My Business Suffered Harm from an Act in Japan: Which Country's Tort Law Will Apply?

When businesses suffer harm due to wrongful acts with international dimensions, determining which country's tort law will govern the claim is a critical first step in seeking redress. If the harmful act or its consequences have a connection to Japan, Japan's 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 primary framework for identifying the applicable law for tort claims. This framework, while aiming for predictability, also incorporates mechanisms for flexibility and the protection of Japanese public policy.

This article delves into the Japanese private international law rules for general torts, focusing on how AGRAL Article 17 establishes the main connecting factors, the significant impact of Japanese public policy under Article 22, and the possibility of applying a more closely connected law under Article 20.

The General Rule for Torts in Japan: Lex Loci Delicti Commissi (AGRAL Article 17)

The cornerstone for determining the applicable law for torts in Japan is AGRAL Article 17. It largely adopts the principle of lex loci delicti commissi (the law of the place where the tort was committed), but with a specific emphasis.

Article 17 (Main Provision):
"The formation and effect of a claim arising from a tort shall be governed by the law of the place where the result of the wrongful act occurred."

This primary rule points to the law of the place where the harmful result of the tortious conduct manifested (kekka hassei-chi-hō, 結果発生地法). The "result" is generally understood to mean the direct infringement of a legal interest or the initial harm suffered by the victim. Secondary or derivative financial losses incurred in a different location are typically not considered the "result" for the purpose of this primary connection.

The Foreseeability Exception (Article 17, Proviso):
The main rule is qualified by an important proviso:
"...provided, however, that if the occurrence of the result in that place was not ordinarily foreseeable, it shall be governed by the law of the place where the wrongful act was committed."

This exception shifts the applicable law to the law of the place where the wrongful act itself was perpetrated (kagai kōi-chi-hō, 加害行為地法) if the occurrence of the result in the kekka hassei-chi was not "ordinarily foreseeable."

• "Ordinarily Foreseeable": This is an objective standard. The question is not what the specific tortfeasor actually foresaw, but what a reasonable person engaging in similar conduct would ordinarily foresee regarding the potential for that type of result occurring in that particular place. The focus is on the foreseeability of the general kind of harm in that location, not the precise mechanics or extent of the specific injury.

Scope of Application of AGRAL Article 17

AGRAL Article 17 serves as the general rule for most torts. However, AGRAL itself provides specific, distinct choice-of-law rules for certain types of torts:

• Product Liability: Governed by AGRAL Article 18.
• Defamation and Infringement of Credit: Governed by AGRAL Article 19.

Therefore, Article 17 applies to common torts such as negligence causing personal injury or property damage (outside the product liability context), intentional torts like trespass or conversion, and potentially others. There is ongoing academic discussion about whether certain specialized torts, such as intellectual property infringement or acts of unfair competition, fall under the general ambit of Article 17 or require even more specific (and often uncodified) choice-of-law approaches.

Overriding Considerations: Japanese Public Policy and Cumulative Application of Japanese Law (AGRAL Article 22)

A highly significant feature of Japanese private international law for torts is AGRAL Article 22, which mandates a form of cumulative application of Japanese law, effectively acting as a strong public policy safeguard. This provision is considered a special public policy clause (tokubetsu ryūho jōkō, 特別留保条項), distinct from and more stringent than the general public policy clause in AGRAL Article 42. Its roots lie in older legislation, and despite strong arguments for its repeal during the AGRAL's enactment due to its potentially restrictive effect on applying foreign law, it was retained, largely due to concerns about its impact on established practice.

Article 22, Paragraph 1: Non-Recognition of Foreign Torts Not Recognized in Japan
"If the facts that should be governed by a foreign law do not constitute a tort under Japanese law, no claim based on such foreign law may be made for damages or any other remedy arising from such tort."
This means that even if an act constitutes a tort under the foreign law designated by Article 17 (the lex causae), no claim can be pursued in Japan if that same act would not be considered a tort under Japanese substantive law. The prevailing interpretation, supported by case law including the Supreme Court judgment of September 26, 2002 (Minshū Vol. 56, No. 7, p. 1551), is that "tort" here refers to the fulfillment of all requisite elements for a tort to be established under Japanese law.

