Q&A: Contracts for Work (Ukeoi Keiyaku) in Japan: Understanding the Contractor's Duty to Complete and Liability for Non-Conformity

When engaging a party in Japan to produce a specific outcome—be it constructing a building, manufacturing custom equipment, developing software, or even performing a specific artistic creation—the governing legal framework is typically the "contract for work" (請負契約 - ukeoi keiyaku). Article 632 of the Japanese Civil Code defines this as a contract whereby one party (the contractor - 請負人 ukeoinin) promises to complete a certain piece of work, and the other party (the principal or client, referred to as 注文者 - chūmonsha) promises to pay remuneration for the result of that work. This type of contract is consensual, bilateral, and onerous (involving reciprocal obligations with economic value). Understanding the contractor's core duties and the robust liability regime for non-conforming work, especially under the significantly amended Civil Code effective from April 2020, is crucial for any business involved in such undertakings.

Q1: What is the fundamental duty of a contractor in a Japanese Ukeoi Keiyaku?

The cornerstone of the contractor's obligations in an ukeoi keiyaku is the duty to complete the work (仕事完成義務 - shigoto kansei gimu) as stipulated in the contract.

• Obligation to Achieve a Specific Result (結果債務 - Kekka Saimu):
  Unlike contracts for services based purely on effort (like a mandate or jun-inin contract, where the professional promises to perform services with due care but doesn't guarantee a specific outcome), an ukeoi contract imposes an obligation on the contractor to achieve a defined result. This means merely exerting best efforts is not sufficient; the work must be brought to the agreed-upon state of completion. If the contract requires the physical delivery of a completed item (e.g., a manufactured product, a constructed building), then such delivery is an integral part of "completion".
• Conformity with Contractual Specifications:
  Completion doesn't just mean finishing the task; it means delivering a result that conforms to all specifications and requirements agreed upon in the contract regarding its kind, quality, and quantity. This duty to deliver a conforming result is paramount.
• Potential Ancillary Duty of Care (保護義務 - Hogo Gimu):
  Depending on the nature of the work and the circumstances, the contractor might also be understood to have an ancillary duty to take reasonable care to protect the chūmonsha's other interests—such as their life, body, or existing property—from harm that could foreseeably arise directly from the work process. For example, a construction contractor would be expected to take precautions to prevent damage to adjacent property belonging to the chūmonsha. (The Supreme Court on February 16, 1984, dealt with a similar concept of expanded damages arising from a contractor's default in a different factual context).

Q2: What happens if the contractor fails to complete the work or if the completed work is non-conforming under Japanese law?

If the contractor fails to complete the work as agreed, or if the completed work does not conform to the contractual requirements, this constitutes a breach of the contractor's duty to complete the work. The amended Japanese Civil Code has significantly reformed the liability framework for such non-conformity, largely aligning it with the principles governing non-conformity in sales contracts.

• Non-Conformity Liability (契約不適合責任 - Keiyaku Futekigō Sekinin) as Breach of Contract:
  The contractor's liability for delivering work that is non-conforming as to its kind, quality, or quantity is now unequivocally treated as a form of breach of contract (債務不履行 - saimu furikō). Because a contract for work is an onerous contract, the rules pertaining to a seller's liability for non-conforming goods in sales contracts (Civil Code Arts. 562-564) are applied analogously via Article 559 of the Civil Code (which extends sales provisions to all onerous contracts). This resolved previous doctrinal debates about whether this liability was a special statutory one or purely contractual; it is now firmly contractual.
• Determining Non-Conformity:
  Non-conformity is assessed by comparing the actual result of the work against the specifications and requirements explicitly or implicitly agreed upon in the contract. This involves careful interpretation of the contract to ascertain the agreed standards for kind, quality (including functionality, materials, workmanship, and performance benchmarks), and quantity. It includes not only obvious physical defects but also failures to meet performance criteria or intended use if these were part of the contractual basis.

Q3: What specific remedies are available to the Chūmonsha (client/principal) if the contractor delivers non-conforming work?

