The civil and criminal codes of Japan provide several means by which a fraud victim may recover assets from a person who has committed the fraud or from a third party who has received the assets from a fraud perpetrator. In addition, to ensure effective redress for fraud victims, various statutes have been enacted and amended that address the different types of fraud, along with statutory provisions that alleviate or shift the burden of proof for the plaintiff's benefit in certain cases, as well as various provisions designed to prevent assets acquired through fraud from being dispersed and lost. These laws were developed for the purpose of addressing domestic fraud as well as cross-border fraud, and the government actively continues to introduce legislation on a regular basis that is geared towards preventing fraud and recovering assets.
To recover assets, a fraud victim would commonly bring an action in court. Japan has adopted a three-tier court system, with one level for trials of first instance and two levels of appeal, and it is not uncommon for a trial in the first instance to last at least a year, or longer in cases involving more complicated matters. As far as trials taking place at the courts of first instance are concerned, the Act on the Expediting of Trials2 stipulates that '[t]he objective of expediting trials shall be to conclude the proceedings of the first instance in as short a time as possible within a period of two (2) years', thereby giving an upper limit of two years for the duration of any trial at a court of first instance. In practice, however, these limits are often exceeded.
II LEGAL RIGHTS AND REMEDIES
i Civil and criminal remedies
There are several criminal statutes in Japan that prohibit numerous types of fraud, including fraud,3 breach of trust,4 embezzlement of social activities,5 as well as specially stipulated penalties found in statutory articles such as Articles 197(1) and 207(1)(i) of the Financial Instruments and Exchange Act.6 In the event that a defrauded asset is seized as a result of a criminal investigation, said asset is generally returned to the fraud victim.
Additionally, under the Act on Punishment of Organized Crimes and Control of Crime Proceeds, the proceeds obtained through the commission of asset-related offences, such as fraud and receipt of high interest rates (a violation of the Investment Act), can be forfeited (confiscation and collection of equivalent value) from offenders if the criminal activity was conducted as an organisational group or if money laundering occurred.7
These forfeited assets are monetised and maintained as a compensation fund. In accordance with the Act on Issuance of Remission Payments Using Stolen and Misappropriated Property, compensation is paid to the victims from the fund.
Civil remedies, as opposed to criminal remedies, are the most straightforward method for recovering assets.
Compensation for damage
There are various pieces of legislation under which a fraud victim may claim damages from a perpetrator. For example, a person who has intentionally or negligently infringed upon the rights or legally protected interests of others will be liable to provide compensation for any resulting damage.8 Therefore, if a fraud is perpetrated, a fraud victim may bring an action and claim for damages pursuant to Article 709 of the Civil Code.
In addition, the Companies Act9 stipulates that if an officer of a company neglects his or her duties, he or she will be liable to the company for damages arising as a result thereof.10 Therefore, if an officer of a company neglects his or her duties by way of a breach of trust or embezzlement, the company itself may make a claim against the relevant officers for any damages arising as result, pursuant to Article 423 of the Companies Act.
Furthermore, according to the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (Fair Trade Act),11 an enterprise that engages in private monopolisation, unreasonable restraint of trade or other unfair trade practices is liable for damage suffered by another party.12 Therefore, a party injured by an enterprise's establishment of a cartel or collusive bidding may lead to an action for damages against said enterprise pursuant to Article 25 of the Fair Trade Act.13
Other than the foregoing, there are many other remedies by which fraud victims may make claims for damages. Specifically, there are certain statutory provisions that, under certain circumstances, allow for the alleviation or the shifting of the burden of proof normally required to be shown by a claimant in court (see Section IV.iv). In addition, the time that a claimant has to file suit varies in fraud cases depending upon the particular circumstances of the fraud in question because of differences in the various statute of limitation periods for each type of fraud (see Section II.ii). Therefore, it is important for fraud victims to file suit after having taken into consideration the ease with which a fraud can be proved pursuant to the possible applicable actions available to a claimant and the amount of compensation that can be awarded for each possible claim, taking into account the features and context of the alleged fraud.
