The victims filed a product liability lawsuit to Nagoya District court on June 15, 2007.

Fatal accident

A consumer filed a petition to conjac jelly food company and Ise Municipal authority in Mie Prefecture. A plaintiff is parent of child who died by sticking conjac jelly food in his throat in March 2007. He was, 7 years old at the accident happened, 1 grade in municipal elementary school. While he was in nursery after school administrated by Ise City, he had snack conjac jelly food in nursery. A defendant company is a manufacture of the conjac jelly food.

Claim

According to the petition of the plaintiff, the conjac jelly food has design defect in its figure and elasticity that is danger of being caught in throat. The plaintiff also points out the design defect of plastic nutshell of conjac jelly food. The nutshell is made in the design that a consumer eats conjac jelly food by inhaling from it.

Although the defendant company stated the caution out of packet that indicated not to inhale to eat it and recommend scooping chewing enough to eat, the plaintiff blamed that it was not enough and the recommendation was necessary to describe that a infant, kid and elderly was prohibited eating it. The plaintiff also said that current caution sought a consumer difficulty to accept it, because the nutshell of the food was too  small to comply it.

The husk is made in the design that the consumer is inhaled food there and eats.The plaintiff claimed the defendants to pay JPY 75,000,000 as damages based on the Product Liability Law 1992..

Accicent information

The National Consumer Affairs Center reported 13 fatal accident cases since July 1995 in Japan. The centre recommended that infants and elderly peoples had not to eat it on June 15, 2007 on website.

Lack of jurisdiction

What ministry supervise these kind of accidents? So far, there is no administrative body which oversee them. Conjac is food and the plaintiff injured by the food. In generaly, Food is administrared by the Ministry of Agriculture, Forestry and Fishers. On the other hand, the problem related fatal safty is governed by the Ministry of Health, Labour and Welfare.

However, the extent of the jurisdiction of the MAFF is limited within the issue of food labeling; the ministry does not have jurisdiction of the safety. The MHLW has a jurisdiction of personal injuries or fatal damages. But the jurisdiction of the MAFF is limited over accidents which are caused by sanitary problem such as poisoning food. Current regulations related do not include the food safety concerning shape,  design or hardness. Whilst the METI that governs the shape and hardness on industrial products, it has not jurisdiction over food safety concerned.

It is the reason why the Consumer Agency which has comprehensive jurisdiction of food products including “conjac jelly”.
 

Will unlisted shares go up?  Rogue traders undetake it, and they reccomend consumers to purhcase them. Damage claims have been significanly increasing recently.  According the NCAC, claims concerning private equities in 2005 fiscal years had increased to 1,298 whereas the number of claims in 2004 was 222. 

While many court claims were filed to nationwide courts, judges recognized the illigality of scam trading. Therefore, it affected the court procedure of interrogation. The Tokyo Appeal Court, on 15th May 2008,  approved a customer’s claim without the interrogation of the defendant; the ruling asserted that the sales promotion of private equities should be presumed as fraudulent commercial practices.

According the Financial Services Agency, the number of over-indebtedness borrowers has decreased in 2007 fiscal year, compared with 2006 fiscal year. It was revealed in the meeting of the Financial Panel Tackling wiht Over-indebtedness.

In the report, heavily-idebted people is defined as individuals who borrow money from 5 money lenders or over. In 2006 fiscal year, number of heavy debeors in 2007 fiscal year was about 1,177,000 whereas it was 1,701,000 in 2006 fiscal year.  The figure was based on the personal information registered in some industrial institutions collecting debtors’ financial information.

The FSA underlined that law reform such as the Law of Reglulating Monery Lenders was effective measure to tackling with over-indebtedness as well as setting up consultation system for heavy debtors.  

Lawful money lenders tend to become reluctant to lend money to heavy debtors; therefore heavily indebted people might be likely to borrow money from loan sharks. However, data of debtors borrowing from illegal money lenders are not collected by the legitimate debtor’s information centres. By above law reform. Provably, number of heavily indebted borrowers might be larger than the statistics figure compiled by the government. 

Defrauded consumers by a land-banking scheme are cheated by scammers again and again. The National Consumer Affairs Centre reported the status quo of the injuries in 2006.  The taders invite the former victimes to carry out measurement or advertisement of their plots to promote them; but their real aim is to get the payment of the measurement or the advertisement from the victims. Tokyo metropolitan government revealed the names of 6 land-bank companies that rejected the demand of the disclosure concerning the details of their market promotion.  The latest criminal case was detailed on 9th May 2008.

Up until about 20 years ago, many companies marketing plots of land as an investment opportunity had been damaging a number of consumers located in urban area such as Tokyto and Osaka. This scheme was simlar as a land-banking fraud in UK. 

