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How Japan got new contract law it neither wants nor needs

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Special To The Japan Times

While everyone was whingeing about the horrid new conspiracy law passed in June, the same Diet session also generated other potentially historic legislation: a wholesale amendment to the 120-year-old contract law provisions of the Civil Code.

Expected to take effect in 2020, the changes have been in the works for at least a decade. Law students still have to study the old (current) law because it is on the bar exam.

Perhaps forcing future lawyers to pointlessly remember what the law is today helps distract them from thinking about why the law exists or why it should be changed. Having dealt with contracts involving Japan for over 20 years, I struggle to remember situations when quirks of Japanese law caused problems. I may not be alone: There has been significant grumbling from lawyers and industry groups such as the Japan Business Federation (Keidanren) questioning the need for these amendments.

Humans have been transacting for millennia — long enough to resolve many recurring problems. Courts fine-tune as needed, but since most rules of formal contract law are optional, deficiencies can be addressed through different rules contained in contracts themselves that are sometimes referred to as “boilerplate.” Japanese contract law today involves 120 years of court interpretations, academic theory and drafting techniques generations of practitioners have put into practice through millions of contracts. Soon it will all change.

The Civil Code is also broad in scope, forming the foundation for countless other laws that collectively form the basic legal infrastructure of much of the economy. Alongside the code amendments, the Diet had to pass another 200-page law containing 362 articles making conforming changes to hundreds of other statutes rooted in it.

But do you remember ever hearing about anyone in Japan even wanting new contract law? No, right? Given the objections of lawyers and the business community, the enactment of these amendments represents a fascinating legislative accomplishment of their bureaucratic sponsor, the Ministry of Justice. Yet the question remains: why?

One possible explanation: It is a giant experiment driven by academic hubris and bureaucratic ambition. In a 2013 book (“Minpo Kaisei no Shinjitsu” or “The Truth about Amending the Civil Code”), law professor and attorney Hitoshi Suzuki offers a theory about how the amendment agenda (already well developed when the book was published) came about. It is both disturbing and enlightening as to how Japan’s legislative process works.

All down to one man’s vision?

The story starts with a young researcher from the University of Tokyo’s law faculty visiting Cornell. There he is enthralled by American contract theory, including the writings of the late Grant Gilmore, whose book “The Death of Contract” explained the supposed decline of American contract law. Deciding Japanese contract law was also “dying,” he made it his ambition to “save” it.

Returning to Japan, he goes on to become a full professor, authoring a leading treatise on the Civil Code, as well as a book entitled “The Rebirth of Contract.” A good establishment scholar, he gets into the government committee circuit and ultimately convinces the Justice Ministry to completely revamp Japanese contract law and hire him to spearhead the effort. This was conducted in secret at first, through an ostensibly “private” study group packed with like-minded academics and ministry bureaucrats.

It was only after the formal ministry-driven legislative process took over that details about the proposed changes — particularly the conceptual basis underlying them — started to be made public. How contract law would be revised was largely a done deal before elected legislators had any input. Why was never well articulated, because nobody driving the process apparently cared whether the people of Japan or its business community actually wanted new contract law.

Bureaucrats packed the contract law subcommittee of the justice minister’s legislative council conducting the formal deliberations with friendly scholars and as few representatives as possible from industry or other stakeholders who actually worked with contracts. Diligent to a fault, the subcommittee released a massive interim proposal on April 12, 2011, when the country was still reeling from the previous month’s earthquake/tsunami/meltdown triple disaster. In May, a still-recovering population was invited to submit comments on the proposal.

To comment meaningfully would have involved not being affected by the disaster, reading the almost 700 pages comprising the report and supporting documents and making a submission in the two-month window allowed. The process was farcical enough for several bar associations to call for an extension of the comment period or even suspension of the whole process. A few months later the Japan Federation of Bar Associations issued a formal statement questioning the need for the amendments and criticizing the legislative process. (In 2015 the JFBA issued a more favorable opinion of the consumer-friendly rules contained in the amendment text.)