Demand for return (except for cases where fraud victims demand the return of money)
If a person who has committed fraud or a third party who received an asset from the perpetrator retains it, the fraud victim may file a civil suit to assert his or her ownership over the asset and to reacquire the asset. If a fraud victim is defrauded of money, the victim may obtain damages by asserting a damages claim, as indicated above.
ii Defences to fraud claims
Compensation for damage
Each fraud claim is governed by a particular limitation period after the expiration of which a claim cannot be asserted upon a debtor's affirmative invocation of the defence. For example, the right to demand compensation for damage on property rights in tort will be extinguished by the operation of prescription if it is not exercised by the victim or his or her legal representative within three years of the moment he or she came to know of the damage and the identity of the perpetrator.14 In addition, a court15 decided that the applicable period of prescription for an action made pursuant to Article 423 of the Companies Act is 10 years from the time damage is incurred as a result of a company officer's neglect of duty. Furthermore, the right to demand compensation for damage pursuant to Article 25 of the Fair Trade Act expires three years from the date on which an order by the Fair Trade Commission becomes final and binding.16 As the limitation periods and their commencement points vary according to the applicable laws and regulations, it is essential for a fraud victim to take into account what the applicable limitations periods are when filing a suit.
Demand for return
If a third party acquires a defrauded asset (movable property only) peacefully, faultlessly and openly as part of a good-faith transaction, the third party immediately acquires any rights exercisable with respect to the movable property despite the fact that the previous holder (the perpetrator) did not have any authority (such as ownership) to retain or dispose of it.17 In addition, a person who peacefully, openly and, for a period of 20 years, possesses property belonging to another with the intention of owning it, acquires the ownership thereof. The period of this adverse possession is reduced to 10 years if all the conditions listed above are met and if the adverse possessor was without knowledge and was not negligent upon taking possession.18 In these cases, the asset in question will not be returned to the fraud victim.
III SEIZURE AND EVIDENCE
i Securing assets and proceeds
Even if a victim of fraud receives a ruling allowing him or her to recover assets and proceeds with enforcement, the ruling would be meaningless in the event a perpetrator has no seizable funds. Therefore, to ensure effective redress for victims of fraud, they may file petitions seeking a temporary restraining order (TRO)19 preventing the transfer or loss of assets, to be issued before a decision on the merits, provided a prima facie case (i.e., the production of sufficient evidence as to allow the trier of fact to infer the facts at issue and rule in the party's favour) can be made as to both the applicant's right to the property in question and the necessity of preserving the property.20
Order for provisional seizure
Where a fraud victim claims damages against a perpetrator, the victim may, as security for the satisfaction of the claims, provisionally seize assets (immovables, movables and claims) possessed by the perpetrator by means of an order for provisional seizure.21
Order of provisional disposition
Where a fraud victim seeks to recover his or her assets either from a perpetrator or from a third party who received the assets from a perpetrator, the victim may seek to have the status and condition of any such assets maintained, and in addition may seek to secure the return of the assets by means of an order of provisional disposition prohibiting a respondent from disposing of them.22
Effect of a TRO
Once an order for provisional seizure or an order of provisional disposition is issued, a perpetrator is prohibited from disposing of any assets provisionally seized or restrained by any such order, and if the perpetrator disposes of any such affected defrauded assets to a third party, the fraud victim may enforce the order regardless of the nature of the disposal. In addition, as stated in Section II.ii, although each claim is governed by a particular period of limitation, a filing of a petition for a provisional seizure or a provisional disposition would toll the limitation period and prevent a claim from being extinguished.23
A court may issue a TRO without holding oral arguments,24 and the demonstration of a prima facie case would be sufficient.25 In addition, a TRO is to be enforced within 14 days of its issuance and may be executed even before the order is served upon the obligor.26
Provision of security
Generally, the issuance of a TRO may, to prevent the process from being abused, be conditioned on a deposit being made with the court by the claimant.27 Although deposits are refunded upon completion of the provisional procedure enforcement, the deposit requirement may nevertheless impose a burden on victims who lack sufficient funds.
ii Obtaining evidence
In criminal proceedings, an investigating authority is empowered to collect whatever evidence may be necessary, with very few limitations. In contrast, in civil proceedings, a fraud victim and his or her attorney have limited authority to collect evidence on their own. Nevertheless, although discovery procedures such as witness depositions and extensive document demands have not been adopted in Japan, there are several evidence-collection measures that fraud victims can use to collect evidence from a perpetrator or a third party (such as, for example, a bank with which the perpetrator has deposited assets acquired through fraud).
Fraud victims may collect evidence by requesting, through a court or a bar association to which their attorneys belong,28 that the third-party holder of a relevant document, whether it be a public or private entity, provide the requested document,29 or by making a disclosure request directly to the opponent with respect to a document relevant to the issues in the case.30 Being purely voluntary, however, the above processes may not be effective.
