Navigating Japan's 2020 Civil Code Reform: How Were Prescription Rules for Claims Fundamentally Changed?

Japan's legal landscape concerning the time limits for asserting claims underwent a significant transformation with the amendments to its Civil Code, which came into effect on April 1, 2020. These reforms represent the most substantial revision of Japan's contract law (part of the Civil Code) in over a century and have had a profound impact on the rules of "extinctive prescription" (shōmetsu jikō - 消滅時効) – the system by which legal rights are extinguished due to the passage of time. For businesses operating in or engaging with Japan, understanding these fundamental changes is crucial for managing contractual relationships, assessing legal risks, and formulating effective dispute resolution strategies.

This article provides an in-depth examination of how the prescription rules for claims were overhauled, focusing on the new framework for prescription periods and starting points, the reimagined concepts of interrupting and suspending prescription, the clarification of parties entitled to invoke prescription, and the critical transitional measures.

I. A New Framework for Prescription Periods and Starting Points

Perhaps the most fundamental change introduced by the 2020 reform is the restructuring of how prescription periods are determined for many types of claims, particularly those arising from contracts. The old system, while having various specific short-term prescriptions, generally provided for a 10-year prescription period for civil claims, running from the time the right could be exercised. The reform aimed to create a more unified and arguably fairer system.

A. The Dual Approach: Subjective and Objective Calculations

The amended Civil Code introduced a dual-track system for calculating the main extinctive prescription period for claims. A claim will now be extinguished by prescription upon the expiry of the earlier of the following two periods:

1. Subjective Period: Five years from the time the creditor became aware that the right could be exercised (kenri o kōshi suru koto ga dekiru koto o shitta toki - 権利を行使することができることを知った時).
2. Objective Period: Ten years from the time the right could objectively be exercised (kenri o kōshi suru koto ga dekiru toki - 権利を行使することができる時).

This dual structure is a significant departure. The "subjective" five-year period acknowledges that a creditor might not always be immediately aware of their ability to exercise a right, but once such awareness exists, a shorter period for action is deemed appropriate. The "objective" ten-year period acts as a longstop, ensuring that claims do not remain indefinitely enforceable even if the creditor was, for some reason, unaware of their ability to exercise the right.

B. Impact on General Contractual Claims

For most general contractual claims, this new dual system means that if a creditor knows they can exercise their claim (e.g., a payment is due under a contract and the creditor is aware of this), they generally have five years to act. If, for some reason, the creditor is not aware, the claim will still be extinguished after ten years from the point it objectively became exercisable. This change encourages creditors to be diligent once they have knowledge of their claim, while still providing a degree of certainty with the ten-year objective limit.

C. Special Provisions for Certain Claims

While the dual 5-year/10-year rule is the new general standard, the amended Civil Code maintains or introduces special prescription rules for certain types of claims, reflecting specific policy considerations:

1. Claims for Damages due to Infringement of Life or Body (人の生命又は身体の侵害による損害賠償請求権 - Hito no seimei matawa shintai no shingai ni yoru songai baishō seikyūken):
   Recognizing the importance of protecting individuals from personal injury and loss of life, the prescription period for claims for damages arising from the infringement of a person's life or body (whether based on contract/default or tort) has been extended. Under the amended Civil Code, such claims are subject to:
   • Five years from the time the creditor became aware of the damage and the perpetrator (if a tort claim, as per Article 724-2) or aware of the ability to exercise the right (if a contractual claim, following the general subjective rule of Article 166(1)(i)).
   • Twenty years from the time of the wrongful act (for torts, Article 724, item 2) or from when the right could objectively be exercised (for contractual claims for personal injury/death, Article 167).
     This provides greater protection for victims of personal injury.
2. Periodic Payment Claims (定期金債権 - Teikikin saiken):
   The rules for periodic payment claims (e.g., annuities, but not typically regular salary or rent, which were covered by different rules pre-reform) were also revised. Under the amended Civil Code (Article 168), the right to the entire series of periodic payments (the "base right") is extinguished if:
   • The creditor does not exercise the right to claim individual installments for ten years from the time the creditor became aware of the ability to exercise the right to each such installment; or
   • The creditor does not exercise the right to claim individual installments for twenty years from the time the creditor could objectively exercise the right to each such installment.
     This reform simplifies the previous, more complex rules for such claims.
3. Rights Confirmed by Final Judgment (判決で確定した権利 - Hanketsu de kakutei shita kenri):
   If a right has been confirmed by a final and binding court judgment (or certain other equivalent instruments like a settlement or mediation in court), its prescription period becomes a uniform ten years from the time of such confirmation, even if the original prescription period for the claim was shorter. This rule (amended Article 169, formerly Article 174-2) remains largely intact, providing a fresh 10-year period post-judgment, but it will not apply to claims that are not yet due at the time of the judgment.

