When an Agent Acts in Japan: How Is the Scope of Their Authority and Liability Determined?

In today's interconnected global economy, businesses frequently rely on agents to conduct transactions, negotiate deals, and represent their interests in foreign jurisdictions. When an agent acts in Japan on behalf of a principal (whether Japanese or foreign), complex questions can arise regarding the law that governs the agent's authority, the binding effect of the agent's actions on the principal, and the liabilities of all parties involved. Unlike some other areas of law, 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) does not contain explicit provisions dedicated solely to agency (dairi, 代理). Consequently, the applicable conflict of laws rules are primarily derived from scholarly doctrine and judicial precedents.

This article explores the Japanese private international law approach to determining the scope of an agent's authority and the ensuing liabilities, considering the distinct legal relationships that arise in an agency context. It is worth noting that while the Hague Convention on the Law Applicable to Agency (1978) exists, Japan is not a signatory, meaning its rules are shaped by domestic interpretative approaches.

Understanding Agency in Japanese Private International Law

Agency is a legal mechanism where one person (the agent, dairinin, 代理人) performs a juridical act on behalf of another (the principal, honnin, 本人), with the legal effects of that act directly accruing to the principal. This system allows principals to extend their legal and commercial reach. However, since the requirements and effects of agency differ across legal systems, determining the applicable law is crucial in cross-border scenarios.

An agency relationship typically involves three parties and gives rise to distinct legal relationships:

1. The internal relationship between the principal and the agent.
2. The external relationship between the agent and the third party.
3. The external relationship between the principal and the third party (concerning the attribution of the agent's acts to the principal).

It's important to distinguish the law governing the agency relationship itself from the law governing the substantive transaction undertaken by the agent. Whether a particular type of juridical act (e.g., marriage, adoption) can be performed through an agent is determined by the law applicable to that specific juridical act itself. Similarly, the validity and effect of the transaction concluded by the agent (the "agency act," dairi kōi, 代理行為) with the third party are governed by the law applicable to that transaction (e.g., contract law for a sale, property law for a transfer of title).

Statutory Agency (Hōtei Dairi, 法定代理)

Statutory agency arises directly by operation of law, rather than by an agreement between the principal and agent. Common examples include the authority of parents to act for their minor children or the authority of a legal guardian.

Under Japanese private international law, the existence, scope, and effect of statutory agency are generally governed by the law applicable to the underlying legal relationship that gives rise to the agency. For example:

• A parent's authority to represent a child is determined by the law governing parent-child relationships (AGRAL Article 32).
• A guardian's authority is determined by the law governing guardianship (AGRAL Article 35, paragraph 1).

This principle applies consistently across all facets of the statutory agency, including its effect on third parties.

A special case concerns the representative authority of corporate organs (e.g., directors). While some might argue this is solely governed by the corporation's personal law (its jūzoku-hō, 従属法, or governing law), a prominent view in Japan, particularly for protecting third-party reliance in transactions, suggests a more nuanced approach. This view posits that while the corporation's governing law is the starting point, if the transaction occurs in Japan, Japanese law might supplement or limit the effects of that authority by analogy to AGRAL Article 4, paragraph 2 (which protects transactions with individuals who have capacity under the lex loci actus even if not under their personal law). This is particularly relevant for ensuring transactional security when third parties deal with corporate representatives in Japan.

Voluntary Agency (Nin'i Dairi, 任意代理): A Tripartite Analysis

Voluntary agency arises from an agreement or authorization given by the principal to the agent. Determining the applicable law here requires examining each of the three key relationships separately.

1. Internal Relationship (Principal-Agent)

The relationship between the principal and the agent, including the scope of the agent's mandate and their duties to the principal, is governed by the law applicable to the act of authorization (juken kōi, 授権行為). In most commercial contexts, this authorization is part of, or closely linked to, an underlying contract such as a mandate, employment agreement, or distributorship agreement. Therefore, unless a different intention is clear, the law governing this internal agency relationship will be the law applicable to that underlying contract, determined according to AGRAL Articles 7 et seq. (governing contractual obligations).