Fraud victims may file a petition for a court order requesting that a perpetrator or a third party disclose a document that falls under a particular category of evidence that is required to be submitted pursuant to Article 220(i), (ii), (iii) or (iv) of the Code of Civil Procedure.31 If a party does not comply with such an order, the court may recognise as true the requestor's allegations concerning the facts purported to be reflected in the document.32 If a third party does not comply with such an order, the court would then order that the non-complying third party pay a non-criminal fine of up to ¥200,000.33 Therefore, this process is more effective than the voluntary measures listed above in allowing fraud victims to collect evidence, as penalties are provided for. Where the party in possession of evidence has evidence that falls under Article 220(iv) of the Code of Civil Procedure, however, and can demonstrate that the release of the evidence would be likely to infringe upon the possessor's privacy, or is related to a suit pertaining to a criminal case, juvenile record or other similar circumstance, the party in possession may be released from the obligation to submit the evidence.
IV FRAUD IN SPECIFIC CONTEXTS
i Banking and money laundering
Some Japanese statutes include criminal penalties against certain money laundering activities.34 For example, the Act of Special Case of Narcotics and Psychotropics Control Law, etc. for the Prevention of Any Action Fostering Illicit Conduct concerning Controlled Drugs under International Collaboration35 stipulates criminal penalties for the concealment or receipt of profits resulting from certain crimes relating to controlled drugs;36 the Act on Punishment of Organised Crimes and Control of Crime Proceeds37 stipulates criminal penalties for controlling a business using illegal profits38 as well as the concealment or receipt of profits arising from certain crimes;39 and the Act on Prevention of Transfer of Criminal Proceeds (the Transfer Proceeds Act)40 stipulates criminal penalties for the wrongful assignment, delivery or provision of a bank passbook.41
As defined in the Act on Punishment of Organised Crimes and Control of Crime Proceeds, 'profits arising from certain crimes' include:
- acquiring profits arising from, or in compensation for, any of the criminal actions listed in the exhibit to the Act, committed for the purpose of obtaining unfair property benefits;42
- providing funds for the commission of certain crimes, including but not limited to providing funds for the import of raw materials used for the production of stimulants;43
- obtaining benefits resulting from a bribe given to a foreign public officer;44 and
- obtaining a benefit from providing funds for terrorism.45
Since 'criminal actions listed in the exhibit to the Act' described in (a) cover almost all the serious crimes included in the Penal Code and other criminal statutes, the Act has broad application.46
In one instance, the Tokyo District Court determined that a situation in which a criminal defendant, under a false name, converted profits amounting to ¥258.2 million obtained from one of the crimes listed in the exhibit to the above Act into US dollars constituted the concealment of profits arising from a crime.47
In addition to criminal penalties, the Transfer Proceeds Act imposes on specified business operators (e.g., a financial institution) certain obligations, one of which is an obligation to identify a customer upon conducting any of several specified transactions within a specified business field (e.g., financial business) with any such customer;48 another of which is an obligation, upon finding that assets received in a specified business field appear to have been the product of crime, or upon finding that a customer has committed a crime related to the concealment of profits in a specified business field, to promptly report this fact to the appropriate administrative agencies.49 Furthermore, amendments to the Transfer Proceeds Act came into effect on 1 April 2013, which include the addition of further classes of business operators to the definition of 'specified business operator', the addition of further identifying information to be obtained from a customer and the establishment of stricter regulations for certain transactions that are at particularly high risk of being used for money laundering.50
The Japanese financial intelligence unit is JAFIC, a bureau of the National Police Agency that provides comprehensive information about the regulations found under the Transfer Proceeds Act on its website.51
A 'claim on the estate', defined in Article 2(7) of the Bankruptcy Act,52 is clearly different from a 'bankruptcy claim', defined in Article 2(5). A claim on the estate is given preferential treatment with respect to payment from the bankruptcy estate, defined in Article 2(14), as payment can take place at any time without having to go through bankruptcy proceedings. A bankruptcy claim, on the other hand, which is a claim on property arising against the debtor from a cause that arose before the commencement of bankruptcy proceedings, does not fall within the scope of claims on the estate. Typically, most bankruptcy claims end up not being paid in full by the bankruptcy estate.
When a wrongdoer goes into bankruptcy following a fraudulent action, a fraud victim usually is only entitled to assert a bankruptcy claim.53 In a nutshell, a victim will not be granted any special protections for his or her claim, such as a priority right.
