First-step analysis: the essentials of class actions in Japan

Overview

Court system

Outline the organisation of your court system as it relates to collective or representative actions (class actions). In which courts may class actions be brought?

Japan has no statutory class action legislation; however, Japanese law permits lawsuits filed by multiple plaintiffs. In addition, there exist special acts that permit particular organisations to represent the inter­ests of consumers by bringing a claim as a plaintiff. Herein, we explain in detail the distinction between litigation carried out by a qualified consumer organisation (QCO) and court proceedings carried out by a specified qualified consumer organisation (SQCO), which are special liti­gation proceedings created to protect consumer interests that may be filed with any district court that has proper jurisdiction.

 

Lawsuits filed by multiple plaintiffs

When the number of victims who can be co-litigants is considerable, lawyers sometimes organise a team to search for all potential plaintiffs. In these cases, no special act is applied and the filing and procedures are handled under the Code of Civil Procedure.

 Qualified consumer organisation actions

QCOs may, in the interest of multiple unspecified consumers, file a peti­tion for an injunction or an order for necessary measures to be taken concerning certain acts of business operators (a QCO action) (article 12 of the Consumer Contract Act (Act No. 61 of 2000), article 30 of the Act against Unjustifiable Premiums and Misleading Representations (Act No. 134 of 1962), articles 58-18 to 58-24 of the Act on Specified Commercial Transactions (Act No. 57 of 1976) and article 11 of the Food Labelling Act (Act No. 70 of 2013)). There are 23 certified QCOs as of June 2022.

 

Specified qualified consumer organisation actions

Based on the Act on Special Measures Concerning Civil Court Proceedings for the Collective Redress for Property Damage Incurred by Consumers (Act No. 96 of 2013)  (the Special Act), which was enacted in 2013 and came into effect in 2016, SQCOs may file for ‘court proceed­ings for redress for damage’ (an SQCO action) in certain cases where property damage, etc, (property damage and damage due to mental suffering) has been incurred by a considerable number of consumers in relation to consumer contracts. There are four certified SQCOs as of June 2022.

An SQCO action involves the procedures outlined below.

 

Litigation regarding common obligations

In the case of ‘litigation seeking declaratory judgment on common obligations’ (litigation regarding common obligations) (article 3 of the Special Act (unless otherwise noted, article numbers refer to articles of the Special Act revised in May 2022)), the court is tasked with confirming whether the defendant business operator owes any monetary obligation to a considerable number of consumers based on existing facts and legal causes common to those consumers.

 

Procedures to determine the target claims

In the procedures to determine the target claims pertaining to the confirmed obligations (target claims) and settlement claims regarding disputes of target claims (settlement claims) (collectively referred to as target claims, etc), the court confirms whether or not any monetary obligations are owed by the business operator and the amount of damages in relation to each consumer.

  • Simple determination proceedings: within four months of the judgment in a litigation regarding common obligations becoming final and binding, the SQCO must file a petition for the commencement of ‘simple determination proceedings’ (arti­cles 15 and 16 of the Special Act). The period for filing simple determination proceedings may be extended by two months, and up to eight months, if the court deems it necessary, in response to a petition by a SQOC (article 16(2) of the Special Act). If a court issues an ‘order of commencement of simple determination proceedings’, the SQCO carries out the proceedings (articles 20 and 34 of the Special Act). (Hereinafter, consumers who hold target claims (target consumers) and consumers who hold settlement claims (settlement target consumers) (collectively referred to as target consumers, etc), and who participate in the simple determination proceedings are referred to as delegating consumers.) The purpose of such proceedings is to speedily deter­mine the substance of the target claims, etc; thus, these proceedings are primarily for the purpose of the SQCO filing proofs regarding the target claims, etc, brought by the target consumers, etc, and, in turn, to obligate business operators to address such claims (article 33 of the Special Act). If the SQCO and business operator do not dispute the substance of the target claims, etc, the target claims, etc, are deemed to be legitimate (articles 45(3) and 50(1) of the Special Act). If the SQCO and business operator dispute the existence or amount of target claims, etc, the court conducts a hearing with both parties and issues a ‘simple determination order’ (articles 47(1) and (2) of the Special Act). In the simple determination proceed­ings, evidence is limited to documentary evidence. Other measures, such as the examination of witnesses, are not allowed (article 48(1) of the Special Act).
  • Litigation after objection: the SQCO and the business operator may object and request the commencement of ordinary litigation (litiga­tion after objection). In addition, delegating consumers, who are not parties to the simple determination proceedings, may object and initiate litigation after objection (articles 49(1) and (2) of the Special Act), through which the target claims, etc, are determined. Under the revised Special Act, during proceedings of litigation after objection, the litigation may not be withdrawn without the consent of the opposite party (article 60 of the Special Act).

