[Ed: These are remarks kindly added by Sydney Law School Adj Prof Donald Robertson (and former HSF partner), after those from Chief Justice Bathurst, at the 27 November 2019 CAPLUS seminar and launch of two Asian Law books hosted by Herbert Smith Freehills, focusing on: Hiroo Sono, Luke Nottage, Kenji Saigusa and Andrew Pardieck, Contract Law in Japan (Wolters Kluwer 2019)]
Introductions
- It is my pleasure this evening to assist in the launch of this fine book, Contract Law in Japan.
- To do so, and hopefully to stimulate some questions and debate, I want in the short time available to me to raise 2 issues:
- Why do we study foreign law at all? After all, as some say – ‘we do not cite foreign laws – we have our own laws’. I will give 2 reasons why that attitude is wrong.
- What can we learn from a study of foreign law? I will give 2 examples of areas which require some further study, from a comparative perspective.
- The book we launch today provides a helpful summary of the background and sources of Japanese contract law, the first English-language commentary on the Japanese Civil Code of 2017 coming into force on the inauspicious date of 1 April 2020. The introductory chapter teaches us much about the background which is relevant to the examples I raise.
The background to Japanese Contract Law
- There has been a strong influence on Japanese law of Chinese, German and American law, and more recently European Union law. (1-3, 5)[1] Codifications have been central in the development of Japanese law and hence legislation is a primary source of law. (7)
- Japanese law is more open to ‘substantive reasoning’ compared to Anglo-Australian common law. Like US law, it is open to moral, economic, and political reasoning. (6)
- The 2017 reforms are intended to make the Civil Code more ‘modern’ and ‘transparent’ and to align contract law with that of ‘influential jurisdictions’ and international instruments like the UN Convention on International Sales of Goods (CISG) and the UNIDROIT Principles of International Commercial Contracts (UNIDROIT Principles). (4)
- Japanese contract law has some particular
characteristics worth noting:
- There is an emphasis on continuity in long-term or relational contracting. (8)
- There is no doctrine of stare decisis. There is a large and growing influence of case law due to the career judiciary system and a shared vision of the rule of law that emphasises uniformity and predictability of outcomes. (8-12)
- There is no strong distinction between public and private contracts. (13-16)
- There is a role for secondary ordering of outcomes based on Japanese analogues to equity or reasonableness. (28-33)
Why study foreign law
- Given these differences in the way that contract law is perceived in practice, why should Australian lawyers or judges care about Japanese law – or any foreign law at all?
First reason
- The first reason, of course, is that Japan is an important trading partner of Australia. Japan is our second largest destination for exports of manufactured goods, and ninth largest in services. It is our third largest importer of goods and fifth largest in services.
- We have deep and important bilateral and
multilateral trade relationships, importantly:
- The 2015 Japan Economic Partnership Agreement.
- Both Japan and Australia played a critical role in implementing the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership (CPTPP).
- The agreed but not yet signed Regional Comprehensive Economic Partnership (RCEP).
- The mega-regional agreements are hugely significant. The CPTPP covers 14.4% of world trade and has a market size of $10.6 trillion. There is a standing invitation for the US to return to the original TPP. RCEP is more than twice that size, with a market of $27.3 trillion. And it includes China! They will transform our place in the global economic community.
Second reason
- The mega-regional agreements (CPTPP and RCEP) highlight the second reason why we should be interested in the legal system of Japan and other regional powers. We live in a globalised economy, but one where the form of globalisation takes a radical new form.
- The previous forces of globalisation (largely, a reduction in transport costs) lead to increased bilateral trade. The new forces (modern information and communications technology) lead to a new paradigm of competition and trade in which it is possible to perform economic functions at long-range:
- The old paradigm of global competition was trade in goods made in factories in different nations. The new paradigm of global competition is trade in tasks, with competition occurring between workers performing the same task in different countries.
- Economists[DR1] call this ‘vertical disintegration’ leading to global value chains (GVCs)[2] in which production occurs in many production stages in different countries.
