2018.10.11

2017 (Ju) 1496

Minshu Vol. 72, No. 5

Judgment on the amount of damages not required to be paid under Article 19, paragraph (2) of the Financial Instruments and Exchange Act and on application by analogy of Article 248 of the Code of Civil Procedure

Case seeking compensation for damage

Judgment of the First Petty bench, dismissed

Tokyo High Court, Judgment of February 23, 2017

In a suit seeking damages under Article 18, paragraph (1) of the Financial Instruments and Exchange Act, if the damage sustained by the person who is entitled to claim damages is found to have been caused by any reason other than the decline in value of the securities that should arise from the fact that the securities registration statement contained false statements on important matters; or lacked statements on important matters that should be made or statements on material facts that were necessary for avoiding misunderstanding, and if it is extremely difficult to prove the amount of the damage sustained by such reason due to the nature of such damage, then the court may, based on all oral arguments and the result of the examination of evidence through application by analogy of Article 248 of the Code of Civil Procedure, determine a reasonable amount of damages that is not required to be paid under Article 19, paragraph (2) of the Financial Instruments and Exchange Act. (There is a concurring opinion.)

Article 18, paragraph (1) and Article 19 of the Financial Instruments and Exchange Act, and Article 248 of the Code of Civil Procedure



Financial Instruments and Exchange Act

(Compensatory Liability of the Person Submitting a Registration Statement Containing a False Statement)

Article 18 (1) If a Registration Statement contains a false statement about a material particular, omits a statement as to a material particular that is required to be stated, or omits a statement of material fact that is necessary to prevent it from being misleading, the person that submitted the Registration Statement is liable to compensate for damage sustained by a person that acquires the Securities through the Public Offering or Secondary Distribution; provided, however, that this does not apply if the person that acquires the Securities knows that the statement is false or has been omitted at the time the person offers to acquire the Securities.

(Amount of Compensatory Liability Person Submitting a Registration Statement That Contains a False Statement, etc.)

Article 19 (1) The amount of compensation for which a person is liable pursuant to the preceding Article is the amount calculated by deducting the amount specified in each of the following items from the amount that the claimant paid to acquire the Securities:

(i) the market value of the Securities at the time the claimant claims damages pursuant to the preceding Article (or, if they have no market value, their estimated disposal value at such time); or

(ii) the disposal value of the Securities, if they were disposed of before the time referred to in the preceding item.

(2) If the person that would be liable to compensate pursuant to the preceding Article proves that the whole or part of the damage sustained by the claimant is due to circumstances other than the decline in the value of the Securities that would have arisen from the Registration Statement or the Prospectus containing a false statement about a material particular, omitting a statement as to a material particular that is required to be stated, or omitting a statement of material fact that is necessary to prevent it from being, the person is not liable for the whole or such part of the compensation.

Code of Civil Procedure

(Determination of Amount of Damage)

Article 248 Where it is found that any damage has occurred, if it is extremely difficult, from the nature of the damage, to prove the amount thereof, the court, based on the entire import of the oral argument and the result of the examination of evidence, may determine a reasonable amount of damage.

The final appeal is dismissed.

The cost of final appeal shall be borne by the appellants.

The 8th reason for the petition for acceptance of final appeal filed by the counsels for the appeal, OOKAWARA Sakae et al.

1. In this case, the appellants, who acquired through public offering, etc. shares in the appellee which had been listed on the Tokyo Stock Exchange, claim damages, etc. from the appellee under Article 18, paragraph (1) of the Financial Instruments and Exchange Act (hereinafter referred to as the “FIEA”) as applied by replacing certain terms pursuant to Article 23-2 of the same act, alleging that the semiannual securities report which is referred to in the securities registration statement submitted by the appellee contained false statements on important matters, which caused damage to the appellants.

