Guest Blog: “Bureaucratic Capture” in Japan’s Nuclear Disaster Compensation Scheme?

Written by: Joel Rheuben (University of Tokyo, LLM Program)
More than a year on from the near-meltdown of several reactors at the Fukushima Dai-ichi Nuclear Power Plant, Tokyo Electric Power Company (“TEPCO”), the plant’s owner and operator, is continuing the slow process of compensating evacuees and others from the area surrounding the plant for damage to property and loss of income and livelihood as a result of the disaster. According to TEPCO’s website, as at 1 June 2012, the company had processed some 668,000 of a total of 764,000 (and counting) claims, provisionally worth JPY 856.6 billion (USD 11.7 billion).

Japan’s Law on Compensation for Nuclear Damage (Law No. 47 of 1961: the “Nuclear Compensation Law”) establishes a strict, no-fault and unlimited liability regime for nuclear facility operators, partially funded by a mandatory insurance scheme. The national government may provide “assistance” (undefined) to nuclear facility operators where the government “deems it necessary”, but there is no express obligation for it to do so. The Nuclear Compensation Law also provides for the creation of a Nuclear Damage Compensation Dispute Resolution Committee (the “Dispute Resolution Committee”) to mediate disputes between facility operators and victims, and to provide “general guidelines” for voluntary settlements between parties (read “administrative guidance”: the supposedly pervasive, non-transparent, but theoretically non-binding administration tool of choice for the Japanese bureaucracy).
While the Dispute Resolution Committee has not yet issued a final set of “guidelines”, its provisional draft released publicly in August last year suggests that it favours a broad scope for compensation, including compensation for emotional distress and reputational damage for local exporters tainted by association with radiation. It is estimated that the total compensation amount under these guidelines could exceed JPY 10 trillion (USD 124.4 billion). Yet despite bearing no liability under the Nuclear Compensation Law, the national government has already pledged over JPY 2 trillion to subsidise TEPCO in meeting these costs, and has established together with Japan’s main nuclear facility operators a fund to jointly oversee claims.
Given the mounting costs of reconstruction and the already parlous state of Japan’s national finances, it seems curious that the government would voluntarily assume such a large liability when it could easily push the full amount onto the country’s least popular company. No doubt there are concerns over keeping TEPCO solvent (although as Professor Hatsuru Morita argues, this may not be desirable), and both political and economic incentives to ensure that victims are compensated efficiently and without delay. But as TEPCO’s long-term future is arguably secure given its ongoing monopoly over electricity generation in eastern Japan, these objectives could just as easily have been met by a long-term loan facility, similar to the arrangements established between James Hardie and the NSW and Commonwealth governments in 2009 to guarantee payouts for victims of asbestosis.
Rather, conventional Japanese law and society theory could provide an answer.
In his classic 1987 text “Law and Social Change in Postwar Japan”, Professor Frank K. Upham argues that the foreign origins of many of Japan’s formal legal rules (including the Civil Code, which contains the ordinary rules governing civil liability) mean that a judicially-centred, rules-based system of adjudication which has no formal role for intervention by Japan’s political, bureaucratic and business elite threatens to produce outcomes which conflict with the elite’s policy preferences. Consequently, Upham argues, in significant cases involving large groups of mobilised citizens, the government attempts to “capture” disputes and resolve them informally through alternative dispute resolution mechanisms so as to prevent the courts from facilitating social change outside of its control. Upham backs up this argument with several case studies, including, in the most closely analogous example, the “Big Four” pollution suits of the 1960s and 1970s. Here successful and well-publicised claims against major polluters prompted the government not only to put in place more stringent pollution regulations, but also to establish a government-administered mediation and compensation scheme which diverted most pollution disputes away from the courts.
