The Principle of "Administration by Law" (Horitsu ni yoru Gyosei no Genri) in Japan: What Does It Mean for Regulatory Predictability?

For any business operating within Japan's sophisticated regulatory environment, understanding the foundational principles that govern administrative actions is paramount. One such cornerstone is the "Principle of Administration by Law" (法律による行政の原理 - Hōritsu ni yoru Gyōsei no Genri). This principle, deeply rooted in Japan's constitutional framework and legal tradition, dictates how administrative bodies must exercise their powers and interact with private entities, including businesses. Its core tenets aim to ensure that administrative actions are lawful, non-arbitrary, and, ideally, predictable, which is crucial for business planning and legal certainty. This article explores the key components of this principle—the supremacy of law, the reservation of law, and the role of general principles of law—and their significance for the regulatory landscape.

Core Tenets of Administration by Law

The Principle of Administration by Law, often considered an aspect of the broader concept of hōchi shugi (法治主義 - rule of law, or Rechtsstaat), is generally understood to comprise two main pillars, along with an implicit third concerning the creation of legal norms.

1. Supremacy of Law (Hōritsu no Yūi)

The Supremacy of Law (法律の優位 - hōritsu no yūi) dictates that all administrative activities must conform to existing law. Administrative organs cannot act in a manner that contradicts or violates the Constitution, statutes enacted by the Diet (Japan's parliament), or administrative legislation (such as cabinet orders and ministerial ordinances) that has been duly enacted within the scope of statutory delegation.

This principle finds its ultimate basis in Article 41 of the Constitution of Japan, which designates the Diet as the highest organ of state power and the sole law-making organ of the State. Consequently, any administrative act, regulation, or guidance that contravenes a superior legal norm is considered illegal. For businesses, this means that administrative actions must have a valid legal footing and cannot arbitrarily deviate from established legal rules. This principle also implies a hierarchy of norms: the Constitution is supreme, followed by statutes, and then administrative legislation (which itself must be consistent with its enabling statute).

2. Reservation of Law (Hōritsu no Ryūho)

The Reservation of Law (法律の留保 - hōritsu no ryūho) posits that certain types of administrative actions require prior authorization by a statute. In other words, an administrative organ cannot undertake these actions merely on its own initiative or based on general administrative necessity; there must be a specific "legal basis" or empowering provision in a law enacted by the Diet.

The critical question under this principle is determining which administrative actions require such a statutory basis. This has been a subject of considerable legal debate in Japan, with several theories proposed:

• Infringement Reservation Theory (Shingai Ryūho Setsu): This has traditionally been the dominant view in Japanese administrative law scholarship and practice. It holds that a statutory basis is primarily required for administrative actions that infringe upon the rights and freedoms of citizens and businesses. Examples include imposing taxes (as explicitly required by Article 84 of the Constitution), restricting business activities, imposing duties, or expropriating property. Conversely, administrative actions that are beneficial (e.g., granting subsidies, providing public services) or do not directly impinge on private rights may not require such specific statutory authorization, although they must still operate within the bounds of the agency's organizational mandate and not violate the supremacy of law. This theory reflects a classical liberal concern with protecting citizens from arbitrary state power.
• Total Reservation Theory (Zenbu Ryūho Setsu): Advocating for stronger democratic control over the administration, this theory argues that all administrative actions, or at least all significant ones, should have a basis in statute, regardless of whether they are infringing or beneficial.
• Other Theories: Intermediate theories also exist, such as the "Power Reservation Theory" (kenryoku ryūho setsu), requiring a statutory basis for authoritative or coercive actions, and the "Important Matters Reservation Theory" (jūyō jikō ryūho setsu), which extends the need for statutory authorization beyond infringements to other matters deemed of significant public importance.

In practice, while the Infringement Reservation Theory remains influential, there is a growing recognition that for matters of significant national importance or those substantially affecting citizens' lives, even if not directly "infringing" in the classical sense, a degree of parliamentary involvement through statutory authorization is desirable.

For businesses, the principle of hōritsu no ryūho means that when faced with a new regulation or an administrative intervention that impacts their operations, it is legitimate to inquire about the specific statutory provision authorizing such action, especially if it curtails existing rights or imposes new burdens. It is also important to distinguish between different types of legal norms:
* Empowering Norms (Konkyo Kihan): These are the statutes that provide the specific legal basis required by the hōritsu no ryūho principle for an agency to act.
* Organizational Norms (Soshiki Kihan): These laws (e.g., Ministry Establishment Acts) define the structure and general scope of duties of an administrative agency but do not, by themselves, grant power to infringe on private rights. For example, a ministry cannot create a new tax based solely on its establishment act; a specific tax law is needed.
* Controlling Norms (Tōsei Kihan): These laws (e.g., the Administrative Procedure Act, the Act on Rationalization of Subsidies) regulate how administrative actions are carried out but do not necessarily provide the primary authorization to act.

