If a Japanese Government Agency's Unlawful Act Caused My Business Financial Harm, How Can I Claim State Compensation?

Businesses operating in any jurisdiction may, at times, find themselves adversely affected by the actions of government agencies or public officials. When such actions are not only detrimental but also unlawful, and result in financial or other harm, the question of redress becomes paramount. In Japan, the primary legal avenue for seeking compensation from the state or a local public entity for damages caused by the wrongful acts of public officers is the State Compensation Act (Act No. 125 of 1947, hereinafter "SCA"). This Act is a cornerstone of administrative accountability, giving tangible effect to the constitutional principle that individuals can seek redress for governmental wrongdoing. This article delves into the basics of Article 1 of the SCA, which addresses liability for the unlawful exercise of public power, its key elements, and how crucial concepts like "illegality" are interpreted by the Japanese courts.

The State Compensation Act (SCA) – Article 1: Liability for Unlawful Exercise of Public Power

The foundation for state compensation claims lies in Article 1, Paragraph 1 of the SCA, which stipulates: "When a public officer who is in a position to exercise the public power of the State or of a public entity has, in the course of his/her duties, unlawfully inflicted damage on another person either intentionally or negligently, the State or the public entity concerned shall be liable to compensate therefor."

This statutory provision gives concrete form to the right enshrined in Article 17 of the Constitution of Japan: "Every person may sue for redress as provided by law from the State or a public entity, in case he has suffered damage through illegal act of any public officer." While Article 17 itself anticipates that the specifics of such redress will be "as provided by law" (which the SCA fulfills), the Supreme Court, in its Grand Bench decision of September 11, 2002 (often referred to as the Postal Service Unconstitutionality Judgment, related to case 23-1), affirmed that this constitutional provision does not grant the legislature unlimited power to deny compensation. The SCA is thus understood as the principal legislation detailing the conditions and scope of this right to redress against governmental torts.

Key Elements for a Claim under SCA Article 1(1)

To successfully claim compensation under SCA Article 1(1), a claimant, such as a business that has suffered financial harm, must typically establish several key elements:

A. "Public Officer" (Kōmuin)

The term "public officer" under the SCA is interpreted broadly. It is not confined to individuals formally appointed as civil servants. It can encompass anyone who is engaged in public duties under the authority of the State or a local public entity. This broad interpretation means that, in certain circumstances, even employees of private entities can be considered "public officers" for the purposes of the SCA if they are performing functions that are deemed to be an "exercise of public power" delegated to them by a governmental body.

A significant illustration of this is the Child Welfare Facility Injury Case (Supreme Court, January 25, 2007, related to case 23-4). In this case, a child was placed by a prefecture into a child welfare facility operated by a private social welfare corporation. The care and supervision provided by the staff of this private facility were deemed to be an exercise of public power on behalf of the prefecture. Consequently, the prefecture was held potentially liable under the SCA for harm suffered by the child due to deficiencies in that care. This demonstrates that liability can extend to acts performed by non-governmental actors if they are effectively carrying out public functions under governmental authority.

B. "In the Course of His/Her Duties" (Sono Shokumu o Okonau ni Tsuite)

The unlawful act causing damage must have been committed "in the course of duties." This requires a connection between the wrongful act and the public officer's official responsibilities. A crucial concept here is the Objective Standard Theory or Outer Appearance Theory (Gaikei Hyōjunsetsu).

Under this theory, an act can be considered as performed "in the course of duties" even if the public officer was subjectively acting outside the scope of their legitimate authority, for personal gain, or with malicious intent, as long as the act objectively possessed the outer appearance of an official duty being performed. This broad interpretation aims to protect citizens who might reasonably rely on such appearances.

The leading precedent is the Kawasaki Station Police Officer Robbery-Murder Case (Supreme Court, November 30, 1956, related to case 23-5). In this case, an off-duty police officer, wearing his uniform, feigned an official inquiry at a police box to lure a victim, whom he then robbed and murdered. The Supreme Court held that because the officer's actions had the objective appearance of an official police function (given the uniform and the location), the public entity could be held liable under the SCA for damages arising from these criminal acts. This theory underscores that the focus is on the external presentation of the act to the public, rather than solely on the officer's subjective intent or the strict legality of their authority.