The chūmonsha has a range of remedies available, mirroring those in sales contracts for non-conforming goods:

• A. Right to Demand Subsequent Completion (Tsuikan Seikyūken) (applying Civil Code Art. 562):
  The chūmonsha can demand that the contractor rectify the non-conformity. This subsequent completion can take various forms, and the chūmonsha generally has the initial choice of method:
  1. Repair or correction (修補 - shūho) of the defective work.
  2. Re-performance of the defective portion of the work.
  3. If the work involves producing a specific item that is non-conforming, potentially the completion or delivery of a conforming item (though if the work is unique, "replacement" might be impossible).
     The contractor may propose an alternative method of subsequent completion if the chūmonsha's chosen method would impose an unreasonable burden on the contractor, provided the contractor's alternative does not cause unreasonable inconvenience to the chūmonsha.
• Limitation based on Chūmonsha's Fault: This right cannot be exercised if the non-conformity is due to grounds attributable to the chūmonsha (e.g., defective materials supplied by them, or flawed instructions, as per Civil Code Art. 636).
• Contractor's Fault Not Required: The contractor's own fault (negligence or intent) for the non-conformity is not a prerequisite for the chūmonsha to demand subsequent completion.
• Impossibility or Disproportionality of Cure: If subsequent completion is objectively impossible, or if it would involve disproportionate expense for a relatively trivial defect, the right to demand a specific method of cure might be limited. The old Civil Code (former Art. 634(1) proviso) explicitly limited repair claims for non-material defects where repair was excessively costly; while this specific proviso was deleted, such situations are now generally understood to be covered by principles of impossibility of performance (e.g., Civil Code Art. 412-2(1)) if cure is truly impracticable.
• B. Right to Demand Remuneration Reduction (Hōshū Gengaku Seikyūken) (applying Civil Code Art. 563):
  If the completed work is non-conforming, the chūmonsha has the right to demand a reduction in the agreed remuneration (contract price). This is a "formative right" (形成権 - keiseiken), meaning the chūmonsha's demand, if the conditions are met, itself effects the reduction.
  • Prerequisite – Opportunity to Cure: Generally, before demanding a remuneration reduction, the chūmonsha must first demand subsequent completion from the contractor and allow a reasonable period for the contractor to comply. If the contractor fails to rectify the non-conformity within that period, the chūmonsha can then proceed with the demand for reduction. The right to subsequent completion is considered primary.
  • Exceptions to Prior Demand: No prior demand for subsequent completion is necessary if: (i) subsequent completion is impossible; (ii) the contractor has definitively refused to perform subsequent completion; (iii) it's a contract where timing of completion was essential (a "fixed-time" contract or teiki kōi) and that time has passed without conforming completion; or (iv) it is otherwise clear that even if a demand were made, the contractor would not or could not provide subsequent completion sufficient to achieve the contract's purpose.
  • Limitation based on Chūmonsha's Fault: This right, like subsequent completion, cannot be exercised if the non-conformity is due to grounds attributable to the chūmonsha. The contractor's fault for the non-conformity is not a prerequisite for this right.
• C. Right to Claim Damages (損害賠償請求権 - Songai Baishō Seikyūken) (applying Civil Code Art. 564, which refers to Art. 415):
  The chūmonsha can claim monetary damages for losses suffered as a result of the contractor's delivery of non-conforming work. This claim is governed by the general rules for damages for breach of contract found in Article 415 of the Civil Code.
  • The damages recoverable are typically "performance interest" (履行利益 - rikō rieki), also known as expectation damages, aiming to put the chūmonsha in the financial position they would have been in had the work been completed in conformity with the contract.
  • Contractor's Defense: The contractor may be able to avoid liability for damages if they can prove that the non-conformity was due to grounds not attributable to them (Civil Code Art. 415(1) proviso). This "non-attributable grounds" defense is interpreted not merely as an absence of negligence, but in light of the specific contractual terms, the nature of the obligation, and common commercial understanding of risk allocation.
  • Damages can generally be claimed in addition to subsequent completion (for any remaining or consequential losses) or price reduction, or as an alternative (e.g., damages representing the cost of having a third party rectify the work, if the original contractor fails to do so after a demand).
• D. Right to Terminate the Contract (解除権 - Kaijoken) (applying Civil Code Art. 564, which refers to Arts. 541 & 542):
  If the non-conformity is sufficiently material, the chūmonsha can terminate the contract for work.
  • Termination with Prior Demand (applying Art. 541): Generally, the chūmonsha must first demand subsequent completion within a reasonable period. If the contractor fails to cure the non-conformity, the chūmonsha may then terminate, unless the remaining non-conformity is "trivial" (keibi).
  • Termination without Prior Demand (applying Art. 542): This is permissible in more serious situations, such as when subsequent completion is impossible, when the contractor definitively refuses to perform subsequent completion, or when the non-conformity is so severe that it fundamentally frustrates the purpose of the contract for the chūmonsha.
  • The contractor's own fault for the non-conformity is not a prerequisite for the chūmonsha's right to terminate.
  • However, termination is not allowed if the non-conformity is due to grounds attributable to the chūmonsha (Article 543 of the Civil Code applies here).
  • Abolition of Restriction for Buildings: A significant change in the amended Civil Code is the abolition of the old restriction (former Article 635) that severely limited the chūmonsha's right to terminate a contract for work if the completed work was a building or other structure on land, even if defective. Now, termination for non-conforming buildings or structures is possible if the general conditions for termination (e.g., materiality, frustration of purpose after failed cure attempts) are met, though the practicalities of restitution in such cases can be complex. Termination for breach in ukeoi contracts generally has a retroactive effect, leading to obligations of restitution.

