Internet auctionner does not take responsibility for bidders

The Nagoya District Court rejected the claim of a damage compensation by 780 scammed bidders of internet auction, on 29^th March 2008. The ruling was posted on website at the Supureme Court on 13th June 2008.

The plaintiffs were the bidders who had bought goods such as car navigation system and DVD recorders at the internet auction operated by the defendant, Yahoo Japan. They, residents throughout nation of 46 prefectures, claimed a damage compensation against the defendants, because they could not get the purchasing goods that were sold by the auction.

Claim

The defendant had stipulated comprehensive escape clause for the failure of performance obligations on the time of alleged transactions whereas the current compensation clause in his self regulation lays down his responsibility on a limited scale within 500,000 yen. The claimants made several assertions: the clause was void because it is significantly disadvantageous for bidders; the defendant failed to arrange the measure for to secure the performance like as a escrow services between bidders and sellers in auction; it was not enough to prevent fraudulent selling in the internet auction site; therefore such auction system was defective and the defendant was negligent to prepare the system preventing such swindle. On the contrary, the defendant argued they had no negligence; the bidders had opportunity to investigate the sellers calling directly or considering the statement by other bidders on the defendant auction site; through these investigation, if they had any questions, they could choose their behavior not to participate to the auction; the bidder could use the clearing house voluntarily when they wanted to prevent these scams, although it needed a fee; current system had reasonable basis.
The court rejected the claim: the defendant raised reasonable attention to the bidders in suitable occasions.

Hmm…

I have some hesitation to agree this court decision. The defendant might say that the internet auction does not differ from the non-virtual auction. But there are several differences between them, and these rationalize the responsibility on the side of internet auctioneer like as Yahoo. It the non-internet auction, the auctioneer shows the goods to bidders; the bidders can confirm visibly the existence of the goods in the auction room, and they can investigate these items before their biddings. Therefore the probability that the performance of the obligation fails seems to be rare, whilst the bidden goods may be defective; on the other hand, the auctioneer can get profit of fee that these transaction is formed; the auctioneer prepare the opportunity of selling for the seller and it is estimated as significant assistance of scam, if it is only negligence. In general, the person who gets profit connected with the transaction should take responsibility of some sort together with the seller if the performance fails. You can see it in the case of credit transaction in UK. The section 75 of the Consumer Credit Act stipulates that the creditor who loans the purchaser has the connected liability together with the seller. If that is the case, it is rather fair that the internet auctioneer takes responsibility as well as the seller.

Anyway, the escrow service is already available by some electronic money provider such us WebMoney; the company prepares such serveces sinse December 2003.  

Number of money lenders is diminishing gradually

The number of money lenders who mainly lend unsecured loan to consumers is decreasing up to 9,819 at the end of January 2007; it is a one-third compared with 10 years ago, the Financial Services Agency reported.

As I noted it in previous blog article,  we maintain currently a vague regulation concerning the cap of intrestrat rate in money lending: it is so called ” Gray-zone”.

Gray-zone rates fall between two separate legal rate caps for consumer loans. The Interest Rate Restrictions Law caps rates between 15 percent and 20 percent according to loan amounts, while the Investment Deposit and Interest Rate Law allows rates of up to 29.2 percent to be levied if borrowers so consent in writing and are delivered the reciept in every repayment immediately.

Since a Supreme Court ruling in January 2006 effectively invalidated gray-zone rates, demands from borrowers for refunds from loan companies have increased: the court said that the case where borrowers give their consent truly would be rare.  

The Diet enacted legislation in December 2006 to unify the lending rate caps at 20 percent and to eliminate gray-zone rates by late 2009. It is said that the phenomenon was stirred by revised Money Lending Business Law in 2007; therefore a interest rate of loan shall be capped up to 15% to 20% at the end of July 2010.

Influence predicted

Money lenders are shouting that the decreasing of money lenders might prompt the expanding of illegal lender. Actually, the number of illegal lending prosecuted is increasing since 2003. Some money lenders allegedly transfer their business to the profitable illegal lending. 

However, the basis of the reduction is very likely based on the fact that Illegal Lending Restriction Law was enacted and enforced strictly. Honestly speaking, the decreasing of financial providers must diminish the opportunity of loan. The borrowers over-indebted might be forced to depend on illegal lenders.

Consumer policy to be set up 

The decreasing of money lenders makes it realize that effective money supply by public sector is sought quickly to complete protection for over-indebted consumer who cannot get loan from money lenders.

The Government should enhance the financial capacity of credit unions and community development finance institutions.

In addition, a number of banks should act in partnership with charities for the homeless and other charitable bodies in opening up affordable forms of credit to low-income families.

