Time's Up! How Has Japan's Civil Code Reform Overhauled the Statute of Limitations for Claims?

The concept of a statute of limitations, known in Japan as extinctive prescription (消滅時効 - shometsu jiko), dictates that legal claims can become unenforceable if not pursued within a specified timeframe. This principle promotes legal stability by preventing stale claims and encouraging the timely exercise of rights. The comprehensive reforms to Japan's Civil Code, effective April 1, 2020, significantly reshaped these rules, moving towards a more simplified, unified, and arguably more creditor-aware system. For businesses with operations or dealings in Japan, understanding these changes is critical for effective claim management, risk assessment, and dispute resolution.

The New General Rule: A Dual-Limb System for Prescription

Perhaps the most fundamental change is the introduction of a new dual-limb system for the extinctive prescription of general contractual claims, replacing a more complex array of varied periods. Under the Reformed Civil Code, Article 166, Paragraph 1, a claim will be extinguished if:

1. The creditor does not exercise the right for five years from the time the creditor became aware that they can exercise the right (権利を行使することができることを知った時から5年間 - kenri o kōshi suru koto ga dekiru koto o shitta toki kara gonenkan); OR
2. The creditor does not exercise the right for ten years from the time the right can be exercised (権利を行使することができる時から10年間 - kenri o kōshi suru koto ga dekiru toki kara jūnenkan).

Prescription completes when either of these periods expires, whichever occurs first. The ten-year objective period (from when the right is exercisable) is a continuation of the previous general rule. The five-year subjective period (from awareness) is a significant new addition, intended to expedite the resolution of claims where the creditor is knowledgeable about their rights.

Understanding "Awareness" and Application to Claim Types

The interpretation of when a creditor "became aware" (shitta toki) they could exercise their right is crucial for the five-year subjective period. While the Code itself does not provide an exhaustive definition, it is generally understood to mean the point at which the creditor has actual knowledge of the essential facts giving rise to the claim and the possibility of making such a claim against a specific debtor.

• Claims with a Fixed Due Date (確定期限の定めのある債権): For most commercial claims like trade receivables or loans with a set repayment date, the creditor is typically aware of the due date. If payment is not made by that date, the creditor is usually immediately aware of their ability to claim. Thus, the five-year subjective prescription period, starting from the day after the due date (when non-payment and the ability to claim become known), will often be the determining factor. The ten-year objective period runs concurrently from the due date itself.
• Claims with an Uncertain Due Date (不確定期限付債権) or Conditional Claims (条件付債権): In these cases, the right becomes exercisable only when an uncertain future event occurs or a specific condition is met. The time the creditor becomes aware that the event has occurred or the condition is fulfilled can differ from the actual objective time of occurrence. For instance, if a payment is due "when X project is completed," the creditor's awareness of completion might be later than the actual completion date. Here, the prescription will run for five years from awareness or ten years from when the right objectively became exercisable (i.e., from the occurrence of the event/fulfillment of the condition), whichever period expires earlier. This means creditors cannot indefinitely postpone the start of the five-year clock by simply not inquiring about the status of the condition or event if it has objectively occurred.
• Claims with No Stipulated Due Date (期限の定めのない債権): Generally, a claim without a specified due date is exercisable from the moment it arises (e.g., upon conclusion of the contract giving rise to the claim). The creditor is usually aware of this at the same time. Therefore, the five-year subjective period from the claim's inception will often be the operative one. An exception exists for loans for consumption (e.g., money loans) where no repayment date is set; the right to demand repayment (and thus the start of the prescription period) arises only after a "reasonable period" for demanding repayment has passed since the loan was made (Reformed Civil Code, Article 591, Paragraph 1).

Simplification: Abolition of Special and Commercial Prescription Periods

A major streamlining effort in the reform was the abolition of various special short-term extinctive prescription periods that existed under the old Civil Code (former Articles 170-174). These included:

• Three-year periods for medical fees, or for claims by architects/engineers for their work.
• Two-year periods for lawyers' fees, or claims for goods sold by producers/wholesalers/retailers.
• One-year periods for hotel charges, restaurant charges, or transportation fees.

All such claims are now subject to the new general five-year/ten-year dual-limb rule.

