Jurisdiction in International Transactions

Agreement on Jurisdiction

Jurisdiction means that the parties agree in advance in which country the case will be tried. Generally, an agreement on jurisdiction is considered valid. In international transactions, it is usual to have a stipulation of jurisdiction, but it is also possible to have no stipulation of jurisdiction. If jurisdiction is not stipulated, the general rule is to file a lawsuit in the court where the other party is located. For example, if a Japanese company sues a corporation in New York, the lawsuit must be filed in a New York state court, and conversely, if a New York company sues a Japanese company, the lawsuit must be filed in a Japanese court (this type of jurisdiction is called general venue).

However, there are some exceptions. For example, if the other party has a branch office in Japan, or if the other party has committed a tortious act in Japan, the Japanese company can sue the New York corporation in Japan (such jurisdiction is called special venue).

Agreement of Exclusive Jurisdiction and Agreement of Non-Exclusive Jurisdiction

Even if jurisdiction is specified as Tokyo, Japan, the question may arise as to whether the jurisdiction is exclusive or nonexclusive. Exclusive jurisdiction means that only that court has jurisdiction by agreement of the parties, and a lawsuit filed in any other court will be dismissed upon the other party’s motion. On the other hand, non-exclusive jurisdiction does not exclude the jurisdiction of any other court. Even if Tokyo, Japan has jurisdiction, the other party may still be able to file a lawsuit in a New York court by asserting the relationship between the dispute and New York (e.g., by claiming that the tortious act took place in New York and that the Japanese company continues to operate in New York).

Clause on Agreement on Jurisdiction

The following is a provision for cases in which the Tokyo District Court has exclusive jurisdiction. It is preferable to state that the Tokyo District Court has exclusive jurisdiction not only over contractual claims, but also over claims in tort and other configurations. However, jurisdiction over torts may be contested even if there is consensual jurisdiction.

（Sample）
Any dispute arising out of or in connection with this Agreement or the transactions contemplated by this Agreement (including any tort and other non-contract claims) shall be subject to the exclusive jurisdiction of the Tokyo District Court.

Agreements that state in detail the jurisdiction of the court

（Sample）
Each of the parties hereto hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and to any New York state court sitting in New York County for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each party irrevocably consents to the service of any and all process in any legal proceeding by the mailing, certified mail with proof of delivery, or delivery by overnight courier of copies of such process to such party at its address set forth herein. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The parties agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. To the extent that any party has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the such party hereby irrevocably waives such immunity in respect of its obligations under this Agreement

Agreement to Jurisdiction in a Third Country

Jurisdiction is not limited to the courts of any of the countries of the parties, but can also be the jurisdiction of a completely third country. For example, a sales contract between a Japanese corporation and a corporation in New York State may be subject to the jurisdiction of Paris, France. Although it may be considered more neutral and fair for both parties to have jurisdiction in a third country, it may also be unfavorable to both parties, since they would have the burden of having to go to court in a country with which they are unfamiliar.

Agreement to Jurisdiction over the Location of the Defendant

Since jurisdiction is not limited to a single court, it is also possible to agree that the court where the other party is located will be the court of jurisdiction. In this case, if a Japanese corporation sues a New York corporation, the suit must be filed in a New York state court, and conversely, if a New York corporation sues a Japanese corporation, the suit must be filed in a Japanese court.

Forum Shopping and Agreement on Jurisdiction

As mentioned above, not setting jurisdiction is one option, but there may be a disadvantage of not being able to predict which court will be sued in the event that jurisdiction is not set. For example, if a lawsuit is filed in a Texas court in the U.S., the Texas court is said to be favorable to the plaintiff, so the Japanese company may be forced to file a lawsuit against it. In the sense of preventing such forum shopping (i.e., a party to a lawsuit seeking a court favorable to the plaintiff and filing a lawsuit there), it is also beneficial to establish jurisdiction.