Article 22, Paragraph 2: Limitation of Remedies to Japanese Standards
"Even if the facts that should be governed by a foreign law constitute a tort under both such foreign law and Japanese law, the claimant may only claim for damages or any other remedy that is recognized under Japanese law and only to the extent so recognized."
If an act is tortious under both the foreign lex causae and Japanese law, this paragraph limits the available remedies. The claimant can only seek remedies that are recognized by Japanese law, and only to the extent (e.g., type of damages, quantum) recognized by Japanese law. For example, if the foreign law allows for punitive damages but Japanese law does not, the punitive portion of the claim would be disallowed in a Japanese court. Similarly, if the foreign law allows for a type of injunction not available under Japanese law, it could not be granted. The prevailing view and case law interpret this as applying to the effect of the tort generally, including the types and scope of remedies. The question of whether matters like statutes of limitation or repose periods fall under this "remedy and extent" limitation is a subject of detailed academic debate, with some recent lower court decisions suggesting they might not always be captured by Article 22(2).

The effect of Article 22 is that Japanese law acts as a "cap" or a "filter." The foreign law determined by Article 17 identifies the potential for a claim and its characteristics, but Article 22 ensures that the outcome in a Japanese court does not go beyond what Japanese domestic tort law would permit in a comparable domestic situation.

The Flexibility Clause: Application of a More Closely Connected Law (AGRAL Article 20)

Recognizing that a mechanical application of Article 17 might occasionally lead to the application of a law with only a tenuous connection to the tort, AGRAL Article 20 provides an escape clause or flexibility mechanism:

"Notwithstanding the provisions of Articles 17 to 19, if it is manifest that the law of a place other than the place whose law is designated by those provisions is more closely connected with the tort, the formation and effect of a claim arising from such tort shall be governed by the law of such other place."

Key Aspects of Article 20:

• Purpose: To allow courts to depart from the general rules (like lex loci delicti) when doing so would lead to a more substantively just and appropriate outcome by applying the law of a jurisdiction that has a clearly stronger relationship with the tort and the parties.
• High Threshold ("Manifestly"): The connection to the alternative law must be "manifestly" closer. This high threshold is intended to preserve the predictability of the general rules and to ensure that Article 20 is used only in exceptional circumstances, not as a general license for courts to choose what they deem the "better" law.
• Enumerated Examples (Non-Exhaustive): Article 20 itself provides two illustrative examples of situations where a manifestly closer connection might exist:
  1. Common Habitual Residence: "If, at the time of the tort, both the tortfeasor and the victim had their habitual residences in places governed by the same law." In such cases, the law of their common habitual residence might be deemed more appropriate than, for example, the law of an accidental place of injury. This reflects the idea that parties living within the same legal environment have shared expectations regarding standards of conduct and liability. (See, e.g., Chiba District Court, July 24, 1997, Hanrei Jihō No. 1639, p. 86, a pre-AGRAL case applying Japanese law to a ski accident in Canada between Japanese residents).
  2. Tort Arising from Breach of Contract (Adjunctive Connection): "If the tort was committed in breach of a contractual obligation between the tortfeasor and the victim." Here, the law applicable to the pre-existing contractual relationship might be considered more closely connected to the tort claim than the general tort rule would indicate. This is common in cases of "concurrent liability" where the same facts give rise to claims in both contract and tort (e.g., injury to a passenger due to carrier negligence). A Tokyo District Court judgment on May 24, 2012 (Case No. 2009 (Wa) 25109) applied this principle, using the law of the employment contract (UK law) for a tort claim related to bonus payments, instead of Japanese law which would have been indicated by Article 17.
• Other Factors: Even if the situation doesn't fit these examples, a court can consider all circumstances existing at the time of the tort to determine if another law is manifestly more closely connected.

