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Interpretation of Corporate Acquisition Contracts in Japan: A Legal Transplant through Contract Drafting

Published online by Cambridge University Press:  02 September 2021

Akio Hoshi*
Faculty of International Social Sciences, Gakushuin University, Tokyo, Japan
Corresponding author. E-mail:
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This article explores Japanese transactional lawyers’ attempts to transplant American legal practice concerning corporate acquisition contracts into Japan. Despite their extensive efforts to disseminate legal concepts originating from the common law into the Japanese legal community, their transplantation attempts produced somewhat unexpected results by the promoters of the transplant. Faced with unfamiliar drafting styles and legal concepts, Japanese courts interpreted American-style corporate acquisition contracts in accordance with traditional Japanese-style contract interpretation. As a result, attempts by Japanese practitioners at transplantation were incomplete. This incompleteness is attributable to their inattention to the differences in approaches to contract interpretation between Japanese and New York courts. New York's approach is much more formalistic and literal than Japan's. If fully aware, however, they could have filled the gap by using functional substitutes for American techniques of controlling adjudicators’ contract interpretation which would effectively operate under Japanese law. Japan's experience confirms that a widely supported view in comparative law scholarship that transplanted law does not necessarily operate in the recipient jurisdiction as it did in its host jurisdiction is applicable to the transplantation of contract drafting practices.

Copyright © The Author(s), 2021. Published by Cambridge University Press on behalf of the National University of Singapore

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1 Gilson, Ronald, ‘Value Creation by Business Lawyers: Legal Skills and Asset Pricing’ (1984) 94 Yale Law Journal 239, 307308CrossRefGoogle Scholar.

2 This phenomenon is not necessarily unique to Japan. For instance, American-style documentation started being used in cross-border M&A transactions between US and German companies by the turn of the century at the latest. See also Hill, Claire A & King, Christopher, ‘How Do German Contracts Do as Much with Fewer Words?’ (2004) 79 Chicago-Kent Law Review 889, 891Google Scholar.

3 In common law jurisdictions, ‘interpretation’ and ‘construction’ are sometimes used distinctively. The word ‘interpretation’ refers to the process of determining the meaning that the parties themselves attached to contract language, whereas ‘construction’ refers to the process of determining the meaning and legal effect of a contract. See E Allan Farnsworth & Zachary Wolfe, Farnsworth on Contracts, vol 2 (4th edn, Wolters Kluwer 2019) para 7.08. Although the conceptual differences between those processes are recognized in Japanese legal scholarship (Tadao Hozumi, ‘Hōritsu kōi no “kaishaku” no kōzō to kinō (2) [The Structure and Function of the “Interpretation” of Juristic Acts: Part 2]’ (1961) 78 Hōgaku Kyōkai Zasshi 27), Japanese law does not draw a lexical distinction between the two processes and uses the same word, kaishaku, for both of them. In this article, therefore, the terms ‘interpretation’ and ‘construction’ are used interchangeably.

4 While legal transplants through governmental channels (legislative or judicial processes) have been extensively studied, those through private actors were nearly undetected. A rare exception is Li-Wen Lin's study on multi-national companies’ attempts to incorporate labour and environmental norms into their codes of vendor conduct. See Lin, Li-Wen, ‘Legal Transplants through Private Contracting: Codes of Vendor Conduct in Global Supply Chains as an Example’ (2009) 57 American Journal of Comparative Law 711CrossRefGoogle Scholar.

5 Alan Watson, Legal Transplants: An Approach to Comparative Law (University Press of Virginia 1974).

6 A thorough review of the legal transplant literature is far beyond the scope of this article. As an accessible survey of the literature, see Michele Graziadei, ‘Comparative Law, Transplants, and Receptions’, in Mathias Reimann & Reinhard Zimmermann (eds), The Oxford Handbook of Comparative Law (2nd edn, Oxford University Press 2019) 442.

7 Watson (n 5) 21.

8 ibid ch 16; Watson, Alan, ‘Comparative Law and Legal Change’ (1978) 37 Cambridge Law Journal 313, 313321CrossRefGoogle Scholar.

9 Pierre Legrand, ‘The impossibility of “Legal Transplants”’ (1997) 4 Maastricht Journal of European and Comparative Law 111.

10 ibid 114.

