Setting Up a "Juku" in Japan: What Are the Key Administrative Law Hurdles for Educational Businesses?

Japanese Attorney at Law - Bengoshi L.L.

• 7 min read

The Japanese education market, particularly the "juku" (cram school or supplementary tutorial school) sector, presents numerous opportunities. However, establishing and operating such an educational business involves navigating a complex administrative law landscape. This article explores some key administrative law hurdles, using a hypothetical dispute over the establishment of a juku as a case study. Understanding these challenges is crucial for any entity considering entry into this sector.

The core issues often revolve around the denial of an establishment permit for a "kakushu gakko" (miscellaneous school) – the legal classification under which many jukus operate – by a prefectural governor. Two primary lines of legal challenge typically emerge: procedural flaws related to the lack of transparent review standards, and substantive flaws concerning the consideration of irrelevant factors by the administrative agency.

The Hypothetical Case: Denial of a Juku Establishment Permit

Imagine an educational corporation, already operating a chain of jukus nationwide, plans to open a new branch as a "miscellaneous school" under Article 134 of the School Education Act (formerly Article 83). Before applying for the establishment permit, the corporation inquires with the relevant prefectural department about any review standards beyond the Miscellaneous School Regulations. They are informed that no such specific standards exist.

The corporation proceeds to prepare its application in accordance with the Miscellaneous School Regulations and submits it to the prefectural governor. However, the governor denies the application. The stated reason for denial is that approving the application would lead to excessive competition, potentially causing the financial decline of local small and medium-sized jukus and a subsequent drop in educational standards. Furthermore, if these local jukus were forced to close, it would narrow the range of choices for students. Thus, from the perspective of the "appropriate 배치 (haichi - allocation/placement)" of preparatory schools, the application was rejected. The corporation decides to challenge this denial by filing an administrative lawsuit seeking its revocation.

This scenario highlights two critical areas of Japanese administrative law: the requirement for administrative agencies to establish and publish review standards, and the prohibition against considering irrelevant factors in discretionary decisions.

Hurdle 1: Lack of Transparent Review Standards (Procedural Flaw)

One of the first avenues for legal challenge in such a case is the procedural flaw stemming from the lack of clear and pre-disclosed review standards.

What are "Shinsa Kijun" (Review Standards) under Japan's Administrative Procedure Act?

Article 5, Paragraph 1 of Japan's Administrative Procedure Act (APA) mandates that when administrative agencies establish provisions for permits and licenses by law or regulation, they must, in response to an application based on these provisions, define "shinsa kijun" (review standards). These standards are necessary for judging whether an application complies with the requirements stipulated by the relevant laws and regulations.

Furthermore, Article 5, Paragraph 2 stipulates that these review standards, as far as possible, must be made concrete. Paragraph 3 requires that, unless there is a particular administrative hindrance, these review standards must be made publicly available, for instance, by posting them at the agency's office equipped for handling applications or through other appropriate means.

The rationale behind these provisions is to enhance the transparency and predictability of the permit/license application process. Applicants should be able to understand beforehand the specific criteria their application will be judged against. This allows them to prepare necessary documentation and arguments to demonstrate compliance, thereby preventing arbitrary or unfair treatment.

In our hypothetical juku case, the prefectural governor denied the permit based on a criterion – "appropriate allocation to prevent excessive competition" – which was not explicitly stated in the School Education Act or the Miscellaneous School Regulations. Moreover, the corporation was not informed of this criterion at the application stage. If the governor had either not established this as a formal review standard or had established it but failed to make it public, this could constitute a violation of Article 5 of the APA. It is unlikely that making such a standard public would cause "particular administrative hindrance."

The APA itself does not explicitly state the effect on a disposition (administrative act) if an agency fails to adhere to its procedural requirements, such as those in Article 5. One could argue that procedure is merely a means to a substantively correct disposition, and thus, a procedural flaw should not automatically invalidate a disposition if the outcome is substantively justifiable.

However, a prevailing view, particularly after the enactment of the APA in 1993, is that the procedural rights guaranteed by the Act – such as the right to be informed, to be heard, to receive reasons for a decision, and to have review standards established and published – are intended to ensure due process. Consequently, a violation of these procedural obligations can be considered an infringement of the applicant's rights and thus a ground for revoking the disposition.

The prefectural governor might counter this by citing pre-APA Supreme Court precedents. For instance, the "personal taxi license case" (Supreme Court, First Petty Bench, Judgment of October 28, 1971, Minshu Vol. 25, No. 7, p. 1037) and the "Gunma Chuo Bus case" (Supreme Court, First Petty Bench, Judgment of May 29, 1975, Minshu Vol. 29, No. 5, p. 662) suggested that a procedural defect would only render a disposition illegal if it could have affected the outcome. The governor might argue that even if the review standards had been published, the establishment of a major juku would inevitably lead to excessive competition and a decline in educational standards, so the denial would have been the same.

However, this line of argument faces challenges. Firstly, these precedents were established as interpretations of individual laws before the APA created a general framework for administrative procedure. Their direct applicability to APA violations is questionable. With the APA in place, there's a stronger emphasis on the idea that correct decisions are born only from correct procedures. Secondly, ensuring compliance with procedural regulations also necessitates that violations have consequences. Therefore, a breach of procedural rules should, in principle, render the disposition illegal.