 

Provisional seizure procedures

SQCOs, without being delegated by any target consumers, may file a petition for an order for a provisional seizure regarding the target claims before filing for an SQCO action (article 61(1) of the Special Act). The procedures for a provisional seizure are generally based on the Civil Provisional Remedies Act.

Frequency of class actions

How common are class actions in your jurisdiction? What has been the recent attitude of lawmakers and the judiciary to class actions?

If the plaintiffs initiate normal lawsuits, in general, the plaintiffs are obliged to bear a considerable financial and mental burden in relation to time-consuming preparations. Moreover, regarding financial resources and information, the disparity between consumers and business oper­ators makes it difficult for consumers to file and carry out an action. Therefore, the number of collective actions in Japan is small compared with that of class actions in the United States.

Considering this situation, the Japanese Diet established systems that make it possible for QCOs and SQCOs to file certain actions in the interest of multiple unspecified consumers. Specifically, a QCO can bring a claim, and, in the case of prevailing and obtaining an injunction, consumers receive the benefits thereof even if they did not partici­pate therein. Regarding an SQCO action, it is not very challenging for consumers to join because they can decide whether to take part in the second stage after the common obligations of the business operator have been confirmed. Nevertheless, there have been few precedents regarding QCO and SQCO actions up to now. According to the Consumer Affairs Agency, as of June 2022, QCO actions have been filed against only 81 business operators since the introduction of QCO actions in June 2007. In addition, as of June 2022, SQCO actions have been filed against only five business operators since the Special Act took effect in October 2016.

It is our belief that the judiciary is receptive to the concept of class action lawsuits.

Even though five years or more have elapsed since the enforcement of the Special Act, the current SQCO action has not gained much traction and the number of SQCO action cases remains extremely small. Taking into account such circumstances, the Special Act was revised in May 2022 and the revised Special Act will be enforced on 1 June 2023.

Legal basis

What is the legal basis for class actions? Is it derived from statute or case law?

QCO and SQCO actions are given legal standing through statutes.

Types of claims

What types of claims may be filed as class actions?

Qualified consumer organisation actions

QCOs may file a petition for either an injunction or an order for necessary measures to be taken concerning the unjust acts of business operators listed under the relevant acts. For instance, under the relevant acts, acts of business operators that constitute unjust solicitation, entering into contracts that include clauses that are considered to be unreasonable, and providing representations that are considered to be false or exag­gerated, may be subject to a QCO action.

 

Specified qualified consumer organisation actionsClaim limitations

First, the claims that may be brought in an SQCO action are limited to those concerning consumer contracts (article 2(iii) of the Consumer Contract Act and article 3(1) of the Special Act). Therefore, for instance, SQCOs may not bring a claim for damages against the issuers of an annual securities report based on false information because there is generally no direct contract between the issuers and consumers.

In addition, SQCOs are only permitted to bring monetary claims (article 3(1) of the Special Act). This means that SQCOs do not have the right to bring a claim for other relief, such as the recall, replacement or repair of defective products.

Moreover, the claims that may be brought are limited to those that fall under the categories listed below (article 3(1) of the Special Act):

  • a claim for the performance of a contractual obligation;
  • a claim pertaining to unjust enrichment;
  • a claim for damages based on the non-performance of a contrac­tual obligation;
  • a claim for damages based on a warranty against defects;
  • a claim for damages based on a tort under the Civil Code; (excluding the following category) and
  • a claim for damages caused by employees with respect to the execution of the business (this category is newly introduced by the revised Special Act)

 

SQCOs may only bring a claim for damages arising in tort under the provisions of the Civil Code; thus, a claim for damages under special acts such as the Product Liability Act may not be brought in an SQCO action.

In addition, under the current Special Act, secondary losses, loss of profit, damages owing to harm done to the life or body of a person, and damage due to mental suffering (solatium) are excluded from the third to fifth points above (article 3(2) of the Special Act). Consequently, if an SQCO brings a claim for damages based on a warranty against defects, the claim is limited to the equivalent of the purchase price of the product and default interest. Further, SQCOs may not bring a claim for consolation money based on the leakage of personal information.

As a result of the revision of the Special Act, damage due to mental suffering (solatium) that the current Special Act excludes from the scope of claims may fall within the scope of claims when major facts that serve as the basis for calculating damages are common to a considerable number of consumers, and in conjunction with the foregoing, when either (i) such claim for solatium is made together with a claim for property damage, or (ii) the relevant harm is caused intentionally (article 3(2)(vi) of the Special Act).

 

Scope of business operators

Under the current Special Act, the defendant(s) must be a business operator (including sole proprietorships) and individuals other than sole proprietorships may not be the defendant (article 2(ii) of the current Special Act). However, as a result of the revision of the Special Act, in cases where (i) a business operator’s employee inflicts damage on a third party with respect to the business, (ii) the business operator fails to exercise reasonable care in appointing the employee or supervising the business due to intentional or gross negligence, and (iii-a) the business supervisor (the person that supervises the business on behalf of the employer) fails to exercise reasonable care in appointing the employee or supervising the business due to intentional or gross negligence or (iii-b) the employee inflicts damage on the third party due to intentional or gross negligence, individuals who hold the position of business supervisor or employee may be considered as the defendant exceptionally (article 3(1)(v) and 3(3)(iii) of the Special Act).

