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Article: July 2015: Asia-Pacific Litigation Update

Business Litigation Reports

New Japanese Consumer Class-Action System. The Japan legislature enacted laws in late 2013 that will implement a new consumer class-action system in 2016, with the stated purpose of protecting consumers. Critics contend, however, that this new system fails to address serious issues of the current consumer class-action system, that the changes are limited to favored business operators, and that the new system will actually reduce relief available to consumers.

Who Can Sue. The new law will not have a large effect on which parties can bring consumer classaction lawsuits but might incentive those parties to file more such actions. Unlike the American system, in which any individual with personal standing may file a lawsuit on behalf of himself or herself and all others similarly situated, in the current Japanese system, only a Qualified Consumer Organization (“QCO”) has standing to file a consumer class-action. A QCO must be certified by the Prime Minister as a non-profit organization engaged in consumer-related activities such as collecting and providing information on consumer affairs; currently, only 11 QCOs have been so certified. Importantly, a QCO cannot charge fees to its members for litigation services.

Similar to the old regime, the new regime provides that only a Certified Qualified Consumer Organization (“CQCO”) will be permitted to sue on behalf of consumers, and any CQCO must be certified by the Prime Minister; the current 11 QCOs are expected to seek certification as CQCOs. But under the new law, a CQCO will be able to collect fees and costs from the consumer class members at the second stage of the proceedings where damages are assessed. This unfound ability to recover fees and costs might well incentivize CQCOs to file more class-action suits.

Availability of Damages. The new system will not significantly change or broaden the causes of actions available in a consumer class-action; such suits will still have to be based in contract, not purely in tort, product liability, or personal injury. But unlike the current system, which permits only injunctive relief, the new system will allow recovery of certain monetary damages as well. Notably, damages will be limited to the value of the product or service at issue; consequential damages, lost profits, damages to life or health, and psychological damages will not be available.

Two-Stage Proceedings. A major change from the current system will be the implementation of a twostage proceeding. In the first stage, the CQCO must request that the court find common liabilities owed to a group of consumers regarding a consumer contract made with a business operator; this appears to be somewhat similar to the American requirement that class members must share a common question of fact or law. During this first stage, the CQCO will also have to demonstrate to the court that there are a “considerably large number” of members in the class; the Japanese government, in response to questions from the public, has stated that “considerably large number” means “tens of people,” unlike the American requirement that a class can be certified only if the “members of the class are so numerous that joinder of all members is impractical.” If during this first stage the court finds no common liabilities among the class members or that there is not a considerably large number of members, then the class proceedings will end, although the court’s findings will not stop any individual class member from pursuing a separate lawsuit.

If the court does find common liabilities, the proceedings will move to a second stage, during which the court will determine the potential liability of the business operator to each class member. The CQCO will notify the results of the first stage to each member of the class by internet, newspaper, TV commercial, etc. If the CQCO asks, the court may order the business operator also to notify the class members. After notification, the class member may “opt-in” and let the CQCO prosecute the consumer’s claim. This opt-in process is different from the American practice of inviting class members to “opt out” of a certified class. Critics have called Japan’s opt-in process business friendly and asserted that it is meant to reduce the number of class members and thus limit the amount of overall damages.

If the CQCO receives the class member’s authorization, the CQCO will be able to file a claim on behalf of the consumer. The business operator then must either admit or deny each consumer claim. Admission of the claim will end the inquiry and damages will be assessed. If the business operator denies the claim, the court will conduct a special procedure to determine the claim’s validity, based only on documentary evidence. If either the consumer or business operator contests the court’s decision, the case will be converted to a standard litigation, although commentators have suggested that the legislature hoped the special procedure’s outcome would induce the parties to settle and avoid further litigation.