In an increasingly interconnected and volatile global economy, U.S. businesses engaging with Japanese counterparts or operating under contracts governed by Japanese law must be prepared for unforeseen events that can disrupt contractual performance. Understanding how Japanese law and contractual practice address concepts like force majeure and hardship (change in circumstances) is crucial for effective risk management. This article explores these principles, highlighting key differences from U.S. common law approaches and offering guidance for navigating such disruptions.

The Concept of "Force Majeure" (不可抗力 - Fukakōryoku) in the Japanese Context

The term "force majeure" (fukakōryoku - 不可抗力) is widely understood in international commerce, referring to unforeseeable and unavoidable events beyond a party's control that prevent it from fulfilling its contractual obligations. However, unlike some legal systems that provide a statutory definition or framework for force majeure, the Japanese Civil Code (民法 - Minpō) does not contain a general, overarching statutory definition of force majeure that automatically excuses non-performance across all contract types.

Instead, in Japan:

1. Force Majeure is Primarily a Contractual Concept: The scope and effect of a force majeure event are largely determined by the specific wording of a force majeure clause within the contract itself. Japanese commercial contracts, especially those with international dimensions, increasingly include such clauses. Without an explicit clause, relying on implied legal protection can be uncertain.
2. Overlap with Statutory Principles of Impossibility and Risk: In the absence of, or in conjunction with, a force majeure clause, Japanese law addresses supervening events primarily through doctrines related to impossibility of performance and the allocation of risk, which are discussed below. The concept of "grounds not attributable to the obligor" (帰責事由のない - kisaku jiyū no nai) is central to these doctrines.

Therefore, the first line of analysis when an unforeseen event occurs is often the contract itself. If a force majeure clause exists, its definition of triggering events, notice requirements, and prescribed consequences (e.g., suspension of obligations, right to terminate) will be paramount.

Impossibility of Performance (履行不能 - Rikō Funō) under the Civil Code

Even without a specific force majeure clause, the Japanese Civil Code provides mechanisms to deal with situations where performance becomes impossible.

1. Extinction of Claim for Performance due to Impossibility Not Attributable to Obligor (Civil Code Article 412-2):
   Introduced in the 2020 Civil Code reforms (clarifying previous case law), this article states that if the performance of an obligation has become impossible in whole or in part due to grounds not attributable to the obligor, the obligee may no longer demand performance of that obligation (or the impossible part thereof). This "impossibility" can be physical (e.g., destruction of the unique subject matter of the contract) or legal/regulatory (e.g., a subsequent government order prohibiting the transaction).
2. Risk of Loss in Bilateral Contracts (Civil Code Article 536):
   This article addresses who bears the risk when performance of one party's obligation in a bilateral contract (a contract with mutual obligations) becomes impossible.
   • Paragraph 1: If performance becomes impossible due to grounds not attributable to either party, the obligor is excused from its performance obligation, and correspondingly, it cannot claim counter-performance from the other party. The risk effectively falls on the obligor of the impossible performance, as they lose the right to receive the counter-payment or performance.
   • Paragraph 2: If performance becomes impossible due to grounds attributable to the obligee (the party to receive that performance), the obligor does not lose its right to claim counter-performance. However, if the obligor gains any benefit from being released from its own obligation, it must return that benefit to the obligee.
3. Attributability (帰責事由 - Kisaku Jiyū):
   The concept of "grounds attributable to a party" (kisaku jiyū) is crucial. Generally, this includes intentional acts, negligence, or other circumstances for which the party should bear responsibility under the contract or prevailing social norms. Events considered true force majeure (natural disasters, wars, etc., if not specifically addressed in the contract) would typically be considered "not attributable" to either party.

Comparison with U.S. Concepts:
The Japanese concept of rikō funō is analogous to the U.S. common law doctrines of "impossibility of performance" and "impracticability" (UCC §2-615). However, the emphasis and application can differ. For instance, while U.S. law has a distinct concept of "commercial impracticability" where performance is not strictly impossible but has become excessively burdensome, Japanese law might address such situations more through the principle of change in circumstances (discussed next) or the overarching principle of good faith.

