[Konishi] Economic cooperation in the wider Pacific region has accelerated, with Japan’s participation in the Trans-Pacific Partnership talks becoming certain, and a meeting of Regional Comprehensive Economic Partnership (RCEP) starting on Thursday 9 May in Brunei. Oceanian nations such as Australia and New Zealand are key in such talks. These nations promote trade and are rich in natural resources and farm products, and they have played a leading economic cooperation role in the wider Pacific.

1. Although I come originally from NZ, I have been living in Sydney since 2001 so I will focus mainly on Australia. But both countries have very close economic and diplomatic links, largely sharing similar perspectives on international trade policy.
2. In reality, Australia seems quite ambivalent about these talks. In its April 2011 “Trade Policy Statement”, the Government reiterated that multilateral (WTO) liberalization, and then even unilateral liberalization, remained a priority compared to liberalization via bilateral or even regional FTAs.
3. Yet the Government in fact continued negotiating the FTAs it was already discussing, including those with China (since 2005), Japan and the GCC (2007), Korea and Pacer-Plus (with Pacific Islands, 2009) and the TPP (2010). The Australian Government also has started negotiating new FTAs, both bilateral (with India, since 2011, and Indonesia since 2012) as well as regional (RCEP or "ASEAN+6"). It seems to accept that there is little hope any more for further multilateral liberalization through the WTO (except perhaps for a new separate and plurilateral agreement on services). But this does mean that Australian officials responsible for FTAs remain stretched among numerous negotiations, which may exacerbate delays.
4. The Australian Government is also being urged to use FTAs to develop deeper as well as broader economic cooperation, including measures addressing “behind the border” issues. Most commentators, especially economists, see this as simply promoting greater liberalization – eg by encouraging treaty partners to reduce levels of regulation even if those are proportionate to risks and don’t discriminate against foreign traders or investors.
5. But a few commentators, like myself, envisage the possibility of using FTAs to develop mechanisms to increase levels of regulation in appropriate cases. For example, I have suggested that Australia’s new FTAs should require regulators in each country to notify their counterparts about serious consumer product related accidents, and to consider joint safety standard-setting. This is known as “positive harmonisation” within the EU, and operates very effectively in securing minimum levels of consumer protection. Closer to home, there is increasingly close cooperation between Australia and NZ, including “mutual recognition” combined with possibilities for joint standard-setting, although this is achieved by parallel legislation rather than binding treaties as in Europe.
6. In my view, after the Global Financial Crisis of 2008 caused by lax regulation of financial markets, unless “free trade agreements” are “re-branded” to also include better regulatory safeguards in areas like consumer protection, there is a significant risk that civil society groups will at least slow down and possibly prevent conclusion of new agreements, or at least “WTO+” aspects such as expanded protections and liberalization concerning foreign investment or services. Some groups and individuals have been quite vocal in Australia and NZ particularly in opposition to the TPP.

What do these Oceanian nations expect from the cooperation?

1. Australia, like NZ, hopes primarily for better market access for exports of their agricultural products. This includes Korea, via RCEP or the bilateral FTA under negotiation. This also includes Japan and the US, via TPP. Australian sugar exporters remain very disappointed that sugar was excluded from the AUSFTA of 2004, due to American protectionism.
2. Conversely, both countries expect strong pressure from the USA to extend IP rights protection via the TPP. This is a concern because this also does not involve a classic “trade law” problem of discrimination, but rather an economic calculation as to how much protection is needed to encourage IP rights holders to invest in R&D, generating economic growth – and such a calculation is highly country-specific. Economists in Australia and NZ are increasingly concerned that it is not in their countries’ interest to extend IP rights protection beyond what already exists in domestic law, especially since Australia has already extended its copyright term after the AUSFTA.
3. Australia also expects US pressure in TPP negotiations regarding an important aspect of our public health system, the Pharmaceuticals Benefits Scheme. But that has already been made more transparent, hence more accessible to foreign drugs manufacturers.
4. Another potential stumbling block in TPP negotiations, but also in RCEP, is investor-state arbitration provisions – a mechanism that is increasingly widely accepted to enforce protections and liberalization regarding foreign investment. Australia’s TPS of 2011 abandoned 20+ years of treaty practice by declaring that it will not include ISArb protections in its future treaties, even with developing countries with less effective domestic law systems for protecting property rights. The other TPP and RCEP partners, including Japan, almost always include such protections nowadays.
5. The Australian Government’s new policy stance seems to be an unfortunate over-reaction to an arbitration claim brought by the tobacco company Philip Morris, under a 1993 bilateral investment treaty with HK, concerning Australia’s new legislation for “plain packaging” of cigarettes. (That legislation has also generated an unsuccessful constitutional challenge of “expropriation” in the High Court of Australia, by other tobacco companies including the Japanese gov’t-linked Japan Tobacco group.) Australian industry groups have belatedly realized that they are disadvantaged in outbound investments if future treaties don’t include ISArb provisions, so they are calling for a reversal of the policy shift so ISArb can be included in future treaties with developing countries. The Australian Government has rejected these calls but the Opposition is open to them, and is likely to win the general election in September.

