Settling Lawsuits in Japan: Understanding the Dynamics of "Court-Supervised Settlements" (Soshōjō no Wakai)

Japanese Attorney at Law - Bengoshi L.L.

28 May 2025 • 10 min read

While the prospect of a definitive court judgment can be a driving force in litigation, a significant majority of civil and commercial disputes in Japan are ultimately resolved not by a contested trial verdict, but through a "Court-Supervised Settlement," or Soshōjō no Wakai (訴訟上の和解). This mechanism, deeply embedded within the Japanese civil procedure, combines the flexibility of negotiation with the authority and enforceability of a court order, making it a powerful and often preferred route to dispute resolution for businesses.

Understanding the dynamics, advantages, strategic considerations, and drafting essentials of Soshōjō no Wakai is crucial for any company navigating the Japanese legal system. This article explores this cornerstone of Japanese dispute resolution.

What is Soshōjō no Wakai (Court-Supervised Settlement)?

A Soshōjō no Wakai is a settlement agreement reached by the disputing parties during pending litigation, with the active involvement and approval of the presiding judge(s). The terms of this settlement are formally recorded in the official court record, known as a wakai chōsho (和解調書).

Key Distinctions and Legal Effect (Code of Civil Procedure, Art. 267):
The critical feature that distinguishes a Soshōjō no Wakai from a private, out-of-court settlement agreement (saiban-gai no wakai - 裁判外の和解) is its legal effect. Once a settlement is recorded in the wakai chōsho, Article 267 of the Japanese Code of Civil Procedure (CCP) accords it the same legal force and effect as a final and binding judgment. This means:

It is conclusive on the matters settled.
It is directly enforceable through civil execution procedures if a party fails to comply with its terms (e.g., a monetary payment).

This enforceability is a major strategic advantage. If a settlement is reached out of court during litigation, the lawsuit itself would typically need to be withdrawn. If one party then breaches that private settlement agreement, the other party might have to initiate a new lawsuit to enforce the settlement contract. A Soshōjō no Wakai bypasses this entirely.

Statistics consistently show a high rate of settlement in Japanese courts. For example, in 2016, approximately 36% of ordinary first-instance civil cases in District Courts and about 32% in High Court appeals were concluded by court-supervised settlement, underscoring its prevalence.

The Multifaceted Advantages of Pursuing Soshōjō no Wakai

Businesses and their legal counsel often find compelling reasons to pursue a court-supervised settlement:

Expeditious and Cost-Effective Resolution:
Litigation through to a final, contested judgment and potential appeals can be a lengthy, expensive, and resource-intensive process in Japan, as elsewhere. A Soshōjō no Wakai allows parties to conclude the dispute at an earlier stage, thereby saving considerable time, legal fees, internal management effort, and the emotional burden associated with prolonged conflict.
Flexibility and Tailored Solutions:
Court judgments are typically constrained by the specific legal claims pleaded and the applicable law. They offer remedies like monetary damages or specific performance but may not address broader commercial interests or nuanced relational issues. In contrast, a Soshōjō no Wakai allows for highly flexible and creative solutions. Parties can agree on terms that a court could not unilaterally order, such as:
- Apologies or statements of regret.
- Future business arrangements or modifications to existing contracts.
- Installment payment plans with specific conditions.
- Resolution of unpleaded or related disputes between the parties.
- Involvement of third parties (with their consent) in the settlement structure.
  For instance, even where certain legal defenses like a prohibition on set-off (e.g., under Article 509 of the Civil Code for tort claims involving bad faith) might complicate a judgment, settlement can achieve a practical resolution by incorporating such offsetting claims by agreement. This allows for a more comprehensive and pragmatic resolution of the entire underlying business conflict.
Enhanced Enforceability (As a Judgment Equivalent):
As highlighted, the wakai chōsho serves as a title of execution. This direct enforceability is a significant practical advantage, providing greater security that the agreed-upon terms will be met. While voluntary compliance is generally higher with settlements than with imposed judgments, the ability to initiate compulsory execution without further litigation is a powerful backstop.
Risk Mitigation and Certainty:
Litigation inherently involves uncertainty. Even with a strong case, the outcome of a trial and any subsequent appeals is never guaranteed. Factors like the interpretation of evidence, the application of complex legal principles, or simply the "human element" of judicial decision-making can lead to unexpected results. A Soshōjō no Wakai allows parties to manage and mitigate these risks by agreeing to a known, certain outcome, rather than gambling on the uncertainties of a contested judgment. This "risk avoidance" is often a primary driver for settlement.
Preservation of Business Relationships:
A full-blown, adversarial trial can irrevocably damage business relationships. The process of reaching a court-supervised settlement, while still involving negotiation and compromise, is generally less confrontational. It can provide a structured environment for parties to find common ground and resolve their differences in a way that may allow for the continuation or even improvement of their commercial relationship, a factor often highly valued in the Japanese business environment.
Confidentiality Aspects:
While the existence of the lawsuit itself is a matter of public record, and the wakai chōsho is also a court document, the detailed negotiations leading to the settlement often occur in private sessions (e.g., preparatory proceedings or specific settlement conferences). Furthermore, the parties can sometimes agree to include confidentiality clauses within the settlement terms regarding the specifics of the dispute or the settlement itself, which might offer more privacy than a detailed, publicly available judgment explaining the court's reasoning.