What is a problem if a language school branch was shut down?

The case was already reported in the previous blog on 28 September 2007. The plaintiff was a student whose class was shut down by merger of Nova’s several branch. The plaintiff claimed the damage compensation because he/she become inconvenient to go to school. As noted previously, the Nagoya District Court, the original court, rejected the plaintiff’s petition. But the Nagoya Appeal Court, on the contrary, approved the claimant claim and ordered the defendant to pay damage compensation to the claimant, on 15^th January 2008.

Appeal court decision

The ruling recognized said that the place of the class was significant fact for the student because he/she decided by virtue of his/ her convenience; therefore, the defendant was indebted to operate his lesson on the promising place located in Fishimi where was 772 meter distance from coming class in Sakae. The court asserted that next class was not called as “Fushimi class”, therefore the defendant practice was regarded as a breach of the contract..　

Consumer affairs Agency will be established

Our government decided the type of the consumer affairs organization, reported on 15^th March 2008.

The government plans to enable a new administrative body on consumer-related issues to secure money for victims by confiscating profits from malicious business practices. The type of body is not decided and some ideas are recommeded. One idea is the body will be established as an independent administrative agency like former Environmental Agency.

Another idea is to establish the type like as the Fair Trading Commission, which carries out quasi-judiciary role. But in such type of organization, the jurisdiction drawing up consumer policies is left in existing ministry as it is. Our government would consider that it is not efficient to accomplish a comprehensive consumer protection. Our government is to complement his plan until March 2008.

Anyway, the government seems to think that the new agency have an empowerment to deal with resolving current consumer disputes directly rather than arranging the conflict between the administrative ministries; for the sake of this role, necessary jurisdictions and authorizations shall be concentrated to the agency.Type of organization

Functions and power

The new organization is expeted to have several funcions:

(1) It may respond in response to a spate of cases related to the false labeling of food products and other problems;

(2) it may also have a system in which the government can demand compensation in place of the victims from operators of harmful business practices, and a system for making such operators pay surcharges depending on the amount of damages;

(3) The government plans to give the new organization the power to inspect illegal business operators for evidence and to urge supervisory agencies to punish such operators.

Shedule

The envisioned mechanisms will be included in a report to be compiled by May after discussions by a government panel of experts on improving consumer affairs, the officials said.

Breach of suitability of Kimono transaction

The Tsu District Court in Mie prefecture approved a plaintiff’s compensation claim damaged by kimono purchasing. It may be evaluated as the precedent of suitability rule in the field of general consumer transaction. The ruling, on 28^th February 2008, ordered the defendant to pay compensation of 1,680,000 yen whereas the claimant suffered her loss of about 15,000,000 yen.

Fact

The claimant, who was a 58 years old woman and under a condition of maniac depression, purchased Kimono consecutively from the defendant, The defendant was aware that the claimant was difficult to make a suitable economic decision by virtue of her mania condition since 25^th April 2004; therefore the defendant could be conscious that if the claimant continued her purchasing of expensive products, she might have been facing financial difficulty. In the situation, the defendant needed rein his sales to prevent the claimant’s loss unforeseen, the court said. The defendant, however, failed to complete his duty of care and had to pay compensation incurred by his negligence.

Ruling

It is not clear whether the ruling admitted the breach of the suitability underneath the decision, because I do not get written verdict of the case so far. The ruling indicated that the defendant was under obligation to prevent excessive sales to consumer. The suitability obligation is stipulated in the Specific Commercial Practices Law Regulation.

Suitability rule

Act on Specified Commercial Transactions (Act No. 57 of June 4, 1976)

Article 7(Order)
Where a seller or a Service Provider violates any of the provisions of Articles 3 to 6
or conducts any of the following acts, if the competent minister finds the act to
involve the risk of impairing the fairness of the transaction pertaining to
Door-to-Door Sales or harming the interests of the purchaser or the service recipient, he/she may order the seller or the Service Provider to take necessary measures:

….(iii) in addition to the acts listed in the preceding two items, acts concerning Door-to-Door Sales, which are specified by an Ordinance of the Ministry of Economy, Trade and Industry as acts that involve the risk of impairing the fairness of the transaction pertaining to Door-to-Door Sales and harming the
interests of the purchaser or the service recipient.

