Less is more? Rethinking representations and warranties in Japanese deals

This streamlined approach is deeply rooted in Japan’s business culture. Trust and long-term relationships often take the place of heavily detailed contracts that include multiple layers of legal protections to guard against every possible risk. Another key reason for brevity is practical: the more complex the contract, the longer the corporate approval process. Normally, large Japanese corporations require multiple layers of internal review for custom-drafted provisions – escalating all the way to the board. Efficiency demands that standard templates, already vetted by legal and compliance teams, take priority.

However, streamlined doesn’t mean risk-free.

A key court decision in the 2006 Arco case held that if a buyer discovers a problem during due diligence but fails to act, they may lose the right to claim damages, even if the seller breached a contractual promise. Unless the contract clearly allows claims despite prior knowledge – a pro-sandbagging clause – the buyer must meet two conditions to claim damages:

1. They must not have known about the issue; and
2. They must not have been grossly negligent in failing to discover it.

Although the buyer in Arco ultimately recovered damages, the case established that under Japanese law, buyers may be barred from post-closing claims unless the contract includes a pro-sandbagging clause – explicitly stating that prior knowledge does not prevent enforcement of warranty claims.

This legal backdrop creates a subtle but meaningful risk allocation imbalance. Japanese sellers may unintentionally expose themselves to liability, while international buyers unfamiliar with the norms may unknowingly shoulder unanticipated risks. The idea that “less is more” only works when both sides understand the risks baked into what’s left unsaid.

Yet, flexibility exists. In cross-border deals, especially those involving complex structures, multiple jurisdictions, or long-standing business partnerships, Japanese companies are often willing to adapt. Many will accommodate internationally styled contracts, complete with detailed warranties, robust disclosure schedules, and sandbagging provisions. Practicality, not rigidity, guides these decisions.

For foreign counsel, this means adjusting the playbook. Due diligence must go beyond the checklist. Negotiations should close gaps in vague provisions and address post-closing remedies explicitly. The goal isn’t to reject Japan’s legal traditions but to bridge them – respectfully, strategically, and with precision.

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Abbey Schultz serves as a US-licensed Associate at Kojima Law Offices. She handles various cross-border matters, including corporate, M&A, and international inheritance.

Hirokzau Amemiya is a Partner at Kojima Law Offices. He has over 19 years of experience in handling various cross-border corporate and M&A matters.