The Defense Ministry was ordered Thursday by the Tokyo High Court to pay all of about ¥35 billion in damages sought by Fuji Heavy Industries Ltd. for canceling a helicopter order in 2008.
The high court overturned a Tokyo District Court ruling last year that rejected the Japanese manufacturer's demand seeking the ministry pay licensing fees and initial investment expenses to produce AH-64D attack helicopters.
According to the high court ruling, the ministry decided in 2001 to procure 62 attack helicopters, prompting Fuji Heavy to make the payments needed to manufacture them, including license fees to Boeing Co. of the United States.
As the ministry did not fully pay for the initial investments, Fuji Heavy had planned to recover the cost by dividing the fees into 62 parts to be added to each aircraft's bill.
But the ministry decided not to procure any more of the helicopters after ordering 10 units, citing tight budget conditions.
"Since the state behaved to make (the company) believe as if it would pay all of the initial investment expenses, Fuji Heavy made the contract based on it," Presiding Judge Koichi Tamura said.
"Even if the plan changed, the premise of the contract should be legally protected," the judge said.
The high court ruling sharply contrasts with the lower court ruling that said "The state has no obligation to pay as there is no custom or agreement that the state would pay all of the initial investment expenses."
"It is truly regrettable that the severe ruling was given," a Defense Ministry official said, adding the ministry will respond appropriately after studying the ruling.