D. Abolition of Outdated Short-Term Prescriptions (Simplification and Unification)

A major objective of the reform was to simplify the often-confusing array of special short-term prescription periods that existed under the old law. Consequently, several of these were abolished:

1. No More Profession-Specific Short Prescriptions: The old Civil Code contained various short prescription periods (one to three years) for claims related to specific professions, such as fees for doctors, lawyers, or artisans, and charges for services like hotel stays or transportation (former Articles 170-174). These were often criticized as anachronistic and lacking clear justification in modern society. The reform abolished these, and such claims now generally fall under the new dual 5-year/10-year rule.
2. Abolition of Short Prescription for Periodic Installment Claims: The old five-year prescription for rights to periodic payments due at intervals of one year or less (e.g., rent, interest, salary – former Article 169) was also eliminated. These claims are now typically governed by the general 5/10-year rule (though labor law has separate, shorter prescription periods for wages).
3. Elimination of the 5-Year Commercial Prescription (Shōji Jikō - 商事消滅時効): Perhaps one of the most significant changes for businesses was the abolition of the general five-year extinctive prescription period for claims arising from "commercial acts" (shōkōi - 商行為) under Article 522 of the Commercial Code. This special, shorter period for commercial claims was a long-standing feature of Japanese law. With its abolition, claims that previously would have been subject to a five-year commercial prescription will now fall under the new Civil Code's general prescription rules (typically 5 years from awareness or 10 years from objective exercisability). The rationale was that the new subjective five-year period in the Civil Code largely serves the purpose of prompt settlement that the commercial prescription aimed for, making a separate rule unnecessary and simplifying the system.

II. Reimagining "Interruption" and "Suspension": The Concepts of Renewal (Kōshin) and Postponement of Completion (Kansei Yūyo)

The 2020 reform also brought significant changes to the terminology and conceptual framework of events that affect the running of the prescription period, aiming for greater clarity and a more logical structure.

A. Rationale for New Terminology

Under the old Civil Code, the terms "interruption" (chūdan - 中断) and "suspension" (teishi - 停止) were used. "Interruption" meant that the prescription period that had elapsed was nullified, and a new period started from scratch. "Suspension" meant that the running of the period was temporarily paused, and would resume from where it left off once the ground for suspension ceased.

The reform replaced "interruption" with "Renewal" (kōshin - 更新) and "suspension" with "Postponement of Completion" or "Grace Period" (kansei yūyo - 完成猶予). This terminological shift was intended to make the effects of these events more intuitive. "Renewal" clearly signifies that a fresh prescription period begins. "Postponement of completion" (or grace period) more accurately describes situations where the finalization of the prescription is held off for a certain duration, without necessarily restarting the entire period from zero immediately. While the fundamental concepts are similar, the way specific grounds are categorized and their precise effects have been refined.