Motion for Dismissal for Lack of Jurisdiction

If a lawsuit is filed in a court where jurisdiction does not exist, the defendant must file a motion for dismissal for lack of jurisdiction. If the defendant does not file a Motion for Dismissal and files an answer, the court will have jurisdiction over the case. A motion to dismiss for lack of jurisdiction is also filed when the court of the country where the case was filed has no jurisdiction, or when the dispute should be resolved by arbitration and not by lawsuit because of the arbitration clause. A motion to dismiss for lack of jurisdiction filed by a defendant with the court is called a Motion for Dismissal by reason of Lack of Jurisdiction.

No stipulation of jurisdiction

If there is no stipulation regarding jurisdiction in the international transaction agreement, the jurisdiction of the court of any country is determined by the laws and regulations of the country where the lawsuit is filed. For example, if a lawsuit is filed in a Japanese court, the Japanese court will determine whether the Japanese court has jurisdiction over the case based on the provisions of the Japanese Code of Civil Procedure.

Provisions on Jurisdiction under the Japanese Code of Civil Procedure

The Japanese Code of Civil Procedure recognizes consensual jurisdiction and adversary jurisdiction, so if there is an agreement in a contract or the parties do not dispute jurisdiction, jurisdiction will be recognized in accordance with the will of the parties. On the other hand, if there is no agreement on jurisdiction, the Code of Civil Procedure provides the following provisions regarding which country’s courts have jurisdiction.

Jurisdiction Arising from Defendant’s Place of Residence

With respect to a lawsuit against a person, a court in Japan shall have jurisdiction (1) if the person’s domicile is in Japan, (2) if the person has no domicile or if the person’s domicile is unknown, if the person has a residence (temporary place of residence) in Japan, or (3) if the person has no domicile or if the person had a domicile in Japan before filing the lawsuit. (Article 3-3, Paragraph 1).

Jurisdiction over Juridical Persons

In the case of a juridical person, a Japanese court has jurisdiction if (1) its principal office or business office is located in Japan, or (2) if it has no office or business office or, if its whereabouts are unknown, the address of its representative or other person in charge of its principal business is in Japan (Article 3-2 Paragraph 3).

Jurisdiction over Actions Relating to Business

An action against a person who has a business office or place of business in Japan, if the action relates to the business at the office or place of business, may be filed in Japan (Article 3-3, Item 4). In addition, an action against a person who conducts business in Japan may be filed in Japan if the action relates to the person’s business in Japan (Article 3-3, Item 5).

Jurisdiction over Contractual Actions

If the place of performance of the obligation is in Japan, the action may be brought in Japan. Also, if the place of performance is in Japan according to the law selected in the contract, an action may be brought in Japan (Article 3-3, Item 1).

Jurisdiction over Consumer Contracts

An action from a consumer against a business can be filed with a Japanese court if the consumer’s address is in Japan when the action is filed or if the consumer’s address is in Japan when the contract is concluded (Article 3-4, Paragraph 1). On the other hand, with respect to an action from a business to a consumer in Japan, the defendant’s domicile rule applies, and in principle, the action must be filed in the court of the defendant’s domicile (Article 3-2).

Jurisdiction over Labor Contracts

When a worker sues his/her employer, he/she may file a lawsuit in a Japanese court if the place of providing labor is in Japan (Article 3-4, Paragraph 2). In cases where the place of labor provision has not been determined, such as immediately after hiring, the lawsuit can be filed in a Japanese court if the place of business where the worker was hired is in Japan (Article 3-4, Paragraph 2). In contrast, with regard to an action from an employer against a worker in Japan, the rule of domicile of defendant applies, and in principle, the action must be filed in a Japanese court in the domicile of the defendant (Article 3-2 of the Civil Procedure Code).