2. External Relationship (Agent-Third Party)

The legal effects of the individual juridical acts performed by the agent with the third party are determined by the law applicable to those specific acts themselves. For instance:

• If the agent concludes a contract with a third party, the formation and validity of that contract are governed by the law applicable to that contract (determined by AGRAL Articles 7 et seq.).
• If the agent performs an act affecting property rights (e.g., transferring title to goods), the proprietary effects are governed by the law applicable to rights in rem (AGRAL Article 13, typically the lex rei sitae).

3. External Relationship (Principal-Third Party - Attribution of Agent's Acts)

This is often the most contentious area: what law determines whether the agent's acts bind the principal in relation to the third party? Japanese legal scholarship has proposed several theories, reflecting different underlying rationales for agency:

• Law of Authorization (Juken Kōi no Junkyo-hō Setsu): This theory, emphasizing the principal's will as the source of agency, suggests that the existence and scope of the agent's power to bind the principal are governed by the same law that governs the internal authorization. A criticism is that third parties are often unaware of this internal law, potentially leaving them unprotected.
• Law of Authorization with Transactional Protection: To mitigate the above concern, some scholars advocate for the primary application of the law of authorization, supplemented by an analogy to AGRAL Article 4, paragraph 2. This would allow an agent's act to bind the principal if the agent had authority under the law of the place where they acted (lex loci actus of the agency transaction), even if not under the law of authorization.
• Law of the Agent's Transaction (Dairi Kōi no Junkyo-hō Setsu): This view proposes that the law applicable to the contract or transaction concluded by the agent with the third party should also govern whether that transaction binds the principal. However, if this law is chosen by the agent and third party, it could create unpredictability for the principal.
• Law of the Place Where the Agent Acted (Dairi Kōi-chi-hō Setsu): This theory, which is gaining significant support and is considered by many to be the prevailing view in Japan, applies the law of the place where the agent performed the act that purports to bind the principal. Its proponents argue that the place of the agent's action is often a focal point for both the principal (who deploys the agent there) and the third party (who deals with the agent there). This approach seeks to balance the principal's ability to control the agent with the third party's legitimate expectations and the need for transactional security in that location. The "place where the agent acted" is generally interpreted as the place where the agent exercised their authority.

Given the importance of protecting bona fide third parties and ensuring predictability in commerce, the lex loci actus of the agency transaction (the law of the place where the agent acts) appears to be the most appropriate solution for determining the external effects of voluntary agency, particularly the attribution of the agent's acts to the principal.

Disclosure of Principal (Kenmei-shugi, 顕名主義):
Under Japanese domestic agency law (Civil Code Article 99), for an agent's act to bind the principal directly, the agent must generally act "in the name of the principal" (disclose the principal). Whether such disclosure is required for an agency act to bind the principal in an international context, and the consequences of non-disclosure, would be determined by the law applicable to the effect of agency (i.e., under the prevailing view, the lex loci actus of the agency transaction).

Apparent Authority (Hyōken Dairi, 表見代理) and Unauthorized Agency (Muken Dairi, 無権代理)

Situations often arise where an agent acts without actual authority or exceeds the scope of their given authority. In such cases, the principal may still be bound under the doctrine of apparent authority, or the act might be treated as one of unauthorized agency, potentially subject to ratification by the principal.

The question of which law governs these issues (apparent authority, unauthorized agency, and ratification) is also debated.

• Early theories sometimes linked these to the law governing the (purported) authorization or the law of the agent's act itself.
• However, contemporary Japanese legal thought, emphasizing the protection of third-party reliance and transactional security, increasingly favors applying the law of the place where the agent acted (lex loci actus of the agency transaction) to determine whether apparent authority exists or if an unauthorized act can bind the principal. This aligns with the general trend for determining the external effects of agency.
• The liability between the (apparent or unauthorized) agent and the third party (e.g., an agent's warranty of authority) is also often considered to be governed by the lex loci actus of the agency transaction, as this is where the third party's expectations are formed.
• The relationship between the (apparent or unauthorized) agent and the principal is typically governed by the law applicable to their internal relationship (if any, such as an employment contract or mandate) or, in the absence of such a relationship, by principles of unjust enrichment (futō ritoku, 不当利得) or torts (fuhō kōi, 不法行為).

