Types of group redress mechanisms and general characteristics

Until recently, Japanese law provided only a few traditional methods of the collective pursuit of claims, i.e. (i) a joint suit, by which connected claims may be jointly pursued before the court, (ii) a possibility to appoint by the persons who share a common interest one representative to act on their behalf in the proceedings and (iii) mechanism of consumer collective interests protection by the competent consumer organisations.

In December 2013, the Act on Special Measures Concerning Civil Court Proceedings for the Collective Redress for Property Damage Incurred by Consumers  introducing a mechanism referred to as the Japanese class action in consumer cases was adopted. This act entered into force on 1 October 2016.

The new collective redress mechanism was based on the opt-in model and applies only to consumer protection cases, related to consumer contracts, and also connected with damage to property. In the Japanese class action model, the range of entities entitled to bring an action and the range of potential defendants as well as scope of claims which can be pursued are also limited.  An action under the discussed manner may only be brought by a consumer organisation certified by the Prime Minister, and the defendant can only be an entrepreneur. Under Japanese group proceeding, only monetary claims can be pursued (a certified consumer organisation cannot, for example, demand that the defendant be ordered to repair or replace a defective product).

The above mentioned features significantly distinguish the group redress mechanism introduced in Japan from the classic American class action.

The new regulation assumes two stage proceedings. The subject of the first stage is the determination whether a particular entrepreneur shall be liable (so-called “common liability”) towards a numerous group of consumers on the basis of common factual and legal basis (Action for Declaratory Judgment on Common Obligations). At this stage, the consumer organisation can reach a settlement with the defendant regarding their liability to the consumers. However, the scope of the settlement cannot cover the issue of the amount of their respective claims.

In the event of the issuance of a judgment establishing the entrepreneur’s liability, in accordance with the request of the consumer organisation, in the second stage of the proceedings – which can only begin after the decision ending the first stage has become final – the court verifies the existence of the claims made by consumers and determines the amount of the benefit (e.g. compensation) due to each of them. A simplified procedure is then applied, whereby the existence of claims and the amount of each claim is determined on the basis of the parties’ statements and documents, while the possibility of taking evidence from witnesses’ statements is excluded. If none of the parties or consumers involved in the proceedings contest the existence of the claim or the amount of the benefit thus determined, the judgment of the court shall become binding. However, if any of the above mentioned parties objects to the existence of the claims or their amount, the case is referred to ordinary proceedings, where the existence (and the amount) of the claims is determined with the use of a full catalogue of means of evidence, including witness evidence.

With the commencement of the second phase of group proceedings (Proceedings for Determining the Target Claims – cf. Art. 12 et seq. of the Act), authorised consumer organisations are obliged to individually inform affected consumers known to them about the commencement of the proceedings. At the request of consumer organisations, the court may oblige the defendant to publicly inform consumers about the pending proceedings. The Japanese equivalent of the President of the Office of Competition and Consumer Protection has published special guidelines on how to do this. In addition, at the request of a consumer organisation, the defendant must disclose documents containing information about the injured parties. Upon becoming aware of the pending proceedings, persons who wish to pursue their claims in the second phase of the group proceedings should authorise the consumer organisation to represent them in this regard.

Compensation in the second stage of the group proceedings can only be awarded to those consumers who, at that stage, have clearly made a claim against the defendant entrepreneur. However, consumers who do not do so will be entitled to seek protection of their rights against the defendant in individual proceedings (the opt-in model).

Conditions of admissibility and procedure

As indicated above, the material scope of the provisions providing for a new collective redress mechanism under Japanese law is limited to cases against entrepreneurs concerning consumer contracts and certain categories of non-contractual compensatory claims.

In the first stage of the proceedings the court assesses if the following premises of the new collective redress mechanism admissibility are met (however, there is no special certification procedure):

  1. existence of the common factual and legal basis of the defendant’s liability (commonality),
  2. premise of an indicated size of the group – a considerable number of consumers must be affected by the actions of the defendant; however, no specific number of persons is provided in Japanese Law (numerosity),
  3. the dominance of common issues over individual issues (dominance).

The non-fulfillment of the above conditions is a prerequisite for rejecting the claim in group proceedings. The court may also do so if it turns out that a quick and appropriate resolution of the case in the discussed proceedings will prove excessively difficult. Rejection of the statement of claims in group proceedings for the above reasons does not deprive consumers of the right to pursue their claims against the defendant in individual proceedings.

The type of relief (legal protection) that can be obtained (court decision)

In the procedure described above, after establishment of the defendant’s common liability, only the following types of monetary claims can be awarded in favour of the consumers:

  1. claims for performance of a consumer contract (e.g. for payment of a sum that was refused to be paid by an entrepreneur as a result of the application of abusive clauses),
  2. claims for the return of unjust enrichment resulting from the cancellation, non-existence or invalidity of a consumer contract,
  3. claims for compensation of damage based on the default of a consumer contract,
  4. claims for compensation based on liability for damage caused by a hazardous product under a consumer contract,
  5. claims for compensation of damage resulting from a tort committed in connection with the conclusion or performance of a consumer contract.

The damages awarded in this procedure cannot cover secondary loss, lost profits, compensation of pain and suffering or other personal injury.

Costs and manner of financing the proceedings

The general rule is that the costs of the civil proceedings are borne by the losing party. However, the newly introduced class action mechanism introduced special provisions on the rules for bearing these costs. It provides that costs related to the recovery of individual claims are to be borne by the losing party and any other costs arising in the second stage of the proceedings are to be borne jointly by both parties. In turn, public information about ongoing proceedings is always at the expense of the consumer organisation and the latter cannot claim reimbursement from the entrepreneur. Both parties are, in principle, responsible for settling claims which, in the light of the general principles, do not constitute costs of proceedings (e.g. attorney’s fees).

A contingency fee may be agreed upon. However, it should be noted that the remuneration of the attorney should not be excessively high, and the agreement concerning this remuneration is subject to government control.

Practice and significance of the institution. Development trends

The new class action mechanism entered into force on 1 October 2016. It is forecasted that it may be widely used, especially since it is to be expected that the limited, for the time being, subjective scope of the above mentioned regulation will be gradually extended both in judicial practice and as a result of the legislator’s actions. It is worth pointing out that both the legislator and the courts express a positive opinion about the newly introduced regulation.

There are currently no statistics concerning the number of group proceedings in Japan. However, under the current law, consumer organisations have been obligated to notify about the completion of the first stage of group proceedings to the Prime Minister. According to data from September 2018, no such decision has been issued.