Suzuki’s book is great fun in part thanks to his extensive excerpting of minutes of meetings of the Cabinet Office’s now-defunct Regulatory Reform Committee. These feature frustrated committee members trying to extract from a wily ministry officials an explanation of what is wrong with contract law now, and what the Justice Ministry plans to change. As a service I have paraphrased the substance of these interactions below:

Committee member: What parts of the code do you plan to change?

Ministry of Justice official: Well, we are still looking into that.

CM: But if you are planning to change it you must have identified problem areas.

MOJO: Yes, but it is still too early to go into details.

CM: So you aren’t thinking in terms of specific articles yet?

MOJO: Oh sure, we are going to amend specific articles.

CM: Such as?

MOJO: It’s too early to say.

CM: But you have this study group spending a lot of time discussing the amendments, right?

MOJO: Yes.

CM: So what are they discussing?

MOJO: It’s really not my place to reveal what a private study group is discussing.

CM: Private study group?! But you and a dozen of your colleagues from the Justice Ministry participate in the meetings.

MOJO: Well, sure. We’re really into this stuff.

Suzuki’s book is courageous in calling out the irresponsible academic adventurism he saw driving the amendment process. And just to show that it takes great learning to be truly petty, the professorial committee doing the accreditation review of his law school gave the institution a partially failing evaluation in 2013, based in part on Suzuki’s supposed unsuitability for a faculty position. His book was named specifically as a factor in this evaluation.

What does the ministry gain?

So what does the Justice Ministry get out of all this? I can only speculate, but for one thing, the changes are supposed to bring the nation’s contract law in line with some mythical “global standard,” thereby reversing the supposed Galapagos-ization of Japan’s legal system in the highly competitive world of contractual governing law clauses (←sarcasm). Apparently it is supposed to make foreign companies more likely to arbitrate commercial disputes in Japan under Japanese law (←fantasy).

More realistically, I would guess that the ministry gets a nice new mandate preserving or expanding its influence and budget. Helping everyone adjust to the new rules can be an Justice Ministry role for years to come. Perhaps they learned something from their now decade-long and apparently highly successful program of Constantly Amending the Company Act.

Also, one significant aspect of the amendments deals with adhesion contracts — form-style contracts that large companies impose on customers who have no ability to negotiate the terms. Consumer-friendly, yes, but Japanese courts have developed rules addressing imbalances in bargaining power, most regulated industries are already subject to detailed rules on contracting with customers, and there is already the Consumer Affairs Agency to deal with such things too. Perhaps reasserting control of contract law enables the ministry to recoup lost territory.

Cynicism aside, the amendments do represent a conceptual shift in contract law. The soon-to-be-old Civil Code provisions were mostly terse expressions of seemingly mechanistic yet often well-considered rules based on an objective view of contract that assumed equal bargaining power. Overarching requirements that everyone act in good faith and refrain from abusing their rights provided a means for courts to mitigate unfairness.

The new contract law is far more subjective in its assumptions about who is strong and who is weak in various types of transactions, and allows the weak an escape from oppressive terms. Corporate legal departments should be girding their loins for a period of uncertainty and lawyer fees as the new provisions take effect.

Some changes are welcome. By codifying existing jurisprudence, the Civil Code will now contain clear rules on security deposits for property rentals. Demanding personal guarantees will be harder too, whether from entrepreneurs seeking corporate funding or students trying to rent a flat. The former will now require a trip to a public notary, a nice present to Justice Ministry retirees appointed to notarial posts (by the ministry). Liability under personal guarantees will also be subject to caps, hopefully relegating to history the all-too-common tales of kindly persons suddenly bankrupted by an ill-considered promise to stand for the debts of a friend or relative. Whether these much-needed changes required amending the entire corpus of contract law is still questionable.

Still, with the ministry demonstrating it can rewrite huge chunks of the code without anyone even asking, perhaps it can now turn its attention to the code’s family law rules. Some Japanese people seem to want innovations like joint custody, retaining surnames after marriage, elimination of legitimacy-based distinctions, rules on parentage reflecting a century’s worth of development in assisted reproductive techniques — perhaps even same-sex marriage.

Cross your fingers. But maybe don’t hold your breath.


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Colin P.A. Jones is a professor at Doshisha Law School in Kyoto. The views expressed are those of the author alone.