What do Oceanian nations expect for Japan?

1. All Oceanian nations expect Japan to show leadership by liberalizing agricultural market access – this would also provide encouragement to countries like Korea, which also protect their markets for political rather than economic reasons. The terrible ‘3-11’ disasters in 2011 offer an additional opportunity to rethink the role of agriculture and rural communities in 21st century Japan.
2. At the same time, Australia and NZ would generally be pleased to see further investment from Japan into their agricultural sector, building on an initial wave of investment into the beef export industry and more recently into other food and beverages manufacturing. The high Australian dollar is exacerbating difficulties faced by farmers and others in Australia, which has traditionally relied partly anyway on foreign capital to develop efficient economies of scale.
3. Australia and NZ would also welcome Japan resisting any US pressure for excessive IP rights protection, even though of course Japan is also a net technology exporter, as well as resistance from US pressure to undermine public health systems – to the extent they work effectively (which is not always the case, either in Australia or Japan).
4. Many commentators and groups within Australia would also welcome Japan pressing for ISArb provisions in future treaties, like the bilateral FTA and especially the TPP and RCEP. We think that Australia’s policy change in 2011 was misguided and could begin to unravel the entire treaty-based international investment law system that has finally become quite well-established – even thought it remains an imperfect “work-in-progress”.
5. Overall, most people in Australia hope that the bilateral FTA negotiations will be concluded soon this year - a successful conclusion would help smooth negotiations especially in the TPP and then RCEP, which shouldn't delay progress on key bilateral FTAs. Both Japan and Australia surely have scope to compromise on issues that are difficult politically within each country: market access barriers for agricultural products in Japan (eg still-high beef tariffs) and on auto imports into Australia (5% tariff on autos from Japan, protecting local manufacturing and generating $500m revenue for the Gillard Government facing electoral defeat in September).

Jenny Han, a final-year LLB student with a BA (Hons) in Japanese Studies, first reports below on two experiences in Japan. The Kyoto/Tokyo Seminars in Japanese Law are offered for credit to LLB/JD and Masters students over 10 days every February, to Japanese, Australian and other international students. Participation in the INC negotiation and arbitration competition in Tokyo usually attracts course credit (within the 'International Moot' LLB/JD unit), although Sydney Law School is moving towards fielding a team every two years (recommencing in the December 2015 moot). We are very grateful for financial supporters of these opportunities for closer engagement with Japan, especially Mr Akira Kawamura (LLM 1979, former President of the International Bar Association) and Mitsui Matsushima Australia Pty Ltd.

Glenn Kembrey then adds some remarks on his student exchange at Kobe University. He enjoyed it so much that he extended his stay beyond one semester (needed to complete his USydney LLB degree), studying in Kobe for another semester to hone his skills in comparative law.

What image pops up in your mind when you think of Japan? It could be kimono-clad geisha shuffling down the street with umbrellas overhead, oversized sumo wrestlers battling it out the ring, sophisticated cuisine and kooky street fashion. Or, for those of you who still remember the horrific landscape ripped apart by the March 11 earthquake in 2011, it could be the white smoke fuming out of the Fukushima nuclear power plant or piles of debris engulfing smashed homes, cars and perhaps more grim reminders of the lives lost in the tsunami. Whatever fantasies and images you might have about Japan, it is one of the places you should consider for a challenging yet very rewarding study experience.

Throughout my university life, I have always been interested in Japan and law, but wasn’t quite sure how to create a substantial linkage between the two. Thankfully I encountered two valuable opportunities in my law degree, namely the Intercollegiate Negotiation and Arbitration Competition (‘INC Moot’) and the Kyoto/Tokyo Seminars in Japanese Law.

INC Moot in Tokyo

Over the first weekend in December, the Australian Network for Japanese Law (ANJeL) has fielded ‘Team Australia’, consisting of up of 8 law students from USyd and ANU to participate in the INC Moot held in Tokyo. This is one of the most prestigious negotiation and arbitration competitions held in the Asia-Pacific region, sponsored by major national and international corporations and law firms. Team Australia is a consistently high-performing team, particularly famous for its robust negotiation and creative problem solving skills. As a team member, you are constantly exposed to various issues and principles of international commercial and business law. In particular, the INC Moot’s unique problem question (apart from being an interesting piece of drama, unlike most law exams - it is full of broken promises, betrayed friendships, avaricious conglomerate, human follies and more!) is intricately designed by the best legal practitioners and professors in the region, to maximise each participant’s oral and written advocacy skills in either English or Japanese.

I was a part of Team Australia several times, competing in English in the first year and then taking the plunge in Japanese. Perhaps the best legacy from this experience is how to effectively address challenges posed by dealing with people with different cultural, social and legal backgrounds. Most of the Japanese competitors I met are loyal to the omote/ura (public/private facades) distinction inherent in their culture. During negotiations, for example, they can be very enigmatic. Even less so than Australians, they rarely put on the table any cards that would reveal their ura. However you learn to distinguish omote from ura through sometimes fierce and sometimes friendly interactions with the other contenders throughout the competition.