Post-Tort Choice of Law (AGRAL Article 21)

AGRAL Article 21 also allows the parties, after the tortious event has occurred, to agree to change the applicable law from that designated by Articles 17 to 20 to another law. This post-event party autonomy must not prejudice the rights of third parties.

Analyzing a Scenario

Let's apply these principles to an adapted version of the scenario in Case 30, No. 10, Problem 1 from the reference material:

• Facts: Company J, a Japanese chemical company, operates a manufacturing plant in Country X. It accidentally discharges toxic substances into a local river. This river is an international waterway that flows through Country X, then through Country Y, and finally into the Atlantic Ocean in Country Z. Company V, an entity in Country Z, engages in hydroponic vegetable cultivation using water from this river. After Company J's accidental discharge, Company V's vegetables suffer poor growth, resulting in significant losses. Company V sues Company J in a Japanese court for damages.
• Analysis:
  1. Applicable Law under AGRAL Article 17:
     • The "result" of the tort (damage to Company V's crops) occurred in Country Z. Therefore, the law of Country Z is the primary candidate for the applicable law under Article 17's main provision.
     • Was the occurrence of this result in Country Z "not ordinarily foreseeable" for a plant in Country X discharging pollutants into an international river system? Given the nature of river systems, it is likely that contamination affecting downstream countries like Country Z would be considered ordinarily foreseeable by a reasonable operator in Company J's position. Thus, the exception in the Article 17 proviso (pointing to Country X law) would probably not apply. The applicable law under Article 17 would be the law of Country Z.
  2. Application of AGRAL Article 22 (Japanese Public Policy Filter):
     • Assume the law of Country Z allows for substantial punitive damages in cases of reckless environmental pollution, while Japanese law primarily provides for compensatory damages. If Company V claims punitive damages, Article 22(2) would likely prevent a Japanese court from awarding the punitive portion, as such damages are generally not "recognized under Japanese law" to that extent.
     • If, hypothetically, the act of discharging the specific substance, while causing harm, did not meet the criteria for a tort under Japanese environmental or civil liability standards (e.g., if Japanese law required a higher level of intent or negligence than Country Z law for that specific activity), Article 22(1) could potentially bar the entire claim in Japan, even if it's a valid tort under Country Z law.
  3. Potential Application of AGRAL Article 20 (Closer Connection):
     • Could another law be "manifestly more closely connected"? The facts given don't immediately suggest one of the enumerated examples.
     • However, if, for instance, Company V was also a Japanese-owned company, and its primary economic interests and the ultimate financial impact of the crop loss were most directly felt in Japan, and Company J (the tortfeasor) is Japanese, an argument might be made that Japanese law has a manifestly closer connection. The reference material's own answer to a similar variant (Problem 1(3)) suggests that if both parties are Japanese companies, Japanese law might apply via Article 20. This would require a detailed factual analysis of the connections.

A Brief Note on Unjust Enrichment (AGRAL Article 14)

While the main focus is on torts, it's useful to briefly note that AGRAL Article 14 governs claims for unjust enrichment (futō ritoku, 不当利得) and restitution for management of affairs without mandate (jimu kanri, 事務管理). Such claims are governed by "the law of the place where the facts constituting its cause occurred."

• For unjust enrichment involving the transfer of assets or funds, this is often interpreted as the law of the place where the enrichment was ultimately received or completed.
• Similar to torts, AGRAL Article 15 provides a flexibility clause allowing for the application of a manifestly more closely connected law, and Article 16 allows for a post-event choice of law by the parties.

Conclusion

Japan's private international law framework for determining the law applicable to torts, primarily through AGRAL Article 17, centers on the law of the place where the harmful result occurred, tempered by a foreseeability exception. However, this is significantly shaped by the overriding public policy provisions of Article 22, which ensure that outcomes in Japanese courts align with fundamental Japanese legal principles and limitations on remedies. Furthermore, Article 20 offers a mechanism for applying the law of a more closely connected place in exceptional circumstances, striving for substantively appropriate results. For businesses involved in international activities with a Japanese nexus, understanding this interplay of rules is crucial for assessing potential liabilities and the scope of recoverable damages in tort actions.