Location of Property

When the subject matter of the claim is located in Japan, jurisdiction is recognized in Japan (Article 3-3, Item 3). In the case of an action on property right, where payment of money is demanded, jurisdiction shall be recognized in Japan if the property that can be seized is located in Japan (Article 3-3, item (iii)). Regarding real estate, if the real estate is located in Japan, the lawsuit can be filed in Japan (Article 3-3, Item 11).

Torts

Japanese courts have jurisdiction when the place of the tortious act is in Japan (Article 3-3, Item 8). However, if the tortious act was committed in a foreign country and only the result of the tortious act occurred in Japan, Japanese jurisdiction will not be recognized if it is not ordinarily foreseeable (Article 3-3, Item 8).

Agreement on Jurisdiction

Generally, the Code of Civil Procedure recognizes the validity of an agreement on jurisdiction (Article 3-7, Paragraph 1). However, an agreement that grants exclusive jurisdiction to a foreign court that cannot exercise jurisdiction is considered invalid (Article 3-7, Paragraph 4). For example, if the judicial system of a foreign country is not functioning due to war or other reasons, an agreement that a lawsuit can only be filed in that foreign country is invalid.

Exclusive Agreed Jurisdiction

In order to ensure that jurisdiction is always recognized in Japan by agreement on jurisdiction, it is necessary to make the agreement exclusive (i.e., an agreement to the effect that the action may be brought only in a Japanese court), since there is a possibility that the action may be dismissed under special circumstances (Article 3-9), except by agreement on exclusive jurisdiction. (Article 3-9). The following special provisions apply to consumer contract disputes and labor contract disputes arising in the future, and unless the requirements are met, exclusive jurisdiction will not be recognized.

Special provisions for consumer contract disputes (Article 3-7, Paragraph 5)

Even if the parties have an agreement on jurisdiction, such agreement is considered invalid unless one of the following requirements is met:
(1) When the entrepreneur and the consumer agree that the consumer may sue in the court of the country where the consumer has his/her domicile at the time of conclusion of the consumer contract. However, this agreement is considered an additional agreement even if it is an exclusive agreement (No. 1).
(ii) When the consumer has filed a lawsuit to a court in the agreed country based on the agreement on international jurisdiction, or when the consumer has availed himself of the agreement on international jurisdiction when the business operator has filed a lawsuit (No. 2).

Special Provisions for Disputes Concerning Labor Relationships

Even if the parties have an agreement on jurisdiction, such agreement is considered invalid unless one of the following requirements is met:
(i) When the parties agree at the time of termination of the labor contract that the parties may file an action in the court of the country where the labor was provided at that time. However, this agreement is considered an additional agreement even if it is an exclusive agreement (No. 1).
(ii) When a worker files an action with a court in the agreed upon country based on an agreement of international jurisdiction, or when the employer files an action and the worker avails himself/herself of the agreement of international jurisdiction (No. 2).

Dismissal of Action under Special Circumstances

Even in cases where jurisdiction is recognized in Japan based on an agreement between the parties, the action may be dismissed if, in consideration of the nature of the case, the degree of burden to be placed on the defendant by responding to the suit, the location of evidence, or other circumstances, the equitable interests of the parties would be prejudiced or the realization of a proper and speedy trial would be hindered (Article 3 Article 3-9). However, in the case of exclusive consensual jurisdiction, the action will not be dismissed.

Priority Relationship of Causes of Jurisdiction

Finally, in cases where multiple causes of jurisdiction are recognized, the superiority of the causes of jurisdiction is explained as follows: If there is an exclusive agreement, it takes precedence over the causes of jurisdiction recognized by law (except for those that give rise to exclusive jurisdiction under the law. (Article 3-10)). As for any cause of jurisdiction or agreement on jurisdiction that is not exclusive by law, there is no preference relationship, and if jurisdiction is recognized in Japan by either, the action may be filed in a Japanese court.

Determination of Governing Law by the General Rules

The question of which country’s law applies (governing law) is determined by the “Act on the General Rules for the Application of Laws” (the “General Rules Act”).