2026.01.20

2023(Ju)2245

Minshu Vol. 80, No. 1

(Civil Case) Judgment concerning a case in which, with respect to a trust agreement the trustee of which is an attorney and which provides that the funds entrusted to the attorney shall belong to the trust property, it was held that it cannot be said that there was an allegation that the purpose of the trust was agreed upon

Case of a third-party action opposing enforcement

Judgment of the Third Petty Bench, quashed and remanded

Tokyo High Court, Judgment of August 2, 2023

1 Where an attorney whose deposit claim has been attached asserts that said deposit claim is funded by client funds entrusted which, under a trust agreement the trustee of which is the attorney, are to belong to the trust property, and that said deposit claim constitutes property belonging to the trust property, and brings an action to object pursuant to Article 23, paragraph (5) of the Trust Act against the attaching creditor, under the circumstances indicated in (1) through (3) below, among others, it cannot be said that there is an allegation that the purpose of the trust was agreed upon with respect to the trust agreement whose formation is asserted by said attorney: (1) The attaching creditor disputes the formation of said trust agreement and requests that the attorney clarify the specific contents of the trust agreement, including the purpose of the trust. (2) The attorney asserts that, on the grounds that it is self-evident that client funds entrusted to the attorney become property belonging to the trust property, there is no need to clarify the specific contents of the trust agreement and does not explicitly make concrete allegations regarding the purpose for which the attorney received the client funds entrusted and held them. (3) Although the attorney submits as evidence account books relating to said client funds entrusted and part of the bankbook for the account relating to said deposit claim, even upon examination of such account books, etc., the purpose for which the client funds entrusted were received and held cannot be ascertained. 2 Where a deposit claim that belongs to the trust property is attached for, as the claim to be satisfied by the attachment, a claim pertaining to an obligation which may only be performed through the trustee's own property, and the creditor of said deposit claim asserts that said deposit claim constitutes property belonging to the trust property and that the trustee of the trust is the creditor, and brings an action to object pursuant to Article 23, paragraph (5) of the Trust Act, whether said deposit claim constitutes property belonging to the trust property is to be determined as of the time of the conclusion of oral argument in the fact-finding instance. (There is a concurring opinion regarding 1 and 2, and there is an opinion regarding 1.)

(With respect to 1 and 2) Article 23, paragraphs (1) and (5) of the Trust Act; Article 38 of the Civil Enforcement Act (With respect to 1) Article 246 of the Code of Civil Procedure; Article 3, item (i) and Article 16, item (i) of the Trust Act (With respect to 2) Article 253, paragraph (1), item (iv) of the Code of Civil Procedure

The judgment in prior instance is quashed. This case is remanded to the Tokyo High Court.

