The Art Law Review: Japan
The Japanese art market consists of the antiquities market, the modern arts market and the contemporary arts market. Products traded in the antiquities market are Japanese, Chinese and Korean antiques and traditional artworks. There are plenty of antique dealers who have expertise in a particular type of traditional art, such as Ukiyo-e, lacquerware, swords and tools for tea ceremonies, and each of these has regular customers. Arts traded in the modern arts market are Japanese and western-style paintings by past and present artists. Generally, artists of traditional and modern arts in Japan belong to one of the artists' circles, which regularly hold publicly sponsored exhibitions. There are over 100 artists' circles, each of which has close relationships with particular dealers, such as prestigious galleries located in Tokyo and national department stores. Most works are sold to regular customers of those dealers by private sale. Auction sales are not popular in Japan.2 Such close relationship between dealers and customers operates to stabilise the art business and market; however, it is often criticised for preventing the art market from growing and globalising. Art Tokyo Association, the organiser of Art Fair Tokyo, estimates that in 2018 the value of sales of antiquities and of modern arts was ¥104.3 billion and ¥103.9 billion, respectively, with the sales value of each market accounting for approximately 40 per cent of total art market sales (¥258 billion).3
In this century, a number of young artists, willing to create contemporary artworks freely, choose not to belong to a traditional circle. The number of contemporary art lovers is also increasing. Contemporary art accounts for approximately ¥45.8 billion in value, which is less than 20 per cent of the total sales in the art market.4
The year in review
i Amendment to the Civil Code
On 1 April 2020, amendments to several aspects of Japanese contract law, which affects art transactions, came into force by way of an amendment to the Civil Code.5 In the past, the right to claim payment under a sales or consignment contract was extinct by prescription if the seller did not claim this within two years of the right being exercisable. However, under the new Civil Code, this right continues for 10 years after it becomes exercisable.6 The Civil Code also provides that terms of a standard contract prepared by one party are enforceable against another party if the former party manifests the intention to apply such terms in advance.7 This provision determines the enforceability of terms and conditions prepared by auction houses against bidders in an auction.
ii Government policy towards the arts
In recent years, the government of Japan has changed its policy towards the arts, focusing on its power to develop and activate the economy and industry. In 2017, the Basic Act for the Promotion of Culture and the Arts, the law for the promotion of the arts and culture, was amended (and renamed the Basic Act on Culture and the Arts) to provide a role for the private sector to enhance and utilise the arts to activate the economy and international cultural exchange in cooperation with the government, and to clarify the government's duty to take legislative, financial and taxation measures necessary for such purpose.8 In 2018, the Act on Protection of Cultural Property (the PCP Act) was also amended in line with this new policy.9 While the old Act was structured to protect selected valuable arts by the government, under the new PCP Act, local cities and towns play a leading role in the protection and utilisation of arts and other cultural properties in their respective regions. The PCP Act expects each city to draw up a plan and projects for practical use and preservation of regional arts following consultation with a group of people supporting such arts, obtain the government's approval, and then carry out the projects under the supervision of the relevant prefectural governor.10 By this amendment, the objective of the PCP Act is changed drastically from 'the protection of cultural properties by the government' to 'the practical use of arts by regional communities for activation of the economy'. It is expected that the measures taken under the new PCP Act will facilitate the development of the art industry.
i Title in art
Private sale and auction
Under the Civil Code, a buyer acquires title to property from the seller when a contract of sale is entered into unless otherwise agreed between the parties.11 In the case of auction sales, most auction terms prepared by auction houses include a title retention clause, providing that title will transfer from the consignor to the buyer when the artwork is delivered to the buyer after the auction house confirms receipt of the purchase price and commission from the buyer.