- The pattern of trade shows that production occurs in clusters[3]. The Asia-Pacific region is one of those clusters – hence the economic logic of the CPTPP and RCEP. They are not so much free trade agreements as a constitution for the governance of transnational markets, covering topics such as: e-commerce, IP, State-Owned Enterprises, competition rules, and investment protections allowing international arbitration.
- All of this means economies (and legal issues) are inextricably linked and intertwined:
- Foreign laws and international law are inherently interesting in every economic transaction that has a transnational characteristic. We need to understand the legal regimes (contract laws and regulations generally) of our trading and production partners, for their regime (often multiple regimes) will often apply directly and, if not, indirectly.
- The distinction between private and public international law breaks down – international law is part of modern commercial practice. Private international law (conflict of laws) is a central topic in modern commercial practice. The issue of the coherence of laws and regulations also becomes central. Hence the mega-regional agreements have chapters on regulatory best practice.
- This is also why we have seen the new generation of international instruments – adding to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards. This new generation of documents (treaties and statements of principles of law) encourages a global mindset and will transform the international disputes landscape:
- Convention of 30 June 2005 on Choice of Court Agreements;
- 2015 Principles on Choice of Law in International Commercial Contracts, allowing, subject to conditions, the use of ‘rules of law’ (soft law) as a valid choice of law;
- 2018 UN Convention on International Settlement Agreements; and most recently,
- Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters
- Within this changing economic and legal environment, a number of concepts compete for attention:
- Codification (even in Australia – 2012, but still-born);
- Harmonisation;
- Restatements (the US Restatement, Second, Contracts; Burrows; Andrews);
- Statements of general principles of law for international commercial contracts (UNIDROIT Principles, Trans-Lex).
- Of course, private international law – now reinforced by the 2015 Hague Principles on Choice of Law in International Commercial Contracts – keeps whispering: ‘You are autonomous. Choose your own law. Think about rules of law as a valid alternative’.
- The Japanese Civil Code has continued in its tradition of codification, even though that course may (in my view) actually undermine the ability of law to respond to modern complex, transnational issues. The uncertainty and obscurity of sources of law is overstated. But law reform may still be needed. I will mention 2 areas where we could think of more deeply about law reform.
Two areas that could benefit from reform
First area – Good Faith
- There is a long-standing (and somewhat sterile) discussion of the role of good faith. Even the English courts are introducing the concepts in a more nuanced way, especially in long-term, relational contracts[4].
- We know that good faith pervades all of contract law rules. If the debate about implied terms of good faith was sterile, it was because of a failure to see what ‘contract’ is. Contracts are not just pieces of paper and an agreement about terms. ‘Contract’ is an institution. Wim Decock[5], reminds us that the foundational principles of contract law were about maintaining relationships. Contract law was Trinitarian in nature and good faith was about maintaining a relationship with God and with each other (a vertical and horizontal dimension).
- It is interesting to see, therefore, the observation in this book (6) that Japanese law puts greater emphasis on maintaining contractual relationships (62-65), in line with more long-term or relational contracting in business practice, and that therefore good faith plays a major role in Japanese law, more like German law. (64)
- It would be helpful to Australian contract law to perceive contract as an institution and articulate rules about good faith for the support and protection of that institution, particularly as it weathers the greater volatility that we see in global commercial practice.
Second area – Change of Circumstances
- The doctrine of frustration is notoriously unsatisfactory in Anglo-Australian common law. It is far from an obsolete doctrine but deals with the problems of the everchanging transnational commercial world. Brexit (or not) is just one of the current issues giving rise to the question of what should happen when circumstances radically change.[6]
- Putting to one side the issue of what exactly is a sufficiently radical event to call frustration into play, the seriously deficient Anglo-Australian response (termination as a matter of law without recourse to either party) seems hardly satisfactory in a modern commercial contracting environment of Global Value Chains and relational contracts.