Regulations for Enforcement of the Act on Specified Commercial Transactions (Ordinance of the Ministry of International Trade and Industry, No. 89 of November 24, 1976)

Article 7 (Prohibited acts in Door-to-Door Sales)

Acts specified by an Ordinance of the Ministry of Economy, Trade and Industry referred to in Article 7(iii) of the Act shall be the acts listed in the following items:

….(iii) an act of conducting solicitation that is found to be inappropriate in light of the state of the customer’s knowledge, experience, and assets;

As above regulation does not lay down the civil sanction, the court probably ruled based on default or tort on the basis of the violation of good faith stipulated in the Civil Code (sec.1 (2)). The suitability rule on the Specific Commercial Practices Law Regulation consists of material element of a good faith on civil code.

Comparative law

In UK law, the sales practices in this case might have been corresponding to the undue influence to the vulnerable consumer and the consumer could rescind the contract. And it also is against the Consumer Protection from Unfair Trading Regulations (CPRs) implementing The Unfair Commercial Practices Directive (UCPD).

Why not reduced the disputes regarding mutual fund transactions?

Revised Financial Product Trading Act was enforced in September 2007. The law reform could have aimed to diminish of consumer detriment caused by unfair practices conducted in marketing. In spite of the expectation, the current sateus is different,  recent press report states it.

Revised law

The law imposes a broker to give efficient information to a customer to make his informed decision. Where the broker recommends the products that could incur a loss to principal, the broker has to disclose it and confirm the customer’s needs. If the broker ignores his duty to result in financial loss, he has to compensate it.

Cold calling should be prohibited

The Financial Product Sales Law, which regulates a Forex trading seems to be more effective to minimize the consumer injuries since enactment. The law prohibits the unsolicited calling or visiting to the customer for marketing. If our government is eager to the reduction of consumer injuries, the prohibition of a cold calling is bet measure, I suppose. 

Collective Lawsuits through Certified Consumer Groups

Collective Lawsuits system was established in 2006 in our country. In the regime, the consumer group certified by the prime minister can file a injunction lawsuits representing individual consumer. It may empower consumer groups to prevent future consumer damages. The regime may already be introduced in developed countries. It is not new one.

Scope

 The regime targets to the unfair practices and unfair contract terms regulated by the Consumer Contract Law. The consumer groups’ right is stipulated in the law. It, however, the unfair advertisement is not object in existing law.Our government decided to enlarge the collective lawsuits gegime to the extent of advertising practices, the METI reported on 4^th March 2008.  

Relevant materials

http://www.meti.go.jp/press/20080304004/01_press.pdf　http://www.meti.go.jp/press/20080304004/02_gaiyou.pdf  http://www.meti.go.jp/press/20080304004/03_riyu.pdf  http://www.meti.go.jp/press/20080304004/04_yoko.pdf  http://www.meti.go.jp/press/20080304004/05_shinkyu.pdf　http://www.meti.go.jp/press/20080304004/06_sansho.pdf 

Shall aged peoples’ injuries be relieved by the law reform?

The METI got an approval of relevant laws to be reformed from the liberal democratic party on 4^th March 2008; the Specific Commercial Trading Law and the Installment Sales Law. Our cabinet will approve the bill on 7^th March 2008 and submit it on the diet held now.

Excessive trading

By the law reform, the excessive selling of consumer products of services specified on above laws is prohibited and injuries can cancel such problematic contract within a year since the day of combining it. In addition, the criminal sanction against these law is getting heavier.Damaged aged consumer In 2006 fiscal year, the number of consultations of aged people over 70 years old to the consumer center was reported as about 135,000. It is 3.5 time increase compared with 2001 fiscal year.

New consumer affairs body being organized

The Liberal Democratic Party is discussing regarding what organization is comprehensive and suitable for consumer protection. The party has been studying it since last year, having consecutive inquiries to scholars, consumers groups and industrial groups as stales holders.Proposed structure The party established the consumer affairs studying committee in December 2007. In the intermediary outline in January 2007, the committee proposed the type of body: independent agency, administrative commission or reforming current organization.

Existing administrative bodies  

The current administrative bodies that may be reformed are the National Consumer Affairs Centre and the Fair Trading Commission. The final report may be compiled within the end of March 2008.

National Consumer Affairs Law will be revised

The Cabinet approved the reform of the National Consumer Affairs Law on 4^th March 2008. The bill will be discussed on the current diet, and be enforced in April 2009.

Disputes Resolution Commission

In the forthcoming law, the center is entitled to make settlement on consumer disputes through a specific committee whereas the centre only can give an advice to a consumer. The sysyem is one of the alternative dispute resolution.  

How does it relate to the new consumer affairs organization proposal?

On the other hand, our government is considering the establishment of new consumer affairs body. This  law revision was scheduled prior to the establishing the new organization; as a result, the relation between the law revision and the establishment of the new administrative body is not clear. These matters may have become linking together in the way to discussing.