Acquiring or Enforcing Rights Over Property in Japan: What Law Governs Rights in rem?

When businesses engage in international transactions involving assets, or when disputes arise over property with cross-border elements, a critical question is which country's law will govern the rights related to that property. In Japan, the Act on General Rules for Application of Laws (AGRAL) (Hō no Tekiyō ni Kansuru Tsūsokuhō, 法の適用に関する通則法) provides the framework for determining the applicable law for "rights in rem" (bukken, 物権) – proprietary rights that are directly enforceable against the property itself, such as ownership or security interests.

This article explores the fundamental principles under Japanese private international law for rights in rem, focusing on Article 13 of AGRAL, and examines how these rules apply to various types of property and situations, including the complexities of movable property and security interests.

The Cardinal Rule: Lex Rei Sitae under AGRAL Article 13

Article 13, paragraph 1 of AGRAL lays down the foundational rule for determining the law applicable to rights in rem:
"Rights in rem with regard to movables or immovables and any other rights requiring registration shall be governed by the law of the place where the subject matter is located (lex rei sitae)."

This principle of lex rei sitae (目的物の所在地法主義 - mokutekibutsu no shozaichi-hō shugi) means that the law of the jurisdiction where the property (the "subject matter") is situated at the relevant time will determine the nature, content, creation, transfer, and extinction of proprietary rights over it.

Key Aspects of this Rule:

• Uniformity for Movables and Immovables (Dōsoku-shugi, 同則主義): Unlike some legal systems that apply different choice-of-law rules for movable and immovable property, Japanese PIL generally applies the lex rei sitae to both. This avoids the often-difficult preliminary question of classifying property as movable or immovable under a specific legal system.
• "Rights in rem" (Bukken): This refers to rights that give a person direct control or dominion over a tangible thing, enforceable against the world. Ownership (shoyūken, 所有権) and possession (sen'yūken, 占有権) are prime examples. It generally applies to tangible property. Intangible rights like intellectual property are typically governed by different rules (see AGRAL and specific IP conventions).
• "Other Rights Requiring Registration": This phrase encompasses rights that may be contractual in origin but acquire characteristics similar to rights in rem upon registration, such as certain real property repurchase rights (kaimodoshi-ken, 買戻権) or registered leases of real property (chintaishaku-ken, 賃借権) under Japanese domestic law. However, these are often considered to be subsumed under the broader category of bukken for PIL purposes.
• Rationale for Lex Rei Sitae: The choice of lex rei sitae is traditionally justified by several factors:
  • Public Interest and Sovereignty: The state where property is located has a significant interest in regulating rights over it.
  • Connection with Registration Systems: For immovable property, and some movables, registration systems are established under the law of the situs, and applying lex rei sitae ensures consistency with these systems.
  • Effectiveness and Enforceability: Judgments concerning property rights are most effectively enforced in the jurisdiction where the property is located.
  • Certainty and Predictability: The location of property is often a clear and ascertainable fact, although this can be challenging for certain types of movables.

Scope and Challenges of Lex Rei Sitae

While lex rei sitae is straightforward for immovable property, its application to movable property presents several complexities due to their inherent mobility.

1. Property in Transit (Res in Transitu, 移動中の物)

When goods are being transported across borders, their situs can be transient and difficult to determine. In such cases, Japanese law, through scholarly interpretation and case law (e.g., Daishin'in (Great Court of Cassation) judgment, October 16, 1920), generally favors the application of the law of the place of destination (shiukechi-hō, 仕向地法) as the presumptive lex rei sitae. If the destination changes, the law of the new destination would apply. However, if the goods are temporarily stored in an intermediate location and a proprietary issue arises there, the law of that actual, ascertainable situs may govern.