In principle, regarding a consumer contract, the business operator that is party thereto is the defendant in an SQCO action (article 3(3) of the Special Act). For example, if products sold by retailers turn out to be defective, SQCOs may not sue the manufacturer of the products, but may sue the retailers who directly sold the products to consumers.

Even if the manufacturer may not be sued by SQCOs, the retailers can bring a claim against the manufacturer for reimbursement if an SQCO files an action against the retailers based on a warranty against defects and the retailers pay damages to consumers. Therefore, if an SQCO action is filed, the manufacturer should consider filing an applica­tion to intervene and argue the non-existence of any defect.

 

Transitional limitations (article 2 of the Supplementary Provisions of the Special Act)

SQCOs may not make a claim concerning consumer contracts that were entered into (or torts where the wrongful acts were committed) before the Special Act took effect (ie, 1 October 2016).

Relief

What relief may be sought in class proceedings?

Plaintiffs may seek various types of relief in normal lawsuits; however, QCOs may seek only injunction and SQCOs may seek only monetary payment. Nevertheless, it is possible for QCOs and SQCOs to seek other types of relief by settling with the business operator in a QCO action or in the procedures to determine the target claims, etc.

Initiating a class action and timing

How is a class action initiated? What is the limitation period for bringing a class action? Can the time limit for bringing a class action be paused? How long do class actions typically take from filing to a final decision?

Special requirements prior to filing a complaint

QCOs must, in advance, issue a prospective defendant in a QCO action by way of a written demand for injunction, and, in principle, may not bring a QCO action until one week after this written demand has been received (article 41(1) of the Consumer Contract Act).

With regard to SQCO actions, there are no special requirements to be fulfilled prior to the filing.

 

Statute of limitations

With respect to a QCO action, no statute of limitations exists.

With respect to an SQCO action, there is no specific statute of limi­tations other than the general rules of the Japanese Civil Code, which prescribe that a claim shall be extinguished if not exercised within three years of the time that the obligee comes to know that the claim is exercisable or within 10 years of the time that the claim is exercisable (article 166(1) of the Civil Code (Act No. 89 of 1896)). In addition, there is a longer statute of limitations for a claim for damages arising from harm to one’s life or person. Namely, a claim involving a breach of a contract is extinguished if not exercised within five years from the time that the obligee comes to know that the claim is exercisable or within 20 years from the time that the claim is exercisable, and a claim involving a tortious act is extinguished if not exercised within five years from the time that the victim comes to know of the damages and the identity of the perpetrator or within 20 years from the time of the tortious act (arti­cles 167, 724 and 724-2 of the Civil Code).

The statute of limitations shall be tolled without filing a lawsuit for a certain period of time upon the demand by an obligee for the fulfil­ment of an obligation or acknowledgment of obligation by the obligor, upon reaching an agreement to negotiate a claim, and in other specific circumstances (articles 147-152 of the Civil Code). However, SQCOs are not entitled to toll the statute of limitations as target claims, etc, that substan­tially belong to target consumers, etc. Therefore, there are no means to toll the statute of limitations for all potential target consumers. On the other hand, under the current Special Act, when the filing of proofs of target claims, etc, have been made by SQCOs in simple determination proceedings, a litigation demand is deemed to have been made when the lawsuit pertaining to the litigation regarding common obligations has been filed, and the statute of limitation is tolled (article 38 of the current Special Act). In addition, the revised Special Act also permits the statute of limitation to be tolled in cases where the litigation regarding common obligations is terminated by withdrawal or dismissal without prejudice of the litigation, or in cases where an SQCO does not file a simple determination proceeding, and in conjunction with foregoing, if the target consumers individually file a lawsuit within six months thereafter (article 68 of the Special Act).

 

Timing of final decision

The length of time until a final decision is entered varies greatly from case to case. First instance courts shall aim (but are not bound) to render a decision in less than two years from the filing of the lawsuit (article 2(1) of the Act on the Expediting of Trials (Act No. 107 of 2003)). According to the statistics published by the Supreme Court in 2022, for civil lawsuits, the average period of time until a final decision (other than a default judgment) is rendered in the first instance is 14.6 months; however, 9.4 per cent of civil lawsuits take more than two years until their conclusion (including cases where a settlement is reached).

Additionally, according to the report published by the Supreme Court in 2021, it takes an additional 6.8 months on average for appeals. Moreover, if a party appeals to the Supreme Court, additional time would be neces­sary. Although the average time for the Supreme Court to render a decision is around five months, if the Supreme Court finds it necessary to examine the case substantively, it would take much longer.

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