Title acquisition by good faith purchaser
A person who acquires the possession of an artwork from its previous possessor by any transaction, including sale, gift and exchange, in good faith will obtain title to such artwork even if the previous possessor is not the title holder.12 A transaction is presumed to be in good faith so long as it is carried out under the usual circumstances.13
A purchaser who owes a duty to inquire into title but has failed to do so shall not be in good faith. Whether a purchaser owes such duty or not depends on the attribute of the goods, knowledge or skill of the parties and other circumstances. In a recent case, the court held that a donee of a cultural artefact registered under the PCP Act owes a duty to inquire into the donor's title.14 In this case, the claimant and the defendant were both Buddhist temples, and the property concerned was a Buddhism statue. The statue was stolen from the defendant's temple, handed over through several traders and donated to the claimant's temple. The claimant claimed title on the ground that the statue was gifted in good faith. However, the court refused the assertion, based on the fact that the statue was registered in the defendant's name, not the donor's. Under the PCP Act, the owner of an important cultural property shall register the owner's name with the government. The PCP Act also requires the owner not to sell such property to a third party unless the owner first contacts the government to confirm whether it will exercise the right of first refusal.15 Taking account of such legislative restriction on sale, the court held that the claimant should have inquired into title of the donor who was not the registered owner of the artefact.
ii Nazi-looted art and cultural property
In Japan, there is no legislation or case law related to Nazi-looted art. Cultural properties are often stolen. As at 2018, there were 115 reported cases concerning stolen national treasures and cultural properties, and the majority of these have not yet been restituted.
The most famous cultural property stolen and unreturned at present is the ancient Buddhist statue, which is an important cultural property designated by the government under the PCP Act. The statue was stolen by Korean thieves from Kannonji Temple in Tsushima Island, Nagasaki in 2012. The following year, the thieves were arrested in South Korea and the statue was seized by the South Korean government. However, it was not returned to Kannonji because a South Korean temple claimed that the statue had been stolen from it in the fourteenth century. The Korean temple brought a lawsuit against the South Korean government before the South Korean court, seeking restitution of the statue. In 2017, the court ruled that the statue should be given to the claimant on the ground that it had been looted by Japanese pirates around 600 years ago.16 The South Korean government, the defendant of the lawsuit, appealed this decision and the Korean appeal court commenced hearing in April 2020.
iii Limitation periods
Under the Civil Code, a person who possesses any property of another person for 20 years shall be entitled to acquire the ownership under the right of acquisitive prescription.17 By virtue of this right, the possessor of a stolen artwork may assert its ownership against anyone including its original owner if the possessor shows that the work was in his or her possession at two different points in time, one of which is more than 20 years ago and the other is 20 years later than the first point in time.18 For the original owner to contest the possessor's ownership, he or she must prove that: (1) the work was delivered to the possessor under an arrangement that was not purported to transfer title, such as a contract of deposit, loan for use or lease;19 (2) the possessor lost possession at any time in that 20-year period; or (3) at any time after the possessor had acquired the possession, the possessor manifested by words or conduct that the property was not his or her belonging.20
iv Alternative dispute resolution
An arbitration clause is often provided for in a contract for cross-border art transactions. If Japan is the seat of arbitration, the rules of the Japan Commercial Arbitration Association (JCAA) are chosen as the procedural rules. Since 2019, the JCAA has offered a set of new rules for commercial dispute resolutions as alternative to the ordinary rules. Under the new rules, the arbitral tribunal is obliged to communicate to the parties its temporary view with regard to the case and the parties' allegations.21 This interactive manner of proceedings would enhance the parties' ability to predict the outcome and encourage them to settle the case by agreement before the award. The system seems to be suitable for settlement of disputes between art traders wishing to maintain long-term business relationships.
Mediation is another commonly used method for dispute resolution. In Japan, the system of mediation has been incorporated into the court system for many years and, even in the case of litigation, judges are expected to act as mediator before rendering a judgment.22 In respect of international commercial transactions, the system is gaining popularity as a prerequisite for commencing arbitration.