While you become culturally and socially literate this way, you also get some invaluable opportunities to experience the Japanese legal system. We enjoyed customised tours to top-tier national and international law firms in Japan and guided excursions to legal institutions like the Supreme Court of Japan, which are hardly ever open to the public. Further, the connections and friendships you build through the INC Moot are priceless. In fact, one of the judge-registrars at the Supreme Court of Japan who guided a tour for Team Australia kindly furnished me with a wealth of rare resources in Japanese law when I was writing an honours thesis for my other degree. Also, I still keep in contact with a few of Japanese competitors I met – some of them have already passed the infamously difficult shiho shiken (bar exam). Let me tell you, building professional rapport across borders definitely widens your horizons.

Kyoto and Tokyo Seminars in Japanese Law

Another opportunity for engagement in Japan during your law degree is the Kyoto/Tokyo Seminar offshore unit in Japanese Law. This intensive course aims to provide comprehensive gist of Japanese laws and its contemporary legal system. The subjects include civil law, criminal law, constitutional law, international law and many more, which are taught in English by the best professors and some practitioners in the field. More so than the INC Moot, students are given invaluable opportunities to visit courts and other legal institutions. In 2011 when I took this unit of study, I sat in one of the criminal hearings at the Tokyo District Court. It was an amazing experience. Did you know the statue of Themis or her daughter Dike, the Greek goddess of justice, is usually depicted without a blindfold in Japanese courts? Arguably it reflects the more inquisitorial nature of the judiciary in a mostly 'civil law' tradition, as well as the open-textured notion of fairness in Japanese culture.

In my year, there was a bunch of Japanese students mostly from Ritsumeikan University who joined classes with us. Students were divided into small groups with at least one local student. As a group, we discussed and shared our thoughts on various issues, ranging from the ‘no-war’ clause in the Japanese Constitution, through to which restaurant to go for the after-class nomikai and karaoke. I have to admit, my experience with the Japanese students during this course was quite different from the INC Moot. Reserved and orderly students in suits suddenly strip off their shirts, knot their ties around their foreheads as if they are revolutionaries, and hit the stage with the Harlem Shake. Ganesh is right to emphasise the importance of ‘mashigo tohago’ for Koreans. Japanese students are no less hardcore.

All in all, I recommend that you try out Japan at some point in your degree. I bet you, it would be one of those things you will never regret studying law for.

Written by: Glenn Kembrey

I studied for one year at Kobe University Law School with the support of the Prime Minister’s Australia-Asia Undergraduate Award. My time at Kobe Law School was without doubt one of the most enjoyable and awarding aspects of my law degree at Sydney University. I took subjects in Criminal Law, Civil Law, Public International Law and Constitutional Law. As all subjects were taken in Japanese I was also able to improve upon my Japanese skills. During the spring vacation, I also undertook an internship at Kobe City Hall and participated in Kobe University club activities with my peers.

One of the most awarding parts of my experiences at Kobe Law School was participation in two seminars (zemi). Seminars, distinct from lectures, allowed for individual research and weekly discussion about legal topics with Japanese students and professors. I participated in seminars in Legal Sociology and Public International Law. I am extremely grateful to Takahashi Sensei and Sakamoto Sensei for allowing me to participate in their seminars and for their ongoing support during my time at Kobe University.

I would thoroughly recommend to any University of Sydney student who speaks Japanese to consider studying on exchange at Kobe University. It allowed me to gain an insight into a foreign legal system, the core principles and methods of legal reasoning of which often fundamentally differ to those characteristic of the Australian common law system. In addition to study, I was able to travel throughout Japan and form close and long-lasting friendships with my fellow students. It was an unforgettable experience.

In autumn 2009, the progressive coalition led by the Democratic Party of Japan (DPJ) achieved a historic victory in the general election and came to power, expelling the Liberal Democratic Party (LDP), which had been in power continuously since its establishment in 1955 (except for a very brief break in the early 1990s). The new DPJ-led coalition intended to make the policy-making process more transparent and more strongly controlled by politicians, as well as to make the policy orientation of the Japanese government more progressive. After three years, the polls showed significant discontent among the public with the DPJ’s achievements, and power reverted to the LDP in the December 2012 general election.

It is timely for legal academics to examine whether, and in which sense, the DPJ-government affected law reform over the last three years. In this context, Nottage and Kozuka will explain how—perhaps, quite unexpectedly—the historic political turnover in Japan (“macro-politics”) has had a limited influence on important reforms that are taking place in the field of Japanese contract law. In contrast, however, the process of contract law reform has been substantially influenced by the politicking of lawyers and professional bureaucrats (“micro-politics”) who have a personal stake in the reform process. Ultimately, based on this experience, Nottage and Kozuka suggest that micro-politics is more important than macro-politics in Japan’s legal reform process.

Matsunaka will continue the discussion of politics and legal reform by analyzing the new round of corporate law reform, which was initially driven by the strong policy agendas of several DPJ members. As the corporate law reform deliberations progressed, however, the debates increasingly became dominated by elite academics and MOJ officials and, ultimately, the reforms now appear to reflect little, if any, of the DPJ’s core values. Matsunaka’s analysis of this “watering-down” of the DPJ’s policy based reforms provides an interesting perspective on Japan’s legal reform process and contributes to the broad literature on the politics of corporate governance law reform.

