Q: What Constitutes a "Defect" (Kashi) in Japanese Construction Law, and How Does It Differ Between Contract Types?

Understanding the concept of a "defect" is paramount in any construction or real estate transaction. In Japan, the term historically used and deeply embedded in legal precedent is "kashi" (瑕疵). While the Civil Code of Japan underwent significant revisions effective April 1, 2020, replacing the traditional "defect warranty liability" (瑕疵担保責任 - kashi tanpo sekinin) with "liability for non-conformity" (契約不適合責任 - keiyaku futekigō sekinin), the accumulated body of case law and understanding surrounding "kashi" remains highly relevant for interpreting what constitutes a failure to meet contractual obligations. This article explores the nuanced meaning of "kashi" under Japanese law, particularly highlighting its application in construction contracts (ukekoi) and sales contracts (baibai), and touches upon the evolution of this concept.

The Traditional Concept of "Kashi" (瑕疵 - Defect): A Foundational Overview

Generally, "kashi" refers to a flaw, imperfection, or deficiency in the subject matter of a contract. It signifies that the object or the completed work does not possess the quality, performance, or characteristics that it should ordinarily have or that were specifically agreed upon by the parties. This concept is distinct from a simple failure to perform an obligation (non-performance); rather, it pertains to the state or quality of the subject matter itself.

In Japanese legal discourse, two primary theoretical approaches have historically been used to determine the existence of a "kashi":

1. Objective Defect Theory (客観説 - kyakkan-setsu): This theory posits that a defect exists if the subject matter lacks the quality or performance that is ordinarily expected of items of that kind, irrespective of the specific contractual stipulations. It focuses on a generally accepted standard.
2. Subjective Defect Theory (主観説 - shukan-setsu): This theory emphasizes the contractual agreement between the parties. A defect is present if the subject matter fails to meet the specific quality, performance, or characteristics that the parties explicitly or implicitly agreed upon in their contract.

The interplay and application of these theories differ somewhat depending on the type of contract involved, particularly between contracts for work (construction) and sales contracts.

"Kashi" in "UKEKOI" (請負 - Contract for Work / Construction Contract)

In the context of an ukekoi contract, which is the typical form for construction projects, "kashi" refers to a situation where the completed work does not conform to the agreed-upon specifications or possesses imperfections that diminish its value or suitability for the intended purpose. The core idea is that the contractor has failed to deliver work that meets the contractual requirements, which are often detailed in design documents, specifications, and blueprints.

Historically, and even in contemporary understanding, the Subjective Defect Theory tends to be more dominant in ukekoi contracts. This is because construction projects are fundamentally about realizing a specific, agreed-upon plan. Therefore, a deviation from the contractually stipulated design, materials, or performance standards is often the primary basis for finding a "kashi." As stated in the judgment of the Kumamoto District Court on March 25, 1998, a defect in a contracted work means that the completed work is not as per the agreed content of the contract and lacks pre-determined properties; this includes not only explicit agreements in design documents but also implied agreements that the work will meet ordinary qualities and performance standards, such as compliance with architectural laws and technical standards specified by architectural associations.

The scope of "kashi" in construction can be broad, encompassing:

• Physical flaws: Cracks in concrete, leaks, insufficient structural strength, etc.
• Functional deficiencies: A heating system that doesn't adequately heat, or a building that fails to meet specified insulation standards.
• Non-compliance with agreed specifications: Use of different materials than specified, dimensions not adhering to blueprints, or failure to achieve a particular aesthetic finish if it was a crucial part of the agreement.
• Non-compliance with legal standards: Even if not explicitly stated in the contract, compliance with the Building Standards Act (建築基準法 - kenchiku kijun hō) and other relevant building codes is generally considered an implied contractual obligation. Failure to meet these minimum safety and structural standards would constitute a "kashi." The Supreme Court's ruling on November 14, 2003 (Minshu 57-10-1561), while primarily about an architect's liability for nominal lending, underscores the principle that architects have a legal duty to ensure buildings comply with regulations, implying that such compliance is a fundamental expectation in construction.

A key point from case law, such as the Nagano District Court, Suwa Branch, decision on May 11, 2006, is that a "kashi" in a construction contract is a discrepancy between the building as planned and agreed upon by the orderer and contractor (typically clarified by design drawings and other design documents) and the actually constructed building.