2. The appellants allege that the court of prior instance’s ruling, which stated that in a suit seeking damages under Article 18, paragraph (1) of the FIEA, the court may, through application by analogy of Article 248 of the Code of Civil Procedure, determine a reasonable amount of damages that is not required to be paid under Article 19, paragraph (2) of the FIEA, erred in the interpretation of the said article and Article 248 of the Code of Civil Procedure.

3. The main clause of paragraph (1) of Article 18 of the FIEA provides that if a securities registration statement contains false statements on important matters; or lacks statements on important matters that should be made or statements on material facts that are necessary for avoiding misunderstanding, the person who submitted the securities registration statement shall be held liable to compensate for damage sustained by a person who acquired the securities through public offering or secondary distribution. Article 19, paragraph (1) of the same act provides that the amount of damages to be paid under the provisions of Article 18, paragraph (1) of the same act shall be the amount calculated by deducting the amount specified by either of the items of paragraph (1) of Article 19 of the same act from the amount paid for acquisition of the securities by the person who is entitled to claim damages. Article 19, paragraph (2) of the same act provides that the person liable for damages under the provisions of Article 18, paragraph (1) of the same act, when he/she proves that all or part of the damage sustained by the person who is entitled to claim damages was caused by any reason other than the decline in value of the securities that should arise from the fact that securities registration statement contained false statements on important matters; or lacked statements on important matters that should be made or statements on material facts that were necessary for avoiding misunderstanding (hereinafter referred to as “False Statements, etc”), shall not be liable for that all or part of the damages. These provisions were established for policy purposes in order to ensure the fairness of securities markets through compensating the person who is entitled to claim damages for the damage sustained by him/her and through preventing false representations, by means of imposing no-fault liability for damages on the person who submitted a securities registration statement containing False Statements, etc. and of reducing the burden of proof imposed on the person entitled to claim damages, in light of the fact that it is difficult for such person to prove the damage sustained by him/her. The Court considers that these provisions intend to achieve their purpose, while calculating the amount of damages according to the case, by employing a method where a certain amount which can easily be proven by the person entitled to claim damages is specified by law as the amount of damages to be paid and where such amount is reduced by the amount (if any) proven by the person liable to pay the damages as to have been caused by any reason other than the decline in value of the relevant securities that has a reasonable causal relationship with the False Statements, etc. contained in the securities registration statement.

Then, in cases where the damage sustained by the person who is entitled to claim damages under Article 18, paragraph (1) of the FIEA is found to have been caused by any reason other than the decline in value of the relevant securities that should arise from False Statements, etc. contained in the securities registration statement but where it is extremely difficult to prove the amount of the damage caused by such reason due to the nature of such damage, it should be considered to be inappropriate in terms of equitability between the parties and to be contrary to the legal intention described above if the person liable for such damage under Article 18 is not excused from any part of the damage under Article 19, paragraph (2).

The Court then considers that, in cases where damage is found to have occurred and where it is extremely difficult to prove the amount of such damage due to its nature, Article 248 of the Code of Civil Procedure allows the court to determine a reasonable amount of damage based on all oral arguments and the result of the examination of evidence, because it is not appropriate in terms of equitability between the parties to totally deny the amount of such damage.

Based on the above, it is appropriate to consider that, in a suit seeking damages under Article 18, paragraph (1) of the FIEA, if the damage sustained by the person who is entitled to claim damages is found to have been caused by any reason other than the decline in value of the securities that should arise from False Statements, etc. contained in the securities registration statement, and if it is extremely difficult to prove the amount of the damage sustained by such reason due to the nature of such damage, then the court may, based on all oral arguments and the result of the examination of evidence through application by analogy of Article 248 of the Code of Civil Procedure, determine a reasonable amount of damages that is not required to be paid under Article 19, paragraph (2) of the FIEA. In this regard, the fact that provisions similar to Article 21-2, paragraph (6) of the same act are not contained in Article 19 of the same act does not affect the interpretation described above.

4. The court of prior instance’s ruling on the point argued by the appellants is acceptable as meaning the same thing as above. The argument submitted by the appellants is not acceptable.