11 Teubner, Gunther, ‘Legal Irritants: Good Faith in British Law or How Unifying Law Ends Up in New Divergences’ (1998) 61 Modern Law Review 11, 17ffGoogle Scholar; Roger Cotterrell, ‘Is There a Logic of Legal Transplants?’, in David Nelken & Johannes Feest (eds), Adapting Legal Cultures (Hart Publishing 2001) 71, 80–84.

12 Hideki Kanda & Curtis J Milhaupt, ‘Re-Examining Legal Transplants: The Director's Fiduciary Duty in Japanese Corporate Law’ (2003) 51 American Journal of Comparative Law 887.

13 Even before the transplantation of the duty of loyalty clause, the Japanese Commercial Code had imposed certain restrictions on directors’ self-interested transactions such as (i) entering into business that competes with the company (art 264), and (ii) personally entering into transactions with the company (art 265) and required shareholder's approval for the amount of directors’ remuneration (art 269).

14 Ronald J Gilson & Curtis J Milhaupt, ‘Choice as Regulatory Reform: The Case of Japanese Corporate Governance’ (2005) 53 American Journal of Comparative Law 343.

15 ibid 369–371. For Milhaupt's own synthesis of the two studies, see Curtis J Milhaupt, ‘Historical Pathways of Reform: Foreign Law Transplants and Japanese Corporate Governance’, in Klaus J Hopt et al (eds), Corporate Governance in Context: Corporations, States, and Markets in Europe, Japan, and the US (Oxford University Press 2005) 53.

16 Daniel Berkowitz, Katharina Pistor & Jean-Francois Richard, ‘The Transplant Effect’ (2003) 51 American Journal of Comparative Law 163.

17 The legality index consists of survey data measuring the effectiveness of the judiciary, rule of law, the absence of corruption, low risk of contract repudiation, and low risk of government expropriation observed during 1980 to 1995. See ibid 183.

18 Mathias Siems & David Cabrelli (eds), Comparative Company Law: A Case-Based Approach (Hart Publishing 2013).

19 The chronological change in annual numbers of corporate acquisition transactions from 1985 to date in the Japanese market is available at MARR Online website <> accessed 9 Sep 2020.

20 For the institutional changes that are related to the Japanese M&A market around the turn of the century, Curtis J Milhaupt & Mark D West, ‘Institutional Change and M&A in Japan: Diversity Through Deals’, in Curtis J Milhaupt (ed), Global Markets, Domestic Institutions: Corporate Law and Governance in a New Era of Cross-Border Deals (Columbia University Press 2003) 295.

21 Although it is not easy to verify exactly when the American-style drafting practice was accepted into Japanese legal practice, its spread is generally considered to have taken place in accordance with the increased complexity of corporate acquisition transactions in the late 1990s. A piece of indirect evidence is that M&A hō taizen, a pioneering practitioners’ treatise on mergers and acquisitions law in Japan, was published in 2001. See Nishimura & Partners (ed), M&A hō taizen [Corpus Juris M&A] (Shōji Hōmu Kenkyūkai 2001).

22 Japanese practitioners usually state that their drafting style follows ‘western’ contract drafting style. See eg Nishimura & Partners (n 21) 511; Sōichirō Fujiwara (ed), M&A no keiyaku jitsumu [The Practice of M&A Contracts] (Chūō Keizai 2010) 4–5; Ryūtarō Nakayama, ‘Hyōmei hoshō jōkō no deforuto rūru ni kansuru ichi kōsatsu [A Thought on Default Rules regarding Representations and Warranties]’, in Shinsaku Iwahara et al (eds), Kaisha Kinyū Hō: Gekan [Corporations, Finance and Law, vol 2] (Shōji Hōmu 2013) 1–2. As discussed below, however, their drafting style is American, neither German nor French.

23 While the drafting style is vaguely referred to as ‘western’, the individual concepts used in corporate acquisition contracts are expressly explained as imported from common law. See eg, Fujiwara (n 22) 5; Nakayama (n 22) 1–2. Doubtless the heavy reliance by Japanese drafting practice on common law concepts and American drafting style is at least partially attributable to the fact that the vast majority of leading M&A practitioners have the experience of being educated in US law schools and/or seconded to US law firms (Legal education abroad has significant influence on the channel of legal transplants. See Holger Spamann, ‘Contemporary Legal Transplants: Legal Families and Diffusion of (Corporate) Law’ [2009] BYU Law Review 1813, 1849–1851). As Japanese judges are directly recruited from new graduates of the judicial training programme (shihō shūshū) organized by the Supreme Court of Japan, it takes time for transactional lawyers’ experiences to be shared with judges through actual disputes in Japan.

