My U.S. Company Is Sued in Japan: On What Grounds Can Japanese Courts Claim Jurisdiction?

The globalization of business means that companies increasingly operate across borders, and with this comes the potential for cross-border disputes. If your U.S.-based company finds itself named as a defendant in a lawsuit filed in Japan, one of the first critical questions is whether Japanese courts have the authority – or jurisdiction – to hear the case. Understanding the principles of international jurisdiction under Japanese law is crucial for navigating such a scenario effectively.

This article delves into the framework governing international jurisdiction in Japanese civil and commercial cases, with a particular focus on how these rules might apply to foreign, including U.S., corporations. We will explore the evolution from a more discretionary, case-by-case approach to the codified rules introduced by the 2011 amendments to the Code of Civil Procedure (Act No. 109 of 1996, as amended), and examine the specific grounds upon which Japanese courts can assert jurisdiction over international disputes.

The Shift from "Special Circumstances" to Codified Rules

Prior to the significant 2011 amendments to Japan's Code of Civil Procedure, the question of international jurisdiction was primarily determined by case law. Courts would often look to the domestic rules on territorial jurisdiction and then consider whether there were "special circumstances" (J.: tokudan no jijō) that would make it inappropriate for a Japanese court to exercise jurisdiction. This approach, while allowing for flexibility, was criticized for its lack of predictability, making it difficult for international businesses to assess their litigation risks in Japan.

Recognizing the need for greater clarity and foreseeability in an increasingly interconnected world, Japan amended its Code of Civil Procedure (effective April 1, 2012) to explicitly incorporate rules on international jurisdiction (Articles 3-2 to 3-12). These codified rules aim to provide a more transparent and predictable framework, drawing upon established principles of international civil procedure while also reflecting specific Japanese legal considerations. The new provisions still allow for a degree of judicial discretion in exceptional cases where exercising jurisdiction would be patently unfair or inappropriate.

General Principles: Defendant's Domicile as a Primary Anchor

A foundational principle in Japanese international jurisdiction, similar to many other legal systems, is that a defendant can generally be sued in the courts of the place where they are domiciled. For a natural person, this refers to their address or, if unknown, their place of residence.

For a corporation, including a U.S. company, the primary basis for general jurisdiction is its principal office or business establishment. If a foreign company has its main office in Japan, Japanese courts will generally have jurisdiction over lawsuits brought against it, regardless of where the underlying dispute arose (Article 3-2, item 1 of the Code of Civil Procedure). If the principal office is not in Japan, but the company has a business office or other establishment in Japan, jurisdiction may be found if the claim relates to the business of that Japanese office (Article 3-2, item 2).

Specific Grounds for Jurisdiction Relevant to Businesses

Beyond the general principle of the defendant's domicile, the Code of Civil Procedure outlines several specific grounds upon which Japanese courts can assert jurisdiction. These are particularly relevant for businesses involved in international transactions and operations.

1. Contractual Obligations (Article 3-3, item 1)

Japanese courts have jurisdiction over actions concerning contractual obligations if the place for performance of the obligation is in Japan. This includes claims for performance of the contract, claims related to unjust enrichment or management of affairs (negotiorum gestio) arising from the contractual obligation, and claims for damages due to non-performance.

The "place for performance" is determined, first, by any agreement between the parties in the contract itself. If the contract is silent, the place of performance is determined by the law applicable to the contract (the governing law). For U.S. companies contracting with Japanese entities, this highlights the importance of clearly stipulating both the governing law and, if desired, the place of performance within the contract to manage jurisdictional risks. For example, if a U.S. company agrees to deliver goods to a buyer in Tokyo, and fails to do so, a Japanese court might find jurisdiction based on the place of performance being Japan.

2. Tort Claims (Article 3-3, item 8)

In cases involving torts (unlawful acts causing harm), Japanese courts have jurisdiction if the place where the tortious act was committed or the place where the results of such act occurred is in Japan. This "place of tort" rule encompasses both the location of the wrongful conduct and the location where the injury or damage manifested.

However, there's an important caveat: if the result of a wrongful act committed in a foreign country occurs in Japan, Japanese courts will not have jurisdiction if the occurrence of such a result in Japan was unforeseeable. This foreseeability requirement aims to prevent an overly broad assertion of jurisdiction.

For U.S. companies, this ground can be relevant in product liability cases (if a defective product manufactured in the U.S. causes harm in Japan and this was foreseeable) or in certain intellectual property infringement disputes where the infringing act or its effects are localized in Japan.

3. Claims Relating to Property Located in Japan (Article 3-3, items 2, 3, 4, and 5)

Japanese courts can exercise jurisdiction over claims concerning real property located in Japan (Article 3-3, item 2). More broadly, for claims concerning other property rights, or monetary claims, jurisdiction can be established if the object of the claim or seizable assets of the defendant are located in Japan (Article 3-3, item 3). The value of such assets must generally be more than negligible in relation to the claim amount for jurisdiction over monetary claims to be upheld on this basis.

4. Consumer Contracts and Labor Disputes (Article 3-4)

The Code provides special protective jurisdictional rules for consumers and employees, recognizing the potential imbalance in bargaining power.