2. Means of Transport (Ships, Aircraft, Automobiles)

• Ships and Aircraft: Due to their frequent movement across jurisdictions, applying the lex rei sitae based on their instantaneous physical location is impractical. Instead, the prevailing view in Japanese law, supported by doctrine and court decisions (e.g., Akita District Court, Provisional Disposition, January 23, 1971), is that proprietary rights in registered ships and aircraft are governed by the law of the state of registration, often referred to as the law of the flag state (kikoku-hō, 旗国法). This approach, while practical, can raise issues of "flags of convenience" where the flag state has little actual connection to the owner or operation.
• Automobiles: The situs of automobiles, which are also highly mobile, was clarified by a Supreme Court judgment on October 29, 2002 (Minshū Vol. 56, No. 8, p. 1964). This decision established a "dual approach" (nibun-setsu, 二分説):
  • For automobiles used as a means of transport, the applicable law is that of their "base of utilization" (riyō no honkyo-chi, 利用の本拠地).
  • For automobiles not so utilized (e.g., those held as inventory or in storage), the applicable law is that of their physical location.
    This ruling, while providing more clarity, has its own interpretative challenges regarding what constitutes a "base of utilization."

3. Rights Embodied in Negotiable Instruments

For negotiable instruments that embody rights over goods (e.g., bills of lading, warehouse receipts), there has been a traditional debate. One view favored the law of the place where the instrument itself was located, on the theory that the rights over the goods were "merged" into the document. However, a more modern and arguably more compelling view suggests that the proprietary rights in the underlying goods themselves should remain governed by the lex rei sitae applicable to those goods, not necessarily the document's location. The instrument's role is seen as facilitating transfer rather than fundamentally altering the choice of law for the goods.
The rise of dematerialized or indirectly held securities presents further challenges, with emerging jurisprudence and scholarship exploring appropriate connecting factors, often looking to the location of the relevant intermediary or account.

4. Effect of Change in Situs of Property

When movable property changes its location from one jurisdiction to another, the governing law under Article 13(1) also changes. A right in rem validly acquired under the law of the former situs is generally recognized in the new situs. However, the content and enforceability of that right in the new jurisdiction will be subject to the law of the new situs. This may involve a process of "substitution or transposition" (chikan matawa tenchi, 置換または転置), where the foreign-acquired right is recognized to the extent it corresponds to a similar right under the law of the new situs. A right validly acquired under the old lex rei sitae does not automatically cease to exist simply because the property has moved.

Acquisition and Loss of Rights in Rem (AGRAL Article 13, Paragraph 2)

Article 13, paragraph 2 specifically addresses the acquisition or loss of rights in rem:
"The acquisition or loss of the rights set forth in the preceding paragraph shall be governed by the law of the place where the subject matter was located at the time of completion of the facts constituting the cause thereof."

This provision focuses on the moment the legal requirements for a change in proprietary rights are fulfilled.

• "Time of completion of the facts constituting the cause thereof": This is a crucial temporal element. It means that the lex rei sitae prevailing at the precise moment all legally relevant facts for the acquisition or loss of the right have occurred will govern that specific change. For example, in a sale of goods, this would typically be the law of the place where the goods were located when delivery and/or transfer of title (according to the requirements of that law) took place. The interpretation of what constitutes "completion of the facts" is often guided by the substantive law of the potential lex rei sitae.
• Scope: This paragraph applies to both acquisition (e.g., by sale, gift, prescription) and loss (e.g., by destruction, abandonment, transfer).

What Issues Are Governed by the Lex Rei Sitae?

The law determined by Article 13 (the lex rei sitae) governs a broad range of issues concerning property:

• Types of Rights: It determines what kinds of rights in rem can exist with respect to the property (e.g., full ownership, various types of limited real rights like usufructs (yōeki bukken, 用益物権), security interests).
• Content of Rights: It defines the scope and content of these rights (e.g., the owner's right to use, enjoy, and dispose of the property).
• Creation, Transfer, and Extinction: It governs how these rights are created, transferred from one party to another, and extinguished.
• In Rem Claims: Claims directly related to the assertion of proprietary rights, such as actions for the recovery of property (henkan seikyū, 返還請求) or actions to protect possession, are also governed by the lex rei sitae.