Kozuka will then extend on Matsunaka’s analysis by examining Japan’s recent reform of its broadcasting regulation, which was one of the most important agendas for the DPJ when it first came to power. Again, Kozuka’s findings suggest that the more extreme policy based positions of the DPJ gradually faded in the process of law reform, with the final result being more technical and modest deregulatory reforms in the new Broadcasting Law of 2010.

Puchniak will conclude the discussion by examining the recent introduction of the business judgment rule into Japanese corporate law. At least based on conventional wisdom, the fact that the business judgment rule—which is of critical importance in corporate law—was introduced into Japanese law purely through judicial precedent (without any mention of it in Japan’s codified/statutory corporate law) is astounding. Puchniak’s analysis of this unanticipated source of law reform in the DPJ era will shine a light on a substantial blind-spot in both the current understanding of Japanese legal reform and the more general comparative corporate law literature.

In sum, these four presentations offer a good opportunity to discuss the relationship between the political process and law reform, policy choice through the judiciary and the determinants of the role of law in a post-industrial society in Asia.

Conventional wisdom would not lead one to suspect a love affair between the Japanese judiciary and corporate law reform. After all, we have been regaled by stories from preeminent scholars about the extremely conservative nature of Japanese judges who find themselves systematically punished for even a hint of judicial activism. We have been captivated by a watershed comparative corporate law theory which suggests that (universally) statutory/codified corporate law is of the utmost importance, while judicial enforcement of corporate law is of little consequence. We have embraced a taxonomy of the common law and civil law legal traditions that highlights the critical role of judicial decisions in the former and their supplementary role in the latter. Based on such conventional wisdom, it seems implausible that one of the most important legal doctrines in corporate law, the business judgment rule, would make its way into Japanese law through judicial precedent—without a hint of the rule in any of Japan’s codified/statutory law. In 2010, however, the implausible became reality. This paper will explore whether this recent act of “judicial corporate law reform” is an aberration or the norm, unpack the implications of it on Japan’s corporate law regime and explain how this example unveils a substantial blind spot in the current understanding of comparative corporate law scholarship.

2. "Policy and Politics in Contract Law Reform in Japan" (Profs Souichirou Kozuka and Luke Nottage)

Contract law reform in Japan started as an academic project in 2006 and has been officially on the law reform agenda at the Legislative Council of the Ministry of Justice (MOJ) since October 2009. Despite the historic political turnover in September 2009, the principles of the private draft revisions derived from the lengthy academic project on contact law seem to have remained unchanged. Apparently, contract law is too technical an agenda for political initiative to exert significant influence over. On the other hand, among legal professionals there has been much politicking over the contract law reform process. Experienced lawyers in practice—especially in small law firms—have opposed changing the contract law rules that they are familiar with, while professional bureaucrats at the MOJ have tried to produce some fruits of reform after many years of deliberations. Thus, this paper will suggest that contract law reform is largely unaffected by macro-politics but is quite strongly influenced by micro-politics. Our paper explores this tension in the context of other law reform initiatives in Japan as well as abroad.

3. "Protecting Broadcasting Regulation from Political Interference or Victory for Bureaucratic Resistance?" (Prof Souichirou Kozuka)

The reform of broadcasting regulation has been debated in Japan since the mid-2000s, when the Koizumi government showed a strong orientation towards utilizing free-market forces as a mechanism for reform. The argument at that time was that the Japanese media was overly protected by regulatory barriers from new entrants and that such a lack of free-market discipline would eventually result in Japanese media industry becoming obsolete—especially in today’s globalized rapidly changing world of digital technology. A few years after the Koizumi reform initiative started, the Democratic Party of Japan (DPJ) came to power and began deliberating over changes to Japan’s broadcasting regulatory regime based on a completely different set of policy considerations. The core policy consideration driving the DPJ’s agenda was that the Japanese media is too closed and tends to prevent disclosure of information that the bureaucrats wish to conceal. The DPJ government first forum to advance its agenda failed to reach a consensus. By the time the next round of deliberations commenced, however, the more extreme views of the DPJ’s agenda had faded, and as a result the amendments to the Broadcasting Act in 2010 only introduced modest deregulation. Considering that the independence of the media and freedom of speech are core values in a democratic society, one may applaud the fact that the DPJ’s initially proposed excessive political interference into broadcasting was rejected. On the other hand, one may view the rejection of dramatic reform as demonstrating the success of existing media interests in protecting a “closed club”, foregoing the opportunity to reshape the Japanese media to match the needs of the digital society. This paper will explore these competing views while attempting to illuminate the best path forward for broadcast regulation in Japan and abroad.