Additionally, where a fraud victim does not have a compensation claim but does have a right to have the wrongdoer return a specific asset, the victim may exercise that right regardless of whether the bankruptcy proceedings are active.54
Any and all property that the debtor holds at the time of the commencement of bankruptcy proceedings (irrespective of whether the property is located in Japan) constitutes the bankruptcy estate, which is then used in bankruptcy proceedings to satisfy claims owed by the debtor.55 However, a debtor may sometimes engage in behaviour that diminishes the debtor's total assets (acts prejudicial to bankruptcy creditors) or may allocate assets to satisfy debts owed to a limited number of creditors (acts benefiting specific creditors). As a result, the bankruptcy estate and the resulting liquidating distribution are reduced. The Bankruptcy Act grants the bankruptcy trustee the authority to void or invalidate any transactions by the debtor affecting the bankruptcy estate, provided certain requirements are met.56
With respect to acts prejudicial to bankruptcy creditors, the bankruptcy trustee has the power to void:
- acts performed by the debtor with the knowledge that performing the acts would prejudice bankruptcy creditors and, where the beneficiary of any such act knew, at the time of the act, the fact that it would prejudice bankruptcy creditors;57 or
- acts by the debtor that would prejudice bankruptcy creditors, carried out by the debtor after the suspension of payments or the filing of a petition for the commencement of bankruptcy proceedings, and where the beneficiary of any such act knew, at the time of the act, the fact that a suspension of payments had taken place and that the act would prejudice bankruptcy creditors.58
Furthermore, there are special provisions for a return of assets upon the asset holder receiving reasonable compensation.59
With respect to acts benefiting specific creditors, the bankruptcy trustee has the power to void:
- acts performed by the debtor after he or she became unable to pay debts or after a petition for the commencement of bankruptcy proceedings was filed, where:
- the acts were performed after the debtor became unable to pay debts and the creditor, at the time of the acts, was aware of the fact that the debtor was unable to pay his or her debts or had suspended payments; or
- the acts were performed after a petition for the commencement of bankruptcy proceedings was filed and the creditor, at the time of the act, was aware of the fact that a petition for the commencement of bankruptcy proceedings had been filed;60 and
- acts that were not within the scope of the debtor's obligations, whether in terms of an act itself or the time of its performance, where an act was performed within the 30 days before the point the debtor became unable to pay his or her debts, and where a creditor who benefited from the act was aware, at the time of the act, that it would be prejudicial to other bankruptcy creditors.61
Such rights of avoidance may not be exercised if two years have elapsed since the date of commencement of the bankruptcy proceedings or if 20 years have elapsed since the date of the act to be voided.62
An arbitral tribunal may, unless otherwise agreed among the parties, at the request of a party, order any party to take a provisional preservative measure as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute.63 Moreover, provisional seizures and provisional dispositions found under the Civil Provisional Remedies Act can be utilised to ensure that the arbitral award can be enforced in future.64
An arbitral tribunal may request that a court implement a compulsory examination of evidence or an examination affecting third parties' interests under the Code of Civil Procedure, if necessary.65
Additionally, an application for arbitration also has the effect of tolling the applicable statute of limitations for filing a complaint with a court.66
iv Effect of fraud on evidentiary rules and legal privilege
Article 248 of the Code of Civil Procedure grants courts the authority to determine a reasonable amount of damages 'where it is found that any damage has occurred, if it is extremely difficult, from the nature of the damage, to prove the amount thereof'. In the event this provision is found to apply, a fraud victim has a reduced burden of proof with respect to the level of damage required to be demonstrated. One case that has addressed this provision involved a plaintiff filing a complaint in court against the government for the failure of a Japan Patent Office officer to properly register the plaintiff's patent, with the court ruling that the provision was applicable and that a reasonable amount of damages was to be determined on the basis of the value of the patent at the time of the occurrence of the damage, even if the patent was not at that point commercialised.67 Another case involved a plaintiff filing suit against a defendant for the infringement of the plaintiff's mining rights, with the court again applying Article 248 to rule that a reasonable amount of damages was to be determined, even if the amount illicitly mined by the defendant could not definitively be determined.68 In addition, certain laws (especially relating to intellectual property rights) have similar provisions to clarify the specific circumstances in which they would be applicable.69
In addition, although a fraud victim generally is required to prove the elements of his or her claim, certain statutes, examples of which follow, allow for the transfer of particular elements of the burden of proof to the wrongdoer, who is required to provide proof to rebut certain presumptions written into the statutes:
- Article 423(2) of the Companies Act states that, in an unfair competition action, the amount of damage suffered by a plaintiff is presumed to be the amount of profits obtained by the directors or executive officers, or both, as a result of the unfair competitive transaction engaged in;
- Article 423(3) of the Companies Act states that if a stock company incurs damage as a result of a conflict-of-interest transaction, the directors or executive officers of the company (or both) will be presumed to have neglected their duties;
- Articles 102 and 103 of the Patent Act, Articles 38 and 39 of the Trademark Act, Article 114 of the Copyright Act and Article 5 of the Unfair Competition Prevention Act70 stipulate that the existence of a breach of due care and the resulting amount of damage may be presumed when an infringer of certain types of intellectual property is found to be responsible for damage to the plaintiff; and
- Articles 17 and 18 of the Financial Instruments and Exchange Act shifts the burden of proof to a wrongdoer in requiring that the wrongdoer prove that a breach of due care did not occur where a prospectus or a securities registration statement as defined in the Financial Instruments and Exchange Act contains any false or omitted information with regard to material matters.
