The Business Judgment Rule in Japan

Abstract

As the business judgment rule (BJR) has developed in various countries, it has been significantly influenced by the civil legal system and civil justice system of the respective jurisdictions. This article considers the development of the BJR in Japan. The paper examines the development, the current status, and the current discussion of the BJR in Japan. First, the BJR in Japan relates to the interpretation of Art. 423 para. 1 of the Companies Act. The breach of the duty of care is a critical factor as regards director liability, this being distinct from situations involving a breach of law or a duty of loyalty. Second, Japan had followed a strict decision-making framework for the judgment process and a broad and loose standard regarding the content of decisions. While lower court cases have established this framework, the Supreme Court’s decision in the Apamanshop case has prescribed that the decision-making framework should respect the discretion of directors, with a reasonable standard in terms of both process and content. This standard outlined in the Apamanshop decision is theoretically supportable. Third, concerning the burden of proof, we do not presume that the directors are not negligent, but rather that they are liable for a failure to perform their duties. The framework is the same as the general rule on default under the Civil Code. It is based on a determination of whether there was a breach of the duty of care, which overlaps with the decision whether the director was negligent. There is broad agreement that the party who claims that there is no negligence must prove it. Fourth, there is currently little positive support for legislation adopting the BJR in Japan. Regardless of these characteristics of the BJR in Japan, the purpose and the justification for it are debated from an international perspective. Hopefully, this paper can serve to catalyse a global discussion of the BJR in Japan.