Concerning the reasons for the petition for acceptance of final appeal stated by the counsel for the final appeal, UMEJI Osamu: 1 The outline of the facts determined by the court of prior instance is as follows: (1) The appellee of final appeal is an attorney, and, in order to manage monies which he/she received and held for the client in the course of his/her professional duties (hereinafter, monies which an attorney received and held for the client in the course of the duties are referred to as "entrusted funds"), opened an ordinary deposit account at Mizuho Bank, Ltd. under the name "Client Account of Attorney X" (hereinafter referred to as the "Client Account"). (2) The appellant of the final appeal filed petitions on two occasions for attachment of the deposit claim held by the appellee against Mizuho Bank as judicial enforcement based on a title of obligation consisting of a ruling ordering the appellee to pay a share of expenses arising from marriage. Based on these petitions, orders of attachment of claims were issued in August 2022 and November of the same year, and portions of the deposit claim relating to the Client Account (hereinafter referred to as the "Deposit Claim") corresponding to the "Amount Subject to Attachment" set forth in items 1 and 2 in the Exhibit "the List of Claims" attached to the judgment of first instance were attached (hereinafter, these attachments are collectively referred to as the "Attachments," and the portions attached thereby are referred to as the "Attached Portions"). (3) At the time when the Attachments were effected, the entirety of the Deposit Claim was funded by funds received from the appellee's clients (hereinafter referred to as the "Entrusted Funds"). In addition, at each of the above times, the appellee managed the Deposit Claim separately from his/her own property by, inter alia, opening a deposit account for receiving attorney's fees from his/her clients, separately from the Client Account. 2 In this case, the appellee asserts that, since entrusted funds from clients automatically constitute property belonging to the trust property, a trust agreement the trustee of which is the appellee and which is provided that the Entrusted Funds are to belong to the trust property (hereinafter referred to as the "Trust Agreement") has been formed, and that it is evident, without the need to assert the specific contents of the Trust Agreement, that the Deposit Claim funded by the Entrusted Funds also constitutes property belonging to the trust property; and further asserts that to specify such contents would cause a problem in relation to the appellee as an attorney bearing the duty to maintain the confidentiality of any facts which he/she may have learned in the course of performing his/her duties (hereinafter referred to as the "Duty of Confidentiality"). On this basis, the appellee brings an action to object pursuant to Article 23, paragraph (5) of the Trust Act against the appellant, seeking disallowance of the judicial enforcement against the Attached Portions. The appellant disputes this, asserting that, since no specific contents of the Trust Agreement are alleged, it cannot be said that the Trust Agreement was formed, and further that, even if it was formed, since the Trust Agreement has terminated due to, inter alia, the fact that the appellee was subjected to a disciplinary measure of suspension from practice for two months by the Japan Federation of Bar Associations during the period from the Attachments until the conclusion of oral argument in the prior instance, the Deposit Claim has come to constitute property belonging to the appellee's own property. 3 Under the above facts, the court of prior instance held, in gist, as follows, and concluded that, at the time of the Attachments, the Deposit Claim constituted property belonging to the trust property, and that this conclusion is not affected even if the Trust Agreement later terminated due to the appellee being subjected to the disciplinary measure, and therefore upheld all of the claims of the appellee: (1) So long as entrusted funds from clients are managed separately from an attorney's own property, it can be said that a trust agreement providing that such funds are to belong to trust property was formed. Since, at the time of the Attachments, the Deposit Claim funded by the Entrusted Funds was managed separately from the appellee's own property, it can be said that the Trust Agreement was formed even without allegations as to its specific contents. (2) Whether the Attached Portions constitute property belonging to the trust property should be determined as of the time when the Attachments were effected. 4 However, neither of the above determinations of the court of prior instance can be upheld. The reasons are as follows: (1) A trust agreement is an agreement with a specific person to the effect that the person will be assigned property, that the person will be granted a security interest in property, or that property will otherwise be disposed of to the person, and that said specific person must administer or dispose of said property in accordance with a certain purpose and carry out any other acts that are necessary for achieving said purpose (Article 3, item (i) of the Trust Act), and the fact that such purpose—that is, the purpose of the trust—is agreed upon is a requirement for its formation. In a civil action, where it is disputed between the parties whether certain property belongs to the trust property and whether the purpose of the trust has been agreed upon with respect to a trust agreement providing that such property is to belong to the trust property, in order to allege that the purpose was agreed upon, the fact of the purpose being agreed upon has to be specifically alleged in accordance with the circumstances of the case, on the basis that the objective of attack and defense must be set appropriately so that both parties can make allegations and show proof thoroughly. In this case, the appellant disputes the formation of the Trust Agreement and requests that the appellee clarify its specific contents, including the purpose of the trust. On the