24 Fujiwara (n 22) pt 2; Yoshihito Shibata et al, M&A jitsumu no kiso [The Foundations of M&A Practice] (Shōji Hōmu 2015) para 2.2.2; Mori, Hamada & Matsumoto (ed), M&A hō taikei [Comprehensive Analysis of M&A Law of Japan] (Yūhikaku 2015) pt 1, ch 4; Kōji Toshima et al, M&A keiyaku [M&A Contract] (Shōji Hōmu 2018); Nishimura & Asahi (ed), M&A hō taizen: ge [Corpus Juris M&A, vol 2] (rev edn, Shōji Hōmu 2019) pt 2, ch 3.

25 In miscellaneous clauses, some common-law-specific clauses are intentionally omitted. They include a ‘no third-party rights’ clause, a ‘jury trial waiver’ clause and an ‘enforcement of contract’ clause. As discussed below, however, a merger or integration clause is intentionally included in corporate acquisition agreements despite the absence of the parol evidence rule in Japanese law.

26 Murray Perelman (ed), Model Stock Purchase Agreement with Commentary (2nd edn, American Bar Association 2010).

27 In the common law, misrepresentation is a cause of action in tort law, and breach of an express warranty is a cause of action in contract law. For the historical development of those concepts in the United States, see Glenn D West & W Benton Lewis Jr, ‘Contracting to Avoid Extra-Contractual Liability—Can Your Contractual Deal Ever Really Be the “Entire” Deal?’ (2009) 64 Business Lawyer 999.

28 Practitioners’ treatises explain that the concepts of ‘representation’ and ‘warranty’ are used in drafting practice to achieve the same legal effect under Japanese law as contemplated under common law. See Fujiwara (n 22) 147–148; Shibata et al (n 24) 103; Mori, Hamada & Matsumoto (n 24) 228; Toshima et al (n 24) 73; Nishimura & Asahi (n 24) 173–174.

29 For example, liability arising from breach of a representation or warranty is argued to be distinguished from liability arising from breach of a seller's warranty against defects, which is provided in Articles 562 to 564 (or former Article 570) of the Japanese Civil Code, in that (i) the scope of representations and warranties is not limited to the defects in the shares themselves but includes various matters relating to the sold company, (ii) a buyer's inspection duty, which is provided in Article 526 of the Japanese Commercial Code, is contemplated to be excluded, and (iii) the scope of indemnification is not limited to a buyer's reliance damages. See Mori, Hamada & Matsumoto (n 24) 228; Toshima et al (n 24) 73.

30 Nakayama (n 22) 2; Fujiwara (n 22) 148.

31 See the next section.

32 See note 22 above.

33 In American practice, for example, drafting techniques that confine the sources of contract interpretation to the text of the agreement include (i) ‘whereas’ or ‘purpose’ clauses that describe the parties’ business plan and transaction, (ii) definition clauses that ascribe particular meanings to words and terms that may vary from their plain meaning, and (iii) appendices that provide any document the parties desire a court to consider in interpreting the contract's text. See Ronald Gilson et al, ‘Text and Context: Contract Interpretation as Contract Design’ (2014) 100 Cornell Law Review 23, 58–59.

34 Hō no tekiyō ni kansuru tsūsoku hō [Act on General Rules for Application of Laws], Act no 78 of 21 June 2006, art 7.

35 Fujiwara (n 22) 277–280; Toshima (n 24) 190. Compare Lou R King et al, Negotiated Acquisitions of Companies, Subsidiaries and Divisions, vol 2 (Law Journal Press 2017) para 15A.01; Stephen I Glover et al (eds), M&A Practice Guide (LexisNexis 2017) para 15.11.

36 Practitioners sometimes argue that contractual language in corporate acquisition agreements such as a warranty clause should be interpreted literally on their publications. See eg Akira Ehira, ‘Hyōmei hoshō no igi to kashi tanpo sekinin tono kankei [The Meaning of Representations and Warranties and Their Relationship with the Warranty against Defects]’, in Masao Yanaga et al (eds), Gendai kigyō-hō kinyū-hō no kadai [The Issues in Modern Enterprise Law and Financial Regulations] (Koubundou Publishers 2004) 87–88. To the author's knowledge, however, explicit instructions to adjudicators about how interpret a contract are yet to emerge in contract drafting practice.

