two partner cities are now faced with a failed project and significant financial losses from their years of investment in the joint plan. What is their legal recourse against the town?

Part 1: Judicial Remedies - Suing Another Municipality

The most direct course of action is to seek monetary damages through a lawsuit. However, a lawsuit between government entities in Japan involves unique legal considerations.

The Threshold Question: Can One Government Sue Another?

The first question a court will ask is whether the dispute is a "legal dispute" that is proper for judicial resolution. A municipality cannot sue another simply to compel it to perform a public administrative duty. However, the Supreme Court of Japan, in a key decision on July 9, 2002 (the Takarazuka Pachinko Ordinance Case), clarified that a local government can sue another when it is acting as a legal entity to protect its own financial and property rights. A lawsuit seeking damages for financial losses incurred due to another party's actions falls squarely into this category and is permissible in court.

The most obvious legal theory would be breach of contract. The cities would argue that the memorandum of understanding and other written agreements constituted a legally binding contract to see the project through, which the town breached.

However, this claim faces a significant hurdle. For an agreement to be an enforceable contract, there must be a clear "meeting of the minds" on its essential terms. In the case of complex public works projects, preliminary agreements often leave key details—such as the final cost-sharing formula, precise facility locations, and specific operational responsibilities—to be determined in future negotiations. If these essential terms are not finalized, a court may rule that the agreement was merely an "agreement to agree," which lacks the legal finality of a binding contract. In our case study, this would likely be a difficult claim to win.

A more robust and often more successful legal theory is to frame the claim as a tort—specifically, a breach of the duty to negotiate in good faith.

Even if a final contract did not exist, the decade of formal collaboration, the establishment of a joint council, and the co-application for and expenditure of national grant funds created a special relationship between the municipalities. This relationship gives rise to a legal duty, based on the principle of good faith and trust (信義誠実の原則, shingi seijitsu no gensoku), to not betray the legitimate expectations of the other parties.

This principle was famously applied by the Supreme Court in its January 27, 1981 decision in the Ginoza Village Case. In that case, a municipality was held liable for damages to a private company after it reversed its policy and withdrew its support for a factory project, but only after having induced the company to invest heavily in reliance on the village's promises.

Applying this logic to our case, the two cities would argue that:

  • The town’s long-term participation created a reasonable and legitimate expectation that it would continue to collaborate in good faith.
  • The town breached this duty by unilaterally withdrawing from the project without engaging in meaningful consultation or attempting to find a negotiated solution.
  • This breach directly caused financial harm to the partner cities, in the form of wasted expenditures on studies, personnel costs, and other planning activities that are now worthless.

Under this theory, a court would likely find the town liable for the direct reliance damages suffered by the other two cities.

Part 2: Administrative and Non-Judicial Remedies

Litigation is adversarial, time-consuming, and can permanently damage the inter-governmental relationships necessary for other regional collaborations. For these reasons, Japanese law also provides for non-judicial methods of dispute resolution.

Formal Mediation (調停, Chōtei)

Under Article 251-2 of the Local Autonomy Act, municipalities involved in a dispute can apply to their Prefectural Dispute Resolution Committee for formal mediation. This committee, composed of independent experts, acts as a neutral third party to help the parties find a mutually agreeable solution.

  • Advantages: Mediation is less adversarial than a lawsuit and allows for more flexible, creative solutions that can preserve working relationships.
  • Disadvantages: The process can still be lengthy, and its outcome is non-binding unless all parties agree to it. For the aggrieved cities seeking guaranteed financial compensation, it may not be the preferred option.

Formalized Withdrawal Procedures

The problem of abrupt withdrawals from joint projects became so common that the Japanese Diet amended the Local Autonomy Act in 2012 to address it directly. The amendment created a formal withdrawal process for joint administrative councils (Article 252-6-2). This new rule now requires a municipality wishing to withdraw to provide two years' notice to its partners.

This statutory "cooling-off" period does not apply retroactively to our case study, but it represents the current legislative solution to this very problem. Its creation shows a clear policy shift towards prioritizing stability and planned transitions over the right of a single political leader to make sudden, disruptive changes. It forces a withdrawing municipality to remain at the table and participate in a managed wind-down of the project, mitigating the financial and practical chaos of an abrupt pull-out.

Conclusion

When a Japanese municipality unilaterally abandons a joint public works project, its partners are not left without recourse. The legal framework provides several avenues for resolving the dispute and recovering financial losses.

While a breach of contract claim may be difficult, a tort claim grounded in a breach of the duty to negotiate in good faith offers a strong basis for a lawsuit to recover sunk costs. Beyond the courtroom, formal mediation procedures are available, and recent legislative reforms now mandate a lengthy notice period for such withdrawals, promoting more orderly and less disruptive policy changes.

This legal landscape reflects a delicate balance. It respects the democratic legitimacy of a new leader to change a town's policy direction, but it also enforces a legal responsibility to do so in a way that is not in bad faith and does not unfairly impose the financial consequences of that change onto its long-term partners.