"Kashi" in "BAIBAI" (売買 - Sales Contract, Particularly for Real Estate)

In sales contracts, especially those involving real estate, "kashi" traditionally refers to a "hidden defect" (隠れた瑕疵 - kakureta kashi) in the object of the sale. This means a defect that was not discoverable by the buyer exercising the ordinary care expected in such a transaction at the time the contract was concluded. The seller is generally liable for such hidden defects even if they were unaware of them.

The concept of "kashi" in sales contracts can be categorized as follows:

1. Physical Defects (物理的瑕疵 - butsuriteki kashi): These are tangible flaws in the property itself, such as a leaking roof, termite infestation, structural weaknesses, or soil contamination.
2. Legal Defects (法律的瑕疵 - hōritsuteki kashi): These arise when the property is subject to legal restrictions or encumbrances that limit its use or value, and which were not disclosed to the buyer. An example from the Supreme Court decision of April 14, 1966 (Minshu 20-4-649), involved land that was part of a city planning road project, meaning any building constructed on it would eventually have to be demolished. This was deemed a legal defect. Similarly, the Supreme Court on September 8, 1981 (Minshu 133-401), affirmed that forest land designated as a "保安林" (protection forest), restricting its development for residential purposes, constituted a legal defect when sold as land for housing.
3. Psychological Defects (心理的瑕疵 - shinriteki kashi): These are defects that, while not necessarily physical or legal in nature, significantly impact the buyer's comfort or willingness to use the property due to its "stigmatized" history. This typically includes properties where a suicide, murder, or other unpleasant event has occurred. The Osaka High Court ruling of December 19, 2006 (Hanrei Times 1246-203), explained that a psychological defect exists if the property's history would cause a typical person in the buyer's position to feel a lack of comfort, rendering it unsuitable for residential use, and this, in turn, diminishes its transactional value. The standard is whether an ordinary person would find the property's history reasonably disturbing to the point of affecting its habitability or value.

For sales contracts, the determination of "kashi" often involves a blend of objective (would an ordinary item of this type have this flaw?) and subjective (did the parties agree on a specific quality that is now lacking?) considerations. The Supreme Court decision of June 1, 2010 (Minshu 64-4-953), emphasized that whether the subject matter possesses the qualities and performance anticipated by the parties should be judged by considering the prevailing transaction norms at the time the sales contract was concluded. In this case, land sold before fluorine was regulated as a harmful soil contaminant was found not to have a "kashi" under Article 570 of the old Civil Code, even though fluorine levels exceeded standards established after the contract.

Determining Defects: The Interplay of Objective and Subjective Standards

As touched upon, both objective and subjective criteria play roles in identifying a "kashi."

• Objective Standards: These are often derived from laws (like the Building Standards Act), industry standards (e.g., Japanese Industrial Standards - JIS, Japanese Agricultural Standards - JAS, or standards from the Architectural Institute of Japan - AIJ, such as JASS 5 for reinforced concrete work ), or what an ordinary, reasonable person would expect from a product or work of that nature.
• Subjective Standards: These are rooted in the specific terms of the contract, including explicit promises, design specifications, or particular purposes for which the buyer or ordering party intends to use the subject matter, provided these were communicated to and accepted by the seller or contractor.

In practice, courts often look first to the contract itself. If the contract clearly defines the required quality or specifications, any deviation is likely a "kashi." The Supreme Court's decision on October 10, 2003 (Minshu 211-13), is a significant example. In this construction contract dispute, it was specifically agreed that structural steel columns of a certain larger dimension (300mm x 300mm) would be used to enhance earthquake resistance. The contractor, however, used smaller columns (250mm x 250mm), arguing that it was still structurally sound according to calculations. The Court held that the failure to use the agreed-upon column size constituted a "kashi" because it breached a specific and important term of the contract related to enhanced safety, irrespective of whether the substituted material met minimum legal safety standards. This case strongly supports the subjective theory, where the contractual promise itself defines the expected quality.

When contractual terms are vague or silent on a particular aspect, objective standards become more critical. Courts will then consider what a reasonable party would have expected, often by reference to applicable laws and common industry practices. The Kumamoto District Court on March 25, 1998, articulated that even without explicit agreement, it is implied that the work should meet ordinary quality and performance standards, including compliance with building-related laws and technical standards from reputable architectural bodies. This suggests that objective standards can form part of the implied agreement.

