Transportation Business under Japanese Commercial Law: An Explanation of Contracts, Liability, and the Rights and Obligations of Parties

For global companies, success in the Japanese market is closely linked to the construction of an efficient and legally robust supply chain. The physical flow of products from factories to consumers and business partners, namely logistics, forms the backbone of modern commercial activities. Supporting this logistics legally are the provisions related to “carriage of goods” under Japanese Commercial Law. Particularly, the transportation of goods is a critical element that can determine the success or failure of a business, and accurately understanding these rules is essential from the perspectives of risk management and smooth business operations.

The primary law governing this field is the Japanese Commercial Law. It is noteworthy that a significant amendment, the first in about 120 years, was enacted on April 1, 2019 (Heisei 31). This amendment updated the old provisions to align with modern international commercial practices and the realities of transactions. For example, it included the clarification of the obligation to notify of hazardous materials and the rights of the consignee in the event of total loss of the transported goods, addressing practical challenges faced by companies engaged in international trade. This has increased the consistency between Japanese domestic law and global standards, enhancing the predictability of transactions.

This article systematically explains the legal framework for “carriage of goods” in Japanese Commercial Law, with a particular focus on the transportation of goods. First, we will discuss the basic nature and requirements for the formation of a carriage contract, and then detail the rights and obligations of the three central parties involved in a carriage contract: the carrier, the shipper, and the consignee, incorporating specific articles and case law. In particular, we will delve deeply into the points of practice that are especially important, such as the principles of the carrier’s liability, the handling of valuable goods and hazardous materials, and the significantly changed status of the consignee due to the legal amendments. Many of these provisions are “optional rules” that can be modified by agreement between the parties, so understanding the law is the first step towards negotiating more favorable contracts.

The Basics of Carriage Contracts Under Japanese Commercial Law

A carriage contract in Japan involves a carrier receiving goods from a shipper and transporting them to a consignee. Legally, it is considered a type of contract for work under the Japanese Civil Code, aimed at completing the transportation, with compensation paid for the resulting service. The contract is established when the carrier’s acceptance to transport (“I will carry”) and the shipper’s request to transport (“Please carry”) coincide. Japanese law does not necessarily require written documentation for a contract to be effective; a verbal agreement can also have legal force.

However, it is not commercially wise to conclude contracts verbally without any written documentation. When the terms of carriage are not documented, details such as specific conditions, costs, the scope of liability, and rules for handling disputes in case of trouble become unclear, increasing the risk of serious conflicts between parties later on. Disputes over ancillary services not included in the contract and related additional charges are common with verbal agreements. Therefore, to ensure stability and predictability in transactions, it is crucial to create a written contract that clearly outlines the terms of the carriage contract.

In the field of goods transportation, which requires the rapid and efficient processing of numerous repetitive transactions, carriers typically establish standardized contract conditions known as “Standard Carriage Terms and Conditions.” In Japan, the Ministry of Land, Infrastructure, Transport and Tourism provides models such as the “Standard Automobile Freight Transport Terms and Conditions.” When carriers adopt these, regulatory approval procedures are simplified, making these standard terms widely used as the de facto standard in the industry. This fact holds significant importance for companies utilizing transportation services. While many legal provisions can be modified by mutual agreement, in the market, the standard terms presented by carriers often leave no room for negotiation, presented as a “take it or leave it” condition. Consequently, for corporate legal affairs personnel, the central task of practical risk management becomes scrutinizing the content of the presented terms and accurately understanding the risks they entail, rather than designing contracts from scratch.

Carriers’ Obligations and Liabilities Under Japanese Commercial Law

Carriers have the central obligation in a carriage contract to safely deliver goods from the shipper to the consignee. When damage occurs to the goods during transport, the extent of the carrier’s liability is detailed in the Japanese Commercial Code.

The Fundamental Principle of Liability: Presumption of Negligence

The most fundamental principle regarding the liability of carriers is established in Article 575 of the Japanese Commercial Code. According to this provision, carriers are responsible for compensating any damage arising from the loss, damage, or delay of the goods during the period from receipt to delivery.

The most distinctive feature of this provision is the legal presumption of the carrier’s negligence. This is referred to as “intermediate liability,” which means that, in principle, the carrier is held responsible when damage occurs. In order for the carrier to be exempt from this liability, they must prove that they were not negligent in the receipt, carriage, storage, and delivery of the goods. In other words, the burden of proof shifts to the carrier’s side. Proving this lack of negligence is not easy in practice. Past court cases have recognized the carrier’s liability for serious negligence, such as accidents caused by failing to check the locks on truck doors, resulting in the fall of cargo, or theft due to inadequate security measures in warehouses.

Calculation of Damages Under Japanese Commercial Law

The Japanese Commercial Code provides clear rules for calculating the amount of compensation when goods in transit are damaged.

Article 576, Paragraph 1 of the Japanese Commercial Code adopts the principle of fixed compensation for damages when goods are lost or damaged. Specifically, the compensation amount is determined by “the market price of the goods at the time and place where delivery should have been made.” This simplifies the calculation of damages and facilitates the swift resolution of disputes, but it also means that the compensation available to the shipper or consignee is limited to the market price as a ceiling.