- The judgments in the High Court in Codelfa Construction Pty Ltd v State Rail Authority of NSW [7] give hints of a broader approach. Both in this and the leading English case of Davis Contractors Ltd v Fareham UDC[8], the parties proceeded with the work and claimed a restitutionary remedy for the different work done after the frustrating ‘event’. As Jane Swanton has noted[9], the continued performance and restitutionary remedy was in effect a variation of the contract. This was appropriate given the subject matter of the contract in Codelfa was with a government entity concerning important public infrastructure.
- The UNIDROIT Principles (see Art 6.2 Hardship and Art 7.1.7 Force Majeure) and before them the Contract Code drafted by Harvey McGregor for the English Law Commission[10], suggests another, more direct, way of achieving a just result: a legal requirement (or, at least, a precondition of relief) to negotiate in good faith to restore the ‘equilibrium’ of the contract, failing which there is a possibility of a tribunal intervening to itself adapt the contract to the new circumstances.
- Japanese law, like German law, recognises a right of adjustment. (426-431) Although drawing back from a full adoption of the UNIDROIT Principles in the 2017 Civil Code, the issues surrounding changed circumstances are informed by the greater predilection of Japanese courts to keep the contract alive. A generalised duty to renegotiate in good faith is still being debated. (431)
- Australian lawyers would do well to participate in this debate, given the importance in modern commercial practice of long-term, relational contracts. It would help inform an Australian attitude to radical changes of circumstances, which changes are more and more likely in a volatile global economy.
Concluding remarks
- In the context of where it fits in a world community, there is a long and sometimes acrimonious debate in the United States (and sometimes Australia too – although we are much more used to citing foreign case law[11]) as to the permissibility of citing and relying on foreign law[12].
- A study of this work shows that much can be learnt about the suitability of our own legal system by studying foreign laws and applying the comparative method. The articulation of laws and their reform is part of the art of statecraft, as Justinian describes in his opening paragraphs to his monumental Digest[13]. More attention should be paid to this important public task.
- Books like the one we launch today are valuable guides along the way. I commend it to your reading.
Donald
Robertson
Adjunct Professor
of Law, University of Sydney
[1] References are to paragraph, not page, numbers.
[2] Paul R Krugman, Maurice Obstfeld and Marc J Melitz, International Economics: Theory and Policy (Pearson, Harlow, 11th ed, 2018), 46; Pol Antràs, Global Production: Firms, Contracts, and Trade Structure (Princeton University Press, Princeton, 2016).
[3] Richard Baldwin, The Great Convergence: Information Technology and the New Globalization (Harvard University Press, Cambridge, Mass., 2016).
[4] Sir George Leggatt, ‘Negotiation in Good Faith: Adapting to Changing Circumstances in Contracts and English Contract Law’ [2019] Journal of Business Law 104.
[5] Theologians and Contract Law: The Moral Transformation of the Ius Commune (ca 1500-1650 (Martinus Nijhoff, Leiden, 2013), 608.
[6] Canary Wharf (Bp4) T1 Ltd. v European Medicines Agency [2019] EWHC 335 (Ch).
[7] (1982) 149 CLR 337.
[8] [1956] AC 696.
[9] ‘Discharge of Contract by Frustration: Codelfa Construction Pty Ltd v State Rail Authority of NSW’ 57 Australian Law Journal 201 at 213, 217.
[10] §595, Contract Code: Drawn Up on Behalf of the English Law Commission (1966, – the first project of the then new English Law Commission, but published only in 1993 by an Italian publishing house).
[11] Jeremy Waldron, “Partly Laws Common to All Mankind”: Foreign Law in American Courts (Yale University Press, New Haven, 2012).
[12] Stephen Breyer, The Court and the World: American Law and the New Global Realities (Knopf, NY, 2015).
[13] Digest of Justinian, 533 AD (English translation edited by A Watson, University of Pennsylvania Press, Philadelphia, 1985), p xlvii.