Rogue traders offered “investment opportunities” to private individuals under a scheme in which fields purchased by the company were divided into plots of land and then sold for investment purposes. Lands sold in Tokyo were located in rural area, Hokkaido, Aomori; Osaka people bought lands situated in Mie, Nara and Hyogo prefecture. Lands acquired were divided into smaller plots and sold to private individuals with a view to be developed as a housing or industrial estates near future.

 

According to the Cabinet Office, the number of consumer consultation centres in local governments is 538 in 2007 whereas it was 407 in 1998.  On the other hand, the amount of budget is decreasing year after year: although it was about 16,800,000,000 yen in 1998, it decreased up to 10,800,000,000 yen in 2007.

Consmer centres managed by local government have been contributing for relief of conumer injuries so far; but reduction of budgets pose bad influence to the activities and the pay for consultants.

Local governments do not maintain consumer consultants as fulltime employment for the government to make it easy to cut expense. The term of their employment is relatively short: 13% of consultants are fired within 3 years whereas 38% of them are fired within 5 years; therefore, they remain in relative poverty due to low levels of pay and dependent expenses; their average income is estimated as about 1,800,000 yen; they are not paid enough wages, even if they work overtime; moreover, their traffic expense is cut.

A tenant claimed that his landlord and a broker of the renting contract had a duty to pay damage compensation of his negligence: a landlord failed his duty to explain that the lent house was haunted by phantoms. The lawsuit was filed to the Utsunomiya District Court on 8th May 2008.

The plaintiff was a businessperson managing a restaurant; he rented the restaurant from the defendant. According his argument, he heard, from his client, that the house was haunted by fantoms; and he encountered the ghost at the rented house; a former tenant had gone away from the rent, bothered by the haunted phantoms.

 

The defendants rebut the plaintiff’s contention: the landlord provided a religious ritual to comfort the spirits of the ghost and he explained the rumor of the ghost to the plaintiff.

 

Therefore, the point of dispute on the court battle  might be put down concerning it. However, is it the legal duty that the defendants provide such information to the plaintiff?  Provably, nobody can prove the existence of a ghost: in other word, the claim of the plaintiff can only prove that there would be a rumor. What rumor disturbs for tenant to live in the concerned house? What is there any significant difficulty for the tenant to continue to rent the house?

 

If the defendants explained previously that the former tenant cancelled the tenancy contract by virtue of the ghost, the plaintiff would have never formed the tenancy contract with the landlord. Whilst the defendant argued that he explained the phenomenon. the plaintiff would have to insist and prove the fact that if he heard, he would never make the contact.

If the undertakings conduct misrepresentation or omission violating the CCA in the tripartite credit agreement, the consumer not only rescind the contract with the supplier, but also he might be able to revoke the credit contract with creditor, because the supplier acted as a role of a intermediary of the creditor stipulated in sec.5 of the CCA concerning concluding the credit agreement.   

Court rulings

The  Osaka Summery Court, on 9th January 2004, approved the creditor’s liability in the tripartite credit agreement concerning a home-in-work case.

The Kobayashi Summery Court, on 22th March 2006, approved the creditor’s liability in the tripartite credit agreement concerning a home repair case by via doorstep selling.

Misrepresentation or provision of asserting evaluation

Consumers may revoke their declaration of wil to offer or accept a consumer contract if consumers make any of the specified mistakes set forth below as a result of any of the acts listed in the following items by a business operator at the time of being solicited to enter into such consumer contract by such business operator and thereby making said manifestation of intention: (i) to represent that which is not true as to an important matter. Mistake that the content of said representation is true; (ii) to provide conclusive  evaluations of future prices, of amounts of money that a consumer should receive in the future and of such other uncertain items that change in the future with respect to goods, rights, services and such other things that are to be the subject of a consumer contract. Mistake that the content of said conclusive evaluation so provided is certain (sec. 4(1) of the CCA).

Intentional omission of disadvantageous fact for supplier

Consumers may rescind their manifestations of intention to offer or accept a consumer contract if a business operator represents to said consumers the advantages as to important matters or things related to said important matters but intentionally fails to represent disadvantageous facts (limited to those facts that consumers would normally consider to be non-existent by such representation) at the time of solicitation by a business operator to enter into such consumer contract, as to important matters, and said consumers thereby mistakenly believe the non-existence of such facts. Provided, however, that this shall not apply where the business operator has attempted to make representations of such facts to said
consumers and said consumers refuse to hear such attempted representations (sec. 4(2) of the CCA).

 

The Tajimi branch of the Gifu district court, on 19th Jun 2007, provided interesting ruling concerning a consumer credit contract by which the purchaser was financed from the creditor connected with the distributor who scammed the purchase. 

Fact

The defendant was purchaser of a movable store building from a supplier connected with the plaintiff creditor and formed a tripartite credit agreement with the plaintiff company; the supplier acted as a intermediary of the plaintiff when the defendant concluded the finance contract with the plaintiff.

