The Commercial Code Revision Act has been passed!
What effect will the first revision in 120 years have on transportation business?

By Kazuya Yamashita and Peter Cassidy
 

The “Commercial Code and Act on International Carriage of Goods by Sea Revision Bill” that was before the current Diet session has been enacted with its passing by the House of Councillors on 18 May 2018. This is the first revision of the Commercial Code’s provisions on transportation and maritime commerce in approximately 120 years, following the Code’s original enactment in 1899.

The previous column provided an overview of the Bill and described the history leading up to its submission to the Diet. This time we will look at the scope and the important themes of the enacted bill. This column will provide a summary of the revisions and the practical effect they will have on transportation businesses in the areas of:

  • the shipper’s duty to declare dangerous goods
  • extinguishment of claims against a carrier if not commenced within one year
  • the invalidity of indemnity clauses that reduce a carrier’s liability for a passenger’s death or personal injury


 

Scope of the Revision

The main areas that are the subject of revision are the transportation of goods and passengers by land, sea or air (see the table below for the provisions applicable to each type of transport) as well as maritime commerce (sea transportation, vessels, masters, collisions, salvage, general average, marine insurance, maritime leans and ship mortgages). However, international air transportation is not directly affected by the revisions because it is separately governed by the application of the Montreal Convention and other treaties.

Also, the parts of the Commercial Code that were still written using the old-style katakana script (provisions relating to brokerage businesses, commission agency businesses and bailment) have been rewritten in modern-style hiragana, so that the entire Code will now be written in hiragana.

Table: Post-Revision Provisions Applicable to Each Mode of Transport

Domestic transport

International transport

Land

Revised Articles 569 – 594 of the Commercial Code (Plus special provisions governing the transport of goods by sea) -

Sea

Goods: Act on International Carriage of Goods by Sea, Commercial Code Passengers: Commercial Code

Air

Montreal Convention (Direct applicability)

 

Provisions on the shipper’s duty to declare dangerous goods

Summary of the revisions

A new provision (contained in the revised Article 572) provides that when shipping dangerous goods such as flammable or explosive items, the shipper must notify the carrier of such before handing over the goods and also inform the carrier of the name and chemical properties of the goods as well as any other information that is necessary for the safe transportation of the goods.

The shipper will also be liable to compensate for any damage arising from a breach of the duty to declare the goods, unless the breach is not attributable to the shipper (Article 415 (1) of the Civil Code).

Practical effect

Because this provision is considered a default provision (which will apply if there are no special provisions in the contract), it is possible to include a clause that makes the shipper liable to compensate for damage that arises regardless of whether the breach of the duty to declare is attributable to the shipper (i.e. strict liability). This will depend on the dangerousness of the transportation, the possibility of accessing information regarding such danger, the possibility of handling the dangerous goods and the status of the shipper.

 

Claims against a carrier’s liability extinguished if not commenced within one year

Summary of the revisions

Under the old provisions of the Commercial Code, the carrier’s liability for the loss, damage or delay of goods was generally extinguished one year after the delivery of the goods, or five years in a case where the carrier had knowledge of such loss or damage when handing over the goods (Articles 589, 566 and 522 of the pre-revision Code). Under the revised Code, if a claim is not commenced in court within one year of the delivery date of the goods, the carrier’s liability will be extinguished regardless of whether the carrier had knowledge of such damage (revised Article 585 (1) of the Code).

Practical effect

Provisions in the standard terms and conditions that are used by carriers sometimes repeat the previous one- and five-year limits, so it will be necessary to revise the contracts to order to gain the benefit of the new one-year limitation period. It should also be noted that the revised Code allows this limitation period to be extended by way of agreement between the parties only after damage due to the loss, etc. of goods has occurred (revised Article 585 (2) of the Code).

 

Invalidity of indemnity clauses that reduce a carrier’s liability for a passenger’s death or personal injury

Summary of the revisions

All contractual provisions that reduce the carrier’s liability for the death or personal injury of a passenger have been made invalid, but room has been left for provisions that reduce the carrier’s liability in exceptional circumstances, such as when the major cause of the injury is a delay in transportation, when transporting passengers in an area that has been by disaster or there is a risk of disaster occurring, and when transporting a person who is at risk of suffering serious danger to their life or body due to the vibration, etc. that occurs during transport.

Practical effect

The Legislative Council was informed of the existence of provisions in standard terms and conditions that limit the carrier’s liability to 20 million yen for death or personal injury to passengers, but the revised Code will generally make such provisions invalid.

On the other hand, provisions that place a certain limit on the carrier’s liability when the main cause is delay in the transport are also seen in the standard terms and conditions used in rail transport, but such provisions will not be invalid under the revised Commercial Code.

Also, regarding the “risk of disaster occurring” that is recognised as one of the exceptions for excluding liability, during debate in the Diet it was explained that, for example, it cannot be claimed that there is a risk of disaster merely because earthquakes occur at random times in Japan. Instead, a specific risk is required, such as the risk of a large aftershock occurring in a region in the days immediately following the actual occurrence of an earthquake in that region.

Apart from this, it is necessary to exercise caution when asking a sick or pregnant person to sign an agreement or waiver that excludes the carrier’s liability for any injury suffered during transport. Because the revised law is limited to when there is a risk of “serious” danger to the life or body of the passenger and does not prescribe the validity of all such contractual provisions, in the case of passengers who are merely sick or pregnant and are not recognised as being at risk of “serious” danger, then the general principle will apply and the waiver of the carrier’s liability will be invalid.

Even if an exception applies and the provision is not invalid under the Commercial Code, careful consideration of the provision’s contents is required because there is scope for provisions that unilaterally prejudice the passenger’s interests to be ruled invalid under Article 10 of the Consumer Contract Act or Article 90 of the Civil Code.

 

Conclusion

The above comments introduce the scope of the important revisions and the effect they will have in practice, but more than 200 provisions of the Commercial Code have been revised, so the effect that these revisions will have on the practical aspects of land, sea and air transport will be extremely large.

The date that the revised Commercial Code will come into effect will be prescribed in a Cabinet order, but it must be within one year of the date of promulgation. Therefore, it is necessary for businesses to promptly commence the review and revision of their standard transportation terms and conditions and their other contract forms related to transport, while also taking into account the revisions to the Civil Code provisions on claims that were enacted on 26 May 2017 and will come into effect on 1 April 2020.