Fakes, forgeries and authentication
i Private sales
A person who purchased a fake, believing it to be genuine, may rescind the contract and demand the seller to return the price on the ground of mistake if the purchaser took the authenticity of the work as the basis of the contract, and it has been indicated that the authenticity was so taken.23
Recently, the court has tended to reject assertions of mistake by professional buyers. For example, in the case where a UK antique dealer purchased a Chinese vase from a Japanese dealer, the price was agreed on the basis of the parties' understanding that the vase was an antique produced during the Qing dynasty (eighteenth century); however, after the transaction, the buyer obtained Christie's and Sotheby's opinions that it was likely to be a twentieth century product. The Japanese court denied the buyer's claim for return of the purchase price, taking into account that both parties were antique dealers with expertise in Chinese arts and, accordingly, were aware of the difficulty in determining the ages of antiquities.24
To the contrary, the court inclines to invalidate a sales contract on the ground of mistake asserted by an amateur collector purchasing a fake from a professional art dealer.25 A professional dealer may also be in breach of a duty owed to general customers to act in good faith, including a duty to disclose important information that would affect the customer's reasonable decision to purchase the artwork. The court so held in the case of a company with no expertise in arts purchasing Leonard Foujita and Renoir paintings from an art gallery. As is customary practice in the Japanese art market, a Foujita painting that is not accompanied by its authenticity certificate issued by the Tokyo Art Club and a Renoir painting that is not included in the Wildenstein Institute's catalogue raisonné are traded at substantially lower prices than if they were proved to be genuine. In this case, the buyer, who did not know of the above market practice, purchased the Foujita without a certificate and the unlisted Renoir. The court held that the art gallery should have informed the buyer of the practice before the sale, and ruled that the gallery should indemnify the buyer's damages on the ground of a breach of its duty to act in good faith.
ii Auction sales
In relation to auction sales, most auction terms and conditions prepared by auction houses contain either a warranty clause or non-warranty clause concerning the authenticity of works. If the auction house or the seller warrants the authenticity, a buyer who purchased a fake may demand return of the purchase price and the commission, provided that the buyer instigates this procedure within the time limit set out in the terms. If the buyer did not take the required steps, the price would neither be returned under the warranty nor be recovered on the basis of mistake.26 If the terms expressly provide that the seller gives no warranty as to authenticity, the seller and the auction house will not be liable for repayment of the price or for compensating damages other than those caused by gross negligence.27
i Private sales and auctions
In Japan, arts are mainly traded through private sales involving art dealers as consignee. Under customary practice, a consignment sale by an art dealer proceeds in the following manner. First, the owner consigns the work to the dealer to sell and designates the amount that he or she would like to receive from the sale (the designated amount). After the dealer accepts such consignment and receives the artwork from the owner, the dealer seeks and finds a potential buyer, and negotiates and sells the work to the buyer as if the dealer were the seller as principal. The work is deemed to be purchased by the dealer from the owner at the same time as it is sold by the dealer to the buyer. After the dealer receives the sales price from the buyer, the dealer pays the designated amount to the owner, and the balance between the sales price and the designated amount is the dealer's profit.
In the above transaction, it is the obligation of the dealer to pay the designated amount to the owner when the dealer sells the work and receives the sales price. A question is whether or not such obligation exists before the dealer sells the work. In a recent case, the court ruled that a conditional liability to pay the designated amount shall be accrued when the owner consigns and delivers the work to the dealer, although such liability becomes actionable when the work is sold to a particular buyer.28 The decision confirms that a contractual relationship between the owner and the dealer starts when the dealer accepts the sales consignment and receives the artwork. Taking account of this, the dealer shall also be under the duties of a consignee under the statutes, including a duty of care, fiduciary duty and duty to account, from the date the dealer receives the consigned work.29
ii Art loans
Borrower's duty of care in art loan
Art lending in Japan is always based on a contract between the lender and the borrower. A gratuitous loan is also a contract. A person who takes any goods on loan, either gratuitously or for consideration, shall exercise the utmost care (similar to a prudent manager) unless otherwise agreed with the lender.30 Moreover, upon completion of the loan, the borrower is obliged to return the object in the same state as it was in at the time it was delivered to the borrower. If the object on loan is lost or damaged, the borrower shall restore it to its original condition or compensate for damages, unless it was caused by force majeure (i.e., factors not attributable to the borrower).31 Ordinary wear and tear resulting from deterioration over time is excluded from this obligation.32
Immunity from seizure for artworks on loan
Japan has a special scheme to protect loaned artworks from seizure and attachment during the period of loan for exhibition.33 Under the scheme, a foreign artwork to be borrowed for exhibition is protected from seizure, distress and attachment by a third party such as a creditor of the lender or a party who alleges ownership if such work is designated by the government.34 Such designation is made if the government considers that such work is highly necessary for the facilitation of the exhibition in Japan and it is not intended for sale in Japan.35 After the designation, the government shall give public notice of the matters with regard to the work and the exhibition.36 In 2019, over 400 pieces of art were borrowed from overseas museums under the scheme, including from the National Gallery, London and the Courtauld Institute of Art.