37 See ‘Transplantation results’ part below.

38 Konrad Zweigert & Hein Kötz, Introduction to Comparative Law (Tony Weir tr, 3rd edn, Oxford University Press 1998) ch 30.

39 ibid 402.

40 Steven J Burton, Elements of Contract Interpretation (Oxford University Press 2009) para 1.3.3; Jan M Smits, Contract Law: A Comparative Introduction (2nd edn, Edward Elgar 2017) 123.

41 Zweigert & Kötz (n 38) 404.

42 Bundesgerichtshof [BGH] [Federal Court of Justice] 18 December 1954, 16 BGHZ 71.

43 Smits (n 40) 123–124.

44 Zweigert & Kötz (n 38) 406. Steven Burton, therefore, distinguishes ‘literalism’ and ‘objectivism’. In his usage, literalism refers to the contract interpretation approach which holds that the literal meaning of the contract's governing word or phrase determines the parties’ rights, duties and powers, while objectivism refers to the approach which looks for the parties’ intention as expressed in the contract document as a whole and its objective context. See Burton (n 40) paras 1.1 and 1.3.

45 American debates over contract interpretation focus on the issue of whether adjudicators should take into account evidence other than the documents encompassing the parties’ final agreement on the disputed transaction. Thus, the phrase ‘contextualism’ is generally used in contrast to the common law's traditional approach of formalism or textualism.

46 Erie Railroad v Tompkins 304 US 64 (1938).

47 Miller, Geoffrey P, ‘Bargains Bicoastal: New Light on Contract Theory’ (2010) 31 Cardozo Law Review 1475Google Scholar.

48 ibid 1478.

49 Theodore Eisenberg & Geoffrey Miller, ‘Ex Ante Choice of Law and Forum: An Empirical Analysis of Corporate Merger Agreements’ (2006) 59 Vanderbilt Law Review 1975.

50 As Delaware is by far the most favoured state of incorporation among US public companies (168 out of 412 (41 per cent) of the target companies in Eisenberg and Miller's sample), Delaware's high ratio is, at least partially, attributable to the fact that the target company's state of incorporation is chosen as the governing law of merger contracts. As mentioned below, it is a fact that Delaware loses a substantial number of contracts that should catch our attention.

51 Eisenberg & Miller (n 49) 1987, table 2.

52 King et al (n 35) para 15A.01.

53 Eisenberg & Miller (n 49) 1990, table 3B.

54 Miller (n 47) 1478. Note, however, that empirical study on choice of law clauses in international commercial contracts which were referred to arbitration by the International Chamber of Commerce shows that Swiss law as well as English law are the preferred choice of parties to international commercial contracts. See Gilles Cuniberti, ‘The International Markets for Contracts: The Most Attractive Contract Laws’ (2014) 34 Northwestern Journal of International Law and Business 455. Similar to New York law, English law is known for its very formalistic approach to contract interpretation, whereas Swiss law is much less formalistic and offers a variety of doctrines that enable courts to rewrite contracts to make them more equitable and fair. See ibid 503–505.

55 For an overview of the history of the ‘theory’ of contract interpretation in Japan, see Osamu Morita, ‘Keiyaku no kaishaku: ippan junsoku wo chūshin ni (sono ichi) [The Interpretation of Contracts: Focus on the General Principles, Part 1]’ (2016) 430 Hōgaku Kyōshitsu 50, 56–61.

56 Minpō [Civil Code], Act No 28 of 21 April 1890.

57 The Japanese Old Civil Code was drafted by French law professor Gustave Émile Boissonade de Fontarabie and enacted in 1890. Prior to its scheduled enforcement in 1893, however, its enforcement was suspended for four years primarily due to strong objections to its overly ‘westernised’ content, and it was finally replaced by the current Japanese Civil Code in 1898. The political conflict over the enforcement of the Japanese Old Civil Code is known as the ‘Quarrel over the Civil Code’ in Japanese legal history.

58 Articles 357 to 360 of the Property Section of the Japanese Old Civil Code stipulated individual principles of contract interpretation, most of which have been included in the French Civil Code to date, such as interpreting individual terms so as to give effect to the entire contract and harmonising apparently conflicting terms so as to fit the subject matter of the contract.