V INTERNATIONAL ASPECTS
i Conflict of law and choice of law in fraud claims
Prior to exercising judicial rights to hear a specific case, a Japanese court must ensure that it does indeed have jurisdiction for that case, as judicial rights are an exercise of sovereignty and procedural principles demand that a court, in deciding its jurisdiction, balance the burden on the parties and the need to ensure a fair and proper trial. A 2011 revision to the Code of Civil Procedure states that an action relating to a tort may be filed with a Japanese court if the place where the tort took place is located in Japan (excluding cases where a wrongful act committed in a foreign country had an effect within Japan where that effect was ordinarily unforeseeable).71 For cases other than those listed above, an action related to a property right may be filed with a Japanese court if the property at issue is located in Japan or, where the action is for monetary damages, any property of the defendant is located in Japan and is seizable (excluding instances where the value of the property is extremely low).72 These aforementioned clauses are the primary bases for litigants to exercise fraud claims in Japan by filing suit in Japanese court.
However, note that even in the event that a Japanese court determines it has jurisdiction over an action, the court may dismiss without prejudice the whole or part of the action if it determines that there are special circumstances in a particular case whereby, were the Japanese court to exercise jurisdiction, one party would be unfairly affected or the action would impede the well-organised progress of court proceedings. Any such decision to accept or reject jurisdiction over a case would also take into consideration the nature of the case, the degree of the defendant's burden in making an appearance, the location of evidence and other circumstances.73
The Act on General Rules for Application of Laws (Application Act)74 governs the applicable law. Fraud claims arising from a breach of a contract will be governed by the law applicable to the contracts. In contrast, a fraud claim that meets the definition of 'a claim arising from a tort'75 would have the law applicable to it determined pursuant to Articles 17 to 21 of the Application Act. Generally, the formation and effect of a claim arising from a tort is governed by the laws of the place of the impact of the wrongful act.76 Note, however, that where a fraud claim meets the definition of 'a claim arising from a tort' and is governed by foreign law:
- if the facts to which the foreign law should be applied do not constitute a tort under Japanese law, no claim under the foreign law may be allowed in Japanese court, whether for damages or any other remedies;77
- if the facts to which the foreign law should be applied constitute a tort both under the foreign law and Japanese law, the fraud victim may make a claim only for the damages or other remedies permitted under Japanese law (which is particularly noteworthy because, as described hereinafter, generally, punitive damages are not permitted in Japan).78
Moreover, if a fraud claim falls under the category of an ownership right to movable or immovable property, the fraud claim is governed by the law of the place where the subject property is situated.79
ii Collection of evidence in support of proceedings abroad
Sources of law for foreign courts seeking to commission an examination of evidence in Japan include the Convention of 1 March 1954 on civil procedure, bilateral treaties80 and bilateral mutual assistance agreements, and the Act on Assistance Based on Commission by Foreign Courts.81 According to these sources of law, an examination of evidence at the behest of a foreign court in support of a proceeding occurring abroad involves a request being made through a country-specified authority (in Japan's case, the Minister for Foreign Affairs), examination of evidence by the Japanese court and examination of evidence by a consul who resides in Japan.
iii Seizure of assets or proceeds of fraud in support of fraud victims
International jurisdiction on a petition for a TRO
Provisional seizures and provisional dispositions can be given through TROs to preserve property for fraud victims. As mentioned above, in the event that a Japanese court issues a TRO, the Japanese court is first required to ensure that it has jurisdiction to hear the case, as the issuance of a TRO is part of a court's discretionary judicial power.
Under the Civil Provisional Remedies Act, a petition for an order for a provisional remedy may be filed only if an action on the merits can be filed with a Japanese court, or if either the property to be provisionally seized or the subject matter of the dispute is located in Japan.82 However, note that even where a Japanese court has jurisdiction over a petition, the court may dismiss without prejudice the whole of or any part of the petition if it finds that there are special circumstances that would warrant this action, much like in the case of a standard civil action.83
Various problems arising from cross-border temporary restraining orders
To issue a temporary restraining order, a prima facie case must be made to show the right to the property in question and the necessity of preserving the property.84 Furthermore, in the event that the property to be provisionally seized or the subject of a dispute is located in Japan, but a foreign court decision on the merits would not be enforced in Japan by the relevant authorities, and where there is a possibility that a TRO issued by a Japanese court would not be enforced in a foreign country (indeed, the authorities of many countries are reluctant to enforce TROs issued by the courts of other countries), it is highly likely that a Japanese court will not find the elements of need required to issue an order to preserve those rights. This is due to the fact that a court will generally look to the purpose of the Civil Provisional Remedies Act, which is to protect civil rights and other related rights on a provisional basis, and are thus likely to find that the situation described above would not fit into the Act's purpose, and likely to decline the petition for a TRO.