On the other hand, for damages caused by “delay” in transportation, there is no specific provision in the Commercial Code for calculating the amount of compensation. Therefore, in such cases, the general principles of the Japanese Civil Code Article 416 apply. Under the Civil Code principles, compensation can cover not only the ordinary damages that would typically occur but also “special circumstances” foreseen or foreseeable by the parties, which result in additional damages (special damages). For example, if the late arrival of parts necessary for a factory production line causes a production halt and substantial lost profits, this could be claimed as special damages. To avoid the risk of potentially unlimited liability, standard transportation terms used by carriers often include clauses that significantly limit liability for delays, such as capping compensation at the amount of the freight charge. Therefore, in practice, the terms of the contract or the conditions of carriage are far more critical than the default rules of the Commercial Code.

Special Provisions for Valuables Under Japanese Commercial Law

Japanese Commercial Law provides special rules that mitigate the liability of carriers for particularly valuable items such as money, securities, and gemstones (hereinafter referred to as “valuables”). According to Article 577, Paragraph 1 of the Japanese Commercial Law, unless the shipper notifies the carrier of the type and value of the goods at the time of entrusting the transportation, the carrier shall not be liable for compensation for the loss, damage, or delay of valuables. This provision is designed to prevent carriers from incurring unexpected high compensation liabilities. The term “valuables,” as defined by case law, refers to items that are significantly valuable relative to their volume or weight (Osaka High Court, September 25, 1969).

However, there are exceptions to this exemption of the carrier’s liability. Paragraph 2 of the same article stipulates that if the carrier knew at the time of contract conclusion that the goods were valuables, or if the damage is caused by the carrier’s intent or gross negligence, the carrier cannot be exempt from liability, even without notification of the value by the shipper.

In the past, there was a divided interpretation as to whether this exemption provision under the Commercial Law applied to claims for damages based on tort as well as contractual liability. On this point, the Kobe District Court ruled on July 24, 1990, that the exemption under Article 577 (formerly Article 578) of the Commercial Law applies only to contractual liability and does not exempt tort liability. However, the court significantly reduced the amount of compensation due to contributory negligence on the part of the shipper who failed to notify the carrier of the valuables. This issue was resolved with the revision of the Commercial Law in 2018. The newly established Article 587 of the Japanese Commercial Law explicitly states that the provisions regarding the limitation of carriers’ liability under the Commercial Law (including the special provisions for valuables) are, in principle, also applicable to tort liability, thereby ensuring legal stability.

The Rights and Obligations of the Shipper Under Japanese Law

The shipper is the party that entrusts the transportation of goods to a carrier. Under the transportation contract, the shipper bears important obligations to ensure the safe transport of goods, while also retaining certain rights over the goods during transit.

Obligation to Notify Regarding Hazardous Materials

One of the most significant changes in the 2018 revision of the Japanese Commercial Code (Article 572) is the newly established obligation for shippers to notify carriers about hazardous materials. This provision requires shippers to inform the carrier before handing over the goods if they are flammable, explosive, or otherwise hazardous, including the name, nature, and other necessary information for the safe transport of the goods.

This obligation not only involves communicating the hazardous nature of the goods but also providing specific information necessary to ensure safe transportation, aiming to secure the safety of the transport process. The term ‘shipper’ does not only refer to the manufacturer of the goods; it also includes those who arrange for transportation, such as trading companies and forwarders. This is particularly important for intermediaries involved in the supply chain. Merely forwarding a Safety Data Sheet (SDS) provided by the manufacturer to the carrier does not fulfill the legal obligation. Intermediaries may have an independent responsibility to verify the accuracy and sufficiency of the information provided and to communicate it appropriately to the carrier.

If a shipper violates this notification obligation and damage occurs as a result, the shipper will be liable for damages to the carrier. This liability is presumed to be due to negligence, and unless the shipper can prove that there was no negligence in failing to notify, they cannot escape responsibility. Therefore, companies positioned in the middle of the supply chain must establish strict compliance systems to manage this new risk, such as verifying the accuracy of cargo information and securely maintaining records of notifications to the carrier.

Right of Disposal

The shipper retains a certain level of control over the goods until they reach their destination. Article 580 of the Japanese Commercial Code grants the shipper the right to request the carrier to stop the transport, change the consignee, or make other dispositions. This is known as the ‘right of disposal,’ which, for example, allows the shipper to halt transportation or change the destination in the event of unforeseen circumstances such as the bankruptcy of a business partner. However, if this right is exercised, the shipper is obligated to pay the carrier the transportation fee proportional to the transport already performed, as well as any additional costs incurred due to the disposition.

Rights and Obligations of Consignees Under Japanese Commercial Law

A consignee, in the context of a carriage contract, is the party designated to receive the transported goods. The legal status of consignees, especially their rights against carriers, was significantly strengthened by the 2018 amendment to the Japanese Commercial Code.