Q4: What if the non-conformity is caused by materials supplied or instructions given by the Chūmonsha?

Article 636 of the Civil Code provides a specific defense for the contractor in such situations. If the non-conformity in the completed work arises directly from the nature of materials supplied by the chūmonsha, or from specific instructions given by the chūmonsha, then the chūmonsha generally cannot exercise the remedies for non-conformity (subsequent completion, remuneration reduction, damages, termination) against the contractor.

• Exception – Contractor's Knowledge and Failure to Warn: This defense for the contractor does not apply if the contractor knew that the materials supplied or the instructions given by the chūmonsha were unsuitable or defective and failed to notify the chūmonsha of this fact. While the contractor is not typically under a general obligation to independently test all client-supplied materials or question all instructions, if they possess actual knowledge of unsuitability that could lead to non-conformity, they have a duty to inform the chūmonsha.

Q5: Are there specific time limits for the Chūmonsha to exercise these rights for non-conformity?

Yes, Japanese law imposes time limits for claiming remedies for non-conforming work.

• One-Year Notification Period for Non-Conformity of Kind or Quality (Civil Code Art. 637):
  If the completed work (whether involving a deliverable or not) does not conform to the contract as to its kind or quality, the chūmonsha must notify the contractor of such non-conformity within one (1) year from the time the chūmonsha discovered it. If the contract involved delivery of a subject matter, and the chūmonsha discovered the non-conformity at the time of delivery, the one-year period runs from discovery. If delivery is not required (e.g., for certain types of intangible work results), and the chūmonsha discovers the non-conformity after the work is considered completed, the period runs from that discovery.
  • Failure to provide this timely notification results in the chūmonsha losing the right to demand subsequent completion, remuneration reduction, damages, or to terminate the contract based on that specific non-conformity of kind or quality. This is a strict forfeiture period (shikken kikan).
  • Exception – Contractor's Bad Faith: This one-year notification requirement (and the consequent loss of rights) does not apply if, at the time of delivery or completion, the contractor knew of the non-conformity or was grossly negligent in not knowing of it (Art. 637(2) applying Art. 566 proviso).
• No Specific One-Year Notice for Quantity Non-Conformity in Ukeoi:
  Unlike sales contracts where Article 566 explicitly confines the one-year notice rule to non-conformity of kind or quality, Article 637 for contracts for work also specifies "non-conformity of the subject matter of the work as to its kind or quality." It does not explicitly mention quantity non-conformity for this special one-year notice. Therefore, issues of quantity discrepancy in a contract for work might be subject primarily to the general statute of limitations for breach of contract.
• General Statute of Limitations (Civil Code Art. 166):
  Independently of the one-year notification period, all contractual claims arising from non-conforming work are also subject to the general statute of limitations:
  1. Five years from the time the chūmonsha becomes aware that they can exercise the right (e.g., aware of the non-conformity and the possibility of claiming a remedy).
  2. Ten years from the time the right objectively becomes exercisable (e.g., from the time of completion/delivery of the non-conforming work, or when the non-conformity should reasonably have been discovered).
     Both the one-year notification period (where applicable) and the overall statute of limitations must be satisfied.

Conclusion

Under the amended Japanese Civil Code, a contractor's failure to complete work or the delivery of non-conforming work is treated as a breach of contract, aligning liability principles more closely with those in sales contracts. The contractor has a fundamental duty to achieve a result that conforms to the contract in kind, quality, and quantity. If this duty is breached, the chūmonsha (client) is afforded a range of remedies, including the right to demand subsequent completion, a reduction in remuneration, damages, and contract termination, with the contractor's fault generally not being a prerequisite for most of these remedies themselves (though relevant for the contractor's defenses to damage claims). However, these rights are subject to important limitations, such as when the non-conformity stems from the chūmonsha's own materials or instructions, and strict time limits for notification of kind or quality non-conformities. For businesses engaging in or providing services under contracts for work in Japan, a clear understanding of these result-oriented obligations and the detailed non-conformity liability framework is essential for defining responsibilities accurately and managing potential disputes effectively.