Furthermore, the distinct five-year extinctive prescription period for "commercial claims" (those arising from commercial acts) previously stipulated in Article 522 of the Commercial Code has also been abolished. These claims now fall under the same general Civil Code rules. This eliminates the often complex determination of whether a claim was "civil" or "commercial" for prescription purposes.

The practical effect is a more unified system. While this simplifies management, businesses should note that for some claims previously subject to very short periods (e.g., one or two years), the prescription period is now effectively longer. Conversely, claims previously subject to the general ten-year civil prescription (if not deemed commercial) might now expire sooner under the five-year subjective rule if awareness is immediate.

"Suspension of Completion" and "Renewal" of Prescription: New Terminology

The reform has also introduced new terminology and a refined conceptual framework for mechanisms that affect the running of the prescription period, replacing the older concepts of "interruption" (chūdan) and "suspension" (teishi).

• Suspension of Completion (完成猶予 - kansei yuyo): This refers to a situation where, due to certain events, the prescription period will not be completed, even if the original timeframe would otherwise have expired. The completion is deferred until a certain time after the event ceases.
• Renewal (更新 - kōshin): This occurs when certain events cause the already elapsed prescription period to be disregarded, and the entire prescription period starts running anew from zero.

Key events and their effects include:

• Judicial Claim (裁判上の請求 - saibanjō no seikyū) (e.g., filing a lawsuit): This leads to a suspension of completion of prescription for as long as the court proceedings are pending. If the claim is subsequently confirmed by a final and binding judgment, prescription is renewed, and a new ten-year period starts from the time the judgment becomes final and binding (Reformed Civil Code, Articles 147, Paragraph 1, Item 1 and Paragraph 2; Article 169, Paragraph 1).
• Enforcement Measures (強制執行等 - kyōsei shikkō tō) (e.g., seizure of assets): These generally lead to suspension of completion until the enforcement procedure concludes, and renewal if the procedure results in satisfaction of the claim or is completed (Reformed Civil Code, Article 148).
• Preliminary Attachment or Injunction (仮差押え又は仮処分 - kari-sashiosae mata wa kari-shobun): These measures cause a suspension of completion of prescription for six months from the time the measure ends (Reformed Civil Code, Article 149).
• Demand (催告 - saikoku): A simple out-of-court demand for performance by the creditor causes a suspension of completion of prescription for six months from the time of the demand (Reformed Civil Code, Article 150, Paragraph 1). This provides a window for further action but cannot be used repeatedly by itself to indefinitely extend the prescription period.
• Acknowledgement (承認 - shōnin): An acknowledgement of the right by the debtor (e.g., making a partial payment, requesting a deferral of payment) results in a renewal of prescription. The full prescription period starts running anew from the time of the acknowledgement (Reformed Civil Code, Article 152, Paragraph 1).
• Natural Disasters, etc. (天災等 - tensai tō): If events like earthquakes or other natural disasters prevent a creditor from taking action (like filing a judicial claim) around the time prescription would otherwise complete, there is a suspension of completion for a specified period after the impediment ceases (Reformed Civil Code, Article 161).

Innovation: Agreement to Consult (協議を行う旨の合意)

A significant and novel addition to Japanese prescription law is the mechanism allowing parties to suspend the completion of prescription by mutual agreement to engage in consultations (Reformed Civil Code, Article 151). This is designed to facilitate negotiations and potentially avoid litigation.

• Written Agreement Required: The parties must agree in writing (which includes electronic records) to hold consultations concerning the claim.
• Effect of Agreement: Such an agreement results in a suspension of completion of prescription until the earlier of:
  • One year has passed since the agreement;
  • A shorter consultation period, if specified in the agreement (provided it's less than one year), has passed; or
  • Six months have passed since one party gave written notice to the other refusing to continue consultations.
• Repeated Agreements: This period of suspension can be extended by further written agreements between the parties. However, the total period of suspension achievable through such repeated agreements cannot exceed five years from the date the first such agreement-based suspension commenced (Reformed Civil Code, Article 151, Paragraph 2). This prevents indefinite postponement.
• Interaction with Demand (Saikoku): If a creditor has already made a demand (saikoku), thereby obtaining a six-month suspension of completion, an agreement to consult made during that six-month period will not further extend the suspension beyond the original six months from the demand (Reformed Civil Code, Article 150, Paragraph 3).

