Recovering Legal Costs in Japan: Are Attorney's Fees Considered Part of Damages in Breach of Contract Cases?

Japanese Attorney at Law - Bengoshi L.L.

• 7 min read

When a contractual agreement is breached in Japan, the non-breaching party often incurs significant legal expenses, including attorney's fees, to enforce their rights or seek compensation for the damages suffered. A critical question for businesses and legal professionals is whether these attorney's fees can themselves be recovered as part of the damages awarded for the breach of contract. While Japanese law has a relatively clear stance on recovering attorney's fees in tort cases, the situation for breach of contract claims has historically been more nuanced and continues to evolve.

The Benchmark: Attorney's Fees in Japanese Tort Law

To understand the approach to attorney's fees in contract cases, it's helpful to first look at how they are treated in tort law (不法行為 - fuhō kōi).

Historically, the recovery of attorney's fees as damages in tort cases was quite limited. It was primarily confined to situations where a party was forced to incur legal expenses to defend against an entirely baseless or abusive lawsuit. This was sometimes referred to as compensation for "intrinsic attorney fee damages" (本来的弁護士費用賠償 - honraiteki bengoshi hiyō baishō), as exemplified by a Daishin'in (Great Court of Cassation) judgment on November 2, 1943.

However, a landmark shift occurred with the Supreme Court judgment of February 27, 1969 (Minshū Vol. 23, No. 2, p. 441). This pivotal ruling established that attorney's fees reasonably incurred by a victim to pursue a damage claim arising from a tort (an infringement of their rights or legally protected interests) are generally considered a component of the damages recoverable from the tortfeasor. These are often termed "incidental attorney fee damages" (付随的弁護士費用賠償 - fuzuiteki bengoshi hiyō baishō). The rationale is that the tortious act itself necessitates the victim's resort to legal action and the associated expenses to seek redress. The amount recoverable is typically limited to what the court deems "reasonable" considering various factors, such as the complexity of the case, the amount claimed, the amount ultimately awarded, and prevailing legal fee norms. This 1969 judgment set a significant precedent for the recoverability of legal costs directly linked to the assertion of rights violated by a wrongful act.

Attorney's Fees in Breach of Contract: A More Complex Landscape

Traditionally, the recovery of attorney's fees as damages specifically for a breach of contract (債務不履行 - saimu furikō) faced greater skepticism in Japanese legal scholarship. The arguments against recovery often included:

  • Contractual obligations and their amounts are usually clearly defined by the agreement, theoretically reducing the need for extensive court intervention to determine rights and liabilities.
  • Creditors often have opportunities to take proactive measures within the contractual framework (e.g., demanding security, stipulating liquidated damages) to protect themselves against potential breaches.

The Impact of Rules for Monetary Default (Article 419)

A significant factor influencing the discussion, particularly for breaches involving failure to pay money, is Article 419 of the Civil Code. As discussed in a prior article, the traditional and dominant interpretation of Article 419 limits damages for simple non-payment of a monetary sum to the applicable default interest. A Supreme Court judgment on October 11, 1973, explicitly denied the recovery of collection costs, including attorney's fees, as damages exceeding this default interest for straightforward monetary defaults. This established a restrictive baseline for recovering legal costs when the core breach is merely a failure to pay an agreed sum.

A Shift Towards Recoverability: The Breach of Safety Obligations Case (Supreme Court, February 24, 2012)

A crucial development in the context of breach of contract occurred with the Supreme Court judgment of February 24, 2012 (Saikō Saibansho Minji Hanreishū Vol. 66, No. 3, p. 1351). This case involved a claim for damages arising from an employer's breach of its contractual "safety obligations" (安全配慮義務違反 - anzen hairyogimu ihan) owed to an employee, which resulted in personal injury.

The Supreme Court, significantly, cited the 1969 tort precedent concerning attorney's fees. It held that reasonable attorney's fees incurred by the employee to bring a lawsuit for damages based on the employer's breach of safety obligations were recoverable as part of the damages. The Court reasoned that claims of this nature—involving an employer's failure to ensure a safe working environment, leading to harm—are complex and often necessitate legal assistance for the injured employee to effectively pursue their rights and obtain adequate compensation.

The significance of this 2012 judgment is substantial. It demonstrated a willingness by the Supreme Court to extend the principles of attorney fee recovery, previously more clearly established in tort law, to at least certain types of breach of contract claims, particularly those that have a strong resemblance to torts in terms of the interests infringed (e.g., life, body, health) and the nature of the duty breached (e.g., duties of care).

Despite the 2012 Supreme Court ruling, legal commentary suggests that lower courts in Japan have generally remained somewhat more restrictive in awarding attorney's fees for general commercial breaches of contract compared to pure tort cases. An exception is often made for breaches leading to personal injury, such as medical malpractice or other safety-related contractual duty breaches, where the approach tends to align more closely with tort principles.