The Indispensable Role of the Judge in Facilitating Settlement

Unlike some jurisdictions where judges may have a more limited role in settlement discussions, Japanese judges often actively participate in encouraging and facilitating Soshōjō no Wakai.

Active Judicial Encouragement (CCP Art. 89):
The CCP explicitly allows the court to attempt to arrange a settlement at any stage of the proceedings, regardless of whether the case is ripe for judgment. Judges frequently use this authority.
Disclosure of Preliminary Views (Shinshō Kaiji - 心証開示):
A key feature of Japanese settlement practice is the judge's potential disclosure of their preliminary views or impressions (shinshō) on the merits of the case, the strength of evidence, or the likely outcome of certain legal issues. This is often done during preparatory proceedings or in specific settlement conferences. Such judicial "assessment," even if non-binding, provides invaluable—and often very direct—feedback to the parties, prompting them to realistically evaluate their positions and consider settlement more seriously.
Methods of Facilitation:
Judges employ various techniques to guide parties towards settlement:
- Settlement Conferences: Dedicated court sessions focused on exploring settlement.
- Alternate Meetings (Kōgo Mensetsu - 交互面接): The judge meets with each party (and their counsel) separately to discuss their positions, concerns, and potential settlement terms candidly. This allows parties to speak more freely than they might in the presence of the opponent.
- Joint Meetings (Sōhō Taiseki - 双方対席): The judge meets with both parties and their counsel together to facilitate direct negotiation and mediate disagreements.
  The judge's style can vary; some are more proactive and directive in suggesting settlement terms, while others adopt a more facilitative role. Attorneys must adapt their strategy to the specific judge's approach.

Strategic Timing and Negotiation within the Litigation Context

The pursuit of a Soshōjō no Wakai is not a one-time event but an ongoing consideration throughout the litigation process.

Early Stages: Even before significant litigation efforts are expended, parties (or the court) may explore early settlement, especially if the core issues are clear or if there's a mutual desire to avoid prolonged conflict.
During Preparatory Proceedings (Benron Junbi Tetsuzuki): This is often the most fertile ground for serious settlement discussions. As factual and legal issues are clarified, evidence is exchanged, and the judge's preliminary views may emerge, parties are typically in a better position to assess the case realistically.
After Key Evidence Examination (e.g., Witness Testimony): Once critical witnesses have testified and their credibility has been tested, the strengths and weaknesses of each side's case often become much clearer. The judge's shinshō is also likely to be more developed at this stage, providing a strong impetus for final settlement efforts before the case proceeds to judgment.

Attorneys play a crucial role in advising clients on the opportune moments to engage in settlement talks, preparing realistic settlement proposals, and skillfully negotiating terms with opposing counsel, often leveraging the judge's insights and facilitation.

Crafting the Settlement Agreement (Wakai Jōkō - 和解条項): Precision is Paramount

The terms of the settlement are formally documented in the wakai chōsho. The drafting of these settlement clauses (wakai jōkō) requires meticulous attention to detail, as they will define the parties' rights and obligations and must be sufficiently clear for enforcement.

1. The Attorney's Role in Drafting:
While the judge often takes the lead in articulating the final terms based on discussions, proactive attorneys will frequently prepare and propose draft settlement clauses. This allows them to:

Ensure their client's key interests and concerns are accurately reflected.
Proactively shape the terms of the agreement.
Facilitate clearer discussions with the client, the court, and opposing counsel.
Carefully review any drafts proposed by the court or the opponent for completeness, accuracy, and enforceability.

2. General Drafting Principles:

Specificity and Clarity for Enforceability: Ambiguity is the enemy of an enforceable settlement. The clauses must be self-contained, precise, and their meaning readily ascertainable from the text itself. Japanese courts, when interpreting settlement clauses agreed upon with legal representation, tend to adhere closely to the literal wording (a principle supported by case law, e.g., Supreme Court, July 10, 1969, Minshū Vol. 23, No. 8, p. 1450).
Clear Operative Language: Use direct and unambiguous language to define obligations. For example, for monetary payments, a clause should state "Party A shall pay Party B the sum of..." (支払う - shiharau), rather than more passive or merely declaratory phrasing like "Party A acknowledges an obligation to pay..."
Logical Order: Clauses should be organized in a logical and coherent manner.