This new tool offers valuable flexibility for parties wishing to resolve disputes amicably without the immediate pressure of an expiring prescription period.

Special Rules for Certain Claims

• Claims for Damages to Life or Body: For claims seeking damages due to loss of life or physical injury, whether arising from breach of contract (e.g., breach of a safety obligation) or tort, a special, longer prescription period applies under the reformed Code. The period is five years from when the creditor became aware of the right to claim damages and the identity of the liable party (subjective), or twenty years from when the right became exercisable/from the tortious act (objective) (Reformed Civil Code, Articles 167, 724-2). This provides greater protection for victims of personal injury.
• Tort Claims (General): The general extinctive prescription period for tort claims remains three years from when the victim (or their statutory agent) became aware of both the damage and the identity of the perpetrator, or twenty years from the time of the tortious act, whichever is earlier (Reformed Civil Code, Article 724). A key clarification in the reform is that this twenty-year period is definitively an extinctive prescription period (subject to suspension/renewal) and not a period of exclusion (joseki kikan).

Transitional Provisions: Navigating the Old and New

The application of these new rules to existing or emerging claims can be complex due to transitional provisions (経過措置 - keika sochi).

• Claims Arising After Reform: If a claim itself arose (i.e., became exercisable) on or after April 1, 2020, the new prescription rules generally apply.
• Claims Based on Pre-Reform Legal Acts: However, a critical exception exists: if a claim arose after April 1, 2020, but the underlying legal act that caused the claim (e.g., the contract) was concluded before April 1, 2020, then the prescription rules of the old Civil Code will continue to apply to that claim (Supplementary Provisions of the Amending Act, Article 10, Paragraph 4). An example would be a claim for the return of a security deposit under a lease agreement entered into before April 1, 2020, even if the lease terminates and the claim arises after that date.
• Continuous Contracts with Automatic Renewal: For ongoing contracts (like framework agreements or leases) that were entered into before the reform but include automatic renewal clauses that trigger renewals after April 1, 2020, there can be ambiguity as to whether the old or new prescription rules apply to claims arising from transactions under the renewed term. The supplementary provisions do not provide a clear, uniform answer for all such scenarios. To avoid such uncertainty, parties may consider explicitly re-concluding or amending such contracts after the reform date to clarify the applicable legal regime.

For a transitional period, businesses will need to manage claims potentially subject to both old and new prescription rules, requiring careful attention to the specifics of each case.

Practical Implications for Businesses

The overhaul of Japan's extinctive prescription rules necessitates several practical adjustments:

• Enhanced Claim Management Systems: Businesses must update their internal systems for tracking claims and liabilities to accommodate the dual five-year (subjective awareness) and ten-year (objective exercisability) periods for general claims.
• Focus on "Awareness": The five-year subjective period makes the date of "awareness" a critical factual issue. Maintaining thorough records of communications, discoveries of breaches, and events that could trigger awareness is more important than ever.
• Utilizing the "Agreement to Consult": The new mechanism for suspending prescription through a written agreement to consult offers a valuable strategic tool during negotiations. Businesses should consider incorporating protocols for using this mechanism.
• Contract Review: While prescription periods are statutory and cannot be freely altered by contract to the detriment of public policy, certain contractual clauses (e.g., those defining when a claim becomes "exercisable," notice provisions for breaches, or dispute resolution clauses) may indirectly interact with prescription rules and warrant review.
• Navigating Transitional Rules: For claims that have roots in the pre-reform era but mature or are pursued post-reform, a careful analysis of the transitional provisions is essential to determine the applicable prescription period and rules.

Conclusion

The reform of Japan's extinctive prescription rules represents a significant modernization effort. The introduction of a subjective five-year period alongside the objective ten-year period, the abolition of disparate special short-term and commercial prescriptions, and the new provisions for suspension by agreement to consult all contribute to a more rationalized and, in many respects, clearer system. However, the nuances, particularly concerning "awareness" and the transitional rules, require careful attention from legal professionals and businesses to effectively manage their rights and obligations in Japan.