The Court dismisses the other claims made in the appeal, since the corresponding reasons for the petition for acceptance of final appeal have been excluded in the decision to accept the final appeal.

Accordingly, the Court unanimously decides as set forth in the main text. However, there is a concurring opinion of one of the justices, MIYAMA Takuya.

The concurring opinion of the justice, MIYAMA Takuya, is as follows:

While I agree with the Court’s opinion that, in a suit seeking damages under Article 18, paragraph (1) of the FIEA, the court may, through application by analogy of Article 248 of the Code of Civil Procedure, determine a reasonable amount of damages that is not required to be paid under Article 19, paragraph (2) of the FIEA, I would like to add my opinion with regard to the relationship between the above interpretation adopted by the Court and Article 21-2, paragraph (6) of the same act (i.e., paragraph (5) of the same article prior to amendment by Act No. 44 of 2014 (hereinafter referred to as “Prior to Amendment”).

Article 18, paragraph (1) of the FIEA provides for liability for damages imposed on the person who submitted a securities registration statement, if it contains False Statements, etc., with respect to a person who acquired the relevant securities in the market in which the securities were issued (i.e., a person who acquired the securities through public offering or secondary distribution). On the other hand, Article 21-2, paragraph (1) of the same act provides for liability for damages imposed on the person who submitted an annual securities report or any other relevant document, if it contains False Statements, etc., with respect to a person who acquired, in a secondary market (i.e., not through public offering or secondary distribution), the securities issued by the person who submitted the relevant document.

Article 21-2, paragraph (3) (i.e., paragraph (2) Prior to Amendment) of the FIEA then provides that when a public announcement of False Statements, etc. is made, a person who acquired the relevant securities within one year prior to the date of such public announcement and continues to hold the securities at such date of public announcement shall be entitled to presume that the difference between the average market value of the relevant securities during one month prior to the date of public announcement and that during one month after the same date is the amount of damage sustained by the False Statements, etc. contained in the relevant document. Paragraph (5) (i.e., paragraph (4) Prior to Amendment) of the same article provides that, in the above case, if the person who submitted the relevant document proves that all or part of the damage sustained by the person who is entitled to claim damages was caused by any reason other than the decline in value of the relevant securities that should arise from the False Statements, etc. in the document, he/she shall not be liable for all or part of the damages. I consider that, of these provisions, paragraph (3) of the same article intends to presume (i) a causal relationship between the False Statements, etc. in the document and the damage and (ii) the amount of such damage, in order to reduce the burden of proof imposed on the person who is entitled to claim damages in a suit seeking damages under paragraph (1) of the same article in cases where certain factual prerequisites are met, such as that a public announcement was made of the fact that the relevant document contained False Statements, etc. I also consider that paragraph (5) of the same article intends to permit, even in cases where the presumption described above applies, a reduction of the amount of the presumed damage by the amount of damage caused by any reason other than the decline in value of the relevant securities that should arise from the False Statements, etc. contained in the relevant document, if the person liable for damages proves facts to the contrary that override the presumption or, more specifically, the occurrence and amount of such damage.

Furthermore, Article 21-2, paragraph (6) (i.e., paragraph (5) Prior to Amendment) of the FIEA provides that in cases where the presumption set forth in paragraph (3) of the same article applies and where damage is found to have been caused by any reason other than the decline in value of the relevant securities that should arise from the False Statements, etc. in the document but where it is extremely difficult to prove the amount of the damage arising from such reason due to the nature of such damage, the court may, based on all oral arguments and the result of the examination of evidence, determine a reasonable amount of the damages for which the person liable for damages is not liable.