The plaintiff filed a claim to te defendant in arrear and the defendant made a counterclaim that the credit contract was void by virtue of mistake: whilst the supplier scammed the defendant, the credit contract was void, because the credit contract was induced by the mistake of the supplier who acted as a intermediary of the creditor at a credit contract formed.

Ruling

A person who, when he gave a declaration of will, was mistaken about its content, or did not intend to give a declaration with this content at all, is  void if it is to be assumed that he would not have given it if he had known the state of affairs and on a rational assesment of the case. It is stipulated in sec. 95 of the civil law.

The court approved the counterclaim of the defendant. When the supplier employed the credit contract as a measure of fraud, the defendant could insist that the credit contract was void by mistake, even though the mistake existed in the inducement of the defendant and therefore the defendent did not make the inducement clear to the creditor. 

As the justivication reason of the decision, the court stated as follows: by forming the membership agreement, the creditor can acquire the new borrowers via marketing of the menber distrubutor and also can earn the membership fee from the distributor; when the tripartite cerdit agreement was employed by a measure of fraud of the distributor, the recognition of the creditor connected with the supplier, the recognition of the supplier should be regarded as same as the supplier at the judgement of the existence of the mistake, because the supplier acted as a intermediary of the creditor; the thought was accordance with the principle of the good faith and the consideration of reward; although the creditor could not argue that the supplied was only a third party on the credit agreement and that the credit contract was not influenced by the defect on the purchasing contract, it should be allowed.

If the above contract is a consumer contract, the issue is resolved by the statutory regulation as follows.

Mistake of a credit contract via distributor connected with a credit company

When a distributor acts as intermediary of a credit company to form the financing contract with the purchaser, the purchaser can consider that the recognition of the distributor is as same as the one of the credit company. It is base on following art.5 of the Consumer Contract Act 2001.

Article 5 (Third Parties Entrusted to Intermediate and Agents)

(1) The preceding article shall apply mutatis mutandis to cases where a business operator entrusts a third party to intermediate a consumer contract between the business operator and a consumer (which shall be referred to simply as “entrustment” for purposes of this paragraph), and the third party (which includes a person entrusted by such third party (including any person who is entrusted through more than two layers of entrustment) who shall be referred to as “entrusted person, etc.” hereinafter) commits any acts set forth in paragraphs (1) to (3) of the preceding article with respect to a consumer. In this case, “the business operator” referred to in the proviso of para. (2) of the preceding article shall be deemed to be replaced with “the business operator or the entrusted person4, etc. provided in para. (1) of the following article.”

(2) Any agent of a consumer (which includes a subagent (including any person appointed as a subagent through more than two layers). The same shall apply hereinafter), agent of a business operator and agent of entrusted person, etc. as above involved in the execution of a consumer contract shall be deemed to be the
consumer, business operator and entrusted person, etc., respectively in the application of paragraphs (1) to (3) of the preceding article (including the case where it is applied mutatis mutandis pursuant to the preceding paragraph. The same shall apply in the following article and in Article 7).

The Sasebo branch of the Nagasaki district court stated that the credit card company had the obligation to explain the problem of online use of credit card; the user can use the credit card only to type the card holder’s number, his name and expiration  date. The court, on 24th April 2008, rejected the claim for payment by the credit card company by virtue of his negligence of information duty.

Fact

The claimant was a  credit card company and the defendant was the holder of the credit card issued by the claimant.  According to the ruling, the 58-year-old company employee of Sasebo, Nagasaki Prefecture, was asked by Tokyo-based Credit Saison Co. to pay about 3 million yen for the use in February 2005 of Web sites that the man said he did not access. It was later learned the man’s eldest son copied information from his credit card–such as the card number and expiry date–while the man was sleeping. The son, who was 19 at the time, then used the card information to pay for Web site services.

The plaintiff claimed its rules stipulate that credit card holders are personally responsible for payments associated with the unauthorized use of a card–including usage by family members. In responce, the defendant made a counterclaim: he had not been informed of payment systems that did not require identity verification data, such as a personal identification number, making it difficult to properly control the credit card.

Ruling

The court rejected the claim by the defendant: the credit-card company didn’t necessarily establish to the best of its ability an online payment system capable of preventing the unauthorized use of credit cards. The defendant therefore didn’t commit a serious offense.

As long as the newsreport, the reason why the court rejected the claim is not clear whether the credit contract was void by unauthorized representation (civil code, art. 115) or the plaintiff could not calim on the breach of good faith (civil code, art.1(2)).

Analysis

The credit card industry says that card holders are responsible for keeping and controlling their credit card. But, the plaintiff’s payment systems does not require identity verification data, such as a personal identification number, making it difficult to properly control the credit card. In other word, there is limiation for the usual consumer to prevent unauthorised use of the credit card.