Distinction from Underlying Contractual Obligations (The Separation Principle - Trennungsprinzip)
It is essential to distinguish between the proprietary aspects of a transaction (governed by Article 13) and the underlying contractual obligations between the parties. For example, in an international sale of goods:

• The contract of sale itself (e.g., obligations to deliver goods and pay the price, remedies for breach of contract) is governed by the law applicable to contracts (AGRAL Articles 7 et seq.).
• The transfer of ownership in the goods, however, is a proprietary issue governed by Article 13 (the lex rei sitae at the time of the relevant facts).
  This "separation principle" (Trennungsprinzip, often associated with German law but influential in Japanese PIL) means that different laws can apply to the contractual and proprietary aspects of the same transaction.

Interaction with Acquisitive Prescription and Inheritance

• Acquisitive Prescription (Shutoku Jikō, 取得時効): The acquisition of property rights through adverse possession is generally considered a matter of property law and thus governed by the lex rei sitae at the time the prescription period is completed. If the situs of the property changes during the prescription period, complex issues arise, typically resolved by considering the requirements of the laws of both the old and new situs.
• Inheritance (Sōzoku, 相続): While inheritance as a whole is governed by the deceased's national law (AGRAL Article 36), the question of whether specific property items form part of the heritable estate and how title passes to heirs can interact with the lex rei sitae of those items, especially for real property. A Supreme Court judgment on March 8, 1994 (Minshū Vol. 48, No. 3, p. 835) indicated that while the general effects of succession are per the deceased's national law, the actual transfer of rights in specific inherited property, particularly real estate, is subject to the lex rei sitae.

Special Considerations for Security Rights (Tanpo Bukken, 担保物権)

The application of Article 13 to security interests presents particular challenges.

1. Pledges and Mortgages by Agreement (Yakujō Tanpo Bukken, 約定担保物権)

For security rights created by agreement (e.g., pledges of movables, mortgages on real estate), the general principle of lex rei sitae applies. The creation, validity, priority, and enforcement of such security interests are governed by the law of the place where the encumbered asset is located at the relevant time.

2. Statutory Liens and Security Rights (Hōtei Tanpo Bukken, 法定担保物権)

These arise by operation of law, often to secure specific types of claims (e.g., a repairer's lien).

• Traditional View: The traditional prevailing view in Japan has been that the creation of a statutory lien requires the cumulative satisfaction of conditions under both the lex rei sitae of the asset and the law governing the underlying secured claim. This was to prevent a lien from arising under the lex rei sitae if the underlying claim itself would not give rise to such a lien under its own governing law. The effects and priority of such a lien, once created, would then be governed by the lex rei sitae.
• Modern Trend: More recently, there is growing support for simplifying this and applying only the lex rei sitae (as determined by Article 13) to both the creation and effects of statutory liens. This view argues that statutory liens are often designed to protect local creditors or address local policy concerns, making the lex rei sitae the most appropriate governing law.

3. Maritime Liens (Senpaku Sakidori Tokken, 船舶先取特権)

Maritime liens are a particularly complex area in international private law due to the mobility of ships and the international nature of shipping. There is no universally accepted choice-of-law rule. Various connecting factors have been proposed and applied by courts in different jurisdictions, including:

• The law of the flag state of the vessel.
• The lex rei sitae at the time the event giving rise to the lien occurred (e.g., where supplies were furnished or tort committed).
• The lex fori (law of the court where enforcement is sought), particularly for matters of priority and procedure.
  Japanese law has seen varied approaches in case law and academic writing, reflecting this international complexity. Some judgments have favored the lex fori, while others have considered the law governing the secured claim in conjunction with a situs-related law. Legislative clarification in this specific area is often suggested.