4. "The Politics of Corporate Governance Reform: Influences of the DPJ Government on and the Political Mechanism Behind Japan’s Recent Corporate Law Reform" (A/Prof Manabu Matsunaka, Nagoya University)

In 2009, after the DPJ took power, a new round of the corporate law reform emerged which was driven by several DPJ members and, initially, heavily influenced by the labour sector. As the reform deliberations progressed, however, the debates increasingly became dominated by elite academics and MOJ officials (who were mostly judges on secondment). The resulting proposal, which will (probably) be drafted into a bill and submitted to the Diet by the new government, addresses many important issues neglected in 2007; but reflects little, if any, of the DPJ-led coalition’s core policies. On the other hand, the proposal does include some positive pro-shareholder protections—although many of these reforms have been watered-down as a result of legislative compromise. This paper will investigate the political mechanism behind this critically important rulemaking process which may have significant implications for the future of Japanese corporate law and governance. It will also highlight an emerging discussion in the political science literature on the politics of corporate governance.

After facing more than a year of deadlock in the Diet and a legislative agenda monopolised by earthquake recovery measures and the increase in the consumption tax, the outgoing Democratic Party of Japan (DPJ) Government has left in its wake a mess of unfinished business in a number of legislative areas. One of these areas is public law reform. The DPJ had been elected in 2009 on a platform of change after the long reign of the Liberal Democratic Party (LDP), and had promised a new era of government transparency and accountability. Behind the early pageantry of the “Government Revitalization Unit”, in which ministers publicly grilled senior civil servants over their agencies’ expenditure, the DPJ worked diligently to bring about much-needed change in matters such as local government, the civil service, freedom of information and administrative appeals.

With a more than comfortable majority in the House of Representatives and the passage of several of the more critical recovery measures out of the way, it remains to be seen which, if any, of the DPJ’s public law reforms the presumptive prime minister, Shinzo Abe, will run with. The LDP’s election manifesto calls for “administrative reform”, but is short on detail. However, the tenor of Mr Abe’s previous prime ministership (from September 2006 to September 2007) gives an indication of Mr Abe’s likely priorities.

The Constitution requires any proposed amendments to be approved by a two-thirds majority in both houses of the Diet before such a referendum can be put. The LDP now enjoys a two-thirds majority in the lower house when added to the seats of its coalition partner, New Komeito (which is cool towards amendment of Article 9 in particular), or else with the right-wing “third force” party Nippon Ishin no Kai (which is far more enthusiastic), but lacks even a simple majority in the upper house. Mr Abe will no doubt try to claim the LDP’s large majority as a mandate for amendment (despite an opinion poll in the Mainichi Shimbun newspaper the previous week in which only 2% of voters nominated constitutional amendment as a key issue), and may use the LDP’s numbers to put his proposals before the Diet’s Constitutional Committees, but is unlikely to push for a vote until at least after the next upper house election, due in July 2013.

The other of Mr Abe’s pet projects highlighted in the LDP’s manifesto is the proposal to create a “State System” by merging Japan’s 47 prefectures into a dozen or so larger, semi-autonomous regional blocks. Almost immediately upon becoming prime minister in 2006 Mr Abe introduced legislation for a pilot programme to precede a more comprehensive “State System” promotion bill. However, the DPJ allowed this programme to run out of steam, preferring instead to focus on a series of decentralisation bills to give greater powers and financial autonomy to towns and cities. Nor is there much enthusiasm among the prefectures themselves. In the aftermath of the 3/11 earthquake the prefectures of Japan’s north-east, long the most likely candidates for a merger, have cooled to the idea, instead choosing to co-operate through new and existing regional associations. The LDP’s manifesto also calls for further decentralisation to municipalities, but the “State System” issue is almost certain to re-emerge.

One key component of the DPJ’s reform agenda, to which the LDP’s manifesto (and indeed the party’s website) makes no reference, is freedom of information. The DPJ had promoted strengthening the country’s Information Disclosure Law for the better part of a decade, and soon after coming into power established a deliberative council to review the law in its entirety. An amendment bill was introduced to the House of Representatives in early 2011, but has languished in committee ever since.

There is reason to be pessimistic about the prospects of the LDP reintroducing the amendment bill. Bureaucrats opposed many of the deliberative council’s recommendations, and the resulting bill appears to have been eventually watered down by way of compromise. The LDP arguably stands to gain little from antagonizing the bureaucracy by reintroducing a piece of legislation that has already quietly slipped under the radar. Given that the LDP had already chosen for several years to ignore the results of an earlier review of the law in 2004, its current silence is arguably telling.

Another issue to have fallen by the wayside is reform of the system for appeals against agency decisions. Under the existing Administrative Appeals Law, these are conducted by way of internal review within the agency that made the original decision. Critics of the law point to problems such as inadequate investigation by officials reviewing decisions and the low rate of reversals. A separate deliberative council into the law recommended the creation of a separate corps of American-style administrative law judges with the power to deliberate in place of the agency and to issue non-binding draft decisions. However, the DPJ failed to implement its recommendations prior to the dissolution of the House of Representatives.

Mr Abe, if he chooses to attempt amendment of the Administrative Appeals Law at all, is more likely to revert to a previous LDP bill, which lapsed when the DPJ came to power in 2009. That bill came out of a study commissioned during Mr Abe’s prime ministership, and would have maintained a system of internal review while requiring agencies to consult with an external advisory body. This approach would give greater autonomy to agencies in conducting deliberations and in framing their own decisions, and so is undoubtedly the approach preferred by the bureaucracy.

