Nozomu Sahashi, the former president of collapsed English language school operator Nova, was recently handed a three-year six month prison sentence in a ruling at the Osaka District Court.

Sahashi was convicted of embezzlement in the conduct of business, by misappropriating money from an employees’ fund to cover payments for cancelled contracts. Nova had collected some 56 billion yen in advance from around 300,000 students, in one of the biggest cases of consumer damage in Japan’s postwar history.

The former president has no assets, and even if bankruptcy proceeding are undertaken, there appears to be no prospect of students having their lesson fees returned. The fact that relief from the damage cannot be obtained by pursuing the criminal responsibility of the company’s operator is a consumer problem — and a governmental lapse.

If Ministry of Economy, Trade and Industry, which has jurisdiction over the industry, had taken a more serious view of the problem of canceled contracts and had quickly issued an administrative order against Nova, it is possible the damage could have been reduced. However, the ministry, the government body responsible for nurturing industry, was not greatly concerned with the damage caused to consumers and left the problem unaddressed.

The imminent formation of a consumer agency is based on reflection on this kind of problem. The agency is designed to be a kind of consumer administration control tower, intended to aggregate information on consumer problems like fraudulent sales methods and accidents involving common products — such as the carbon monoxide poisonings caused by water heaters produced by Paloma — and solve these issues.

The National Consumer Affairs Center of Japan had received complaints from students about Nova’s handling of cancelled contracts, such as its lowering of the amount of lesson fees returned, for more than a decade. In 2002, the Tokyo Metropolitan Government issued an administrative order to the company, but the Ministry of Economy, Trade and Industry sided with Nova’s claim that cancellation of contracts was made at the convenience of consumers. This effectively gave Nova an official stamp of approval and the company expanded its business while receiving lesson fees in advance without taking profit into consideration.

Later, the company was hit with a succession of lawsuits from students who demanded the return of their lesson fees. In April 2007, the Supreme Court ruled that provisions demanding heavy compensation for terminated contracts are invalid.

Just before the ruling, the Ministry of Economy, Trade and Industry had finally carried out a spot inspection at Nova on suspicion that the company was violating the Specified Commercial Transaction Law. In June 2007, the ministry judged that Nova had violated 18 provisions of the law, which pertain to procedures for cancelled contracts, and issued a business suspension order against the company. The move was an echo of the judicial decision.

http://mdn.mainichi.jp/perspectives/news/20090828p2a00m0na017000c.html

The Osaka High Court has ordered the landlord of an apartment building in Kyoto to return lease renewal fees paid by a former tenant, reversing a lower court decision.

In the lawsuit, the 54-year-old male company employee of Kyoto had asked the landlord to return about 550,000 yen, claiming he had paid the money according to a clause in his rental contract that he now believed violated the consumer contract law.

In Thursday’s ruling, presiding Judge Kitaru Narita stated that the clause unilaterally undermines the interests of consumers and therefore is void under the consumer contract law.

The judge ordered the landlord to return about 450,000 yen to the man.

The ruling reversed a Kyoto District Court decision given in January last year dismissing the man’s request that the money be returned.

The landlord plans to appeal.

Four similar rulings over renewal fees have so far been handed down at district courts in Tokyo, Kyoto and other places.

While tenants lost in three of the four rulings, the Kyoto District Court in July became the first district court to rule in favor of a tenant in the cases.

Thursday’s ruling was the first of its kind given by a high court.

According to the ruling, the man signed a contract in 2000 to pay 45,000 yen in monthly rent and an annual renewal fee of 100,000 yen.

He paid the renewal fees five times until August 2005, and he moved out in November 2006. He filed the lawsuit in 2007.

The first ruling regarded the fees as advance rental payments. However, the judge at the high court said the amount was unreasonably high for an advance payment.

The judge also said the Land and House Lease Law stipulates that landlords cannot refuse to renew a contract without sufficient cause, but that the landlord had demanded the tenant pay the contract renewal fees without any explanation.

The judge further said it could be presumed the landlord had given the tenant the impression that his monthly payment was low by collecting renewal fees, leading him to renew the contracts.

The judge then ordered the landlord to reimburse the total amount of the renewal fees the tenant had paid since the revised consumer contract law was put into effect in 2001, as well as a deposit he paid when he first entered the apartment after deducting his unpaid rent from it.

http://www.yomiuri.co.jp/dy/national/20090829TDY02305.htm