59 Toyohiro Nomura, ‘Hōritsu kōi no kaishaku [The Interpretation of Juristic Acts]’, in Eiichi Hoshino (ed), Minpō kōza [Civil Law Lecture Series], vol 1 (Yūhikaku 1984) 291, 298–99; Masami Okino, ‘Keiyaku no kaishaku ni kansuru ichi kōsatsu (1) [A Thought on the Interpretation of Contracts: Part 1]’ (1992) 109 Hōgaku Kyōkai Zasshi 245, 266.

60 Although the reasons for deletion are not clearly stated in the literature concerning the legislative process of the current Japanese Civil Code, academic commentators point out that the legislative policy of the first draft of the German Civil Code omitting the individual principles of contract interpretation from the Code's provisions was likely to have had a strong influence on the drafting process of the current Japanese Civil Code. See Okino (n 59) 280–281.

61 Minpō [Civil Code], Act No 89 of 27 April 1896.

62 Masami Okino, ‘Keiyaku no kaishaku ni kansuru ichi kōsatsu (2) [A Thought on the Interpretation of Contracts: Part 2]’ (1992) 109 Hōgaku Kyōkai Zasshi 495, 497–498.

63 ibid 500.

64 Sakae Wagatsuma and other civil law scholars in Japan at the time heavily relied on the German literature. See Nomura (n 59) 303–304.

65 Sakae Wagatsuma, Shintei minpō sōsoku [New Revised Civil Law General Provisions] (Iwanami Shoten 1965) para 286.

66 Okino (n 62) 503.

67 Keizō Yamamoto, ‘Hojūteki keiyaku kaishaku (5) [Constructive Contract Interpretation: Part 5]’ (1986) 120 [3] Hōgaku Ronsō 1, 16.

68 Okino (n 62) 514–533.

69 See eg Daishin'in [Great Court of Judicature] 2 June 1921, 27 Daishin'in Minji Hanketsuroku [Daihan Minroku] 1038 (the contractual language ‘delivery at Shiogama railway station’ should be read to mean the seller is required to deliver the goods at the Siogama railway station before the receipt of payment if Shiogama's local custom is taken into account); Yamaguchi Chihō Saibansho Hagi Shibu [Yamaguchi Distirct Court, Hagi Branch] 10 August 1966, 199 Hanrei Taimuzu [Hanta] 180 (the contractual language providing that (i) A donates to B the property that A built on B's land and simultaneously (ii) B leases the property to A should be read to mean B leases his land to A and attaches a security interest on A's building if the parties’ purpose of contracting is taken into account); Tōkyō Chihō Saibansho [Tokyo District Court] 6 July 1964, 391 Hanrei Jihō [Hanji] 27 (the printed contractual language that automatically terminates a lease contract without any notice in the case of a tenant's delay in paying rent should be read as non-binding sample language). The contract interpretation which the Tokyo District Court adopted in its 1964 decision is known as ‘reibun kaishaku’, meaning sample language construction, and considered an example of the application of the principle of good faith. See Nomura (n 59) 324.

70 Shintarō Katō, ‘Keiyaku no kaishaku ni okeru sukiru [Skills in Contract Interpretation]’, in Masanobu Katō et al (eds), Nijū ichi seiki hanrei keiyaku-hō no saizensen [The Frontiers of Case Law in Contracts in the 21st Century] (Hanrei Times 2006) 60–63.

71 The Property Section of the Civil Code enacted in 1896 continued to be used with only minor amendments over one hundred years. The government decided to initiate a process of complete overhaul in 2006 and established the Civil Law Committee within the Legislative Council (hōsei shingikai) to amend the Civil Code in 2009. After five years of deliberation, the Legislative Council submitted its final proposal of amendments to the government in 2015. The final bill of amendments passed the Diet in 2017 as Act No 44 of 2017. The amendments came into effect as of 1 April 2020.

72 The government explains the reason for the proposal as follows: ‘In disputes over contracts, the first task is to clarify what was agreed through contract interpretation. The Civil Code does not have any provisions regarding contract interpretation; however, in light of the important role which contract interpretation plays in clarifying the legal relationship which is built upon contracts, it shall be clarified by the Code provisions what principles should apply to contract interpretation. 1 to 3 of [Interim Proposal #29] attempts to newly provide the basic principles of contract interpretation’. See Hōmushō Minjikyoku Sanjikanshitsu [Ministry of Justice, Civil Affairs Bureau, Councellors’ Office], ‘Minpō (saiken kankei) no kaisei ni kansuru chūkan shian no hosoku setsumei [Supplementary Explanation on the Interim Proposal to the Amendment of the Civil Code (Obligation Section)]’ (Apr 2013) 360 <> accessed 7 Jul 2021.