Articles 18, 19 and 21-2 of the FIEA share a common nature in that they provide for, as a special provision on the general tort liability under Article 709 of the Civil Code, liability for damages imposed on the person who made False Statements, etc. in a disclosure document in violation of his/her disclosure obligations set forth in the FIEA with respect to a person who acquired the relevant securities. Article 19, paragraph (2) and Article 21-2, paragraph (5) (i.e., paragraph (4) Prior to Amendment) of the same act both provide for a defense of reduction or exemption in the amount of damage in a suit seeking damages filed by a person who acquired the securities, and their wording is very similar. Under these circumstances, the question is how we should understand the meaning of the fact that, when Article 21-2 of the FIEA (which was, at the time of its establishment, Article 21-2 of the Securities and Exchange Act) was newly established by amendment of the Securities and Exchange Act by Act No. 97 of 2004, provisions corresponding to paragraph (6) (i.e., paragraph (5) Prior to Amendment) of Article 21-2 of the FIEA were not established with respect to the defense of reduction or exemption set forth in Article 19, paragraph (2) of the same act, which defense already existed at that time, even though the provisions of paragraph (6) (i.e., paragraph (5) Prior to Amendment) of Article 21-2 of the same act were established based on the defense of reduction or exemption set forth in paragraph (5) (i.e., paragraph (4) Prior to Amendment) of the same article with respect to the liability for damages under paragraph (1) of the same article.

I would think that this point should be considered as follows: Paragraphs (1) and (2) of Article 19 of the FIEA are structured such that paragraph (1) provides for the amount of damages to be paid under the liability for damages set forth in Article 18 of the same act and, based on this, paragraph (2) provides that if the person liable for damages proves the occurrence and amount of damage caused by any reason other than the decline in value of the relevant securities that should arise from False Statements, etc. in the securities registration statement, etc., the specific amount of damages shall be calculated by subtracting the amount of the damage caused by such other reason from the amount of damages set forth in paragraph (1). As described in the Court’s opinion, one should consider that, in cases where the person liable for damages proves that damage has been caused by any reason other than the decline in value of the relevant securities that should arise from False Statements, etc. in the securities registration statement, etc. but where it is extremely difficult to prove the amount of the damage caused by such reason due to the nature of such damage, the court may, through application by analogy of Article 248 of the Code of Civil Procedure, determine a reasonable amount of damage that should be so subtracted (depending on how one understands the purport of the said article, one could consider that the said article simply applies instead of application by analogy). By contrast, paragraphs (3) and (5) of Article 21-2 of the FIEA are, as described above, structured such that paragraph (3) presumes (i) a causal relationship between False Statements, etc. in the relevant document and the damage and (ii) the amount of such damage, subject to the satisfaction of certain factual prerequisites and, based on this, paragraph (5) provides that if the person liable for damages proves facts to the contrary that override the presumption, the amount so proven shall be reduced from the amount of presumed damage. Therefore, based on the general view that a fact to the contrary to override a legal presumption of a fact must be proven by evidence that convinces the court to believe that the existence of the fact to the contrary, there is scope to consider that, in cases where the person liable for damages proves that damage has been caused by any reason other than the decline in value of the relevant securities that should arise from False Statements, etc. in the relevant document but where it is extremely difficult to prove the amount of the damage caused by such other reason due to the nature of such damage, it is not permissible to reduce the burden of proof through application by analogy of Article 248 of the Code of Civil Procedure.

It is then considered that Article 21-2, paragraph (6) (i.e., paragraph (5) Prior to Amendment) of the FIEA was established in order to make it clear that the case should be handled as if Article 248 of the Code of Civil Procedure applied by analogy.

Therefore, one should consider that the fact that Article 19 of the FIEA does not contain provisions similar to Article 21-2, paragraph (6) (i.e., paragraph (5) Prior to Amendment) of the same act does not preclude the interpretation that allows application by analogy of Article 248 of the Code of Civil Procedure in determining the amount of damages not required to be paid under Article 19, paragraph (2) of the FIEA.

Justice IKEGAMI Masayuki

Justice KOIKE Hiroshi

Justice KIZAWA Katsuyuki

Justice YAMAGUCHI Atsushi

Justice MIYAMA Takuya