Pricing, payment and financing

Fixed-price and labour-and-cost-plus contracts

Does the law in your country have different provisions for ‘fixed-price’ contracts and ‘labour-and-cost-plus’ contracts?

No, Japanese law does not have different provisions for fixed-price contracts and labour-and-cost-plus contracts.

Price increases

Does the builder have any statutory remedies available to charge the buyer for price increases of labour and materials despite the contract having a fixed price?

No, the builder does not have any statutory remedies to charge the buyer for price increases of labour and materials under a contract that provides for a fixed price. However, there is a possibility, though very remote, that the builder has remedies based on the ‘principle of change of circumstances’, which is recognised in a number of Japanese court precedents. The requirements of this principle are that:

  • there has been a change in the circumstances that were the basis of the contract at the time of its conclusion;
  • the contractual parties have not foreseen and were not able to foresee the change;
  • the change has occurred by a cause that is not attributable to either of the parties; and
  • as a result of the change, it is extremely unjust to bind the parties to the existing contract.

 

For sale contracts, there are court precedents that have applied the principle of change of circumstances and allowed an increase in price. For example, in the case where a land price increased by 620 times more than the agreed sale price, the Sendai Court of Appeal accepted that there had been a substantial change of circumstances and allowed the plaintiff’s request to raise the sale price of the land. For contracts for work and shipbuilding contracts, we have not found any court precedents that applied the principle of change of circumstances.

Retracting consent to a price increase

Can a buyer retract consent to an increase in price by arguing that consent was induced by economic duress?

It is difficult for a buyer to retract consent to an increase in price included in the agreement. A buyer can rescind its manifestation of intention based on article 96 of the Civil Code if the buyer establishes that the builder tried to have the buyer decide to purchase by threatening or intimidating the buyer and the buyer became frightened and thereby made the decision and manifested its intention. There is, however, no legal concept of ‘economic duress’ under Japanese law and one leading scholar has expressed the view that article 96 does not apply to cases of economic duress.

Exclusions of buyers’ rights

May the builder and the buyer agree to exclude the buyer’s right to set off, suspend payment or deduct certain amounts?

Yes, they may agree to exclude the buyer’s right. Japanese law recognises the principle of freedom of contract and there are no statutory provisions that prohibit the exclusion of those rights in a contract.

Refund guarantees

If the contract price is payable by the buyer in pre-delivery instalments, are there any rules in regard to the form and wording of refund guarantees? Is permission from any authority required for the builder to have the refund guarantees issued?

If the applicable law to a refund guarantee contract is Japanese law, the contract shall be made in writing or shall be concluded by electromagnetic record that records the contents thereof; otherwise, the contract is not effective (article 446, paragraphs 2 and 3 of the Civil Code). There is no particular regulation governing the wording of refund guarantees.

Permission from the authority is not required for the builder to have refund guarantees issued.

Advance payment and parent company guarantees

What formalities govern the issuance of advance payment guarantees and parent company guarantees?

If the applicable law to the advance payment guarantee contract or parent company guarantee contract is Japanese law, these contracts shall be made in writing or shall be concluded by electromagnetic record that records the contents thereof; otherwise, these contracts are not effective (article 446, paragraphs 2 and 3 of the Civil Code).

Financing of construction with a mortgage

Can the builder or buyer create and register a mortgage over the vessel under construction to secure construction financing?

A buyer can create and register a mortgage over the vessel under construction.

Law Stated Date

Correct On

Give the date on which the information above is accurate.

24 January 2022