2006.07.21

2003 (Ju) 1231

Minshu Vol. 60, No. 6

Judgment concerning immunity of a state from the civil jurisdiction of another state for its acts under private law or acts for business administration

Case to seek repayment of loans

Judgment of the Second Petty Bench, quashed and remanded

Tokyo High Court, Judgment of February 5, 2003

1. A foreign state shall not be immune from the civil jurisdiction of Japanese courts for its acts other than acts by sovereignty, such as acts under private law or acts for business administration, unless there are special circumstances where the exercise of civil jurisdiction by Japanese courts is likely to infringe the state's sovereignty.

2. Where a foreign state's acts are, in nature, commercial transactions that can be conducted by a private person, irrespective of the purpose of the acts, such acts fall within the category of acts under private law or acts for business administration for which the state shall not be immune from the civil jurisdiction of Japanese courts, except for under special circumstances.

3. Where a foreign state has clearly manifested the intention to subject itself to the civil jurisdiction of Japanese courts by promising, under an explicit provision contained in a written contract entered into with a private person, that it would subject itself to the civil jurisdiction of Japanese courts for disputes that may arise from the contract, the state shall in principle not be immune from the civil jurisdiction of Japanese courts regarding such disputes.

(Concerning 1 to 3) Part I, Chapter 2 of the Code of Civil Procedure (Courts)

The original judgment shall be quashed.
This case shall be remanded to the Tokyo High Court.

Concerning the reasons for the petition for acceptance of appeal to the court of the last resort argued by the appeal counsel, TAKEHARA Takao and HANAWA Tatsuya
1. In this case, the appellants at the court of the last resort allege that they respectively entered into sales contracts with Corporation A, which was related to and acted for Ministry of Defense of the appellee at the court of the last resort, whereby the appellants were to sell high-performance computers to the appellee, and that after delivering the objects of sale, they entered into contracts of quasi-loan for consumption with the appellee to provide loans to cover the sales price. Based on this allegation, the appellants seek from the appellee payment of the loan principal as well as agreed interest and agreed delay damages thereon (these sales contracts and contracts of quasi-loan for consumption shall hereinafter be referred to as the "Sales Contracts" and "Quasi-Loan Contracts," respectively).
In response to the appellants' claim, the appellee argues that as a sovereign state, it should be immune from the civil jurisdiction of Japanese courts, and therefore, this suit should be dismissed without prejudice. The appellee also argues against the validity of the Sales Contracts and the Quasi-Loan Contracts with the appellants mentioned above, denying Corporation A's authority of representation of the appellee in concluding these contracts.

2. The court of the second instance dismissed the suit without prejudice, on the following grounds:
A foreign state, as a sovereign state, shall in principle be immune from the civil jurisdiction of Japanese courts unless there are special reasons such as the suit being related to real estate situated in Japan. The only exception to this principle is a case where the foreign state willingly subjects itself to the civil jurisdiction of Japanese courts. This exception applies only where it is provided for by a convention or treaty, or the foreign state has manifested the intention to subject itself to the civil jurisdiction of Japanese courts with respect to the existing litigation or particular litigation cases that may take place in the future. It is appropriate to construe that such manifestation of intention must be made between states, and even if a foreign state has agreed under a contract with a private person to subject itself to the civil jurisdiction of Japanese courts, such agreement does not immediately make the foreign state subject to the civil jurisdiction of Japanese courts (See 1928 (Ku) No. 218, decision of the former Supreme Court of December 28, 1928, Minshu Vol. 7, No. 12, 1128).
This suit was filed to seek payment of money from the appellee, a foreign state. No fact can be found that the appellee has manifested the intention to subject itself to the civil jurisdiction of Japanese courts. Although the order forms prepared in the name of Corporation A representing the appellee contain a clause stating that the appellee agreed to conduct the judicial proceedings at Japanese courts in the event of any dispute over the Sales Contracts, this manifestation of intention in the order forms is only addressed to the appellants, the other party to the Sales Contracts.
Consequently, it is appropriate to determine that the appellee is immune from the civil jurisdiction of Japanese courts, and therefore this suit should inevitably be dismissed as an illegitimate one.