In the present case, the very creation of the compensation scheme and the Dispute Resolution Committee under the Nuclear Compensation Law could be regarded as an example of “bureaucratic capture” (albeit a remarkably prescient one, given that the law has barely been used in the past 40 years). Certainly TEPCO’s strict liability under the Nuclear Compensation Law means that few victims have sought redress judicially under Japan’s ordinary civil liability rules, due to the additional hurdle of proving negligence on the part of TEPCO. However, the need for (relatively) fast and non-contentious claims resolution in the case of a major disaster is an equally plausible reason for a specialised compensation scheme. In Australia, the NSW government similarly established a specialist body, the Dust Diseases Tribunal, to deal with a proliferation of asbestos-related claims quickly and affordably.
What is more interesting is the possible implications of this theory for the Japanese government’s decision to voluntarily fund a large proportion of this compensation scheme. Specifically, it is arguable that the government has co-opted the scheme in order to avoid liability under the State Compensation Law (Law No. 125 of 1947), a private law statute which deals with tortious liability for government agencies.
In an article in one of Japan’s leading legal periodicals in December last year, Professor Takeshi Hitomi of Rikkyo University argues that the Japanese government could well face liability under the State Compensation Law for its failure to adequately regulate the Fukushima Dai-ichi Plant specifically, and to set appropriate earthquake-resistance standards for nuclear facilities more generally. To an Anglo-Australian-trained jurist, this may seem extraordinary, as UK and Australian courts have repeatedly and emphatically rejected imposing liability in common law negligence for regulatory failure, seeing it as a form of policy oversight which the courts are inherently unsuited to conduct. However (consistent with Upham’s theory), the Japanese courts have on a number of occasions recognised liability for regulatory failure, particularly in politically-charged public interest cases. In two separate cases in 2004, for example, the Supreme Court found against government defendants for failing to exercise regulatory powers to prevent dust-related pneumoconiosis in coal mines and mercury poisoning in the Minamata Bay area, despite having prior knowledge of the risks of both.
The current compensation scheme is wide-ranging and, in terms of the types of damage compensated, arguably quite generous (courts have, for example, been reluctant to recognise liability for emotional distress under the State Compensation Law, and Morita suggests that there might not otherwise be sufficient proximity between the Fukushima disaster and any consequent reputational damage to attract liability). In this sense the national government may be little better off hiding behind a joint compensation scheme with TEPCO than exposing itself separately to civil suits. However, two points can be made. First, the Dispute Resolution Committee’s provisional guidelines limit the geographic scope for compensation to victims in Fukushima Prefecture and the surrounding areas, cutting off claims from overly-sensitive Tokyoites or businesses elsewhere in Japan for follow-on damages. Second, by channeling claims into an ad-hoc, non-transparent scheme, the government can prevent the courts from establishing precedents that could widen the scope of liability in future State Compensation Law cases.
For the first point to be relevant, the courts would need to accept that the Japanese government has intended to “cover the field” in terms of compensation, and reject any claims against either the government or TEPCO falling outside of the Dispute Resolution Committee’s guidelines. Whether or not, as some have claimed, the courts are “faithful lackeys” of the government (a view associated with Professor J Mark Ramseyer but naturally rejected by Upham), there is at least general consensus that the courts act conservatively in some public law cases, and so could well hesitate to further burden the national government. At the very least, by co-opting resolution of the claims of the vast majority of victims, the government will likely prevent the formation of plaintiffs’ associations like those that proved so formidable in the pollution case study examined in Upham’s book.
The second point above is potentially more compelling. Despite significant amendments to the Administrative Case Litigation Law (Law No. 139 of 1962) in 2005 to increase the types of remedy available for illegal administrative actions, relief is still hampered by narrow judicial interpretations of the test for standing and of the types of conduct amenable to judicial review (in respect of which, see Nottage and Green). Consequently, the State Compensation Law, which merely requires that a government action “illegally” infringes rights, remains one of the most important and frequently utilised laws for collaterally challenging government action. A single broadening of the standards for liability under the State Compensation Law could well have more far-reaching consequences for administrative litigation than a decade of jurisprudence under the Administrative Case Litigation Law.
Whether the Japanese government’s actions can be explained as a politically savvy act of benevolence or a calculated attempt to capture another area of social conflict, what is clear is that the government’s payout is yet another cost that the country can ill afford.