Untangling Liability: The Tiers of Responsibility When Private Entities Exercise Public Functions in Japan

In the previous article of this series, we explored how the Japanese government (State or local public entity) can be held liable under the State Redress Act (SRA) for wrongful acts committed by private entities and their employees when they are entrusted with performing public duties. This liability arises because such private actors can be deemed "functional public officials" exercising "public authority." But this only tells part of the story. When harm occurs in these complex public-private interactions, who exactly can the victim sue, and how do the potential liabilities of the government, the private entity itself, and the individual employee of that private entity interrelate? This article aims to untangle these "tiers of liability," focusing on a key Supreme Court decision that clarified this intricate legal landscape.

Scenario: Harm Caused by a "Designated Private Inspection Body"

To illustrate the complexities, let's consider a common scenario in Japan: the "designated body" system (shitei seido - 指定制度). In various regulatory fields—such as building safety confirmations, vehicle inspections, or environmental certifications—the government often "designates" private entities to carry out specific inspection, testing, or certification functions that have a strong public character and carry significant legal consequences.

Imagine a company (the victim) suffers damage because a "designated building confirmation inspection body" (shitei kakunin kensa kikan - 指定確認検査機関)—a private entity authorized by law to issue building confirmations (a prerequisite for construction)—erroneously issues a building confirmation for a non-compliant structure built by a third party, and this error leads to direct harm to the victim (e.g., their adjacent property is damaged due to the faulty construction that should not have been approved). Who bears the legal responsibility?

Tier 1: Liability of the State or Public Entity (Under the State Redress Act)

As established in the principles discussed in the previous article (and affirmed in the Supreme Court judgment of January 25, 2007, concerning a private nursery school), if the act of the employee of the designated private body (e.g., the erroneous issuance of the building confirmation) is found to constitute an "exercise of public authority" performed illegally and with intent or negligence, then the State or the public entity that designated and oversees that body can be held liable for damages under Article 1, Paragraph 1 of the State Redress Act.

The reasoning is that the employee of the designated private body, in performing this specific, legally mandated public certification function, is acting as a "functional public official." The government, having delegated this public authority, retains ultimate responsibility under the SRA for its proper exercise.

Tier 2: Liability of the Private Designated Body Itself (Under Civil Code Article 715 – Employer Liability)

This brings us to the next critical question: Can the private designated body itself—the direct employer of the individual who committed the wrongful act—also be held liable to the victim?

The Supreme Court of Japan, in a pivotal decision on June 24, 2005 (Minshū Vol. 59, No. 5, p. 1061), which concerned precisely such a designated building confirmation inspection body, affirmed that the private entity can indeed be held concurrently liable.

• Basis of Liability: Civil Code Article 715 (Employer's Vicarious Liability): The liability of the private designated body typically arises under Article 715 of the Japanese Civil Code (Minpō - 民法), which establishes the principle of employer's vicarious liability (shiyōsha sekinin - 使用者責任). This article states that an employer is liable for damage caused by its employee in the course of executing the employer's business, unless the employer exercised due care in appointing and supervising the employee, or unless the damage would have occurred even if due care had been exercised (though this latter defense is very difficult to prove).
• Concurrent Liability: The Supreme Court held that the SRA liability of the State or public entity (for the act of the "functional public official") does not automatically extinguish or preclude the separate civil law liability of the private entity as the direct employer of the individual who performed the wrongful act. The private entity remains responsible for the conduct of its employees within the scope of its business, even if that business involves performing designated public functions.
• Joint Tortfeasors (Kyōdō Fuhō Kōisha - 共同不法行為者): When both the State/public entity (liable under the SRA) and the private designated body (liable under Civil Code Article 715) are found to be responsible for the same damage, they are typically considered joint tortfeasors vis-à-vis the victim. This is highly significant for the victim because it means:
  • They can choose to claim the full amount of their damages from either the State/public entity, or from the private designated body, or from both.
  • If one party is unable to pay its share, the other party can be held responsible for the entirety of the compensable damages (up to the total amount).
  • The parties found liable can then seek "contribution" (kyūshō - 求償) from each other based on their respective shares of fault or responsibility for causing the damage, as determined by their internal relationship or by a court if they dispute it.

Tier 3: The Liability of the Individual Employee of the Private Designated Body

This is often the most complex and debated aspect. We know that the individual employee's action can trigger the SRA liability of the State and the Civil Code liability of their private employer. But can the victim also sue the individual employee directly for damages under general tort law (Civil Code Article 709)?