other hand, the appellee, asserting that there is no need to clarify such matters, has not explicitly made concrete allegations regarding the purpose for which the Entrusted Funds were received and held. Furthermore, although the appellee has submitted as evidence account books relating to the Entrusted Funds and part of the bankbook for the Client Account, the purpose for which the Entrusted Funds were received and held cannot be ascertained from such books, etc. As a result of the appellee's making allegations and showing proof as mentioned above, the appellant is placed in a situation where it is extremely difficult to make allegations and show proof thoroughly regarding whether the purpose of the trust was agreed upon. Accordingly, even taking into account that the appellee bears a Duty of Confidentiality as an attorney, under the circumstances of this case, it cannot be said that it is specifically alleged that the purpose was agreed upon. Therefore, it cannot be said that, with respect to the Trust Agreement whose formation is asserted by the appellee, it is alleged that the purpose of the trust was agreed upon. The court of prior instance contains an error in the interpretation and application of laws and regulations in holding, on a view contrary to the foregoing, that it could be said that the Trust Agreement was formed, and thus is unlawful. (2) Where a deposit claim that belongs to the trust property is attached for, as the claim to be satisfied by the attachment, a claim pertaining to an obligation which may only be performed through the trustee's own property, and the creditor of said deposit claim asserts that said deposit claim constitutes property belonging to the trust property and that the trustee of the trust is the creditor, and brings an action to object pursuant to Article 23, paragraph (5) of the Trust Act, if, after such attachment, the deposit claim comes to belong to the trustee's own property, it is considered that the allegation of objection cannot be upheld, and the fact that the deposit claim constituted trust property at the time of the attachment is not sufficient reason to uphold the allegation of objection. Moreover, in such a case, there is no provision that provides a basis for considering, differently from other civil actions, the point in time at which it should be judged whether the deposit claim constitutes property belonging to the trust property. Accordingly, in such a case, whether the deposit claim constitutes property belonging to the trust property should be determined as of the time of the conclusion of oral argument in the fact-finding instance. The judgment in prior instance contains an error in the interpretation and application of laws and regulations in holding, on a view contrary to the foregoing, that whether the Attached Portions constitute property belonging to the trust property should be determined as of the time when each of the Attachments is effected, and thus is unlawful. 5 For the reasons stated above, the judgment in prior instance contains violations of laws and regulations that clearly affect the judgment. The counsel's arguments are well grounded as arguments to this effect, and the judgment in prior instance should inevitably be quashed. In addition, in order to further examine sufficiently whether the Trust Agreement was formed and whether, if it was formed, the Attached Portions have ceased to constitute property belonging to the trust property, this case is remanded to the court of prior instance. Accordingly, the Court unanimously decides as set forth in the main text of the judgment. In addition, there is a joint concurring opinion by Justices HAYASHI Michiharu and HIRAKI Masahiro, and an opinion by Justice OKINO Masami. The joint concurring opinion by Justices HAYASHI Michiharu and HIRAKI Masahiro is as follows: We concur with the majority opinion. We would, however, like to state our opinion additionally. 1 It has long been observed that a trust agreement may be formed with respect to entrusted funds (see the concurring opinion of Justices FUKAZAWA and SHIMADA in the judgment of the First Petty Bench of the Supreme Court of June 12, 2003, 2001(Gyo-Hi)274, Minshu Vol. 57, No. 6, p. 563), and this point is not denied by the majority opinion. However, in litigation, where it is disputed whether certain property has been designated as belonging to the trust property under a trust agreement, the requirements for the formation of the trust agreement must be specifically alleged in accordance with the circumstances of the case. And so, as the majority opinion states, it is not appropriate under the circumstances of this case to consider that, merely by asserting that the funds are "entrusted funds," it is alleged that the purpose of the trust is agreed upon. On the other hand, in this case, since it is disputed whether funds received and held by the attorney for the client in the course of duties constitute the trust property, an issue may arise in relation to the Duty of Confidentiality. Since such duty must be respected as among the most fundamental and important obligations of an attorney, and there may be, among cases like this, cases in which it is possible to determine the issues, including whether a trust agreement was formed, without the need to disclose specific client names or detailed contents of mandates, it is not appropriate to require the appellee to make allegations and show proof in more detail than is necessary. In the proceedings on remand, it will be necessary to take into account that the appellee is subject to the Duty of Confidentiality while bearing the burden of asserting and proving the requirements for the formation of the trust agreement and to adopt appropriate measures in the conduct of the proceedings, such as, where necessary, requiring the submission of evidence with masking or anonymization, or requiring that the contents of the mandate be asserted in an appropriately abstracted manner. 