Apart from the above scheme, works owned by a foreign nation, its agency or state are protected from seizure, etc., by the Sovereign Immunity Act.37 If a foreign nation, for example, requires a letter of confirmation concerning the sovereign immunity from the Japanese government as a condition to lending its work, the organiser of the exhibition may request the government to issue a certificate confirming that such nation is immune from civil jurisdictions with regard to the work to be loaned.
iii Cross-border transactions
Export of cultural objects
An artwork designated as an important cultural property under the PCP Act cannot be exported unless it is specifically permitted by the government.38 The permission is granted only when its export is necessary for international cultural exchange or other relevant purposes. Because of this export restriction, at the time of export of any cultural artworks, the exporter must obtain from the relevant governmental agency a written certificate confirming that the object is not an important cultural property under the PCP Act.39
Taxation on acquired arts
Japanese companies tend to collect inexpensive contemporary artworks. This trend is the effect of a taxation policy that was adopted in 2015. According to the new tax policy, any fine art purchased after January 2015 at a price of less than one million Japanese yen may be treated as a depreciable asset for the purpose of corporate tax. This means that the acquisition cost of the artwork may be subtracted from the company's income as a depreciation cost over the course of eight years following its purchase.40
iv Art finance
Regulation of art finance
There is no legislation that regulates art finance and related business, except for private trusts for art investment. Such business can be carried out only by an enterprise that obtains a trust business licence from the government.41
Anti-money laundering regulation
The anti-money laundering legislation in Japan is the Act on Prevention of Transfer of Criminal Proceeds. The Act imposes on certain specified business entities the duties to: (1) check the identity of customers and beneficial owners of corporate customers; (2) make and keep records of transactions; and (3) report anything suspicious relating to money laundering in respect of transactions to the relevant governmental agencies.42 The specified business entities regulated under the Act include dealers of jewellery and precious metals; however, art dealers and art-based transactions are exempt from the regulation. Japan's anti-money laundering regulation is often criticised for having loopholes, including the above.
i Moral rights
The Copyright Act provides the right of disclosure, the right to authorship and the right of integrity as the moral rights.43 While the issues regarding the right of integrity are often argued in court cases, there have been few remarkable ones in recent years.
ii Resale rights
There are no provisions of resale right in the Copyright Act at present. In 2019, the International Confederation of Societies of Authors and Composers, the international network of authors' societies, held its Regional Asia-Pacific Committee meeting in Tokyo. It resolved to call upon the government of Japan to promote the resale right and introduce the right in the Copyright Act and support international discussions within the World Intellectual Property Organization on the global recognition and implementation of the resale right throughout the world. However, there have been no significant developments in legislating resale rights. Considerable discussion will be necessary for legislation in view of the closed nature of the Japanese market where people put importance on the confidentiality of trade information.
2018 Amendments to the Copyright Act
In 2018, a few important amendments were made to the Copyright Act that affect the operation of art businesses and museums.
By the amendments of laws as a result of the Trans-Pacific Partnership Agreement, on 30 December 2018 the period of protection for copyright was extended from 50 years after the author's death to 70 years after the author's death, in principle.44 Under the Bern Convention, copyright of a foreign artist's work is also protected for the same period unless the copyright law of the artist's country provides a shorter period for protection.45 This means that works of nationals of the Allied Powers of the Second World War (Australia, Canada, France, the United Kingdom and the United States) are protected for 80 years post mortem auctoris because, under the Treaty of Peace with Japan, agreed in San Francisco in 1951, the period between 7 December 1941 and the Treaty coming into force (28 April 1952; 3,794 days) is added to the period of protection. However, copyright for works whose protection period had expired by 29 December 2018 will not be revived by this amendment.