On the other hand, the credit card company can adapt more strict measure to minimise unauthorised use of the credit card: the Japan Consumer Credit Industry Association, based in Shinjuku Ward, Tokyo, said, “We’d like to encourage member firms to take measures as early as possible vis-a-vis identity verification for online payments, such as for systems that require holders to enter information known only to them–perhaps a favorite color or a password–without requiring them to enter identity numbers.” 

While credit companies continue to provide the current online credit card payment system, if they can offer more safety system to prevent unauthorised use of credit card, the present service should be defective. In that case, the credit companies should take liability as long as they provide the defective services.

It is not bad that the court approved the negligence of the information duty of the credit company. However, It shall be temporarily measure of solution for consumer’s injury; such rationale which relieves customer’s compensation would vanish if the system of online payment of the credit card become known widely. It does not take long time.   In that situation, the customer can not blame the negligence of the information duty. I think that the liability of the credit company should be based on the provision of the defective system rather than the negligence of the information duty. 

Credit companies make profit or can reduce their cost by maintaining such system, at the same time the customer’s risk might be increasing; it shall be justifiable reason for the credit company to take responsibility for the damage caused by the system.  

The consumer affairs agency would be established within the next fiscal year, 2009. As I noted before, it is the landmark of Japanse consumer protection.

The problem of devided administrative funcions 

We have been criticizing the inconvenience  and the inefficiency in the current administrative regime of consumer protection; it is so-called compartmentalized public administration or vertically devided administrative function. Concerning the Comodity futures transaction, it is supervised by both of the METI and the Ministry of Agriculture, Forestry and Fisheries. Which ministry has a jurisdiction of the trading depends on the products of futures trading. If the procuct is industrial products such as a gold or platinium, the futures trading of the product is supervised by the METI. As to specific financial products, the FSA oversees the market and trading. But if no administrative body has jurisdiction to the particular product, the trading is not regulated at all.

“Loco London” scam

It is reported that many con artists use the name ‘Loco London’ to cheat the investors into believing that they are dealing with legitimate operators. Of course, there are reputable banking institutions as an alternative conduit for investment in the gold market. But so-called ” Loco London” transactions almost are dealt with bogus traders. Similar scams is reported in Hong-kong.  

As to the intermediary serivice including ”Loco London” trading, the Regulation of the Specific Commercial Transaction Act was revised in 2007 and the trade was resticted by the regulation. As a result, a customer can make  cancellation of the regulation within cooling off period. In other word, up untill revising regulation, the fraudulent trading was not supervised by any authorities or agencies, even though the METI and the Consumer Affairs Centre pointed out the problem of trading and warned. 

It took a long time up until law reform, after many victims filed lawsuits nationwide and many court rulings declared that the “Loco London” trading was regarded as gamble. On 16th March 2007, the Japan Federation of Bar Associations recommended the law reform relating to the ”Loco London” trading. 

As long as the current vertical administration system remains, the trading that no restriction applies exists as with previous “Loco London” trading.

Status quo

Mr. Fukuda, Japanese prime minister seems to decide to create the new consumer affairs agency, despite the fact a government panel of experts set up to examine the issue had not reached any conclusions. His decision was prompted by public criticism of the compartmentalized structure of the government, and increasing public concern over the safety of and trust in industrial products.

Aim and commission

The aim is integrating consumer protection administration as well as strengthening the nation’s consumer affairs policy.The key to the new agency’s success depends on whether it will be able to take over the legal and administrative authority currently held by the existing ministries and agencies.

The new agency will handle all affairs related to consumer protection, such as commodity trading, financial deals and the safety and proper labeling of food and industrial products. The new agency will have a single channel through which it will interact with the public and the authority to plan relevant policies for executing laws and issuing recommendations to companies and other government entities. The new agency will have a command center covering all aspects of consumer affairs policies.

Resistance and objection

The extent to which legal and administrative authority over consumer affairs, currently held by other government entities, such as the Health, Labor and Welfare Ministry and the Financial Services Agency, can be transferred to the new agency. These include the Specific Commercial Transactions supervised and regualed by the METI and the Law for Preventing Unjustifiable Extra or Unexpected Benefit and Misleading Presentation overseen by the Fair Trade Commission.

These ministries voices strong opposition to above adminstrative orgnizaztion reform  which would see some of their authority taken away. The ministry officials says that Implementing the consumer affairs policy needs the expertise we have acquired and industry-promoting entities such as the economy ministry are capable of implementing work pertaining to the administration of consumer affairs administration.

Persuasion

But these opinion is not persuasive. As noted previously, both the government and the industrial sector tend to withhold the sustantial information of accident of products. It may be in the same situation in other countries. In defective water boiler accidcent case, the METI failed to take any preventative measures in relation to the deffective product, Paloma-made products, despite being aware of other similar accidents.