Analyzing a Scenario: Agency in International Sales

Let's consider an adapted scenario from the reference material (Case 30, No. 5, Problem 2) to illustrate these principles, particularly for voluntary agency:

• Facts: Company E, based in Country A and specializing in software, enters into an exclusive sales agency agreement with Company F, a Japanese company, for the Japanese market. The agency agreement itself is expressly governed by the law of Country A. A clause in this agreement states, "This agreement does not grant agency rights (代理権を与える趣旨ではない)." Company F is permitted to use Company E's trade name and trademarks in Japan. Company G, a Japanese manufacturing company, seeking to implement a production system designed by Company E, enters into a sales and installation contract with Company F. Delivery of Company E's system is significantly delayed, causing Company G to suffer losses. Company G sues Company E directly in Japan, arguing that Company F was E's agent and thus a contract was formed between E and G.
• Analysis:
  • Internal Relationship (Company E - Company F): The agency agreement states it is governed by Country A law. This law would determine whether, as between E and F, F was actually granted authority, and the scope of any such authority or F's obligations to E. The clause "does not grant agency rights" would be interpreted under Country A law.
  • External Relationship (Company E - Company G - Attribution of F's Acts): Company G is suing Company E, claiming F acted as E's agent in Japan. The crucial question is whether F's contract with G binds E.
    • Under the prevailing lex loci actus theory, Japanese law would govern whether F's actions in Japan (contracting with G) bind E.
    • Actual Authority: If Country A law (governing the E-F agreement) is interpreted such that F had no actual authority, then E would not be bound on this basis.
    • Apparent Authority under Japanese Law: Even if F lacked actual authority under Country A law due to the disclaimer clause, Company G might argue that F had apparent authority under Japanese law. This could arise if Company E, by allowing F to use its trade name and trademarks and operate as its "exclusive sales agent" in Japan, created an appearance that F was authorized to conclude such contracts on E's behalf, and G reasonably relied on this appearance. The requirements for establishing apparent authority would be determined by Japanese substantive law.
    • Disclosure of Principal (Kenmei): The scenario implies Company F may have been acting in Company E's name when dealing with Company G (as G is suing E directly). If Japanese law (as the lex loci actus) requires disclosure of the principal for the act to bind the principal, this would be a relevant factor. If F contracted in its own name, even if for E's benefit, different rules (e.g., undisclosed principal, or F's own liability) might apply under Japanese contract law.
    • Effect of the "No Agency Rights" Clause: While this clause is effective between E and F under Country A law, its effect vis-à-vis a third party (G) in Japan, when assessing apparent authority under Japanese law, would be limited if E's conduct created a contrary appearance upon which G reasonably relied.
• Conclusion for Scenario: The Japanese court would likely apply Japanese law to determine if F's actions bind E, focusing on principles of apparent authority. The internal agreement between E and F governed by Country A law is relevant but not solely determinative of the external effect in Japan.

Practical Guidance for Businesses

• Principals:
  • Clearly define the scope of an agent's authority in the agency agreement.
  • Be mindful that if your agent acts in Japan, Japanese law (as the lex loci actus) may determine their power to bind you to third parties, potentially based on apparent authority, irrespective of internal limitations.
  • Ensure that the agent clearly discloses that they are acting as an agent and identifies the principal, if you wish the transaction to directly bind you under laws requiring such disclosure.
  • If limiting an agent's authority, take steps to ensure third parties in the relevant jurisdiction (e.g., Japan) are reasonably made aware of such limitations to mitigate risks of apparent authority.
• Third Parties Dealing with Agents in Japan:
  • If in doubt about an agent's authority, seek confirmation from the principal.
  • While Japanese law may offer protection based on apparent authority, relying on clear, written authorization is always preferable.
  • Understand that the internal relationship between the principal and agent might be governed by a foreign law, but your direct rights against the principal based on the agent's actions in Japan will likely be assessed under Japanese law.

Conclusion

The determination of an agent's authority and liability in international transactions involving Japan is a complex interplay of different applicable laws. While the internal principal-agent relationship is typically governed by the law chosen for their agreement (or the law of authorization), the external effects, particularly the power of the agent to bind the principal to third parties, are increasingly viewed through the lens of the lex loci actus of the agency transaction – in many cases, Japanese law if the agent acts in Japan. This approach, along with considerations for apparent authority, aims to strike a balance between the principal's intent and the protection of reasonable third-party expectations in the Japanese marketplace. Businesses engaging agents for their Japanese operations, or dealing with agents in Japan, should be acutely aware of these principles to navigate their legal relationships effectively.