The Principle of Change in Circumstances / Hardship (事情変更の原則 - Jijō Henkō no Gensoku)

Beyond outright impossibility, Japanese law recognizes, albeit cautiously, the "principle of change in circumstances" (jijō henkō no gensoku - 事情変更の原則), which is akin to the common law doctrine of frustration of purpose or, in some aspects, commercial impracticability, and the international concept of hardship. This principle is not explicitly and generally codified in the Civil Code as a standalone rule applicable to all contracts, but has been developed primarily through judicial precedent and academic theory, heavily influenced by the principle of good faith and fair dealing.

The requirements for successfully invoking jijō henkō no gensoku are stringent and generally include:

1. A Fundamental Change in Circumstances: The circumstances forming the basis of the contract must have changed so fundamentally after the contract was concluded that the original contractual balance is entirely disrupted.
2. Unforeseeability: The change in circumstances must have been unforeseeable by the parties at the time of contracting. If the risk of such a change was foreseeable or implicitly allocated by the contract, the principle is unlikely to apply.
3. Non-Attributability: The change must not be due to grounds attributable to the party seeking relief.
4. Gross Unfairness / Violation of Good Faith: Continued enforcement of the original contractual terms under the changed circumstances would be grossly unfair or would violate the principle of good faith and fair dealing (shingi seijitsu no gensoku - 信義誠実の原則, Civil Code Article 1, Paragraph 2).

Remedies:
If jijō henkō no gensoku is successfully invoked, the potential remedies are typically:

• Termination of the Contract: The court may allow the affected party to terminate the contract.
• Revision/Modification of Terms: Courts are generally very reluctant to rewrite the terms of a contract. While modification is theoretically possible, termination is a more common outcome sought or granted. Parties are usually encouraged to renegotiate terms themselves first.

The 2020 Civil Code reforms did not introduce a general provision on jijō henkō no gensoku for all contract types. However, some specific provisions reflect similar considerations. For example, Article 611 of the Civil Code allows for a reduction of rent if part of leased premises becomes unusable due to grounds not attributable to the lessee. Some commentators see this as reflecting aspects of the jijō henkō doctrine in a specific context.

Comparison with U.S. Concepts:
While jijō henkō no gensoku shares similarities with the U.S. doctrines of "frustration of purpose" (where the primary purpose of the contract for one party is substantially frustrated by a supervening event) and "commercial impracticability" (where performance, though not impossible, has become excessively burdensome or costly due to an unforeseen event), the threshold for its application in Japan is generally considered very high. Japanese courts are cautious and prioritize contractual stability (pacta sunt servanda).

The Impact of the COVID-19 Pandemic on Contractual Obligations in Japan

The global COVID-19 pandemic provided a significant real-world test for these legal principles in Japan, as elsewhere.

• Force Majeure Clauses: Many businesses reviewed their existing force majeure clauses. Whether the pandemic qualified as a force majeure event depended heavily on the specific wording of the clause (e.g., whether "epidemic," "pandemic," or "government order" was explicitly listed).
• Impossibility vs. Economic Difficulty: While government-mandated lockdowns or closures directly rendered some performances impossible, mere economic hardship or increased cost of performance due to the pandemic was generally not sufficient to claim rikō funō or readily invoke jijō henkō no gensoku. Japanese courts tend to view economic downturns or market fluctuations as inherent business risks.
• Government Measures: The Japanese government implemented various support measures for businesses (e.g., subsidies, loans) but generally did not enact sweeping legislation that directly excused contractual non-performance due to the pandemic across the board. Parties were largely expected to negotiate solutions.
• Negotiation and Good Faith: There was a strong emphasis on parties discussing and renegotiating terms in good faith, reflecting the importance of shingi-soku. Many disputes were resolved through mutual agreement rather than formal legal proceedings.

The pandemic underscored the importance of having clearly drafted contractual provisions for unforeseen events, as relying solely on implied legal doctrines can lead to uncertainty.