Even if one were to accept the older "outcome-affecting" test, it could be argued that if the review standard concerning "appropriate allocation" had been properly established and published, the applicant corporation could have taken measures, such as reducing its planned student capacity, to address concerns about excessive competition and avoid the denial. Thus, the procedural flaw could indeed have affected the outcome.

While minor procedural flaws might not always lead to revocation, the complete failure to establish or publish a significant review standard, as in this hypothetical case, would likely be considered a serious defect.

Consequences if a Denial is Overturned on Procedural Grounds

If the corporation's lawsuit succeeds and the denial is revoked due to the procedural flaw of failing to publish review standards, Article 33 of the Administrative Case Litigation Act (ACLA) comes into play. This article stipulates the binding effect of a revocation judgment. The prefectural governor would be obligated to act in accordance with the purport of the judgment.

This means the governor must establish and publish the review standards, and then re-examine the application, possibly after requesting additional documents from the corporation. The original application legally reverts to a state of being pending but unanswered. However, it's important to note that this does not guarantee the permit will be granted upon re-examination. The governor could, after following the correct procedure, still deny the application based on the (now published) standards. If the corporation fundamentally disagrees with the "appropriate allocation" standard itself, it would have to file another lawsuit challenging that substantive basis, which leads to our second key hurdle.

Hurdle 2: Consideration of Irrelevant Factors (Substantive Flaw)

Separate from procedural defects, a disposition can be challenged on substantive grounds, such as the administration considering factors it legally should not have, a concept known as "taji koryo" (他事考慮 – consideration of irrelevant factors) or abuse of discretion.

The Principle of "Taji Koryo"

When an administrative agency makes a discretionary decision, it must exercise that discretion in line with the purpose and objectives of the empowering statute. If the agency considers factors that are outside the scope of what the law permits or intends for consideration, the resulting disposition may be deemed illegal due to an abuse of discretion.

In the context of our juku permit case, the corporation might argue that "preventing excessive competition among local preparatory schools" is not a legally permissible factor for the governor to consider when deciding on an establishment permit for a "miscellaneous school" under the School Education Act.

To assess this claim, the legal status of "kakushu gakko" is crucial. The School Education Act distinguishes between "schools" (Article 1, covering kindergartens, elementary, junior high, high schools, universities, etc.) and "miscellaneous schools" (Article 134, covering educational institutions similar to schools but not falling under Article 1, such as jukus and vocational training centers).

Key distinctions relevant here include:

  • Founders: Article 1 schools can only be established by the state, local public entities, or incorporated educational institutions (Article 2). Miscellaneous schools do not have such strict limitations on founders.
  • Public Nature: The Basic Act on Education (Article 6, Paragraph 1) stipulates that Article 1 schools have a public nature. No such explicit public nature is attributed to miscellaneous schools.

These distinctions suggest that while Article 1 schools are subject to a significant degree of state involvement in their operation due to their public nature, educational activities at miscellaneous schools are, in principle, considered an exercise of the freedom of occupational choice (guaranteed by Article 22 of the Constitution) and are thus fundamentally free.

Therefore, the requirements for an establishment permit for a miscellaneous school should primarily be those stipulated in the Miscellaneous School Regulations (e.g., concerning teachers, facilities). While the administrative agency (governor) would have a certain degree of expert and technical discretion in judging whether these stipulated standards are met, considering factors beyond these regulations to deny a permit would likely be impermissible.

In our case, the Miscellaneous School Regulations contain provisions regarding the location of the school, such as Article 9, Paragraph 1, which states the location must be appropriate for education and public health. However, this provision is generally interpreted as prohibiting establishment in unsuitable environments (e.g., near entertainment districts, unsanitary areas), not as a basis for preventing competition with other similar schools.

Thus, the corporation could argue that considering "appropriate allocation to prevent excessive competition" is an irrelevant factor for a miscellaneous school permit. The governor's decision, based on such an extraneous consideration, would constitute an error in the discretionary decision-making process, rendering the denial illegal and subject to revocation.

Consequences if a Denial is Overturned on Substantive Grounds

If the denial is revoked because the governor considered irrelevant factors, the binding effect of the judgment (ACLA Article 33) would obligate the governor to re-examine the application, this time excluding the "prevention of excessive competition" from the a_factors considered. If the application meets all the criteria stipulated in the Miscellaneous School Regulations, the governor would then be obliged to grant the permit.

The hypothetical juku establishment case illustrates common administrative law challenges in Japan. For foreign educational businesses, understanding these is vital:

  1. Transparency of Standards: Always inquire about and seek documented review standards before submitting applications. The APA provides a basis for this.
  2. Scope of Discretion: Be aware of the legal framework governing the specific type of educational institution you plan to establish. The scope of administrative discretion varies significantly (e.g., "miscellaneous schools" versus Article 1 "schools").
  3. Grounds for Denial: Scrutinize the reasons provided for any denial. Are they based on published, legally relevant criteria, or do they seem to involve extraneous factors?
  4. Procedural Compliance by Agencies: Agencies are bound by the APA. Procedural missteps by the agency can be grounds for challenging a negative decision.
  5. Legal Counsel: Engaging knowledgeable local legal counsel early in the process is crucial for navigating complex application procedures and for mounting effective challenges if necessary.

While Japan's education sector is attractive, success requires careful attention to its unique administrative and regulatory environment. Proactive engagement and a clear understanding of applicable laws and procedures can significantly mitigate the risk of encountering these administrative hurdles.