73 The bracketed part is not clearly written in the original Japanese draft, but from its context, it is strongly inferred that it is intended to be included.

74 Osamu Morita, ‘Keiyaku no kaishaku: ippan junsoku wo chūshin ni (sono ni) [The Interpretation of Contracts: Focus on the General Principles, Part 2]’ (2016) 431 Hōgaku Kyōshitsu 60, 62–64.

75 ibid 64–66.

76 Exceptions are found in purely academic discussions. For example, Seiichi Ochiai, referring to American debates between textualism and contextualism, suggested the potential of adopting a textualist interpretation approach in commercial transactions under Japanese law. See Seiichi Ochiai, ‘Shōnin kan torihiki no tokushoku to kaishaku [The Features and Interpretation of Commercial Transactions]’, in Hideki Kanda (ed), Shijō torihiki to sofuto rō [Soft Law and Commerce] (Yūhikaku 2009) 113.

77 See generally Farnsworth & Wolfe (n 3) para 7.03.

78 Eric A Posner, ‘The Parol Evidence Rule, the Plain Meaning Rule and the Principles of Contractual Interpretation’ (1998) 146 University of Pennsylvania Law Review 533, 538–540.

79 Eric Posner distinguishes ‘hard’ and ‘soft’ positions in American courts’ application of the parol evidence rule. Under the ‘hard’ position, the court generally excludes extrinsic evidence and relies entirely on the writing, while under the ‘soft’ position, the court looks into both the writing and the extrinsic evidence. See ibid 534.

80 Miller (n 47) 1506–1507.

81 566 NE 2d 639 (NY 1990).

82 ibid 642.

83 See eg Morgan Stanley High Yield Securities Inc v Seven Circle Gaming Corp 269 F Supp 2d 206 (SDNY 2003); Municipal Capital Appreciation Partners I LP v Page 181 F Supp 2d 379 (SDNY 2002).

84 A merger or integration clause is used to show that a written agreement is completely integrated and typically reads: ‘This writing contains the entire agreement of the parties and there are no promises, understandings, or agreements of any kind pertaining to this contract other than stated herein’. See Farnsworth & Wolfe (n 3) para 7.07.

85 See eg Jarecki v Shung Moo Louie 745 NE 2d 1006 (NY 2001); Primex International Corp v Wal-Mart Stores 89 NY 2d 594, 1997 NY LEXIS 320.

86 NY Gen Oblig Law, sec 5-1401.

87 Minji soshōhō [Code of Civil Procedure], Act No 109 of 26 June 1998, art 247. See also Makoto Itō, Minji soshō hō [Civil Procedure] (6th edn, Yūhikaku 2018) 366; Kōji Shindō, Shin Minji Soshō hō [New Civil Procedure] (6th edn, Koubundou Publishers 2019) 596. Even evidence collected by a party in violation of law can be admitted in civil courts under Japanese law. See Daishin'in [Great Court of Judicature] 2 July 1943, 22 Daishin'in Minji Hanreishū [Daihan Minshū] 574 (a stolen diary is admitted as evidence).

88 Tōkyō Chihō Saibansho [Tokyo District Court] 28 March 1967, 208 Hanrei Taimuzu [Hanta] 127 (oral testimony is not admitted as evidence of consent if a land lease contract requires a written consent for the tenant's renovation of his building on the leased land).

89 As discussed in the next part, careful drafting of contractual language, not a mere copy of a standard integration clause, would be required to successfully convey the parties’ intention of limiting the scope of evidence to the court.

90 98 NY 2d 562 (NY 2002).

91 ibid 570–571. See also Teichman by Teichman v Community Hospital 87 NY 2d 514 (NY 1996).

92 46 NY 2d 351 (NY 1978).

93 ibid 355.