• Consumer Contracts: A consumer can bring an action against a business operator in Japanese courts if the consumer was domiciled in Japan either at the time the action was filed or at the time the contract was concluded (Article 3-4, paragraph 1). Conversely, a business operator can generally only sue a consumer in Japan if the consumer is domiciled in Japan, unless there's a valid jurisdictional agreement or the consumer has appeared without contesting jurisdiction.
• Labor Disputes: An employee can bring an action against an employer in Japanese courts if the place where the labor was to be provided under the employment contract is in Japan. If no such place is specified, the location of the business office that hired the employee can be a basis for jurisdiction (Article 3-4, paragraph 2). Similar to consumer contracts, employers face limitations when suing employees in Japan.

U.S. companies employing individuals in Japan or selling goods/services to Japanese consumers should be aware of these provisions, as they make it easier for Japanese consumers and employees to initiate legal proceedings in Japan.

5. Joint Claims (Article 3-6)

If a Japanese court has jurisdiction over one of several claims in a lawsuit involving multiple claims against the same defendant, it may also exercise jurisdiction over the other claims if they are closely related. Similarly, in cases with multiple defendants, if there is jurisdiction over a claim against one defendant, closely related claims against other co-defendants may also be heard, provided specific requirements (similar to those in domestic Article 38, first part, concerning joint litigation) are met.

Jurisdiction by Agreement (Article 3-7)

Parties to an international transaction can agree to confer jurisdiction on the courts of a particular country, including Japan. Such an agreement on international jurisdiction is generally respected by Japanese courts, provided certain conditions are met.

The Code of Civil Procedure (Article 3-7) stipulates that an agreement granting jurisdiction to Japanese courts is valid if it pertains to a "certain legal relationship" and is made in writing (or by electronic record). While the PDF refers to the domestic rule on jurisdictional agreements (Article 11, paragraph 3 requiring written form or electronic record ), it is generally understood that this formality applies to international jurisdictional agreements as well for clarity and certainty.

The agreement can designate Japanese courts as having exclusive or non-exclusive jurisdiction. However, Article 3-7 also contains provisions to protect weaker parties; for instance, jurisdictional agreements in consumer contracts and employment contracts that are disadvantageous to the consumer or employee may be deemed invalid under certain conditions. U.S. companies should therefore carefully consider the wording and implications of jurisdiction clauses in their international contracts, especially those involving Japanese consumers or employees.

Jurisdiction by Appearance (Article 3-8)

Even if none of the statutory grounds for jurisdiction exist, a Japanese court can acquire jurisdiction if the defendant appears and makes arguments on the merits of the case without challenging the court's jurisdiction (known as ōso kankatsu or jurisdiction by submission/appearance).

If a U.S. company is sued in Japan and believes that Japanese courts lack jurisdiction, it is crucial to raise this jurisdictional challenge at the outset of the proceedings. Failing to do so and proceeding to argue the substance of the claim can be construed as an implicit submission to the court's jurisdiction.

Dismissal due to "Special Circumstances" (Article 3-9)

A significant feature of the codified rules is Article 3-9, which allows a Japanese court to dismiss an action, in whole or in part, even if jurisdiction is technically established under other provisions, if it finds that "special circumstances" exist. These circumstances are such that hearing the case in Japan would "impair equity between the parties or hinder the achievement of a proper and prompt trial". The court will consider factors such as the nature of the case, the burden on the defendant to respond, the location of evidence, and other relevant matters.

This provision essentially codifies and refines the pre-2011 case law approach which allowed for dismissal based on "special circumstances". While the legislative intent was to make the application of this discretionary dismissal more restrictive than the previous broad judicial discretion, it still provides a safety valve against an overly mechanical application of the jurisdictional rules. The Supreme Court of Japan has indicated in a judgment on March 10, 2016, that this provision should be applied cautiously, upholding the legislative aim of clearer rules.

Procedural Aspects and Comparison with U.S. Principles

The determination of whether a Japanese court has international jurisdiction is generally made at the time the lawsuit is filed (Article 3-12). If a Japanese court concludes it lacks jurisdiction over an international case, unlike in purely domestic cases where the case might be transferred to another Japanese court with jurisdiction, the action will be dismissed.

For U.S. legal professionals, these Japanese rules present both similarities and differences compared to U.S. jurisdictional principles. The concept of a defendant's domicile or principal place of business as a basis for general jurisdiction is familiar. Specific jurisdiction grounds in Japan, tied to contractual performance, tortious acts, or property within the territory, echo some aspects of "specific jurisdiction" analysis in the U.S., which often involves assessing "minimum contacts" and whether the claim arises out of those contacts.

However, the Japanese approach is more explicitly codified in its statute rather than relying as heavily on a broad, judicially developed constitutional standard like "minimum contacts." While Article 3-9 ("special circumstances") introduces a fairness and efficiency consideration somewhat analogous to the forum non conveniens doctrine in the U.S., its application and scope are distinct and rooted in the Japanese Code. The emphasis on written jurisdictional agreements and the specific protective rules for consumers and employees also reflect particular policy choices within the Japanese legal system.

Conclusion

For U.S. companies engaged in business with Japanese counterparts or operating in Japan, a clear understanding of Japan's rules on international civil jurisdiction is indispensable. The 2011 amendments to the Code of Civil Procedure have brought greater predictability to this area, but the nuances of each jurisdictional ground, the potential for agreed jurisdiction, and the exceptional power of courts to decline jurisdiction under "special circumstances" require careful attention.

Proactive measures, such as thoughtfully drafted jurisdiction clauses in contracts, can help manage litigation risks. However, should a dispute arise and a lawsuit be filed in Japan, a prompt and informed assessment of the Japanese court's jurisdiction, based on the specific facts and the rules outlined in the Code of Civil Procedure, will be a critical first step in formulating an effective legal strategy.