B. How "Renewal" (Kōshin) Works (Effects similar to former Interruption)

An event of renewal nullifies any prescription period that has already run, and a new prescription period commences from the time the renewal event concludes. Key grounds for renewal include:

1. Acknowledgement (承認 - Shōnin): If the debtor acknowledges the creditor's right (e.g., by making a partial payment, requesting a deferral of payment, or providing security), this renews the prescription period (amended Article 152). The new period starts from the time of acknowledgement.
2. Final and Binding Judgment, etc.: When a creditor's right is confirmed by a final and binding judgment, a court settlement, mediation, or similar definitive legal process, the prescription is renewed (amended Articles 147(2), 148(2)). The new prescription period (typically 10 years, as per amended Article 169) starts from the time such judgment or process becomes final and binding.

C. How "Postponement of Completion" (Kansei Yūyo) Works (Effects similar to former Suspension and some aspects of Interruption)

Postponement of completion means that even if the underlying prescription period (e.g., 5 or 10 years) would otherwise expire, its completion is deferred for a certain duration due to specified events. This provides the creditor with an extended window to take further action.

1. Judicial Demands, Enforcement Proceedings, etc. (Pending Resolution): Filing a lawsuit, applying for payment reminders, initiating conciliation, participating in bankruptcy proceedings, or commencing enforcement actions (like seizure) will postpone the completion of prescription for the claim involved. The prescription will not be completed while these proceedings are pending (amended Articles 147(1), 148(1)).
2. Termination of Proceedings Without Renewal (e.g., Withdrawal of Action) – The 6-Month Grace Period: If such legal proceedings (as mentioned above) are terminated without the right being definitively confirmed (e.g., if a lawsuit is withdrawn by the plaintiff, or a petition is dismissed for reasons other than on the merits), the prescription, which was postponed, will not be completed until six months have passed from the time of such termination. This six-month grace period gives the creditor a final opportunity to take other measures, such as re-filing the suit or initiating different proceedings, to achieve a renewal. This effectively codifies and refines the previous judicial practice related to "judicial reminder" (saiban-jō no saikoku - 裁判上の催告).
3. Agreement to Negotiate (協議を行う旨の合意 - Kyōgi o okonau mune no gōi): A New Tool for Businesses: A significant innovation is the introduction of a mechanism for postponing the completion of prescription through a written (or electronic) agreement between the parties to engage in discussions concerning the claim (amended Article 151).
   • If such an agreement is made, prescription will not be completed for a certain period (generally one year from the agreement, or a shorter period if agreed, or six months from a written notice of refusal to continue negotiations by one party, whichever is earliest).
   • This agreement can be renewed, but the total postponement cannot exceed five years from the original prescription expiry date.
   • An agreement to negotiate made while prescription is already postponed by a simple demand (saikoku - 催告) is ineffective, and vice-versa.
     This provision is particularly useful for businesses as it allows parties to negotiate a settlement without the immediate pressure of an expiring prescription period, avoiding premature litigation solely to preserve a claim.
4. Traditional Grounds for Postponement (formerly Suspension): Grounds such as the minority of a creditor without legal representation, natural disasters making it impossible to pursue a claim around the time of its expiry, etc., continue to postpone the completion of prescription for specified periods after the disabling circumstance ceases (amended Articles 158-161).

III. Clarifying Who Can Invoke Prescription: The Scope of En'yōkensha (援用権者)

As discussed, under Japanese law, prescription must be invoked by a party who benefits from it (the en'yōkensha). The pre-reform Civil Code (Article 145) simply stated "the party concerned" (tōjisha - 当事者). While case law had interpreted this to mean "a person who directly benefits from the prescription," the scope was not always perfectly clear.

The 2020 reform amended Article 145 to provide more explicit guidance on who qualifies as an en'yōkensha for extinctive prescription. The amended article now clarifies that "the party concerned" includes:

• Guarantors (保証人 - hoshōnin)
• Third-party security providers (物上保証人 - butsujō hoshōnin)
• Third-party acquirers of property subject to the claim (第三取得者 - daisan shutokusha)
• Other persons who have a legitimate interest in the extinction of the right by prescription.