C. "Exercise of Public Power" (Kōkenryoku no Kōshi)

The wrongful act must involve the "exercise of public power." This element distinguishes claims under SCA Article 1 from those under Article 2 (which deals with defects in the construction or maintenance of public structures, such as roads and buildings, and involves a stricter form of liability not necessarily requiring negligence) and from ordinary torts committed by public entities in their purely private or proprietary capacities (e.g., a traffic accident involving a government vehicle on a non-official errand, which might be treated under general civil tort law).

"Exercise of public power" generally refers to acts of authority, governance, regulation, or the provision of public services that are characteristic of the state's sovereign or administrative functions, rather than activities that a private entity could equally perform (e.g., purely commercial transactions).

Determining which public entity is liable (the State or a specific local public entity) often depends on identifying which entity's "public power" was being exercised. The Traffic Crime Investigation Case (Supreme Court, July 10, 1979, related to case 23-3) provides an example. The Court held that when prefectural police officers conduct investigations into traffic crimes, their actions are generally considered an exercise of the prefecture's public power. Therefore, the prefecture, not the national government, is typically the liable entity for any unlawful acts committed during such investigations, even though there might be national laws governing police activities or some level of national oversight. The key factor is the attribution of the specific administrative affair or function to a particular level of government.

D. "Unlawfully" (Ihō ni)

This is one of_the most critical and often complex elements in a state compensation claim. The term "unlawfully" in the SCA context does not always equate to the kind of illegality that would lead a court to revoke an administrative disposition in administrative litigation (torikeshi soshō). This concept is sometimes referred to as the "relativity of illegality" – an act might be illegal enough to be set aside by a court in a direct challenge, but not necessarily "unlawful" for the purpose of triggering state compensation liability.

The prevailing judicial approach for assessing "unlawfulness" under SCA Article 1, particularly for discretionary administrative acts or those involving official judgment, is the Duty of Care Standard or Official Duty Standard Theory (Shokumu Kōi Kijunsetsu). According to this standard, an act by a public officer is deemed "unlawful" for SCA purposes if the officer, in performing their duties, violated the objective duty of care ordinarily expected of a reasonably prudent public officer in that position and under those circumstances. It focuses on whether the officer failed to exercise the reasonable care, diligence, and skill that should have been exercised.

The Nara Tax Office Over-Correction Case (Supreme Court, March 11, 1993, related to case 23-7) is a landmark decision illustrating this standard. In this case, an income tax reassessment (a kōsei shobun) was later found to have resulted in an over-collection of tax and was partially revoked in a separate administrative lawsuit. However, the Supreme Court held that this subsequent finding of illegality for revocation purposes did not automatically mean the reassessment was "unlawful" under the SCA. Unlawfulness for SCA purposes would only arise if it could be shown that the tax official, in the process of gathering information, making factual determinations, and applying the tax laws, had acted perfunctorily or without exercising the ordinary duty of care expected in their role – for example, by ignoring clear evidence or failing to make reasonable inquiries that a prudent tax official would have made.

Similarly, the No. 402 Circular Case (Supreme Court, November 1, 2007, related to case 23-8) applied this duty of care standard to the act of government officials issuing and maintaining an administrative circular. This circular had unlawfully interpreted laws concerning benefits for atomic bomb survivors, effectively denying benefits to those residing overseas. The Supreme Court found that the officials responsible for interpreting and uniformly applying these laws had a professional duty to conduct a reasonably careful and thorough examination of the legal basis for their interpretation. Their failure to do so, which resulted in the issuance and continued application of the flawed and detrimental circular, was held to be a breach of their official duty of care. This breach rendered the act of issuing and maintaining the circular "unlawful" for the purposes of state compensation.

It is also important to distinguish this from a "result-based illegality" approach. For instance, in the Accident During Police Car Chase Case (Supreme Court, February 27, 1986, related to case 23-6), the Court held that the legality of a police pursuit resulting in an accident is not judged merely by the unfortunate outcome. The pursuit is deemed unlawful only if it was unnecessary for its intended official purpose (e.g., apprehending a fleeing suspect) or if the method of pursuit was itself inappropriate or excessively dangerous given the specific risks and circumstances reasonably foreseeable at the time. The focus is on the reasonableness and appropriateness of the officers' conduct, not solely on the fact that damage occurred.