3. Creative Power of Law for Legal Norms (Hōritsu no Hōki Sōzō-ryoku)

Implicitly linked to the above is the principle that only statutes (laws enacted by the Diet) can create hōki (法規) – legal norms that directly define the rights and duties of citizens. Administrative legislation, such as cabinet orders or ministerial ordinances, can only be enacted based on specific delegation by a statute and must remain within the scope of that delegation. The Diet cannot delegate its core legislative power in a "blanket" manner (hakushi inin).

Sources of Administrative Law (Gyōsei Hō no Hōgen)

The "law" to which administrative actions must conform comes from various sources:

• Written Law: This is the primary source and includes:
  • The Constitution of Japan.
  • Statutes enacted by the Diet.
  • Cabinet Orders (政令 - seirei) issued by the Cabinet.
  • Ministerial Ordinances (省令 - shōrei) issued by individual ministers.
  • International Treaties ratified by Japan.
  • Ordinances (条例 - jōrei) and Rules (規則 - kisoku) enacted by local public entities (prefectures and municipalities) within their scope of authority.
• Unwritten Law: While written law is paramount, unwritten sources also play a role:
  • Case Law (判例 - Hanrei): Judgments of the Supreme Court have a strong de facto binding effect on lower courts and administrative practice, often clarifying the interpretation and application of written laws.
  • Customary Law (慣習法 - Kanshū Hō): Its role in administrative law is limited due to the emphasis on statutory basis for actions. However, certain long-standing administrative practices may be recognized if not contrary to written law (e.g., the practice of promulgating laws through the Official Gazette - Kanpō - was recognized by the Supreme Court in a decision on December 28, 1957).
  • General Principles of Law (法の一般原則 - Hō no Ippan Gensoku): These are fundamental legal principles, some derived from the Constitution or private law, that are considered applicable to administrative actions even if not explicitly codified in a specific administrative statute. They are crucial for ensuring fairness, reasonableness, and predictability.

The Vital Role of General Principles of Law in Shaping Administrative Conduct

General principles of law are particularly important in providing a framework for administrative conduct and a basis for judicial review, especially where statutes grant discretion to administrative agencies. They act as inherent limitations on administrative power. Key principles include:

1. Principle of Good Faith and Sincerity (Shingi Seijitsu no Gensoku or Shingi-soku):
   Originating from Article 1, Paragraph 2 of the Civil Code, this principle is applied to administrative law. It requires administrative organs to act honestly, fairly, and in a manner that does not betray the legitimate expectations of private parties. It can be invoked to protect businesses that have reasonably relied on statements, assurances, or a consistent course of conduct by an administrative agency. For example, the Supreme Court, in a judgment on October 30, 1987, considered this principle in a case where tax authorities sought to retroactively revoke a "blue form" tax return approval after it had been accepted for many years. Another Supreme Court decision on January 27, 1981, recognized a local government's liability in damages (under state compensation principles) for losses incurred by a company that had relied on the government's active inducement and subsequent abandonment of a factory development plan.
2. Prohibition of Abuse of Power (Kengen Ranyō no Kinshi Gensoku):
   Similar to the prohibition of abuse of rights in private law (Civil Code Article 1, Paragraph 3), administrative powers must be exercised for the legitimate public purposes for which they were granted. If an agency uses its powers for an ulterior motive (taji kōryo – consideration of irrelevant matters), or in a manner that is patently unreasonable or oppressive, its action can be deemed an illegal abuse of power.
3. Principle of Equality (Byōdō Gensoku):
   Derived from Article 14 of the Constitution (equality under the law), this principle requires administrative organs to treat similarly situated individuals and businesses equally, without arbitrary or unjustifiable discrimination. This applies to the application of laws, regulations, and the provision of public services. For instance, the Waterworks Act (Article 15) prohibits unreasonable refusal of water supply and discriminatory treatment.
4. Principle of Proportionality (Hirei Gensoku):
   This fundamental principle demands that administrative measures, particularly those that restrict rights or impose burdens, must be:
   • Suitable: Capable of achieving the legitimate administrative objective.
   • Necessary: The least intrusive means among those available to achieve the objective.
   • Proportionate in the narrow sense: Maintaining a reasonable balance between the public benefit sought and the burden or infringement imposed on the individual or business.
     An administrative action that is excessive or imposes a burden disproportionate to its aim can be deemed illegal. This principle is often invoked when challenging the severity of administrative sanctions or the breadth of regulatory restrictions (e.g., Supreme Court, December 20, 1977, concerning the proportionality of a disciplinary sanction against a public servant).
5. Principle of Procedural Due Process (Tetsuzuki-teki Seigi no Gensoku):
   While Article 31 of the Constitution explicitly guarantees due process in criminal procedures, its spirit is considered applicable to administrative procedures as well, particularly those leading to adverse dispositions. This principle underpins many provisions of the Administrative Procedure Act, such as the rights to notice, hearings (聴聞 - chōmon), or an opportunity for explanation (弁明の機会の付与 - benmei no kikai no fuyo) before an agency makes a decision that negatively affects a party's rights or interests.