Drafting Effective Force Majeure and Hardship Clauses in Japanese Contracts

Given the Japanese legal landscape, U.S. companies should consider the following when drafting or reviewing contracts intended to be governed by Japanese law or involving Japanese counterparts:

1. Include Explicit Clauses: Do not assume that general principles of Japanese law will automatically provide sufficient protection for all types of unforeseen disruptions. A well-drafted force majeure clause is essential.
2. Define Force Majeure Events:
   • Consider listing specific events (e.g., acts of God, natural disasters like earthquakes and typhoons (which are relevant in Japan), war, terrorism, epidemics/pandemics, strikes, government orders/actions).
   • Include a catch-all phrase like "other events beyond the reasonable control of the affected party," but be aware that Japanese courts may interpret such general phrases narrowly.
3. Procedural Requirements:
   • Specify clear notice requirements (timing, content, method of delivery) for the party invoking force majeure.
   • Include a duty for the affected party to use reasonable efforts to mitigate the effects of the force majeure event and to resume performance as soon as practicable.
4. Consequences of Force Majeure:
   • Suspension of Obligations: The primary consequence is typically the suspension of the affected party's obligations for the duration of the event.
   • Extension of Time: Provide for an extension of the time for performance.
   • Right to Terminate: Specify if and when either party (or both) has the right to terminate the contract if the force majeure event continues for a prolonged period (e.g., 60, 90, or 180 days).
5. Drafting Hardship Clauses (Change in Circumstances Clauses):
   • While jijō henkō no gensoku exists as a judicial doctrine, including a contractual hardship clause can provide more clarity and a structured process.
   • Define the "hardship" trigger: What level of imbalance or increased burden will activate the clause? This is often difficult to define precisely.
   • Prescribe a process for renegotiation of terms in good faith if a hardship event occurs.
   • Specify consequences if renegotiation fails (e.g., referral to mediation/arbitration, or a right to terminate the contract).
6. Interplay with Japanese Legal Doctrines: Ensure clauses are drafted in a way that aligns with or clearly intends to modify (to the extent permissible) the underlying principles of Japanese law, such as shingi-soku.
7. Choice of Law and Dispute Resolution:
   • Carefully consider the governing law of the contract. If Japanese law is chosen, these principles will apply.
   • Select an appropriate dispute resolution mechanism (e.g., arbitration in Japan or a neutral venue) that can effectively address complex issues arising from unforeseen disruptions.

Practical Steps and Considerations for U.S. Businesses

Beyond contract drafting, U.S. businesses should consider these practical steps:

• Proactive Risk Assessment: Before entering into significant contracts with Japanese entities or for operations in Japan, conduct a thorough risk assessment considering potential disruptions relevant to the specific industry and region.
• Clear Communication: If an unforeseen event occurs that impacts performance, promptly and transparently communicate with the Japanese counterparty. Early communication can facilitate mutually agreeable solutions.
• Cultural Sensitivity in Negotiations: When renegotiating terms or discussing disruptions, be mindful of Japanese business culture, which often values long-term relationships, harmony, and finding solutions that allow both parties to save face. A confrontational approach is rarely effective.
• Documentation: Maintain thorough records of the event, its impact, communications with the counterparty, and mitigation efforts.
• Seek Local Legal Counsel: When facing significant contractual disruptions or drafting complex clauses, obtaining advice from lawyers experienced in Japanese contract law is crucial to understand the specific legal implications and strategic options.

Conclusion

Navigating unforeseen disruptions in contracts under Japanese law requires an understanding of both specific contractual provisions and underlying legal doctrines such as impossibility of performance and the principle of change in circumstances. While "force majeure" is primarily a contractual construct in Japan, its effects are intertwined with these statutory and judicial principles, all viewed through the lens of good faith.

For U.S. businesses, proactive contract drafting that clearly addresses potential disruptions, coupled with an appreciation for Japanese legal and cultural approaches to problem-solving, is key to mitigating risks. The lessons from recent global events further emphasize the need for robust contractual safeguards and flexible, good-faith engagement with commercial partners when the unexpected occurs.