All questions

Introduction to the class actions framework

Until recently, Japan did not have a special system regarding class actions or similar collective actions. Therefore, when the number of victims who can be co-litigants is considerable, such as in pollution or chemical damage cases, lawyers have generally organised a team to search for all potential plaintiffs. In these cases, no special Act is applicable and the filing and procedures are handled under the Code of Civil Procedure (Act No. 109 of 1996). However, if the plaintiffs initiate these normal lawsuits, in general, the plaintiffs would be obliged to bear considerable financial and mental burdens 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 the class actions in the United States. Considering this situation, regarding consumer litigation, special Acts were recently enacted that permit particular consumer organisations certified by the Prime Minister to represent the interests of multiple 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.

i Qualified consumer organisation actions

In June 2007, the Act that permits QCOs to carry out litigation came into effect. 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).2 Consumers can receive the benefits thereof even if they did not participate therein. There are 22 certified QCOs as of December 2021.

Regarding jurisdiction, in addition to the locality that constitutes the general venue of the defendant, QCO actions may also be filed with a district court with jurisdiction over the locality in which the certain acts of business operators are conducted.3

ii Specified qualified consumer organisation actions

In October 2016, the act that permits SQCOs to carry out court proceedings came into effect. 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), SQCOs may file for 'court proceedings for redress for damage' (an SQCO action) in certain cases where similar monetary damage was incurred by a considerable number of consumers in relation to consumer contracts. There are four certified SQCOs as of December 2021.

An SQCO action involves the procedures outlined below.

The first stage

The first stage is 'litigation seeking declaratory judgment on common obligations' (litigation regarding common obligations).4 In this stage, the court is tasked with confirming whether a defendant business operator owes any monetary obligation to a considerable number of consumers based on existing facts and legal causes common to those consumers. The consumers are only specified by nature and range and are not specifically identified yet.

The second stage

Only when the judgment in the first stage is issued in favour of the plaintiff SQCO, the second stage begins. It is the procedures to determine the target claims pertaining to the confirmed obligations (target claims). In this stage, each consumer opts in by delegating to the plaintiff SQCO, and the court confirms whether or not any monetary obligations are owed by the defendant business operator and the amount of damages in relation to each consumer. 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. The judgments, including those in the first stage, bind only the consumers who opted in. If the court confirms that a consumer has the right to monetary relief from the defendant business operator, the plaintiff SQCO collects money from the defendant business operator and distributes it to each consumer. Regarding jurisdiction, in addition to the locality that constitutes the general venue of the defendant, SQCO actions may be filed with a district court according to Article 6 of the Special Act. It also permits an SQCO to file an action with a district court of a certain scale when the number of the target consumers is expected to be over 500 or 1,000.

The year in review

QCOs have been seeking injunctions against about 840 business operators since the introduction of QCO actions in June 2007. It can be said that it is well established in practice. Most cases were resolved outside the proceedings and QCO actions were filed only when resolutions could not be reached. According to the Consumer Affairs Agency, as of December 2021, QCO actions were filed against 79 business operators. On the other hand, as of December 2021, SQCO actions were filed against only five business operators (in four cases) since the Special Act took effect in October 2016. Refund requests by SQCOs outside the proceedings are also not as common as injunction requests by QCOs.

i Recent QCO actions

The Tokyo High Court issued a judgment granting an injunction on 5 November 2020. As this case attracted the attention of practitioners and the public, we introduce this case herein.

A QCO filed a petition against a business operator who operated a portal site and argued that the membership agreement of the site violates the Consumer Contract Act. The membership agreement stipulated that the business operator can revoke one's membership: (1) 'when the company reasonably determines that one has caused unreasonable inconvenience to other members', or (2) 'when the company reasonably determines that one is inappropriate as a member', and stipulated that (3) 'even if the member suffers damage due to the company's measures, the company will not compensate the member for the damage at all'. The Court judged that these clauses violated the Consumer Contract Act because clauses in (1) and (2) were both significantly lacking in clarity and thus clause (3) was an unreasonable clause that exempted all liability for damages based on any default or tort of the business operator. The Court granted the QCO's petition and ordered the suspension of the conclusion of the consumer contract.

This judgment seemed to affect businesses regarding how to evaluate the clarity of standard agreements prepared by business operators and how to remain exempt from the liability of business operators.

ii Recent SQCO actions

As of January 2022, judgments have been issued to approve SQCOs' claims in the three litigations regarding the common obligations (i.e., the first stage), and the procedures to determine the target claims (i.e., the second stage) have commenced. For one of these litigations, a settlement entailing an agreement to pay the target consumers was reached during the procedure to determine the target claims and the proceedings were closed. As the first SQCO action is the only case that has been concluded thus far, we introduce this case herein.

On 17 December 2018, an SQCO filed a petition against a private medical college that set unjust standards for screening prospective students (e.g., gender and the number of failed entrance examinations) and brought a claim for compensation in respect of examination fees on behalf of applicants who were not admitted to the college. In the first stage (i.e., the litigation regarding common obligations), the court rendered a declaratory judgment on 6 March 2020 in favour of the SQCO, determining that the discriminatory screening of the college constituted a tort and that, therefore, the applicants were entitled to seek compensation in respect of examination fees. The second stage (i.e., the procedures to determine the target claims) was concluded on 27 July 2021 by way of settlement. The settlement condition was that the college pay the SQCO compensation, including the examination fees and expenses that the target consumers owed to the SQCO with respect to 558 target consumers, and the total amount was about 68 million yen.

iii New legislation or announced future changes to the class actions sector

Regarding SQCO actions, when three years have passed from the enforcement of the Special Act, the government is to review the status of the enforcement of the Special Act and, if it finds it necessary, is to take the required measures based on the results of the review.5 After more than four years had passed since the system was implemented, the Consumer Affairs Agency set up a panel of experts in March 2021 and held a study meeting on the Special Act to discuss the achievements of the system since its implementation and the issues that had become apparent in the course of its operation. The experts prepared a report in October 2021, which pointed out that the system was still in an early stage, and thus it required strong leverage to fulfil its expected role. The report also suggested that various aspects needed to be reviewed in order to make the system more effective, such as expanding the scope of both the applicable cases and reconciliation, facilitating the provision of information to target consumers, and arranging for an environment supporting SQCO's activities. Based on the report, the Consumer Affairs Agency is supposed to proceed with the amendment of the Special Act.