iv Enforcement of judgments granted abroad in relation to fraud claims
To enforce a judgment of a foreign court, it is necessary to go through a confirmation proceeding and an enforcement proceeding. The confirmation proceeding is to determine the effect of the foreign judgment in Japan. If the foreign judgment satisfies the requirements specified in Article 118 of the Code of Civil Procedure (the Requirements), the foreign judgment would be recognised in Japan without any proceedings being required. Otherwise, to enforce a foreign judgment, an execution judgment that acknowledges that the foreign judgment satisfies the Requirements must be made by a Japanese execution court, as the foreign judgment would immediately be enforced once a decision in favour of its validity is made by a Japanese court.85 The Requirements are:
- that the jurisdiction of the foreign court is recognised under law, regulation, convention or treaty;
- that the defeated defendant has received service (excluding service by publication or any other service similar thereto) of the summons or order necessary for the commencement of the suit;
- that the contents of the judgment and the court proceedings are not contrary to public policy in Japan; and
- that a mutual guarantee (reciprocity) exists.
Furthermore, punitive damages in a foreign judgment are not enforceable in Japan since they are viewed as being contrary to public policy and are not usually awarded in domestic judgments, punitive award amounts being viewed as inordinate with respect to appropriate compensation.86 Therefore, a foreign judgment containing punitive damages will only be confirmed and enforced in part, excluding the punitive damages.
v Fraud as a defence to enforcement of judgments granted abroad
In evaluating whether a foreign judgment meets the Requirements, a Japanese court would examine the underlying grounds for the judgment as well as the text of the judgment. In such an instance, a Japanese court is prohibited from examining the foreign court's application of the law or the foreign court's determination of facts (the principle of révision au fond or the conclusiveness of foreign judgments). In the event, however, that a defendant has not been given due process or the right to present a defence in the foreign civil proceeding, a Japanese court would decline to enforce the foreign judgment on due process grounds because enforcement would be contrary to procedural public policy.87 A Japanese court has likewise refused, on the basis of public policy,88 to enforce a foreign judgment obtained by fraudulent means.89
VI CURRENT DEVELOPMENTS
In a recent landmark case, a plaintiff seeking to expand the means by which a plaintiff may obtain damages for a case involving fraud was successfully represented.90 In this case, the court expanded the range of persons who may be held responsible to a plaintiff under Article 17 of the Securities and Exchange Act.91 The case, which became known worldwide as the 'Imperial Consolidated fraud', involved a cross-border financial fraud scheme organised and executed by a British investment group, affecting 740 people in 43 countries, with total losses amounting to US$200 million. In Japan, 280 investors were defrauded of a total of ¥12 billion.
The facts in this case involved a director of a company affiliated with the investment group (the defendant corporation) soliciting investments in certain securities using a prospectus containing false statements, resulting in the plaintiff making investments in those securities worth a total of ¥3 billion. As it turned out, however, the investment process diverted more than half of any newly acquired investment towards reimbursing other investors for prior investments, as well as engaging in a high-risk investment venture in Argentinian and South African mines, resulting in the plaintiffs not being able to obtain reimbursement when they attempted to redeem securities that were eligible for redemption.
One of the arguments made at the time was that both the defendant corporation and its director were liable for damages pursuant to Article 17 of the Securities and Exchange Act. At the time, Article 17 of the Securities and Exchange Act stipulated that a person who induces another person to acquire securities using a prospectus that contains any false statements concerning any material matter or omits information concerning a material matter will be held liable to compensate a person who is damaged after acquiring the securities without knowledge of the falsity or omission of any such statement. However, since the Securities and Exchange Act did not clearly define what is meant by 'a person who induces another person to acquire securities', it was left to the Supreme Court of Japan to decide whether the director of the defendant corporation fell under this definition. At trial, the Tokyo High Court ruled that the definition of 'a person who induces another person to acquire securities' was limited to issuers of securities, companies that dealt in securities and other similar entities, the case was appealed to the Supreme Court under the following arguments: considering that prospectuses must be submitted to investors and hold great influence on investment decisions, it is crucial that investors who acquire securities in reliance on a prospectus containing false material statements or that has omitted material information be indemnified; and that there are no limitations on recoverability expressed in the Securities and Exchange Act.