It's also important to note that not every minor deviation from the contract will necessarily be deemed a "kashi" giving rise to substantial remedies. The concept of materiality often comes into play; the defect must generally be significant enough to impair the value or utility of the work or property, or frustrate a specific purpose known to the parties.

The Impact of the 2020 Civil Code Reform: From "Kashi Tanpo Sekinin" to "Keiyaku Futekigō Sekinin" (Liability for Non-Conformity)

The 2020 amendments to the Japanese Civil Code marked a significant terminological and conceptual shift by replacing the regime of "defect warranty liability" (kashi tanpo sekinin) with "liability for non-conformity" (keiyaku futekigō sekinin). This change applies to both sales contracts and contracts for work.

Under the new system, the seller or contractor is liable if the delivered subject matter does not conform to the contract in terms of its kind, quality, or quantity. The term "kashi" itself is no longer used in the primary Civil Code provisions governing these liabilities.

However, this does not mean that the decades of jurisprudence and understanding built around "kashi" have become irrelevant. As anticipated in legal commentary prior to the reform (and as reflected in the preface of the provided source material ), the practical determination of what constitutes "non-conformity" often draws heavily on the same principles used to identify a "kashi." The core question remains whether the delivered product or completed work meets the contractually agreed standards, whether explicitly stated or reasonably implied.

Key aspects of the reform include:

• Clarified Remedies: The buyer/ordering party has a clearer hierarchy of remedies, including demands for repair or completion of the work, price reduction, damages, and contract termination.
• Awareness of Defect: The buyer's/ordering party's awareness of the non-conformity at the time of contracting can preclude liability, similar to the old "hidden defect" requirement.
• Notification Periods: The buyer/ordering party must generally notify the seller/contractor of the non-conformity within one year of discovering it (for most types of non-conformity).

While the statutory language has changed, the substantive analysis of whether a building or property is "defective" or "non-conforming" will continue to involve a detailed examination of the contract, relevant industry standards, legal regulations, and the reasonable expectations of the parties. The subjective elements of the contract (what was specifically agreed) remain crucial in defining "conformity."

(Optional) Brief Comparison with U.S. Legal Concepts

For American legal professionals, it might be useful to draw some parallels, albeit imperfect ones, with U.S. legal concepts:

• "Kashi" / "Non-Conformity" vs. "Defect" in Construction: U.S. construction law widely uses the term "defect," often defined as a failure to comply with contract documents or accepted workmanship standards. This aligns closely with the Japanese concept, particularly in ukekoi contracts.
• Breach of Contract: The failure to deliver a building or property as specified is fundamentally a breach of contract in both jurisdictions. The Japanese system, however, had a more distinct statutory regime for "defect liability" (now non-conformity).
• Implied Warranties: In U.S. sales of goods (under the UCC), concepts like the implied warranty of merchantability and fitness for a particular purpose are important. While direct application to real estate is limited, many U.S. states recognize an implied warranty of habitability or quality for new home sales, which ensures the home is safe and fit for human habitation. This has some conceptual overlap with the idea that a property should meet ordinary expectations (objective defect theory). Japanese law, while not using the "implied warranty" terminology in the same way, achieves similar results through the interpretation of "kashi" or "non-conformity" in light of ordinary expectations and statutory duties.

The primary difference often lies in the highly codified nature of Japanese contract law compared to the more common-law-driven, state-specific development of these doctrines in the United States.

Conclusion

The concept of a "defect" or "kashi" in Japanese law is a nuanced one, historically shaped by judicial interpretation and evolving legal frameworks. While the term "kashi" has been superseded by "non-conformity" in the Civil Code's main provisions, the underlying principles for assessing whether a building or property meets the required standards remain deeply influenced by past jurisprudence.

For both construction (ukekoi) and sales (baibai) contracts, the specific terms of the agreement are paramount. However, where contracts are silent or ambiguous, Japanese courts will also look to objective standards of quality, performance, and legal compliance. Understanding these distinctions and the emphasis on contractual agreements is crucial for any party involved in Japanese construction or real estate transactions. The 2020 Civil Code reforms have aimed to modernize and clarify these liabilities, but the fundamental importance of delivering what was promised—free from significant flaws—endures.