E. "Intentionally or Negligently" (Koi matawa Kashitsu ni Yotte)

The unlawful act must have been committed either intentionally or negligently. This refers to the public officer's state of mind regarding the unlawfulness of the act and the causation of damage.

Under the "duty of care standard" used to determine "unlawfulness," a finding that an officer breached their objective duty of care often inherently encompasses a finding of negligence. In many such cases, the assessment of illegality (breach of duty of care) and negligence tends to merge. If an officer failed to do what a reasonably prudent officer would have done (breach of duty of care, hence "unlawful"), that failure itself often constitutes negligence.

However, it is theoretically possible for an act to be "objectively" unlawful (e.g., a clear violation of a non-discretionary statutory prohibition) yet committed without subjective negligence if, for example, the officer, despite exercising due diligence, reasonably misinterpreted an exceptionally ambiguous law. Such instances are rare if the legal duty is clear.

F. "Inflicted Damage on Another Person" (Tanin ni Songai o Kuwaeta Toki)

The claimant must have suffered actual damage as a result of the unlawful act. This can include:

• Pecuniary losses, such as lost profits, costs incurred, or damage to property.
• Physical injury and associated medical expenses and lost earnings.
• In certain cases, non-pecuniary damages, such as emotional distress or harm to reputation (though compensation for purely emotional distress can be more challenging to obtain without accompanying physical or financial harm).

A legally sufficient causal link between the public officer's unlawful and negligent/intentional act and the damage suffered by the claimant must also be established.

No Personal Liability for the Public Officer (General Rule)

A significant characteristic of the Japanese state compensation system under Article 1(1) of the SCA is that if the State or a public entity is found liable, the individual public officer who committed the wrongful act is generally not personally liable in a civil tort claim to the victim for that same act. This holds true even if the officer acted with gross negligence. The victim's claim for compensation is channeled exclusively to the employing public entity. This principle was affirmed in early Supreme Court cases (e.g., a decision on April 19, 1955) and reiterated in contexts like the Child Welfare Facility Injury Case regarding private employees exercising delegated public power.

The rationale is to allow public officers to perform their duties without undue fear of personal lawsuits, thereby ensuring the smooth functioning of public administration, while still providing a remedy for injured citizens through the liability of the public entity. However, the SCA does provide (in Article 1, Paragraph 2) that if the public entity has compensated the victim, it may have a right of indemnification (to seek reimbursement) from the public officer if that officer acted with intent or gross negligence.

Pinpointing Fault in Complex Administrative Settings

Sometimes, damage may result not from a single, easily identifiable act by one officer, but from a complex series of actions or omissions within an administrative organization. The Okayama Tax Office Health Checkup Case (Supreme Court, April 1, 1982, related to case 23-2) touched upon the difficulty of pinpointing the specific tortious act or the responsible officer in such scenarios. While the state's liability was ultimately denied in that particular case on other grounds (the actions of a contracted doctor were not considered the state's exercise of public power for SCA Article 1 purposes), the Court did suggest a principle: if damage would not have occurred but for some negligent and unlawful act by some officer within a series of official acts—all attributable to the same public entity—then compensation might be possible even if the precise flawed act or individual cannot be isolated. This offers a degree of flexibility in proof where organizational or systemic failures are involved, provided the overall fault clearly lies within that single public entity.

Conclusion

The State Compensation Act, particularly Article 1, provides a vital mechanism for businesses and individuals in Japan to seek monetary redress for harm caused by the unlawful exercise of public power by government officials. The success of such a claim hinges on establishing several key elements, with the concepts of "in the course of duties" (interpreted broadly under the "outer appearance" theory) and "unlawfulness" (often assessed by the "duty of care standard") being particularly crucial and subject to nuanced judicial interpretation. While the SCA channels primary liability to the State or public entity rather than individual officers, it underscores the principle of governmental accountability for wrongful acts performed under the cloak of public authority. For businesses navigating the Japanese regulatory environment, understanding the contours of the SCA is essential for assessing potential remedies when faced with detrimental and unlawful governmental actions.