In hearing the case, the Supreme Court looked favourably upon the arguments and decided that the 'persons' who can be held liable under Article 17 of the Securities and Exchange Act can include any person who has induced another to acquire securities using a prospectus containing material false statements or omissions, and is not limited to issuers of securities and companies dealing in securities.
While the Securities and Exchange Act was revised and renamed the Financial Instruments and Exchange Act in 2007, the phrase 'a person who induces another person to acquire securities' is still used in Article 17, so this case still has precedential value.
1 Kenji Hashidate is the managing partner, Takahiro Mikami is a partner and Makoto Sato, Kaoru Akeda and Daiki Imaizumi are associates at Hashidate Law Office.
2 Act No. 107 of 16 July 2003.
3 Article 246 of the Penal Code (Act No. 45 of 24 April 1907).
4 Article 247 of the Penal Code.
5 Article 253 of the Penal Code.
6 Act No. 25 of 13 April 1948.
7 Articles 13 and 16 of the Act on Punishment of Organized Crimes and Control of Crime Proceeds.
8 Article 709 of the Civil Code (Act No. 89 of 27 April 1896).
9 Act No. 86 of 26 July 2005.
10 Article 423(1) of the Companies Act.
11 Act No. 54 of 14 April 1947.
12 Article 25 of the Fair Trade Act.
13 An action for damages pursuant to Article 25 of the Fair Trade Act shall be brought before the Tokyo District Court as a court of first instance in accordance with Article 85-2 of the Fair Trade Act.
14 Article 724 of the Civil Code.
15 Supreme Court Case 2006 (Ju) No. 1074.
16 Article 26(2) of the Fair Trade Act.
17 Article 192 of the Civil Code.
18 Article 162 of the Civil Code.
19 An order for provisional seizure and an order of provisional disposition.
20 Article 13(2) of the Civil Provisional Remedies Act (Act No. 91 of 22 December 1989).
21 Article 20(1) of the Civil Provisional Remedies Act.
22 Article 23(1) of the Civil Provisional Remedies Act.
23 Article 147(ii) of the Civil Code. Note, with regard to Article 147(ii), the 2017 amendment of the Civil Code described in Article 149. To clarify: provisional seizure and provisional disposition result in the deferral of completion of prescription; the completion of prescription does not occur until six months from the termination of the provisional seizure and provisional disposition. This amendment will take effect from 1 April 2020.
24 Article 3 of the Civil Provisional Remedies Act.
25 Article 13 of the Civil Provisional Remedies Act.
26 Article 43(2) and (3) of the Civil Provisional Remedies Act.
27 Article 14 of the Civil Provisional Remedies Act.
28 Article 186 of the Code of Civil Procedure (Act No. 109 of 26 June 1996) and Article 23-2 of the Attorney Act (Act No. 205 of 10 June 1949).
29 Article 226 of the Code of Civil Procedure.
30 Article 163 of the Code of Civil Procedure.
31 Article 221(1) and 223(1) of the Code of Civil Procedure.
32 Article 224 (1) of the Code of Civil Procedure.
33 Article 225 (1) of the Code of Civil Procedure.
34 Atsushi Yamaguchi, Economic Criminal Law (Shojihomu Co Ltd, 2012) p. 121.
35 Act No. 94 of 5 October 1991.
36 Articles 6 or 7 of the Act of Special Case of Narcotics and Psychotropics Control Law, etc.for the Prevention of Any Action Fostering Illicit Conduct concerning Controlled Drugs under International Collaboration.
37 Act No. 136 of 18 August 1999.
38 Article 9 of the Act on Punishment of Organised Crimes and Control of Crime Proceeds.
39 Article 10 or 11 of the Act on Punishment of Organised Crimes and Control of Crime Proceeds.
40 Act No. 22 of 31 March 2007.
41 Article 28 of the Transfer Proceeds Act.
42 Article 2(2)(i) of the Act on Punishment of Organised Crimes and Control of Crime Proceeds.
43 Article 2(2)(ii) of the Act on Punishment of Organised Crimes and Control of Crime Proceeds.
44 Article 2(2)(iii) of the Act on Punishment of Organised Crimes and Control of Crime Proceeds.
45 Article 2(2)(iv) of the Act on Punishment of Organised Crimes and Control of Crime Proceeds.
46 Ibid., p. 123.
47 Tokyo District Court Case 2003 (Toku-wa), No. 5100 et al.
48 Article 4(1) of the Transfer Proceeds Act.
49 Article 8(1) of Transfer Proceeds Act.
50 Additional amendments to the Transfer Proceeds Act came into effect on 1 October 2016. The amendments, in accordance with the recommendations of the Financial Action Task Force, stipulate that certain transactions be subject to strict examination, such as transactions conducted by foreign politically exposed persons, and also mandate that measures be implemented to better identify customers. In addition, the amendments provide for additional regulations such as, but not limited to, an obligation to confirm that a foreign bank's management system complies with the requirements of Japanese law and regulations when entering into a correspondent arrangement with any such foreign bank.
