Japan has enacted its first class actions legislation, following an international trend seen in the European Union and some other countries in Asia. The new class actions law (the Act on Special Measures Concerning Civil Court Proceedings for the Collective Redress for Property Damage Incurred by Consumers) came into force on October 1.

Two-stage process

The new class actions law is distinct from the class action legislation we are familiar with in Canada, and instead contains some features seen in class action legislation in European countries, such as France. The Japanese law is a two-stage procedure and does not allow for individuals to commence class actions themselves. Instead, first, a “Special Qualified Consumer Organization” (which must obtain certification from the Prime Minister) commences litigation under the Act against the company, seeking a declaration that the company is liable for common obligations owed to a “considerable number” of aggrieved consumers. There is no definition of “considerable number” but it is likely that tens of consumers may suffice. If the court finds that the company is liable at the first stage, then the second stage is for consumers to “opt-in” and join the litigation, where a court will determine what damages each consumer is entitled to recover.

Limitations Inherent in the Legislation

Unlike the broader class actions legislation seen in Canada and the U.S., the Japanese law is narrower likely trying to prevent or circumscribe the large number of class actions that was seen in the U.S. after its legislation was enacted. First, in Japan, a consumer organization must commence the litigation. Second, claims must fall within certain actions relating to a consumer contract, such as the default of a consumer contract or liability for a product defect under a consumer contract. And third, consumers can only claim for damages directly related to their claim; consequential losses and damages for pain and suffering are excluded. However, once liability is determined under the new legislation, it is possible consumers may commence separate individual proceedings claiming such losses. Therefore, it is possible that liability under the new Act could potentially open up a company to greater liability from individual claims seeking larger amounts of damages.

Looking Forward

Consumer protection has been a large concern for many countries, resulting in class actions legislation being developed across the European Union and now in Asia. Some Asian countries, such as Hong Kong, still do not have any such legislation and it remains to be seen if they will follow suit. Companies with a presence in Japan should be aware of the legislation and the potential implications it could have for their business. As the types and amount of litigation this law may present are currently unknown, it may be beneficial to pre-emptively consider and set out potential responses to such litigation should it be commenced. In addition, the law does not apply retroactively so companies should review all current and future consumer contracts to try and decrease their exposure to class actions litigation. While the Japanese class action regime appears to be far more restrictive than those that exist in North America (and only time will tell), it does have the potential to significantly expand the exposure of many companies doing business in Japan.