10 Major Revisions to the Japanese Civil Code Part Two – Extinguishment of claims
This second part of a series on recently enacted changes to the Japanese Civil Code will look at the extinguishment of claims. The term “extinctive prescription” is often used in English translations of the Code. It describes the civil law’s way of extinguishing a claim after a certain period of time has passed. Other terms used to describe this that readers may be more familiar with include “limitation periods”, “statute of limitations” or “time bars”. Currently, Japan’s Civil Code defines a basic extinctive prescription period of 10 years, but there are a variety of specific provisions applicable to various types of claims that define shorter periods of 1, 2 or 3 years. On top of this, claims related to commercial transactions between businesses are subject to a 5-year extinctive prescription period pursuant to the Commercial Code. The revised Civil Code rearranges these various extinctive prescription periods into two categories and repeals the shorter periods.
Despite these changes, there has been no change to the basic principles that a claim can still be made after the extinctive prescription period has expired until such time that the debtor invokes the prescription, and that a debtor who acknowledges a debt without invoking extinctive prescription becomes unable to invoke it later. In other words, the expiry of the extinctive prescription period does not automatically extinguish a claim so the debtor must actively invoke the prescription. The ability to set off one debt against a claim that has already passed the extinctive prescription deadline has not been addressed in the revision, so the ability continues to exist.
- Revised extinctive prescription periodsUnder the revised Article 166, a claim will be extinguished via prescription 5 years from the time that the person entitled to make the claim (obligee) became aware that they could exercise the right (the subjective period), or 10 years from the time that the right become exercisable (the objective period). However, it should be noted that claims for compensation due to death or personal injury are subject to a 20-year period, as well as property rights other than claims and ownership rights. It is also important to note that these periods are prescription periods, not exclusion periods. It is possible to prevent the extinguishment of a claim by taking the measures described below within the defined period in order to suspend the completion of the prescription.
- The Commercial Code’s extinctive prescription provisionsIn conjunction with the revisions to the Civil Code, the 5-year extinctive prescription period that applied to regular commercial transactions (Article 522 of the Commercial Code) has been repealed and the provisions of the revised Civil Code will apply in the future. However, it is necessary to be aware that other specific provisions on extinctive prescription within the Commercial Code will continue to be valid. For example, Article 566 defines a 1-year extinctive prescription period that applies to a claim against a freight forwarder for loss or damage of cargo transported by land or domestic sea.
Further, the bill to amend the Commercial Code that is currently before the National Diet will change the limitation period that applies to compensation claims arising from domestic transportation from an extinctive prescription period to a 1-year exclusion period, which matches the current provisions for international sea transportation. On this point, it is important to note that the prescription period can be suspended for 6 months via a written demand letter that evidences the details of the claim, but an exclusion period cannot be interrupted. Therefore, it is necessary to file an application within the period. Another difference is that prescription must be invoked, but exclusion automatically applies once the period has lapsed.
- Extinctive prescription of tort claims (Revised Article 724)The extinctive prescription period has been revised for tort claims as well, for example in the case of an accident at sea or personal injury. A claim for damages in tort will be extinguished after the expiry of either 3 years from becoming aware of the damage and the person who caused it (5 years in the case of a claim for personal injury compensation) (new Article 724-2), or 20 years from the time of the tortious act (new Article 724 (2)). The 20-year period that applies under the current Code is an exclusion period that does not require invocation and cannot be interrupted by a letter of demand, but following the revision it will be a “prescription period” that does require invocation and can be suspended.
- Suspension of prescription through negotiationThe current Civil Code defines methods to “interrupt” prescription, which resets the prescription period to zero, and also methods to “suspend” prescription, which temporarily pauses the progress of the prescription period (Articles 158-161). Under the revised Code, the terminology used has been changed from “interrupt” to “renew”, and from “suspend” to “suspend completion”.
The first substantive change to note is that provisional seizure and provisional disposition, which are reasons for interruption under the current Civil Code (Article 147 (2)), become reasons to temporarily suspend completion in the revised Code (revised Article 149). Further, the current law does not specifically define the parties agreeing to enter negotiations as a method to prevent the completion of prescription. The new provisions define that when there is a written agreement between the parties to enter negotiations regarding a claim, prescription will not be completed until the earliest of the following periods:
- An agreed negotiation period that is less than 1 year
- 1 year from the time of making the agreement
- 6 months from the time that one party informs the other party in writing that they will not continue the negotiations
A further agreement made while completion of prescription is suspended will also have the effect of suspending completion of prescription, but the total period of suspension cannot exceed 5 years from the original prescription date. It is necessary to note that the above time periods do not apply if there is a further demand (new Article 150-2) or agreement (new Article 151-3) while completion of prescription is suspended due to a demand letter, or a demand letter is issued while prescription is suspended per an agreement (new Article 151-3).
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