Another amendment in 2018 granted museums and other exhibitors of artworks to the public the rights:
- to give an on-screen presentation or transmit an automatic public transmission to the extent necessary for the purpose of explaining or introducing the exhibited work;
- to reproduce the exhibited work to the extent necessary to give an on-screen presentation or transmit an automatic public transmission; and
- to reproduce or make a transmission to the public to the extent necessary to provide information as to the location of exhibited works to the public.46
Under the previous Copyright Act, a person who publicly exhibits artworks could reproduce and print a copy of the exhibits only in a booklet or pamphlet (print media) for the purpose of explaining or introducing them to visitors; however, utilisation of digital media for the same purpose was not allowed without obtaining consent of the copyright holder. Such law has been amended to cope with the needs of the digital society. As a result, it is possible to present a moving picture for explanation of the exhibited work on screen and make digital data of exhibited works accessible on tablet devices in art museums. Also, a museum may post images of the exhibited works on its website. However, a museum shall abide by the guidelines for utilisation of digital image, established jointly by organisations including Japan Artists Association, Inc and the Japanese Council of Art Museums, which provide, inter alia, that (1) the digital image may be made accessible only when the exhibited work is in the possession of the museum, and (2) if a digital image is to be made accessible outside the museum, the number of pixels shall be 32,400 or less.47
Applied arts (i.e., art for everyday use) hold a prominent position in the Japanese art world and market. However, the extent to which such art is protected by the Copyright Act is uncertain, as there are no specific provisions for applied art in the Act. According to case law, it is generally considered that 'artwork' protected by the Copyright Act means, in principle, 'fine arts' for appreciation, and, with regard to 'applied arts', only that with sufficient aesthetic qualities can be protected. However, in a recent case concerning the copyrightability of a baby chair, the Intellectual Property High Court (the IP Court of Appeal) took a different view.48 The Court held that the copyrightability is determined based on whether or not a specific work contains an element that shows the creator's or designer's individuality and that the aesthetic should not be a criterion because it is too subjective. While the IP Court of Appeal suggests a change of criteria for the copyrightability of applied arts,49 some subsequent judgments did not follow this suggestion, but decided on the basis of the aesthetic quality of the works concerned.50 We await a decision of the Supreme Court to ascertain the definite view of the Court on this issue.
Trusts, foundations and estates
In February 2019, the Legislative Council of the Ministry of Justice proposed substantial amendments to the charitable trust system by a draft summary of the bill of the reformed Charitable Trust Act. This bill is planned to be submitted to the Diet during the next session. Under the existing system, a charitable trust can be used solely for payment of money for charitable purposes, and only trust banks licensed by the government can be trustees. However, a charitable trust under the new system will be allowed to carry out a business for promotion of the arts, such as operation of a museum, including the collection of admission fees and the sale of exhibition catalogues and other goods in a museum shop, and an institution or individual that is capable of proper management of such business may act as a trustee.51 It is likely that a new charitable trust will provide practical means for the maintenance and management of artworks owned by companies that are willing to use their collections in the course of their corporate social responsibility activities.
Outlook and conclusions
During the past 100 years, several catastrophic incidents, including the Great Depression, defeat in the Second World War and multiple powerful earthquakes, have had a devastating impact on the world of arts and culture. However, on every occasion, the arts world recovered even faster than the economy and provided comfort and encouragement to the victims of the disasters. In 2020, the coronavirus pandemic has damaged people's lives and the economy, as well as arts and culture. Since April 2020, most exhibitions and other cultural events have been cancelled or carried out with strict restrictions. However, at the same time, other forms of art events, such as online exhibitions, have expanded. We trust that the arts will recover quickly and will play its part in encouraging and supporting people to recover from the existing difficulties, as it has done in the past.
1 Makoto Shimada and Taku Tomita are partners at SAH & Co.
2 Art Tokyo Association, Japanese Art Industry Market Research 2019, 9 (which shows that the volume of auction sales accounted for only 6 per cent of total domestic sales in 2018).
3 ibid, 8.