52 Act No. 75 of 2 June 2004.
53 Article 148(1) of the Bankruptcy Act.
54 Article 62 of the Bankruptcy Act.
55 Article 34(1) of the Bankruptcy Act.
56 A bill revising the Civil Code, whereby provisions similar to Article 161(1) and (a part of) 162(1) of the Bankruptcy Act will be added to the Civil Code, is currently being discussed in the Diet.
57 Article 160(1)(i) of the Bankruptcy Act.
58 Article 160(1)(ii) of the Bankruptcy Act.
59 Article 160(3) and Article 161 of the Bankruptcy Act.
60 Article 162(1)(i) of the Bankruptcy Act.
61 Article 162(1)(ii) of the Bankruptcy Act.
62 Article 176 of the Bankruptcy Act. Note that the 2017 amendment of Article 176 of the Bankruptcy Act amends the period from 20 years to 10 years. This amendment will take effect from 1 June 2020 at the latest.
63 Article 24 of the Arbitration Act (Act No. 138 of 1 August 2003).
64 Article 37(5) of the Civil Provisional Remedies Act.
65 Article 35 of the Arbitration Act.
66 Article 29(2) of the Arbitration Act.
67 Supreme Court Case 2005 (Ju) No. 541.
68 Supreme Court Case 2006 (Ju) No. 265.
69 Article 105-3 of the Patent Act (Act No. 121 of 13 April 1959), Article 39 of the Trademark Act (Act No. 127 of 13 April 1959) and Article 114-5 of the Copyright Act (Act No. 48 of 6 May 1970).
70 Act No. 47 of 19 May 1993.
71 Article 3-3(viii) of the Code of Civil Procedure.
72 Article 3-3 (iii) of the Code of Civil Procedure.
73 Article 3-9 of the Code of Civil Procedure.
74 Act No. 78 of 21 June 2006.
75 Article 17 of the Application Act.
76 Article 17 of the Application Act. 'The place where the impact of the wrongful act occurred' means the place where interests protected by law are infringed and where the nature of the attack complies with requirements necessary to be classified a tort. (Yoshiaki Sakurada and Masato Dougauchi (ed.) Annotations of the conflict of laws, 1st volume, Yuhikaku, 2011).
77 Supreme Court Case 2000 (Ju) No. 580. In this case, the defendant (a Japanese company) manufactured and exported card readers that were subject to an American patent held by the plaintiff (a Japanese individual), where the defendant's American subsidiary imported and distributed the card readers. The plaintiff in the case made a damages claim against the defendant on the theory that the defendant induced infringement of a patent (35 USC 271(b) stipulates that '[w]hoever actively induces infringement of a patent shall be liable as an infringer'). Given these facts, while acknowledging the claim would be acceptable under the applicable law (US patent law), the Japanese court disallowed the claim, stating that the reach of a patent right in Japan does not extend outside the country, such that a person actively inducing infringement of a patent outside the range of the patent's effectiveness does not constitute a tort under the Japanese Civil Code.
78 Article 22 of the Application Act.
79 Article 13 of the Application Act.
80 For example, Consular Convention Between Japan and the United States of America, Consular Convention Between Japan and the United Kingdom of Great Britain and Northern Ireland.
81 Act No. 17 of 22 March 1938.
82 Article 11 of the Civil Provisional Remedies Act.
83 See Section V.i. Although this power is not specifically prescribed in the Civil Provisional Remedies Act, in contrast to the Code of Civil Procedure.
84 Article 13(2) of the Civil Provisional Remedies Act.
85 Article 24(2) of the Civil Execution Act.
86 Supreme Court Case 1993 (Ju) No. 1762.
87 Article 118(iii) of the Code of Civil Procedure.
88 Tokyo High Court Case 1989 (Ne) No. 1146.
89 Tokyo District Court 2011 (Chuu) No. 6 held that an arbitral award that wrongfully regarded as settled certain disputed facts that greatly impacted the decision was to be set aside because of a violation of the due process right to present a defence, in accordance with Article 44(1)(viii) of the Arbitration Act.
90 Supreme Court Case 2006 (Ju) No. 2084. Representation by Hashidate Law Office.
91 Act No. 25 of 13 April 1948, recently revised as the Financial Instruments and Exchange Act.