For instance, in cases involving a bank's refusal to allow a deposit withdrawal, some lower court decisions have indicated that attorney's fees might be recoverable if the bank's refusal is deemed not just a simple breach of contract but also constitutes a tort (e.g., if it involves bad faith or a manifestly unreasonable refusal without legitimate grounds). However, courts are generally cautious about readily characterizing a simple contract breach as a tort.

Prevailing Scholarly Opinion:
Contemporary Japanese legal scholarship largely supports the idea that attorney's fees should be recoverable for breach of contract under conditions similar to those applied in tort cases. Many academics see little fundamental justification for a stark differentiation in principle, arguing that if a breach of contract forces the non-breaching party to incur reasonable legal expenses to enforce their rights, these expenses are a direct consequence of the breach and should be compensable, provided the usual requirements of causation and foreseeability (for special damages) are met.

Alternative Scholarly Framings:
Some alternative theoretical perspectives also exist:

  • One view suggests that attorney's fees are, fundamentally, costs associated with utilizing the legal system to resolve a dispute (whether tortious or contractual) and perhaps should not be classified as "damages" for the underlying wrong itself, but rather addressed through procedural rules for cost allocation.
  • Another, less common, suggestion has been to consider attorney's fees as a form of "collection costs" (取立費用 - toritate hiyō), potentially linking them to Article 485 of the Civil Code, which deals with the expenses of performance. However, Article 485 typically refers to the debtor's expenses in rendering their performance, not the creditor's expenses in enforcing it.

Determining "Reasonable" Attorney's Fees as Damages

When Japanese courts do allow the recovery of attorney's fees as part of damages (either in tort or in qualifying contract cases), the amount is not automatically the full sum paid by the client. The fees must be deemed "reasonable" by the court. The factors typically considered in assessing reasonableness include:

  • The complexity and difficulty of the legal and factual issues in the case.
  • The amount of money or the value of the interest in dispute.
  • The amount of damages ultimately awarded by the court.
  • The time and effort reasonably expended by the attorneys.
  • While Japan does not have a rigid, official fee schedule that dictates recoverable attorney's fees as damages, courts often look to general standards and prevailing practices within the legal profession, sometimes informally considering what a typical fee might be for a case of similar nature and scope. It is common for courts to award a percentage (often around 10%, but variable) of the recognized damages as reasonable attorney's fees, rather than a full reimbursement of actual fees paid.

A Conceptual Distinction: "Incidental" vs. "Intrinsic" Attorney Fee Damages

Some legal analysis, particularly in academic commentary, draws a conceptual distinction between:

  1. "Incidental attorney fee damages" (付随的弁護士費用賠償 - fuzuiteki bengoshi hiyō baishō): This aligns with the 1969 Supreme Court tort precedent and the 2012 contract (safety obligation) precedent. Here, attorney's fees are seen as an incidental but necessary expense incurred by the claimant to pursue redress for the primary wrong (the tort or the specific type of contract breach). Their recovery is ancillary to the main damage claim.
  2. "Intrinsic attorney fee damages" (本来的弁護士費用賠償 - honraiteki bengoshi hiyō baishō): This refers to older, more limited situations where the very act of forcing the other party into unjustified litigation (or defending against it) was seen as the core wrongful act for which attorney's fees were the direct damage. More broadly, this concept could be extended to situations where the defendant's conduct (e.g., a flagrant and bad-faith refusal to honor clear contractual rights leading to unavoidable litigation) is itself so egregious that the resulting legal costs are seen as a direct and primary harm stemming from a severe violation of economic or contractual interests, akin to an independent wrong.

This distinction suggests that the basis for recovering attorney's fees might differ depending on whether they are viewed as a general consequence of having to litigate any valid claim versus a more direct consequence of a particularly wrongful act or a breach of a specific duty (like a duty to protect economic interests whose violation directly necessitates legal action).

Conclusion and Practical Takeaways

The recovery of attorney's fees as damages for breach of contract in Japan has moved from a historically restrictive stance towards greater, albeit context-dependent, acceptance.

  • For simple non-payment of monetary obligations, the traditional interpretation of Article 419 (damages limited to interest) generally still precludes recovery of attorney's fees as additional damages for the monetary default itself.
  • However, for other types of contract breaches, particularly those involving breaches of duties of care that result in personal injury (as seen in the 2012 Supreme Court case on safety obligations), Japanese law now clearly allows for the recovery of reasonable attorney's fees as part of the damages, mirroring the approach in tort law.
  • For general commercial contract breaches not involving personal injury or similar tort-like elements, the recoverability of attorney's fees is less certain. While scholarly opinion tends to favor broader recoverability based on consistent principles with tort law, success may depend on the specific facts, the nature of the breach, the ability to demonstrate that litigation was a direct and necessary consequence of the breach, and that the fees claimed are reasonable.

The legal landscape in this area is still evolving. Parties entering into contracts under Japanese law should be aware that while not automatic, the possibility of recovering attorney's fees as damages for breach of contract exists, especially where the breach has characteristics similar to a tort or involves the violation of fundamental duties of care. Clear contractual provisions regarding the recovery of legal costs in the event of a dispute, while subject to overall reasonableness, might also be a consideration in drafting.