Analyzing Scenarios

Let's illustrate these principles with adapted scenarios based on Case 30, No. 6 from the reference material.

Scenario 1: Disputed Ownership of a Painting

• Facts: A (Japanese national) purchases a Monet painting in Japan from B, an art gallery from Country X, at an exhibition organized by B in Japan. A takes delivery. However, the painting had previously been sold by B in Country X to C (a Country X national) for a lower price, and C had merely loaned it back to B for the exhibition. C now claims ownership from A, stating B sold it to A without authorization.
• Analysis:
  • C's Acquisition of Ownership from B: This transaction occurred in Country X when the painting was located there. Therefore, whether C validly acquired ownership from B is governed by the law of Country X as the lex rei sitae at that time (AGRAL Article 13, paragraph 2). If Country X law allows for transfer of ownership by constructive delivery like constitutum possessorium (占有改定 - sen'yū kaitei), C may have acquired ownership.
  • A's Acquisition of Ownership from B: This transaction (sale and delivery) occurred in Japan when the painting was located in Japan. Thus, whether A acquired ownership from B is governed by Japanese law as the lex rei sitae (AGRAL Article 13, paragraph 2). If C is indeed the true owner under Country X law, A could only acquire ownership from B (who would be a non-owner) if Japanese law allows for acquisition from a non-owner (acquisitio a non domino, or 即時取得 - sokuji shutoku, immediate acquisition) under the specific circumstances (e.g., A's good faith, B's possession).
• Conclusion: The dispute hinges on applying Country X law to the B-C transaction and Japanese law (including its rules on good faith acquisition) to the B-A transaction.

Scenario 2: Maritime Lien for Fuel Supply

• Facts: Company D (Country B entity) supplies fuel to Ship E (flying Country C flag) while Ship E is ported in Country B. Company F (Country C entity, operator of Ship E) fails to pay. Company D seeks to enforce a maritime lien for the fuel cost and has Ship E arrested in Japan. Country C law recognizes maritime liens for fuel supply, but Country B law does not. The fuel supply contract between D and F was governed by Country B law.
• Analysis:
  • This involves a claim for a maritime lien, a type of statutory security interest. The applicable law is highly debated.
  • Possible approaches to lien creation:
    • Lex Fori (Japanese Law): If Japanese law has its own rules for recognizing or creating such liens on ships in its ports, or specific PIL rules for maritime liens.
    • Law of the Flag (Country C Law): If this is chosen as the primary law for maritime liens, Country C law would recognize the lien.
    • Lex Loci Contractus of Supply / Situs at Time of Supply (Country B Law): If the law of the place where the fuel was supplied (and contract likely performed) governs lien creation, Country B law does not recognize the lien.
    • Cumulative Approach (e.g., Law governing the claim + Lex Situs): If the claim is governed by Country B law (which doesn't recognize the lien), this might preclude the lien even if another law (like flag state) would.
  • Enforcement in Japan: Even if a lien is validly created under a foreign law, its enforcement in Japan will be subject to Japanese procedural law and public policy.
• Conclusion: The outcome is uncertain and depends heavily on the specific choice-of-law approach adopted by the Japanese court for maritime liens. If the court prioritizes the law of the flag state (Country C), D's claim might be stronger. If it looks to the law of the place of supply or the law of the underlying contract (Country B), the claim might fail.

Conclusion

The principle of lex rei sitae under Article 13 of AGRAL is the cornerstone of Japanese private international law for determining rights in rem. While providing a degree of certainty, especially for immovable property, its application to movables, particularly those in transit or means of transport, requires nuanced approaches involving concepts like the law of destination or the law of the flag. Security interests, especially statutory ones like maritime liens, remain an area of significant complexity and debate. For businesses involved in international asset transactions with a Japanese nexus, understanding these rules, the distinctions they draw (e.g., between contractual and proprietary aspects), and the areas of ongoing legal development is crucial for safeguarding their property rights.