Acquisition of Rights and the Impact of the 2018 Amendment

Article 581, Paragraph 1 of the Japanese Commercial Code stipulates that upon the arrival of the goods at the destination, the consignee acquires the same rights as the consignor arising from the carriage contract. This allows the consignee to directly claim damages from the carrier in their own name if the goods are damaged.

The 2018 amendment brought about a groundbreaking change to this provision. Under the pre-amendment Commercial Code, the consignee’s acquisition of rights was limited to cases where the goods had “arrived.” Consequently, in cases of “total loss” during transit, where the goods were completely lost and thus never arrived, it was interpreted that the consignee could not acquire rights under the carriage contract and was unable to claim damages from the carrier.

To address this issue, the post-amendment Article 581, Paragraph 1 of the Japanese Commercial Code now explicitly states that the consignee acquires the same rights as the consignor “when the goods have arrived at the destination or when all the goods have been lost.” This opened the path for consignees to directly claim damages from the carrier even in cases of total loss. Furthermore, when the consignee makes a claim for the delivery of goods or damages, the consignor can no longer exercise those rights, to prevent double claims.

Coordination between Japanese Commercial Law and Incoterms

The amendment to Article 581 of the Japanese Commercial Code not only resolved domestic legal issues but also addressed longstanding challenges in international trade. In international commerce, “Incoterms” are widely used to define the scope of costs and risks between sellers and buyers.

Common Incoterms such as FOB (Free On Board), CIF (Cost, Insurance, and Freight), and CPT (Carriage Paid To) transfer the risk of loss or damage of goods from the seller (consignor) to the buyer (consignee) at the point the goods are handed over to the carrier or loaded onto the vessel in the exporting country. However, under the pre-amendment Japanese Commercial Code, in the event of total loss of the goods, the buyer (consignee), who should be bearing the risk, did not have the legal standing to sue the carrier, while the seller (consignor), who did have legal standing, no longer had the motivation to claim damages as they were not bearing the risk anymore. This discrepancy between law and commercial practice posed a significant transactional risk for Japanese importers.

The amendment to Article 581 directly resolved this contradiction by granting the consignee the right to claim damages even in the event of total loss, thereby aligning the Japanese Commercial Code with the international rules of risk allocation under Incoterms. This amendment has made Japan a safer and more predictable legal jurisdiction for conducting international trade.

Obligations of the Consignee

Consignees have not only rights but also certain obligations. The most fundamental obligation is to pay the carriage charges to the carrier upon receipt of the goods, as stipulated in Article 581, Paragraph 3 of the Japanese Commercial Code.

Moreover, if the goods are damaged or partially lost, the consignee must act promptly to pursue the carrier’s liability. Article 584 of the Japanese Commercial Code states that the carrier’s liability is extinguished if the consignee accepts the goods without objection. However, for damages or partial losses that cannot be immediately detected, the consignee can notify the carrier within two weeks from the day of delivery, and the carrier’s liability is not extinguished. This provision aims to resolve disputes related to carriage quickly, effectively imposing a duty on the consignee to inspect the goods without delay.

Comparing the Responsibilities of Parties in Transportation Contracts Under Japanese Law

The following table summarizes the rights and obligations of carriers, shippers, and consignees that we have detailed thus far. This table is intended to provide an overview of the basic legal positions of each party. However, it is important to note that many of these provisions are optional, and in actual transactions, the contents of the contract or the transportation terms and conditions take precedence.

Conclusion

In this article, we have explained the legal framework for transportation businesses under Japanese Commercial Law, from the basics of transportation contracts to the rights and obligations of carriers, shippers, and consignees. The carrier’s liability is primarily based on presumed negligence, with special provisions for high-value goods. Shippers have a significant responsibility, especially with the 2018 (Heisei 30) legal revision that explicitly mandated the duty to notify of hazardous materials. The position of the consignee has been substantially strengthened by the same amendment, allowing for claims for damages against the carrier even in the event of total loss of the transported goods, aligning with international commercial practices such as Incoterms. These legal reforms can be seen as a significant step forward in adapting Japan’s logistics legal system to global standards and enhancing transaction transparency and safety.

However, the most crucial point is that many of the provisions of the Commercial Law are optional. This means that the rules established by law are merely default rules in the absence of a separate agreement between the parties, and the final rights and obligations are determined by individual transportation contracts or standard transportation terms and conditions. Therefore, for companies involved in logistics, it is essential not only to understand the provisions of Japanese Commercial Law but also to actively use legal expertise in contract negotiations and review of contract contents to manage their risks appropriately and maximize their profits.

Monolith Law Office has a proven track record of providing extensive advice on transportation and logistics legal matters in Japan to a wide range of clients, both domestic and international. Including responding to the important changes brought about by the 2018 (Heisei 30) revision of the Commercial Law, we offer support on all aspects of transportation business as defined by Japanese Commercial Law, based on our deep expertise. Our firm includes bilingual attorneys with foreign legal qualifications, including English speakers, who can provide clear and practical legal advice that bridges Japanese regulations and global business practices. From constructing complex supply chain contracts to negotiating individual transportation agreements and representing in cargo claims, Monolith Law Office provides the specialized legal support necessary to protect your business interests and ensure full compliance within the Japanese legal environment.