LAW GOVERNING SET - OFF IN JAPANESE PRIVATE INTERNATIONAL LAW

Set-off is a legal institution that the obligations of two debtors, each of whom is the creditor of the other, are extinguished or can be extinguished under certain circumstances. Some legal system understands set-off as a matter of procedural law, others acknowledge it as a matter of substantive law. In some legal systems, set-off occurs automatically, while others require a declaration of set-off to the other party. If one obligation (whose creditor is X) is governed by A’s law and the other (whose creditor is Y) by B’s law and X declares set-off to Y, which law shall be applied to set-off of these obligations is the issue. Is A’s law of the active claim of X or B’s law of the passive claim of Y? Firstly in this article, the present state of Japanese law is described as objectively as possible. Secondly, the author personal view is explained. Finally, why the law governing the passive claim doctrine became the majority view in Japanese law is discussed. This article concludes that the law governing the passive claim doctrine is the majority view on the question of the law governing legal set-offs in Japan, and in cases where the law governing the set-off is at issue before a Japanese court, one should construe that the law governing the passive claim will be applied.