The LDP may be more sympathetic to a group of four bills on civil service personnel reform that were abandoned by the DPJ in mid-2012. The bills build on the Basic Law for Civil Service Reform passed with bi-partisan support in 2008, and are designed to increase flexibility in appointing and promoting civil servants and in determining pay-scales, allow fluidity between the bureaucracy and the private sector, and harmonise labour rights for public servants with those of private sector employees. The LDP manifesto appears to be in agreement with the spirit, if not necessarily the letter, of these bills.

Overall, however, it is difficult to see the LDP taking up the DPJ’s reform agenda with gusto. This is disappointing, as efforts to improve administrative law in Japan over the past decade, such as the mostly cosmetic changes to the Administrative Case Litigation Law in 2004, have fallen short of the goals of the Justice System Reform Project set forth in 2001. Yet outside of Mr Abe’s preferred projects, public law under the LDP is likely to be very much “business as usual”.

The DP remarks that opponents of legislation in this field ‘regularly argue that private international law rules should remain flexible’ and driven by case law (para 197), but the footnote (n 168) for this proposition only refers to one law journal article dating back over 20 years. The DP also points out (at para 196) that our major trading partners have (re-)legislated in this area of law – including the EU (which includes among its 27 member states, of course, jurisdictions like England and Ireland that share Australia’s case law based common law tradition). It should be added that the American Law Institute has now formally embarked on a Restatement (4th) of Foreign Relations Law, including principles of jurisdiction and judgments enforcement under US law. Many Australians and other common lawyers are also familiar with the processes and outcomes of PIL reform through the work of the Hague Conference on PIL.

The DP also suggests that developing a PIL statute for Australia would be ‘complex, potentially taking considerable time to complete’ (para 197). The footnote (n 169) gives as an example the ‘step-by-step process’ of the Netherlands since the 1970s. Another example is Japan: it has indeed amended its Civil Procedure Code regarding jurisdiction (in force from 2012, as cited at n 163), but Japan also completed in 2006 a major revision of its long-standing PIL statute covering choice of law. Australia can minimize complexity, costs and timeframes for legislative interventions by adopting a similar process, drawing furthermore on the comprehensive deliberations and comparative law analysis conducted by law reformers in major trading partners like Japan.

Adopting instead a ‘principle-based framework … aimed at harmonizing, not at unifying, private international law across Australia’ (para 192) is not a palatable alternative to statutory reform. Australian courts would be unlikely to follow such principles: they do not have a good track record in applying existing PIL principles (eg enforcement of choice of court clauses: see the empirical study of Professor Mary Keyes cited at para 53). Legislators do not need ‘a template for domestic legislation’ (para 193) because the major problems with PIL in Australia are in cross-border rather than domestic contexts, necessitating one statute in that respect. And a non-binding ‘principle-based framework’ is inappropriate for ‘parties to a contract … to shape their contractual and extra-contractual dealings’ (para 193) because PIL rules (eg the test for the choice of law if parties don’t expressly agree on one) are essentially directed at courts or arbitrators.

B. Choice of Law rules under Australian PIL (DP ch4)

Legislative reform is necessary because the applicability of mandatory substantive rules of Australian law is presently unclear and/or debatable on policy grounds, particularly in ‘consumer’ transactions. The DP remarks in relation to the Competition and Consumer Act 2010 (Cth), the new name for the Trade Practices Act (TPA), that ‘in most cases’ such legislation is prescribed to mandatorily apply to protect parties in unequal bargaining positions, such as consumers and parties to standard[-form] insurance contracts’ (para 98).

Yet, even for mandatory consumer guarantees cited at n 92 (such as acceptable quality or fitness for pre-disclosed purpose) under Pt 3-2 Div 1 of the former Act’s Schedule 2 (the Australian Consumer Law or ACL), such an outcome is not clear. ACL s67 does provide a quite protective choice of law rule: the forum should disregard any express choice of law clause in the ‘contract for the supply of goods or services to a consumer’ (eg ‘US law’), and work out what the proper law would be otherwise (applying, presumably, the ‘closest and most real connection’ test) – if that points to Australian law, the ACL will apply (despite any contrary express choice of law).

One difficulty with s67 is that many consumers (and many solicitors) will not know about the test generally, let alone how to identify and weigh specific factors developed by Australian PIL case law in applying the test.

Secondly, those factors often point more to the law of the supplier, hence an exporter (eg Amazon USA) to an Australian buyer, in which case the forum would have to apply the foreign law – such as US law, which does not have mandatory guarantees or warranties for consumers (unlike the ACL). Admittedly, an Australian court might give more weight to connections with Australia in order to protect the Australian consumer under the ACL, by extending the reasoning of the High Court of Australia in Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 418 (helpfully cited at n 94) when interpreting a similar choice of law rule in the Insurance Contracts Act 1984 (Cth). But this result is not guaranteed, especially given that the ACL’s relevant definition of ‘consumer’ (s3) is comparatively broad: mandatory warranties generally apply to sales under $40,000 even to firms purchasing for business purposes. An Australian Court might well conclude that such firms do not need to be protected in the same way as individuals purchasing for non-business purposes, and therefore apply ACL s67 so as to respect an express choice of foreign law agreed in that essentially business-to-business (B2B) context.

