Public vs. Private Law in Japan: Why Does This Distinction Affect How Businesses Interact with Government Entities?

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

When businesses engage with government entities in Japan, they step into a legal realm where a foundational, though evolving, distinction between "public law" (公法 - kōhō) and "private law" (私法 - shihō) can influence the applicable rules, the nature of their legal relationships, and the avenues for dispute resolution. While the traditional, rigid separation between these two spheres has become increasingly nuanced in modern Japanese jurisprudence, understanding this conceptual framework remains crucial for businesses to effectively navigate their interactions with the state and public bodies. This article explores the traditional dichotomy, its "relativization," and why this distinction, even in its softened form, continues to matter for businesses.

The Traditional Dichotomy: Public Law vs. Private Law (Kōhō Shihō Nigenron)

Historically, Japanese administrative law, influenced by continental European legal traditions (particularly German law), operated on a fairly strict dichotomy between public law and private law (公法私法二元論 - kōhō shihō nigenron).

  • Public Law (Kōhō): This sphere was understood to govern legal relationships where the State or a public entity acts in its sovereign or authoritative capacity, exercising "public power" (公権力 - kōkenryoku). These relationships were often characterized by an unequal footing between the administrative body and the private party, with the focus being on upholding the public interest. Public law encompassed areas like constitutional law, administrative law, criminal law, and procedural laws specific to these areas.
  • Private Law (Shihō): This sphere governed relationships primarily between private individuals and entities (including corporations). It also applied when public entities acted in a capacity similar to a private party, for example, when engaging in ordinary commercial transactions not directly involving the exercise of sovereign power. Private law, centered on the Civil Code and Commercial Code, emphasizes principles like freedom of contract, private autonomy, and equality between parties.

Traditional Consequences of the Dichotomy

This strict separation had significant practical consequences:

  1. Different Governing Rules: Public law relations were subject to distinct public law norms and principles (some unwritten, like the principle of proportionality), and the application of private law rules (e.g., from the Civil Code) was generally considered excluded or significantly modified.
  2. Separate Dispute Resolution Mechanisms: Historically (pre-World War II), disputes arising from public law relations were often handled by specialized administrative courts, separate from ordinary civil courts. Post-WWII, while specialized administrative courts were abolished, the Administrative Case Litigation Act (ACLA) established specific procedures for administrative litigation (such as revocation litigation targeting administrative acts) to handle public law disputes, distinct from general civil litigation for private law matters.
  3. Development of Unique Public Law Doctrines: Concepts central to administrative law, such as the "administrative act" (gyōsei kōi) with its special legal effects like kōtei-ryoku (binding effect/presumption of validity), the notion of special "public rights" (kōken), and specific rules for "public property" (kōbutsu), were developed and understood as belonging exclusively to the public law domain. For instance, a 5-year statute of limitations under the Accounts Act (Article 30) or Local Autonomy Act (Article 236) was traditionally applied to "public law monetary claims," differing from the general 10-year prescription in private law.

The "Relativization" of the Dichotomy in Modern Japanese Law

Over time, the practicalities of modern administration and evolving legal thought have led to a significant "relativization" or softening of this strict public law/private law dichotomy (公法私法二元論の相対化 - kōhō shihō nigenron no sōtaika). The "oil and water" view of an impermeable barrier between the two spheres has largely given way to a more nuanced understanding where the lines are often blurred, and the applicable rules are determined more by the substance of the relationship and the purpose of the specific laws involved than by a rigid a priori classification.

Key aspects of this relativization include:

  • Increased Application of Private Law Principles in Public Law Contexts: Japanese courts and legal scholarship have increasingly recognized that many principles of private law, such as the principle of good faith and fair dealing (Civil Code Article 1, Paragraph 2), prohibition of abuse of rights (Civil Code Article 1, Paragraph 3), and general tort principles, can and should be applied by analogy or directly in public law relationships where appropriate, especially to ensure fairness and protect individual rights.
  • Substance-Over-Form Approach by Courts: Courts have shown a tendency to look at the actual nature of the legal relationship and the objectives of the relevant statutes rather than mechanically applying the public/private labels.
    • For example, in determining the applicability of Civil Code Article 177 (requiring registration to assert real property rights against third parties) in cases involving state land acquisition, the Supreme Court reached different conclusions depending on the specific statutory context. It denied the application of Article 177 in the context of state purchases under the post-WWII agricultural land reform scheme (Supreme Court, February 18, 1953), focusing on the reform's purpose of identifying true cultivators. However, it applied Article 177 in the context of state sales of property seized for tax delinquency (e.g., Supreme Court, April 24, 1956; March 31, 1960), emphasizing the need for consistency with civil execution procedures.
    • The traditionally asserted inalienability of certain "public rights" has also been softened. For instance, a local assembly member's claim for remuneration, though considered a "public law right," was found to be assignable (Supreme Court, February 23, 1978).
    • Regarding the 5-year statute of limitations for "public law claims" under the Accounts Act, the Supreme Court (e.g., judgment of November 21, 2005, concerning public hospital fees) has moved away from a strict public/private classification of the claim itself. Instead, it focuses on the rationale behind the Accounts Act's shorter period (administrative expediency in settling accounts) and may apply shorter Civil Code prescription periods (e.g., 3 years for medical fees, 2 years for water utility fees) if more appropriate to the specific nature of the claim, even if against a public entity.
  • The "Bypass Theory": Some scholars describe the modern relationship between administrative law and private law not as two separate realms, but more like a "main road" (private law) with specialized "bypasses" (specific administrative law rules). Administrative law provides these bypasses where public interest, the nature of administrative authority, or the need for specific procedures requires a deviation from general private law principles. For instance, revocation litigation under the ACLA is a specialized "bypass" for challenging administrative dispositions, distinct from general civil litigation.

Impact of the Distinction (Even if Relativized) on Key Business Interactions

Despite this relativization, the conceptual distinction between public and private law continues to have practical implications for businesses in several key areas:

A. Administrative Contracts (Gyōsei Keiyaku)

  • Traditional View: A narrow category of "public law contracts" was envisioned, subject to unique public law principles.
  • Modern View: Most contracts entered into by administrative entities (e.g., procurement contracts for goods and services, construction contracts) are now largely considered private law contracts in their fundamental nature, governed by the Civil Code and Commercial Code.
  • Public Law Overlays: However, these contracts are significantly shaped by public law requirements, particularly:
    • Procurement Regulations: The Accounting Act (for national government) and the Local Autonomy Act (for local governments) impose strict procedural rules, most notably the requirement for competitive bidding (general competitive bidding being the default) for most contracts above certain thresholds. These rules aim to ensure fiscal prudence, fairness, and transparency.
    • Budgetary Constraints: All government contracts are subject to budgetary appropriations.
    • Public Interest Considerations: While the contract itself might be private law in nature, the public interest objectives underlying the government's participation can influence interpretation or, in rare cases, provide grounds for modification or termination if statutorily permitted.
      The question of whether a contract is primarily "public" or "private" can still arise, for example, in arguments about the extent to which an agency can unilaterally modify terms due to unforeseen public needs, or whether certain implied duties (e.g., a higher duty of fairness on the government party) exist.

B. State Redress/Compensation (Kokka Baishō)

  • The State Redress Act creates a special public law regime for tortious liability of the State or public entities. It distinguishes between:
    • Liability for illegal acts of public officials in the exercise of public power (Article 1).
    • Liability for defects in the installation or management of public structures (Article 2).
  • This system is distinct from the general tort provisions of the Civil Code, although Article 4 of the State Redress Act explicitly states that Civil Code provisions apply where the SRA is silent (e.g., for calculation of damages, comparative negligence, statute of limitations).
  • Determining whether an official was "exercising public power" or whether a structure is a "public structure" involves public law concepts.

C. Use of Public Property (Kōbutsu)

  • The law relating to public property (kōbutsu hō) has traditionally been a core area of public law. Kōbutsu (e.g., roads, rivers, public parks, government buildings dedicated to public use) are subject to special rules regarding their use, management, and limitations on the establishment of private rights over them.
  • For instance, the traditional principle of inalienability and immunity from acquisitive prescription for kōbutsu is a public law doctrine. While the Supreme Court (December 24, 1976) has allowed for acquisitive prescription if the public use of the property has definitively ceased both in fact and in law, the starting point is that kōbutsu are not treated like ordinary private property.
  • Permissions to use public property (e.g., road occupancy permits, permits for out-of-purpose use of administrative property) are administrative acts governed by public law.