2 Even if, through allegations and proof stated above 1, it were to be found that a trust agreement was formed, since the appellant disputes by asserting that the trust agreement has already terminated, it is considered to be necessary in this case to examine whether, by the time of the conclusion of oral argument in the remand proceedings, the Attached Portions have ceased to constitute property belonging to the trust property due to the termination of the trust agreement or other reasons. In the practice of attorneys, with respect to entrusted funds deposited into an account for the management of entrusted funds (hereinafter referred to as a "client account"), it is considered that, upon termination of the mandate agreement or at similar junctures, arrangements may be made whereby, based on agreement with the client, such entrusted funds are appropriated for attorney's fees. Further, in a case such as the present, where an attachment has been effected against a client account, it is not inconceivable that the attorney may, out of his/her own funds, return the entrusted funds to the client and thereby acquire the deposit claim pertaining to that account. Where such arrangements are carried out, it is considered that, as a result, the deposit claim pertaining to the client account ultimately comes to belong to the attorney's own property. There remain aspects regarding which the discussion is not yet fully developed, such as how these respective arrangements should be legally structured, and at what point the deposit claim comes to belong to the attorney's own property. However, for example, where, by the agreement between the attorney and the client, it has been confirmed that the entirety of the entrusted funds received from the client will be appropriated for attorney's fees, there is scant theoretical basis for considering that a withdrawal from the client account is invariably required in order for the deposit claim funded by such entrusted funds to come to belong to the attorney's own property. And, in light of the majority opinion's indication that the point in time for determining whether the Attached Portions constitute property belonging to the trust property is the conclusion of oral argument in the fact-finding instance, it is expected that, in the proceedings on remand, the appellant's foregoing arguments will also be appropriately examined and determined. The opinion of Justice OKINO Masami is as follows: I concur with the majority opinion that, in order for the Deposit Claim to be regarded as property belonging to the trust property in this case, it is necessary to allege specifically that a trust agreement was formed, and in particular the purpose of the trust was agreed upon, in accordance with the circumstances of the case. I add the following views regarding the requirements for the formation of a trust agreement, with particular reference to entrusted funds to attorneys. 1 (1) Where, between a client and an attorney, funds are entrusted by the client to the attorney for the purpose of covering expenses necessary for services provided by the attorney, and such funds are deposited into a bank account designated as an "entrusted funds" account and managed separately, it is generally recognized that, even if not expressly stated as a trust between them, a trust agreement may be formed with respect to such funds and that the corresponding deposit claim may constitute property belonging to the trust property (see, inter alia, the concurring opinion of Justices FUKAZAWA and SHIMADA in the judgment of the First Petty Bench of the Supreme Court of June 12, 2003, 2001(Gyo-Hi)274, Minshu Vol. 57, No. 6, p. 563; Article 2, paragraph (1) of the Trust Business Act and Article 1-2, item (i) of the Order for Enforcement of the same Act); however, needless to say, it does not mean that a trust is formed or a trust undertaking is deemed to have been made, automatically even in the absence of terms of trust (Article 2, paragraph (2) of the Trust Act). (2) The court of prior instance is considered to have placed emphasis on the fact that the Deposit Claim was managed separately and, on that basis, concluded that the Trust Agreement was formed and that the Deposit Claim constituted property belonging to the trust property. However, the separate management may in some cases be carried out merely in a voluntary manner rather than as a part of performance of an obligation based on an agreement. Even where separate management is carried out based on the obligation agreed upon of separate management, since such obligation is a necessary but not sufficient condition for the formation of a trust, a contract including such obligation does not necessarily constitute a trust agreement. Accordingly, it is not appropriate to immediately equate the practice of separate management or the existence of a duty of separate management with the formation of a trust agreement. (3) In my view, in order to conclude that there exists, between a client and an attorney, a contract falling under Article 3, item (i) of the Trust Act with respect to entrusted funds, it is not sufficient that merely the content of the agreement concerning the purpose for which the funds are received and held be clarified and that the content or guidelines of the administration of affairs (including management and disposition) (see Articles 26 and 29, paragraph (1) of the Trust Act) of such funds be specified. In addition, in light of the characteristics of a trust—namely, the separation between the person to whom the property belongs and the person who enjoys the benefit, and the independence of (trust) property (see Articles 8, 23, 25, etc. of the Trust Act)—it is also necessary that it be made clear that the agreement possesses such substance of a trust. From this perspective, in order to consider that "purpose of the trust" was agreed upon and that a trust agreement was formed, it is considered to be necessary not only that the purpose for which the funds are received and held is agreed upon, but also that it be made clear that the mechanisms (including obligation of separate management) is agreed upon that ensure that the recipient is effectively prevented from using the funds for purposes other than that purpose (hereinafter referred to as "Mechanisms for Ensuring Effectiveness"). Since