Another problem is that the ACL curiously omits any choice of law rule whatsoever in its new Pt 2-3 provisions regulating unfair terms generally in standard-form contracts, involving consumers (defined differently under s23(3), as individuals contracting for personal use). Perhaps Australian courts will infer that these new ACL protections are intended to apply in all cross-border supply situations, notwithstanding any express choice of foreign law. After all, they have often taken this approach regarding Australia’s statutory protections against unconscionable or misleading conduct (under the TPA, now carried over in different Parts of the ACL). But there have been exceptions regarding those provisions. Anyway they are more directly aimed at ‘levelling the playing field’ and creating a competitive market for suppliers; rather like competition law more generally, prohibitions on misleading and even unconscionable conduct involve more third-party effects. By contrast, substantive controls over unfair terms (like mandatory consumer guarantees) are traditionally justified primarily on the basis of inter-party effects. In other words, there may be less basis for always applying the ACL protections in such circumstances – which is perhaps why Australia had and retained the ACL s67 compromise choice of law rule regarding mandatory guarantees in consumer contracts.

Nonetheless, this is clearly an area where we need clarification and more policy debate. At least four options should be discussed:

(i) Should we retain ACL s67, perhaps clarifying its contours (or at least referring to a new PIL statute that details the applicable ‘closest and most real connection’ test), and then extend it to other parts of the ACL that lack an express choice of law provision?

(ii) What about instead, at least for some ACL provisions, a clear provision that the ‘consumer’ protections apply in all situations?

(iii) What about an even more protective choice of law rule: directing the forum always to apply the substantive law ‘most favourable to the consumer’? (For example, my forthcoming co-edited book on Consumer Law and Policy in Australia and New Zealand shows how EU law is sometimes even more protective than consumers than the ACL. ) This alternative choice of law rule is contained in a Brazilian-Argentinean-Paraguayan proposal for a draft OAS Inter-American Convention (CIDIP VII-Part II). It is now also urged by the International Law Association through its Committee for the International Protection of Consumers (established in 2008 and on which I serve), namely in Resolution 4/2012 adopting the ‘Sofia Statement on the Development of International Principles of Consumer Protection’.

(iv) As a compromise, what about allowing the parties to agree to opt-in to a set of contract law provisions that are quite favourable to the (consumer) buyer, albeit perhaps less so than the ACL in some respects? This is the idea behind the proposed EU Directive on a Common European Sales Law. I have suggested, in my Submission to the AGD’s separate (yet surely inter-related) Consultation on reforming contract law in Australia, that this instrument could be adopted or adapted in Australia (through a legislative intervention) as an opt-in governing law for cross-border Business-to-Consumer (B2C) transactions.

In that Submission as well as my 2010 article in the Australian International Law Journal, I also recommend legislation for Australia that clearly authorises its courts (not just arbitral tribunals under the International Arbitration Act 1974 (Cth)) to give effect to ‘non-state law’ (see DP para 103) if the parties expressly so choose. ‘Non-state law’ includes the UNIDROIT Principles of International Commercial Contracts – increasingly accepted, even in Australia, but designed instead for B2B transactions.

C. Jurisdiction (DP ch3)

As the Australian government now examines in more detail the choice of law rule possibilities, especially for cross-border consumer transactions of various types, it also should also clarify the effect of parties’ choice of a foreign court – or foreign-seated arbitration. The DP again notes that some Australian courts have refused to give effect to a foreign choice of court agreement in the context of ‘consumer’ protection legislation (para 51), but some have been more willing to allow leeway particularly for foreign arbitrators to determine whether and how to apply rules on or related to misleading or unconscionable conduct. Professor Richard Garnett and I urged the AGD to address this problem in its 2010 reforms of the International Arbitration Act 1974, and I also raised this problem with Treasury during consumer law reform consultations resulting in the ACL. Unfortunately, neither statute has addressed this important but somewhat complex issue, but now Australia has another chance.

Another point that must be considered is s11 of the Carriage of Goods by Sea Act (Cth). It requires disputes over outbound carriage under bills of lading or certain other ‘sea carriage documents’ to be resolved either in Australian courts or arbitration ‘conducted in Australia’. First, it is unclear whether ‘conducted in Australia’ requires hearings to take place here, or whether it is enough for the seat of the arbitration to be Australia. Second, Australian courts have recently split as to whether a relevant ‘sea carriage document’ includes a charterparty. Third, even if it is, we need a policy discussion as to whether than makes sense – given less problems with unequal bargaining power when negotiating charterparties, compared to say bills of lading. Fourth, even for bills of lading, does it make sense nowadays to discriminate against arbitrations ‘conducted’ outside Australia, given the much greater acceptance and quality of international commercial arbitration nowadays?

These issues must be addressed if Australia is serious about projecting itself as a regional hub for international arbitration and dispute resolution generally, as urged by this Government and others. More generally, these ongoing Consultations on PIL law reform in Australia should pay closer attention to issues specific to international arbitration, not just cross-border litigation. This is particularly important and timely given other problems in Australia’s legislative regime for international arbitration, especially an unfortunate ‘legislative black hole’ for certain pre-2010 international arbitration agreements, which must be urgently addressed anyway.