94 Another possible means to avoid unexpected judicial intervention would be to agree to have disputes over contract interpretation referred to arbitration before panels of experienced Japanese transactional lawyers. At least in domestic corporate acquisition transactions, however, arbitration is very rarely used in Japan. The annual number of cases referred to the Japan Commercial Arbitration Association never exceeded 20 during the five-year period from 2015 to 2019, and 82% of them were international disputes (see The Japan Commercial Arbitration Association, ‘Arbitration – Performance’ <> accessed 9 Sep 2020). Japanese practitioners’ reasoning for the rare use of arbitration is, among others, that (i) there is still a limited number of Japanese experts in mergers and acquisitions law and (ii) arbitration generally involves higher costs than litigation. See Fujiwara (n 22) 282; Toshima et al (n 24) 191. Curiously, even in the United States, arbitration is much less frequently chosen than litigation as a dispute resolution method by large corporate parties. See Eisenberg, Theodore & Miller, Geoffrey P, ‘The Flight from Arbitration: An Empirical Study of Ex Ante Arbitration Clauses in the Contracts of Publicly Held Companies’ (2007) 56 DePaul Law Review 335Google Scholar.

95 See eg Kaneda, Shigeru, ‘Hyōmei hoshō wo meguru jitsumu jō no sho kadai (ge) [Various Issues in Practice on Representations and Warranties: Part 2]’ (2006) 1772 Kinyū Hōmu Jijō 36, 3940Google Scholar.

96 1920 Hanrei Jihō [Hanji] 136.

97 As the Tokyo District Court concluded that the plaintiff was not grossly negligent in his ignorance of the defendants’ breach, the court's holding is obiter dictum.

98 CBS Inc v Ziff-Davis Publishing Co 553 NE 2d 997 (NY 1990).

99 Smits (n 40) ch 12.

100 Civil Code, art 415.

101 As a consequence of the recent overhaul of the Civil Code (above n 71), Article 415 was amended to clarify that a debtor can defend against a creditor's damage claim by proving that non-performance is not attributable to the debtor.

102 See eg Daishin'in [Great Court of Judicature] 9 February 1920, 11 Hōgaku 715 (in a sale of land, the seller obstructed the buyer's land survey by bringing together tenants who objected to the sale); Sapporo Kōtō Saibansho [Sapporo High Court] 5 February 1965, 25 Saikō Saibansho Minji Hanreishū [Minshū] 1501 (as a result of the buyer's instructions, the seller failed to supply the agreed amount of sulphur ore).

103 Takahashi, Mika, ‘Hyōmei hoshō jōkō ihan ni kansuru zakkan [Some Thoughts on a Breach of Representations and Warranties]’ (2009) 76 Rikkyō Hōgaku 122, 154160Google Scholar.

104 1268 Hanrei Taimuzu [Hanta] 192.

105 An izakaya restaurant is the Japanese style drinking place which serves alcoholic drinks and snacks. It is comparable to a pub in the UK or a tapas bar in Spain.

106 See eg Nakayama (n 22) 12–15.

107 In the sale of a closely-held company, a court denied the seller's duty to voluntarily disclose information to the buyer, but expressly affirmed its duty to cooperate with the buyer's due diligence investigation. See Ōsaka Chihō Saibansho [Osaka District Court] 11 July 2008, 2017 Hanrei Jihō [Hanji] 154.

108 Saikō Saibansho [Supreme Court] 22 April 2011, 65 Saikō Saibansho Minji Hanreishū [Minshū] 1405. Before the Japanese Supreme Court decision, many Japanese lower court decisions had upheld the buyer's claim made on the grounds of the seller's breach of the duty of disclosure in sales of real property and financial instruments since the mid-1970s.

109 Akio Hoshi, ‘Kanzen gōi jōkō no igi to kaishaku [The Meaning and Interpretation of an Entire Agreement Clause]’, in Naoki Koizumi & Yoshiyuki Tamura (eds), Nijū ichi seiki no chiteki zaisan-hō: Nakayama Nobuhiro sensei koki kinen ronbunshū [Intellectual Property Law in the 21st Century: Festschrift for Professor Nobuhiro Nakayama in Celebration for His 70th Birthday] (Koubundou Publishers 2015) 988, 999–1000.

110 938 Hanrei Taimuzu [Hanta] 160.

111 See note 88 and accompanying text.

112 1964 Hanrei Jihō [Hanji] 106.

113 See note 87 and accompanying text.

114 Such a legal regime is strongly advocated by Alan Schwartz and Robert Scott. See Schwartz, Alan & Scott, Robert E, ‘Contract Theory and the Limits of Contract Law’ (2003) 113 Yale Law Journal 541CrossRefGoogle Scholar; Schwartz, Alan & Scott, Robert E, ‘Contract Interpretation Redux’ (2010) 119 Yale Law Journal 926Google Scholar.

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