These general principles act as unwritten checks on administrative power, providing grounds for challenging administrative actions even when an agency appears to be acting within the literal confines of a statute. They contribute significantly to the predictability and fairness of the regulatory environment.

Predictability and the Principle of Administration by Law

The Principle of Administration by Law, in its various facets, is intended to enhance the predictability of administrative actions for businesses and individuals:

• The Supremacy of Law means businesses can expect administrative bodies to act consistently with established legal norms.
• The Reservation of Law, especially the Infringement Reservation Theory, implies that new significant burdens or restrictions on business activities should typically be preceded by legislative action (a new statute or amendment), providing a degree of foreseeability and an opportunity for public debate.
• The requirement for administrative agencies to publish examination standards for applications and (endeavor to publish) disposition standards for adverse actions under the Administrative Procedure Act further promotes transparency and predictability.
• General Principles of Law like good faith, proportionality, and equality offer protection against arbitrary, unexpected, or unfair administrative decisions.

However, challenges to predictability remain:

• Statutes often grant considerable discretion to administrative agencies, and the exercise of this discretion can sometimes be difficult to predict.
• The precise scope of the Reservation of Law is still subject to academic debate, potentially leading to uncertainty about when new statutory authority is strictly required.
• The role of informal administrative guidance (gyōsei shidō), while subject to certain APA disciplines, can still introduce an element of unpredictability due to its non-binding yet often influential nature.

When Law and General Principles Conflict: Good Faith vs. Taxation by Law

A notable area where the application of these principles becomes complex is when a general principle of law, such as good faith, appears to conflict with the strict application of a statute, particularly in the realm of taxation. For example, what happens if a business relies on incorrect advice from tax authorities that leads to an underpayment of tax, and the authorities later seek to collect the full amount due under the law?

The Supreme Court addressed such a scenario in its judgment of October 30, 1987. It affirmed the paramountcy of the constitutional principle of "taxation by law" (Constitution Article 84), meaning taxes can only be levied based on statute. Therefore, mere administrative error or misstatement does not automatically absolve a taxpayer of their statutory tax liability. However, the Court also recognized that in "special circumstances" (特別の事情 - tokubetsu no jijō), the principle of good faith and trust protection could exceptionally prevent tax authorities from making a retroactive corrective assessment if:

1. The tax authorities had given a public or official representation of their view on the tax treatment.
2. The taxpayer had relied on this representation in good faith and acted accordingly.
3. It would be contrary to good faith for the authorities to later contradict that representation and impose an economic disadvantage on the taxpayer.
4. The taxpayer was not at fault in relying on the representation.
   These conditions are stringent, meaning that a business seeking to invoke this protection must demonstrate clear and justifiable reliance on an official agency stance.

Brief Comparison with the "Rule of Law" in Common Law Jurisdictions

The Japanese "Principle of Administration by Law" shares common ground with the "Rule of Law" concept in common law jurisdictions like the United States. Both emphasize that government power is not absolute and must be exercised according to law, and both provide for judicial review of administrative actions.

However, there are differences in emphasis and doctrinal structure:

• Sources of Law: Civil law systems like Japan place a stronger emphasis on codified statutes as the primary source of administrative law, whereas common law systems have historically relied more on judicial precedent and principles like ultra vires (acting beyond statutory powers) and natural justice/procedural fairness.
• Specific Theories: Concepts like the "Infringement Reservation Theory" (shingai ryūho setsu) are specific to the doctrinal development in systems influenced by German legal thought and do not have direct equivalents in common law.
• Administrative Discretion: While both systems recognize administrative discretion, the specific approaches to its judicial review and the categorization of discretionary acts can differ.

Conclusion

The Principle of Administration by Law (Hōritsu ni yoru Gyōsei no Genri) is a fundamental tenet of the Japanese legal system, providing the framework within which administrative power must operate. For businesses, this principle offers a degree of assurance that regulatory actions will be grounded in law, adhere to general principles of fairness and reasonableness, and be subject to legal scrutiny. While the scope of statutory authorization and the application of general principles can involve complex interpretations, understanding these core concepts—the supremacy of law, the reservation of law, and the crucial role of general principles like good faith, proportionality, and equality—is essential for businesses to navigate Japan's regulatory environment effectively, anticipate government actions, and protect their legal rights.