D. Dispute Resolution Forum and Applicable Procedures

The characterization of a dispute as arising from a public law or private law relationship can still significantly influence:

  • Choice of Litigation Forum/Procedure:
    • Disputes involving the legality of administrative acts (dispositions) are typically channeled through administrative litigation under the ACLA (e.g., revocation litigation).
    • Disputes arising from what are deemed private law contracts with government entities are generally handled through ordinary civil litigation under the Code of Civil Procedure.
    • The ACLA itself contains provisions for "party litigation" (tōjisha soshō), some forms of which explicitly concern "public law legal relations" (ACLA Article 4). The 2004 ACLA revision, by adding "confirmation of public law legal relations" (kōhōjō no hōritsu kankei ni kansuru kakunin no uttae) to this category, reinforced the idea that a distinct public law sphere for certain disputes persists.
  • Applicable Procedural Rules: Administrative litigation has specific rules for standing, statutes of limitation, types of relief, and the binding effect of judgments that differ from those in general civil litigation.
  • Availability of Special Remedies: Certain public law remedies, like "residents' suits" (jūmin soshō) under the Local Autonomy Act (allowing residents to challenge illegal financial activities of local governments), are unique to the public law sphere.

Why the Distinction Still Matters for Businesses

Despite its relativization, an awareness of the public law/private law distinction remains important for businesses interacting with Japanese government entities:

  1. Predicting Applicable Legal Rules: It helps in anticipating the set of legal principles (general private law, specific public statutes, or administrative law doctrines) that will primarily govern a particular interaction or dispute.
  2. Understanding Government's Special Position: While a government entity might act like a private party in a contract, its actions are always potentially subject to overarching public law duties and constraints (e.g., budgetary rules, public interest considerations, equality principles).
  3. Negotiating Contracts: Businesses should be aware that government counterparties are bound by public procurement laws and other public law obligations that can affect contract terms, flexibility, and termination rights.
  4. Assessing Litigation Strategy: If a dispute arises, correctly characterizing it can be crucial for choosing the appropriate court, the type of lawsuit to file (e.g., administrative vs. civil), and the remedies to seek. Mischaracterizing a dispute can lead to procedural dismissals.
  5. Evaluating Government Powers and Limitations: The distinction informs the "Principle of Administration by Law" (hōritsu ni yoru gyōsei no genri), which requires, for instance, a statutory basis for government actions that infringe on private rights—a core concern of public law.

A Note on the 2004 ACLA Revision

The 2004 revision to the Administrative Case Litigation Act, by explicitly including "litigation for confirmation of public law legal relations" as a form of party litigation, signals ongoing legislative acknowledgment of a distinct sphere of "public law" disputes. This may further shape judicial interpretations and the practical relevance of this distinction in specific contexts.

The U.S. legal system does not have the same sharp, historically rooted civil law dichotomy between "public law" and "private law." Administrative law in the U.S. is a distinct field, largely governed by the Administrative Procedure Act (APA) and specific enabling statutes for various agencies, as well as constitutional due process principles. However, U.S. law does make distinctions that have somewhat analogous effects:

  • Sovereign vs. Proprietary Capacity: The capacity in which the government acts can affect issues like sovereign immunity or the applicability of certain statutes.
  • Specific Statutory Regimes: The U.S. has specific statutory frameworks for government contracts (e.g., Contract Disputes Act, FAR) and torts (Federal Tort Claims Act - FTCA), which create rules distinct from general contract or tort law, effectively carving out specialized areas much like public law might.
  • Judicial Review of Agency Action: This is a core component of U.S. administrative law, but the procedural avenues and standards of review are framed differently than in Japan's ACLA system.

Conclusion

While the traditional strict wall between public and private law in Japan has become more porous and "relativized," the underlying conceptual distinction continues to shape the legal landscape for businesses interacting with governmental authorities. It influences the rules governing administrative contracts, the framework for state compensation, the special status of public property, and, critically, the procedures and forums for resolving disputes. For businesses, a nuanced appreciation of when public law principles might overlay, modify, or displace general private law rules is essential for effective legal risk management, contract negotiation, and strategic engagement with the Japanese administrative state.