4 ibid. The above figures are estimates provided by Art Tokyo Association based on its survey of individuals. Japanese companies also purchase high quantities of artworks, including from relatively unknown contemporary artists, to support them as part of their corporate social responsibility activities. The volume of these transactions is likely to be significant.
5 Civil Code (Law No. 89 of 1896) amended by Law No. 44 of 2017.
6 ibid, Article 166(1).
7 ibid, Article 548-2(1).
8 Law No. 148 of 2001 amended by Law No. 73 of 2017, Articles 5-3 and 6.
9 Law No. 214 of 1950 amended by Law No. 42 of 2018.
10 ibid, Article 183-3.
11 Civil Code, Articles 176 and 555.
12 ibid, Article 192.
13 Judgment of Tokyo District Court of 24 January 2012, LLI/DB.
14 Judgment of Otsu District Court of 25 January 2019, LLI/DB.
15 PCP Act (n 9), Articles 32, 33 and 46.
16 Choe Sang-Hun, 'South Korea Can Keep Buddhist Statue Stolen From Japan, Court Says,' New York Times, 26 January 2017.
17 Civil Code, Articles 162(1) and 145.
18 ibid, Articles 162(1) and 186(1) and (2).
19 Judgment of Tokyo District Court of 31 July 2006, LLI/DB.
20 Judgment of Hiroshima High Court of 23 May 2012, LLI/DB.
21 JCAA Interactive Arbitration Rules, Article 56.
22 Civil Conciliation Act (Law No. 222 of 1951); Code of Civil Procedure (Law No. 109 of 1996), Article 89.
23 Civil Code, Article 95.
24 Judgment of Tokyo District Court of 30 September 2013, LEX/DB.
25 Judgment of Tokyo District Court of 26 July 2012, Hanrei Jiho, Vol. 2162, p. 86.
26 Judgment of Tokyo District Court of 19 July 2017, LEX/DB.
27 Consumer Contract Act (Law No. 62 of 2000), Article 8(1).
28 Judgment of Tokyo District Court of 28 November 2016, LLI/DB.
29 Civil Code, Articles 108 and 643–647; Commercial Code, Article 552(2).
30 Civil Code, Article 400.
31 ibid, Articles 599 and 621.
32 Judgment of Nagoya High Court of 17 July 2007, Hanrei Jiho, Vol. 2025, p. 37.
33 Act on Facilitation for Exhibiting Overseas Works of Art, etc. to the Public in Japan (Law No. 15 of 2011).
34 ibid, Article 3.
35 Order for Enforcement of the Act on Facilitation for Exhibiting Overseas Works of Art, etc. to the Public in Japan (Cabinet Order No. 288 of 2011), Article 2.
36 Act on Facilitation for Exhibiting Overseas Works of Art, etc. to the Public in Japan, Article 3(4).
37 Law No. 24 of 2009.
38 PCP Act, Article 44; Export Trade Control Ordinance (Cabinet Order No. 64 of 1949), Article 2.
39 Customs Act (Law No. 61 of 1954 as amended), Article 70.
40 Fundamental directives of corporate tax 7-1-1.
41 Trust Business Act (Law No. 154 of 2004), Article 3.
42 Law No. 22 of 2007, Articles 4 and 6–8.
43 Law No. 48 of 1970, Articles 18–20.
44 ibid, Article 51.
45 ibid, Article 58.
46 ibid, Article 47(1), (2) and (3).
47 Guidelines concerning reproduction, etc. of artworks for exhibition under Article 47 of the Copyright Act (22 January 2019) of Japan Artists Association, Inc, the Japanese Council of Art Museums, etc.
48 Judgment of IP Court of Appeal of 14 April 2015, Hanrei Jiho, Vol. 2267, p. 91.
49 Judgment of IP Court of Appeal of 21 December 2016, Hanrei Jiho, Vol. 2340, p. 88 also seems to have relied upon the same criterion.
50 Judgments of Tokyo District Court of 27 April 2016 and IP Court of Appeal of 13 October 2016; judgment of Tokyo District Court of 21 April 2016, Hanrei Jiho, Vol. 2340, p. 104.
51 Ministry of Justice, 2018, Draft Summary on Review of Public Interest Trust Act, Sections 2-2, 4-1 and 9-3(3).