A choice of law clause, also called a “governing law clause” or “proper law clause,” is a clause used in contracts to identify the type of law that should be applied to interpret the contract. Since the laws of various countries can differ in how they interpret contracts, without a choice of law clause, a contract may be valid when interpreted under one country’s laws but may be found invalid under the laws of another country.
In Japan, most contract rights are assignable to third parties. This general rule is limited to rights that are of an assignable nature (such as collecting payment) and to contracts that do not explicitly prevent assignments. This means that a party to a contract may assign his right to collect ten million yen over the course of a year, to a third party in exchange for nine million yen immediately. This rule favoring assignment allows parties to freely contract to suit their needs and ideally should promote the best possible economic outcome for all parties.
Subleasing property is not generally as accepted in Japan as it is in other parts of the world. Most rental contracts tend to include a provision specifically prohibiting subleasing. In these cases, the terms of the agreement will typically state that if a tenant subleases the apartment without the landlord’s prior approval, the landlord may cancel the contract.
One of the reasons that companies enter into written contracts with each other is to provide a certain amount of predictability in business dealings. The contract allows both parties to know what to expect from each other over a term that can last for months or years. However, when one party breaks the contract, this predictability is shattered if the remedy for the breach is left up to an arbitrator or judge. Including an exclusive remedy clause into the contract can resolve this potential source of unpredictability.