3. Essential and Common Settlement Clauses:

Payment Terms (Kyūfu Jōkō - 給付条項): Clearly specify the amount, currency, payer, payee, due date(s), method of payment (e.g., bank transfer to a specific account), allocation of bank transfer fees, and any interest for late payment. For installment plans, include an acceleration clause (kigen no rieki sōshitsu yakkan - 期限の利益喪失約款) stipulating that if payments are missed, the entire remaining balance becomes immediately due.
Performance Obligations: If the settlement involves non-monetary actions (e.g., delivery of goods, cessation of certain activities, performance of a service), these must be described with sufficient detail to leave no room for misinterpretation.
Declaratory Clauses (Kakunin Jōkō - 確認条項): These clauses confirm the existence or non-existence of certain rights or obligations. For instance, "Defendant acknowledges owing Plaintiff JPY X as settlement money (kaiketsukin - 解決金) in full and final satisfaction of all claims asserted in this lawsuit." The use of neutral terms like "settlement money" can be useful if a party is settling without formally admitting liability for the underlying claims.
Full and Final Settlement / Release Clause (Seisan Jōkō - 清算条項): This is a cornerstone of most settlements. A typical phrasing is: "Plaintiff and Defendant mutually confirm that, concerning the matters in this lawsuit [or a more broadly defined scope], no rights or obligations exist between them other than those stipulated in these settlement clauses."
- Scope is Critical: The wording of this clause must be carefully considered. A broad, unqualified release could inadvertently extinguish unrelated claims. It is often advisable to define the scope precisely, e.g., "concerning the contract dated [date] which is the subject of this lawsuit," or by explicitly carving out (excluding) or including other specific known matters.
Withdrawal of Claims and Related Actions (Kanren Jiken Shori Jōkō - 関連事件処理条項): If the settlement resolves the current lawsuit, it should state that the plaintiff withdraws the action (uttae no torisage - 訴えの取下げ) and that the defendant consents to the withdrawal (defendant's consent is necessary if they have already substantively responded to the complaint, CCP Art. 261(2)). Any related pending legal actions should also be addressed.
Provisions for Security/Guarantees: If, for example, security was posted for a provisional remedy, the settlement should include clauses for the return or cancellation of that security, including the opposing party's consent to the cancellation and a waiver of any right to appeal the cancellation decision.
Confidentiality: Parties often wish to keep the terms of the settlement confidential. A specific confidentiality clause can be included, though its enforceability and scope within a court record need careful consideration.
Allocation of Litigation Costs: The settlement should specify how the litigation costs incurred to date will be borne (commonly, each party bears its own costs - soshō hiyō wa kaku-ji no futan to suru - 訴訟費用は各自の負担とする).
"Moral Clauses" / Apologies (Dōgi Jōkō - 道義条項): Sometimes, non-monetary terms like a formal apology or a promise regarding future conduct (e.g., not to engage in disparaging remarks) can be crucial for a party's satisfaction and willingness to settle. While these may not be directly enforceable in the same way as monetary obligations, their inclusion can be key to reaching an overall agreement. Counsel should explain their typically non-coercive nature to clients.
Addressing Unforeseen Subsequent Damages (e.g., Latent Personal Injuries): In cases like personal injury, there's a question of how a "full and final" settlement impacts claims for truly unforeseeable long-term health consequences that emerge much later. Japanese case law (e.g., Supreme Court, March 15, 1968, relating to out-of-court settlements) suggests that damages for genuinely unforeseeable subsequent injuries, not predictable at the time of settlement, might still be claimable as they were not within the scope of the original settlement's contemplation. To provide clarity or comfort to a claimant, a specific reservation clause might be considered, though this could make the paying party more hesitant.

4. Considering Tax and Administrative Implications:
The terms of a settlement (e.g., large payments, debt forgiveness, transfer of assets) can have significant tax implications for one or both parties. It is crucial for counsel to advise clients to seek independent tax advice. Similarly, if the settlement requires administrative actions like property registration or corporate filings, the clauses must be drafted in a way that is compatible with the requirements of the relevant authorities (e.g., the Legal Affairs Bureau for property).

While attorneys guide the legal and strategic aspects of settlement, the ultimate authority to settle rests with the client.

Full Disclosure and Consultation: Attorneys have an ethical and professional duty to keep their clients fully informed about all settlement discussions, offers, and counter-offers. They must explain the terms of any proposed settlement, its legal consequences (including its finality and enforceability), and the pros and cons of accepting it versus continuing litigation.
Client's Self-Determination (Jiko Kettei - 自己決定): The decision to accept or reject a settlement offer is the client's. The attorney's role is to provide the necessary information and advice to enable the client to make an informed decision that aligns with their overall business objectives and risk tolerance. Forcing a client into a settlement they are uncomfortable with can lead to serious dissatisfaction and potential disputes with counsel.
Understanding Practicalities: Clients need to understand aspects like the payment schedule for attorney success fees in the event of a settlement (especially for installment payments from the opponent), and the possibility that even a settled amount might require enforcement efforts if the opponent defaults.

Conclusion: Soshōjō no Wakai as a Cornerstone of Japanese Dispute Resolution

Court-supervised settlement, or Soshōjō no Wakai, is a highly significant and effective mechanism for resolving civil and commercial disputes within the framework of Japanese litigation. It offers a powerful blend of negotiative flexibility and judicial authority, culminating in an agreement that carries the full weight and enforceability of a final court judgment. For businesses, strategically approaching settlement opportunities with the active involvement of the court and the guidance of experienced Japanese legal counsel can lead to pragmatic, efficient, and binding resolutions. It allows parties to regain control over the outcome, mitigate risks, save resources, and often preserve vital commercial relationships, making it an indispensable tool in the Japanese dispute resolution landscape.