Renegotiating Long-Term Energy Supply Contracts with Japanese Buyers

Abstract

There is a considerable body of literature concerning Japanese contract law and the practices and expectations of Japanese parties engaged in negotiating, drafting, performing and contesting contractual obligations, especially under long-term sales contracts.^[1]

Such perspectives can play a useful role, especially for example for policy-makers interested in reforming contract law generally, as presently in Japan.^[2]

But a fuller understanding of the issues arising under such contracts requires analysis in the context of the particular industry and its customs and practices. Each industry has developed its own distinctive form of long-term contract for the commodities dealt with in that industry, with a different range of generally accepted negotiation parameters, and the contracts are subject to the pressures arising from time to time from the market circumstances in the industry concerned.^[3]

This article examines the issues arising under contract law and practice involving Japanese parties in a very significant part of the international energy market, namely for Liquefied Natural Gas (LNG), where recent developments in North America are creating major upheavals.

The major focus is long-term contracts between Australian suppliers and Japanese customers, with Australia now constituting the world’s largest exporter of LNG and Japan the largest importer. Those trade (and investment) relationships are now underpinned by a newly-signed bilateral FTA.^[4]

[1]       See e.g. Lewi, supra note 1.

[2]       See e.g. L. Nottage / S. Kozuka, Policy and Politics in Contract Law Reform in Japan, Sydney Law School Research Paper No. 13/86 (2013), available at SSRN.com/abstract=2360343.

[3]       Davis, supra note 5, comparing e.g. the contracts for coal and those for iron ore.

[4]       https://www.dfat.gov.au/fta/jaepa/.