3. However, the determination of the court of the second instance mentioned above cannot be affirmed, on the following grounds:
(1) With respect to immunity of foreign states from civil jurisdiction, it seems that, in the past, it was generally accepted that a state should be immune from the civil jurisdiction of another state of the forum unless there were special reasons such as the suit being related to real estate situated in the forum state or its willingness to subject itself to the civil jurisdiction of the forum state (the absolute immunity doctrine), and there was an international customary law based on such a doctrine. However, along with the expansion of the range of states' activities, another idea has gradually gained ground, that a state's acts should be divided into acts by sovereignty and other acts (acts under private law or for business administration), and that it is inappropriate to hold the state immune from the civil jurisdiction of the forum state for not only its acts by sovereignty but also those under private law or for business administration. At present, in accordance with such restrictive immunity doctrine, many states restrict the immunity of foreign states from the civil jurisdiction of their courts. Besides, the United Nations Convention on Jurisdictional Immunities of States and Their Property adopted at the 59th General Assembly of the United Nations as of December 2, 2004, also adopted this doctrine. In light of these circumstances, today, although the existence of the international customary law whereby a foreign state shall be immune from the civil jurisdiction of the forum state for its acts by sovereignty remains affirmable (See 1999 (O) No. 887, 1999 (Ju) No. 741, judgment of the Second Petty Bench of the Supreme Court of April 12, 2002, Minshu Vol. 56, No. 4, at 729), it should be regarded that the international customary law whereby a foreign state shall also be immune from the civil jurisdiction of the forum state for its acts under private law or acts for business administration does not exist any longer.
Next, we make examination on whether it is appropriate for Japanese courts to exercise their civil jurisdiction over a foreign state's acts under private law or acts for business administration. Immunity of a state from the civil jurisdiction of the courts of another state is recognized based on the idea that individual states have their own sovereignty and they are on equal footing, and therefore they should mutually respect their sovereignty. However, it can be construed that even if Japanese courts exercise civil jurisdiction over a foreign state's acts under private law or acts for business administration, such exercise of jurisdiction is not likely to infringe the state's sovereignty, and therefore, it should be concluded that there is no reasonable ground to hold the foreign state immune from the civil jurisdiction of Japanese courts for such acts. If a foreign state were granted immunity from the civil jurisdiction of Japanese courts even in cases where the exercise of civil jurisdiction is not likely to infringe the state's sovereignty, it would bring about an unfair consequence in that the private person involved in the state's acts under private law or acts for business administration is unilaterally denied access to judicial remedy without reasonable grounds. Therefore, it is appropriate to construe that a foreign state shall not be immune from the civil jurisdiction of Japanese courts for its acts under private law or acts for business administration unless there are special circumstance where the exercise of civil jurisdiction by Japanese courts is likely to infringe the state's sovereignty.
(2) Needless to say, a foreign state shall not be immune from the civil jurisdiction of Japanese courts, irrespective of whether or not the act in question can be regarded as an act under private law or acts for business administration, in cases where it has agreed to subject itself to the civil jurisdiction of Japanese courts under a treaty with Japan or other international agreements or where it filed a suit with a Japanese court, thereby manifesting the intention to willingly subject itself to the civil jurisdiction of Japanese courts in a particular litigation. In addition, it is appropriate to construe that, in cases where a foreign state has clearly manifested the intention to subject itself to the civil jurisdiction of Japanese courts by promising, under an explicit provision contained in a written contract entered into with a private person, that it would subject itself to the civil jurisdiction of Japanese courts for disputes that may arise from the contract, the state shall in principle not be immune from the civil jurisdiction of Japanese courts regarding such dispute. This is because, in such cases, the exercise of civil jurisdiction by Japanese courts over the foreign state is generally not likely to infringe the state's sovereignty, and furthermore, if the foreign state can claim immunity from the civil jurisdiction of Japanese courts, it would bring injustice between the parties to contracts and therefore contravene the doctrine of good faith.
(3) The decision of the former Supreme Court of December 28, 1928, cited by the court of the second instance, should be changed to the extent that it no longer conflicts with this reasoning.
(4) In this case, if, as argued by the appellants, the appellee concluded the Sales Contracts with the appellants to purchase high-performance computers, and after receiving delivery of the objects of sale, it concluded the Quasi-Loan Contracts with the appellants to obtain loans to cover the sales price, these acts conducted by the appellee are, in nature, commercial transactions that can be conducted by a private person, and therefore it should be deemed that these acts fall within the category of acts under private law or acts for business administration, irrespective of the purpose of the acts. Assuming so, the appellee should not be immune from the civil jurisdiction of Japanese courts in this suit unless there are special circumstances as explained above.
According to the records, it is also obvious that the order forms prepared in the name of Corporation A representing the appellee contain a clause stating that the appellee agreed to conducts the judicial proceedings at Japanese courts in the event of any dispute over the Sales Contracts, and furthermore, it seems that under the written contracts for the Quasi-Loan Contracts prepared in the name of Corporation A representing the appellee and provided for the appellants, this clause is applied mutatis mutandis to the Quasi-Loan Contracts. Therefore, if Corporation A represented the appellee as argued by the appellants, this clause, which is an explicit provision contained in written contracts, can be regarded as the appellee's promise to subject itself to the civil jurisdiction of Japanese courts regarding a dispute arising from the contracts, and by reason of this clause, there is room to find the appellee to have clearly manifested the intention to subject itself to the civil jurisdiction of Japanese courts.
The court of the second instance, based on the reasoning given by the decision of the former Supreme Court mentioned above, and without examining the facts alleged by the appellants, upheld the appellee's claim for immunity from the civil jurisdiction of Japanese courts and dismissed this suit without prejudice. Such determination of the court of the second instance contains a violation of laws and regulations that apparently affected the judgment. The appellants' argument is well-grounded.

4. For the reasons stated above, the original judgment shall be quashed, and for further examination, this case shall be remanded to the court of the second instance.

Therefore, the judgment was rendered in the form of the main text by the unanimous consent of the Justices.

Justice IMAI Isao
Justice TAKII Shigeo
Justice TSUNO Osamu
Justice NAKAGAWA Ryoji
Justice FURUTA Yuki