This amendment largely codifies established Supreme Court precedents but provides welcome statutory clarity. For businesses, this is relevant in scenarios involving guarantees, collateral, or the acquisition of assets potentially burdened by old claims. It confirms that these related parties can independently invoke the prescription of the principal debt if it benefits their position.

IV. Navigating the Transition: Transitional Measures (Keika Sochi - 経過措置)

The application of the new prescription rules to claims that existed before the April 1, 2020 enforcement date is governed by transitional provisions in the supplementary clauses of the amending act.

• Prescription Periods: Generally, the new prescription periods (e.g., the dual 5/10-year rule) apply only to claims that arose on or after April 1, 2020. Claims that arose before this date, or claims arising after this date but based on a legal act (like a contract) concluded before this date, will continue to be governed by the old prescription periods (e.g., the old 10-year general civil prescription, or the old 5-year commercial prescription if applicable) (Supplementary Provisions, Article 10(1) and 10(4)). This means businesses will need to manage a dual system of rules for some time.
• Grounds for Renewal (Kōshin) and Postponement of Completion (Kansei Yūyo):
  • If an event that constituted an "interruption" or "suspension" under the old law occurred before April 1, 2020, its effect (e.g., whether it restarted the clock or merely paused it, and for how long) is determined by the old law (Supplementary Provisions, Article 10(2)).
  • However, if an event that constitutes a "renewal" or "postponement of completion" under the new law (e.g., a judicial demand, an acknowledgment, an agreement to negotiate) occurs on or after April 1, 2020, the new rules regarding the effect of that specific event (renewal or postponement) will apply, even if the underlying claim itself arose before the enforcement date and is otherwise subject to old prescription periods (Supplementary Provisions, Article 10(2) implies this for events that also existed as chūdan or teishi grounds; Article 10(3) clarifies for new grounds like agreement to negotiate). For instance, an "agreement to negotiate" (a new mechanism) entered into after April 1, 2020, can postpone the completion of prescription for a pre-existing claim according to the new Article 151.

V. Impact on Businesses and Legal Practice

The 2020 Civil Code reform of prescription rules necessitates several adjustments for businesses:

• Review of Standard Contracts and Internal Processes: Businesses should review their standard contract terms, particularly those relating to payment deadlines and dispute resolution, in light of the new prescription periods. Internal claim management and debt recovery processes also need to be aligned with these changes, especially the shorter subjective 5-year period from awareness.
• Litigation Strategy: The changes to renewal and postponement, including the 6-month grace period after unsuccessful legal proceedings and the new "agreement to negotiate" provision, offer new strategic options in managing disputes and preserving claims. Understanding when a claim is subject to old versus new rules due to transitional measures is critical.
• The "Agreement to Negotiate" Provision: This new tool (Article 151) is a significant development. It allows businesses to formally agree to toll the statute of limitations while they attempt to resolve a dispute amicably, reducing the need for purely protective litigation. Understanding its formal requirements (in writing), duration, and limitations (e.g., maximum 5-year cumulative postponement) is essential.
• Diligent Claim Monitoring: The introduction of the 5-year prescription period from "awareness" places a greater onus on businesses to diligently monitor their receivables and promptly identify when claims become exercisable and known, as the clock for this shorter period starts ticking from that point.

Conclusion

The 2020 reform of Japan's Civil Code has fundamentally reshaped the landscape of extinctive prescription for claims. By introducing a dual subjective/objective system for calculating prescription periods, abolishing outdated short-term rules, refining the concepts of renewal and postponement of completion, and clarifying the scope of parties entitled to invoke prescription, the law aims to achieve greater clarity, fairness, and efficiency. These changes reflect an effort to balance the interests of creditors in having a reasonable opportunity to enforce their rights with the interests of debtors and society in legal stability and the timely resolution of disputes. For businesses, adapting to this new regime requires a thorough understanding of the revised rules and careful attention to their practical implications for all commercial dealings and legal interactions in Japan.