[A footnoted version of the following note is forthcoming on the Baker & McKenzie website. The firm supports ANJeL's 'Team Australia' law students in the INC negotiation and arbitration moot competition in Tokyo (held over 1-2 December this year), and Mr Davis is a guest lecturer in Sydney Law School's LLM courses in "Global Energy and Resources Law" and "Law and Investment in Asia". The law and practice of long-term contracts is not only of immediate practical significance for bilateral and regional trade and investment (including Australia-Japan FTA negotiations), but also more broadly for contract law reform projects now underway in both Australia and Japan.]

Current Top Concern to Asia's LNG Buyers and Sellers

The main issue exercising the minds of Asia's LNG sellers and buyers is what will happen to their current LNG sale and purchase agreements (SPAs), which are priced based upon the Japan Crude Cocktail (JCC), as cheaper (Henry Hub linked) shale gas imports start to flow into the region from North America.

Buyers will be under pressure to "close the gap." At the same time the sellers are concerned to maintain the prices based on which they made the decision to develop their LNG projects.

SPAs differ, depending upon the LNG SPA model preferred by the seller - in effect the operator of the project. However most SPAs contain two provisions of relevance to the current issue.

The existing Asian SPAs are usually for terms of between 10 and 20 years. While prices are invariably linked to the JCC, the contracts often reduce price volatility by building floors and caps (or "s-curves") into the pricing mechanism.

The contracts also usually (but not inevitably) contain a price review provision, which may consist of several elements.

Where the buyer is a foundation buyer, the review clause will often contain a "most favored customer clause" such as:

The price paid by the buyer shall not be materially higher than that paid by other buyers from the project.

Such a clause is often accompanied by a most favored supplier clause:

The price paid by the buyer shall not be materially less then the price paid by the buyer's other suppliers.

These clauses would not give relief to the buyer when cheaper North American shale case becomes available.

Of more relevance is the market parity clause, which seeks to ensure that the price will not be out of line with a particular market.

The price shall be based on the pricing of similar sales [ into Japan][into the North Asian market]

Sometimes the comparison is made against current imports into Asia/Japan, sometimes against new long-term contracts into Asia/Japan and sometimes both tests are applied.

The SPA usually provides that the review takes place at specified intervals (e.g. every five years) but in some cases it occurs when requested by one of the parties. Often the test includes a materiality threshold, e.g. requiring that the party seeking to reopen the price establish that it is materially worse off.

Questions which arise in practice include: whether the trigger to bring the clause into operation has been met , whether only the discount factor to JCC or the whole pricing mechanism is to be reviewed , and what happens if the parties do not agree.

The answer to the latter point depends upon the wording of the contract. Some contracts provide the matter will be decided by arbitration. Some make it clear that if no agreement is reached there will be no change. Often however the review clause is such a sensitive matter in negotiations that the parties, consciously or unconsciously, leave the question open. In this case the wording of the disputes clause becomes key. For example does it cover disputes only or also failure to agree?

Asian SPAs are almost always governed by either English or New York law. English courts in particular tend towards interpreting contracts literally and avoiding allowing the court to fill the gaps, and arbitral tribunals are supposed to apply the governing law. On the other hand, courts and tribunals also tend to take account of the fact that in entering the contract one party may have relied upon a particular set of circumstances that were known to both parties. It will be interesting to see how these factors play out in the Asian LNG SPA context.

Hardship Clause

Most long-term SPAs also contain some kind of hardship clause. Hardship clauses differ from review clauses in a number of respects:

Rather than being triggered at a specific point in time, as if often the case with price review clauses, hardship clauses can be triggered at any time if a specific test is met, such as:

Upon a substantial change in circumstances resulting in one party suffering substantial hardship.

The clause usually provides for a review of all provisions of the contract causing hardship, not just price.

Some contracts make it clear that the obligation is to discuss only; if no agreement is reached the matter is not subject to arbitration. Other contracts are ambiguous on the point, consciously or unconsciously.

What is likely to happen in the market?

While the parties to the Asian LNG SPAs will no doubt attempt to resolve the price gap problem through commercial negotiation, the issue is of such importance that the negotiations will inevitably take place against the backdrop of the parties' views of their legal rights.

It is hard to see how cheaper imports of LNG from North America would fall within the most favored customer clause. Such imports should, at least at first sight, trigger the market parity clause, but this depends upon the actual wording of the clause. If for example the clause requires a comparison with "similar sales" the seller may argue that only sales from e.g. Australia are "similar". Another issue will be timing - at what point will lower priced imports be sufficient to have in effect changed the market?

If the market parity clause does not apply, or the SPA does not have such a provision, the buyer will need to try and seek relief through the hardship clause. One way he may be able to do this is by showing that the regulator has reduced retail power or city gas prices because of the availability of such imports.

As for new contracts, there is a move away from pricing mechanisms based solely upon the JCC and the media reports that buyers are predicting the end of oil based pricing. Price review clauses are also likely to change, with the realization that they have not met the needs of the changing market.