Mandatory and Voluntary Provisions in International Transactions
Mandatory Provisions and Optional Provisions
A mandatory provision is a law that is compulsorily applied regardless of the content of the agreement between the parties in order to achieve a certain policy goal in each country. On the other hand, an optional provision is a provision of law that, although it has certain provisions in the law, takes precedence over the content of the agreement if the parties reach an agreement that differs from the legal provision.
Foreign mandatory provisions
Since the contents of mandatory provisions vary from country to country, it will be necessary to confirm the laws of each country when the laws of a foreign country are the governing laws or when transactions are conducted in a foreign country.
Examples of mandatory provisions
Examples of mandatory provisions include laws and regulations such as the Anti-Monopoly Act and the Fair Trade Act, which are established from the perspective of national competition policy, provisions limiting the maximum interest rate for interest and late payment, provisions regarding labor laws and regulations established from the perspective of labor protection, and provisions regarding real estate transactions.
Relationship between Agreement of Parties and Enforcement Rules
For example, an agreement to pay 30% interest per year on a loan for consumption of money would be interpreted as invalid in Japan, in violation of the provisions of the Interest Rate Restriction Law. Similarly, the labor laws protecting workers in Japan are considered mandatory provisions, so that even if, for example, an American corporation hires a Japanese national, as long as the labor is performed in Japan, Japanese law will be compulsorily applied. In Japan, there are extremely strict restrictions on termination of employment contracts, so even if an American company drafts an Employment Agreement in English and stipulates that American law is the governing law, Japanese law will apply as long as the labor is performed in Japan. Therefore, when terminating a worker, it is necessary to consider the Japanese legal system (including judicial precedents).
European Antitrust Law
Similarly, when a Japanese company does business with a European company (e.g., concludes a license agreement granting a license to a European company), it should pay attention to the provisions of European antitrust law, which is famous for imposing extremely high surcharges. Therefore, it is necessary to carefully examine whether the license will not constitute an abuse of a superior bargaining position, will not have a price-restrictive effect such as a cartel, and will not unfairly restrict the market entry of new entrants.
Review of local law firms
Since the contents of such mandatory provisions take precedence over the agreement of the parties in the contract, a review by a local law firm (checking the contents of the contract) will often be necessary when conducting transactions with foreign countries. Although it may cost a lot of money, antitrust laws and other laws have extremely severe sanctions for violations. Therefore, when conducting a cartel or a transaction that has a restrictive effect on competition, it is necessary to at least consider the possibility of violating the antitrust laws on an individual basis.
Restrictions on Enforcement
In addition, depending on the content of the contract, a case may arise in which the contract is valid in the country concerned, but when enforced in the other party’s country, it may be deemed invalid in violation of the public policy of that country. For example, in the U.S., a large amount of punitive damages may be imposed on the losing party in a lawsuit, but such a foreign judgment regarding punitive damages has been declared invalid against public policy by a Japanese Supreme Court decision. Therefore, even if punitive damages are imposed in the U.S., if you wish to enforce the content of the judgment in Japan, you must file a petition for recognition of the foreign judgment with the Japanese court, and the Japanese court will find the foreign judgment that awarded punitive damages to be invalid as a violation of public order and morality. In that case, the Japanese court will declare the foreign judgment that awarded punitive damages to be invalid as it violates public order, and the foreign judgment will not be enforceable in Japan.