the Trust Act provides such Mechanisms for Ensuring Effectiveness, where it is expressly stated to be a trust, it is, in principle, presumed that Mechanisms for Ensuring Effectiveness as provided in the Trust Act are implied. The issue arises, therefore, whether it can be said that such Mechanisms for Ensuring Effectiveness are agreed upon where no such express statement exists. (4) As examples of such Mechanisms for Ensuring Effectiveness, in the context of deposits and savings, not only measures such as managing the funds separately from the trustee's own property, keeping records thereof, and reporting to the beneficiary in a timely manner may be envisaged, but also, for example, measures that impose constraints directly on withdrawals, such as arrangements whereby the beneficiary or a third party checks and supervises that a withdrawal is made for use consistent with the stated purpose (see the supervisory framework involving a guarantee company and a depository financial institution in the judgment of First Petty Bench of the Supreme Court of January 17, 2002, 2000(Ju)1671, Minshu Vol. 56, No. 1, p. 20), as well as measures to verify whether any conversion has not occurred and to provide corrective actions accompanied by sanctions in the event of such conversion; in this way, preventive and remedial measures against use for purposes other than those intended at both the withdrawal stage and the use stage may be contemplated. (5) Turning to the case of entrusted funds, the Basic Rules on the Duties of Practicing Attorneys of the Japan Federation of Bar Associations (JFBA Regulation No. 70 of 2004) require attorneys, with respect to entrusted funds in the custody, to separate them from the attorney's own funds, indicate clearly that the funds constitute entrusted funds, and keep records of their custodial status (Article 38), as well as settle and promptly return them upon termination of the mandate (Article 45). In addition, the JFBA's Rules on the Handling of Entrusted Monies, etc. (JFBA Regulation No. 97 of 2013; hereinafter the "Entrusted Monies Rules") require attorneys, with respect to entrusted funds, to not use them for purposes other than those intended (Article 2), to open a dedicated account and notify to the relevant bar association (Article 3, paragraphs (1) and (3), and, in exceptional cases, to notify it of the reasons for the exception (paragraph (4) of the same Article)), to keep them in custody in a manner that distinguishes such funds from the attorney's own property and clearly identifies them as entrusted funds (Article 4), to keep a record of the amount, purpose, and use of deposits and withdrawals and preserve the record (Article 7), and to report income and expenditures to the client (Article 8). They also provide for the authority of bar associations to make inquiries and conduct investigations regarding the overall status of custody (Article 9), the duty of member attorneys to respond to the inquiries (Article 10), and systems for providing guidance and initiating disciplinary proceedings in accordance with the content of such responses (Article 11). These provisions may be evaluated as providing for the Mechanisms for Ensuring Effectiveness which prevent the attorney, as the nominal holder, from freely disposing of the entrusted funds and benefiting therefrom. Moreover, these rules each constitute norms governing attorneys' professional conduct based on the Attorneys Act (see, inter alia, Article 22, Article 45, paragraph (2), Article 46, and Article 33, paragraph (2), item (vii) of the Attorneys Act) and are publicly available. And so, where a client, upon entering into a mandate agreement with an attorney, entrusts a certain sum of money with an awareness that it constitutes entrusted funds to be used for a specific purpose, it is naturally premised that the attorney will act in accordance with these internal rules. Accordingly, in the case as above, even in the absence of an express designation as a trust, it can be said that it is agreed that the funds are to be used solely for the above-mentioned purpose and that Mechanisms for Ensuring Effectiveness are in place; for example, where it is agreed that any remainder of the entrusted funds is to be returned to the client, it may be concluded that a trust agreement has been formed with the client as settlor and beneficiary and the attorney as trustee and with such remainder as the client's beneficial interest. (6) In the allegations at present, whether the entrusted funds were expressly identified as trust property, the purpose for which the appellee received and held the Entrusted Funds, and the content of the beneficial interest and the administration of the trust affairs under the Trust Agreement which is alleged to have been formed, have not been clarified. Moreover, it is not clear even whether the client deposited the funds with the appellee with an awareness that they constituted entrusted funds. On the basis of the allegations at present, it cannot be said that the purpose of the trust or the Mechanisms for Ensuring Effectiveness were agreed upon, and therefore it cannot be said that a trust agreement was formed. 2 By way of further remark, the foregoing concerns entrusted funds from clients; however, in this case, it is possible that, as a result of proceedings on remand, it may become clear that the source of the Deposit Claim consists of funds received from third parties other than the client, such as settlement payments from the counterparty (see Article 5 of the Entrusted Monies Rules). Under such circumstances, where an attorney receives funds from third parties, if, for example, a trust agreement had already been formed between the client and the appellee, and the receipt of such funds is regarded as an act necessary to achieve the purpose of the trust, it is considered that such funds may constitute property belonging to the trust property as assets acquired as a result of administration of trust affairs (see Article 16, item (i) of the Trust Act).

Justice HIRAKI Masahiro Justice HAYASHI Michiharu Justice WATANABE Eriko Justice ISHIKANE Kimihiro Justice OKINO Masami