• The General Shield for Formally Appointed Public Officials under SRA: It is a well-established principle in Japanese SRA law that if the State or a public entity is held liable under SRA Article 1(1) for the unlawful and negligent act of its formally appointed public official, that individual official is generally shielded from direct personal liability to the victim under civil tort law (Civil Code Article 709). The SRA system is designed to channel the primary financial responsibility for compensation to the public entity, which is seen as better able to bear the economic burden and to ensure that victims receive adequate redress. This also aims to allow public officials to perform their duties without the constant fear of crippling personal lawsuits for every mistake made in good faith (though the public entity may have an internal right to seek reimbursement from the official in cases of gross negligence or willful misconduct – SRA Article 1, Paragraph 2).
• Does this Shield Extend to "Functional Public Officials" (i.e., Employees of Private Designated Bodies Performing Public Functions)? This was a key question addressed by the Supreme Court in the aforementioned June 24, 2005 judgment concerning the designated building confirmation inspection body.
  • Some lower courts had previously taken the view that employees of private entities, even if their actions triggered SRA liability for the State, remained subject to ordinary personal tort liability under the Civil Code because they were not "true" public officials.
  • However, the Supreme Court in its 2005 decision clarified this crucial point. It held that when an employee of a private designated body performs an act that is properly characterized as an "exercise of public authority" (thus making them a "functional public official" for SRA purposes) and this act triggers the SRA liability of the State or the entrusting public entity, that individual employee is also generally shielded from direct personal tort liability to the victim under Civil Code Article 709.
• Reasoning for Shielding the Private Employee Performing Public Functions:
  • Consistency with SRA Policy: The Supreme Court reasoned that if the act is truly an "exercise of public authority" sufficient to make the State/public entity liable under the SRA, then the entire legal regime of the SRA, including its effects on the liability of the individual performing that public function, should apply consistently. To allow direct personal liability for the "functional" official while shielding formal public officials performing similar public duties would create an arbitrary distinction and undermine the SRA's overarching policy.
  • Nature of "Exercise of Public Authority": The critical factor is the nature of the function being performed. If it is genuinely a public authoritative function, then the rules designed for such functions (including the primary liability of the public entity and the shielding of the individual actor) should prevail, regardless of the individual's formal employment status.
  • Ensuring Victim Compensation and Proper Performance of Public Duties: The primary goal of tort law and the SRA is to ensure that the victim is adequately compensated for their loss. This is generally better achieved by channeling liability to the (presumably more financially stable) public entity and/or the employing private designated body, rather than pursuing potentially less solvent individuals. Furthermore, shielding individuals performing bona fide public duties from excessive personal liability (except for gross negligence or intent towards the public entity) is seen as encouraging the proper and unfettered performance of those duties.

This means that while the State and the private designated body can both be targets for a victim's claim, the individual employee of that private body who actually made the error in the course of exercising public authority is usually protected from a direct suit by the victim, much like a formal civil servant would be.

Untangling the Tiers: A Summary of Potential Liabilities

So, when harm is caused by an employee of a private entity that is exercising public functions entrusted to it by the government, the potential "tiers" of liability, as clarified by Japanese Supreme Court jurisprudence, can be summarized as follows:

1. The Victim (Plaintiff) can generally sue:
   • The State or the Entrusting Public Entity (under Article 1(1) of the State Redress Act), if the private actor's employee was a "functional public official" exercising "public authority" illegally and negligently.
   • The Private Designated Entity/Employer (under Article 715 of the Civil Code for employer's vicarious liability, or potentially for its own direct negligence in supervision or organization).
   • These two defendants are often considered joint tortfeasors, meaning the victim can seek full recovery from either or both.
2. The Victim generally cannot directly sue for damages:
   • The individual employee of the private entity (under Article 709 of the Civil Code for personal tort liability), if their conduct is properly characterized as an exercise of public authority for which the State or public entity bears SRA liability. They are generally shielded in such cases.
3. Internal Recourse and Reimbursement (Kyūshō):
   • If the State/public entity is held liable under the SRA, it may have a right of recourse (indemnification or contribution) against the private designated entity, depending on the terms of their entrustment agreement or general legal principles.
   • The State/public entity (or the private designated entity, if it has paid damages) may also have a right of recourse against the individual employee if that employee acted with gross negligence or willful misconduct (SRA Article 1, Paragraph 2 for public officials; similar principles might apply contractually or under employment law for private employees regarding their employer).

Conclusion: A Multi-Layered Framework Ensuring Accountability and Redress

The Japanese legal system has developed a nuanced, multi-layered framework for addressing liability when private entities and their employees perform public functions entrusted to them by the government. This framework, significantly shaped by Supreme Court decisions such as the 2005 judgment concerning designated building confirmation inspection bodies, aims to achieve several important objectives:

• Ensuring Effective Compensation for Victims: By allowing claims against both the ultimate public authority (under the SRA) and the direct private employer (under the Civil Code), victims are provided with robust avenues for seeking redress.
• Maintaining Governmental Accountability: The SRA liability of the State or public entity underscores its ultimate responsibility for the proper exercise of public power, even when that power is delegated to or exercised through private actors.
• Recognizing the Role and Responsibility of Private Entities: The concurrent civil liability of the private designated body acknowledges its direct role as an employer and service provider.
• Protecting Individuals Performing Public Duties: Shielding individual employees (both formal public servants and "functional" ones in private entities) from direct personal liability to victims (except in cases of gross negligence or intent towards their public/private employer) allows them to perform their often complex public duties without undue fear of personal financial ruin for ordinary negligence.

Understanding these distinct but interconnected tiers of liability is crucial for all parties involved in the increasingly common systems where public functions are exercised through various forms of public-private partnerships or delegations in Japan. It clarifies who can be sued, under what legal basis, and how the ultimate financial responsibility might be distributed.