Ending a business relationship and refusing to renew a contract

1. What is being terminated — framework and individual contracts, termination and refusal to renew

The first point to check is what it is that is to be terminated, or that the other party says is being terminated. Whether it is the framework contract, an individual order, or both, determines which obligations remain afterwards.

We also check whether the contract is being brought to an end during its term, whether it is coming to an end on expiry of the term, or whether automatic renewal is being stopped. Even where the notice is headed "termination" or "cancellation", the position is not decided by the label alone: we identify the provision relied on, the scope of what is being terminated, and the date of termination.

Whether or not to enter into a contract may be freely decided, except where laws and regulations provide otherwise. This concerns the decision whether to enter into a new contract. It does not mean that the obligations arising from a contract already concluded, or the conditions on which that contract may be terminated, are equally a matter of free choice.

The effect of the termination of the framework contract on individual contracts already concluded is determined by checking the terms of each contract and what the parties agreed. It cannot be said that individual contracts come to an end as a matter of course when the framework contract ends, nor that they necessarily survive. The task is to work out how far the quantities ordered, the delivery dates, inspection and payment are already fixed obligations.

2. The contract and the course of dealing — term, renewal clauses, termination clauses and variations

The terms of the contract are the starting point, not the conclusion. In addition to the wording of the clauses, we check how the contract has been renewed to date and how the parties have actually treated it.

The parties to a contract may freely determine its content within the limits set by laws and regulations. This is the provision on which terms as to duration, renewal and termination rest. It cannot, however, settle by itself the validity or the interpretation of a particular clause.

Where there is a clause on expiry of the term or on refusal to renew, the effect and the application of that clause are considered case by case, in the light of the contract as a whole and the history of renewals. An obligation to renew cannot be derived from the number of renewals or the number of years the relationship has lasted, nor does every contract require "just cause". We check against the documents how the renewals came to be repeated, and on what basis the other party made its investment and put its arrangements in place.

Even where the conditions for termination are met as a matter of interpretation of the contract, the question may arise whether, on the particular facts, the termination is contrary to good faith or amounts to an abuse of rights. That said, a termination does not become impermissible merely because the relationship has lasted a long time or because the other party will suffer a loss.

3. The legal basis for termination — non-performance, rules for particular contract types, and restrictions under competition and related legislation

The basis for termination may be the other party's non-performance, a provision applying to the type of contract concerned, or the contract itself. After checking the provision or contractual clause relied on, we consider the restrictions arising from good faith and abuse of rights, and the regulation under the Antimonopoly Act and other special legislation.

The following explanation of the Civil Code is based on the provisions currently in force. For contracts concluded before April 1, 2020, the provisions in force before the amendment may apply. We distinguish the framework contract from the individual contracts and check when each was concluded, what has been renewed or varied, and the transitional provisions.

Termination for non-performance

Where the other party does not perform its obligation, and does not perform within a reasonable period fixed in a demand for performance, the contract may be terminated, unless the non-performance at the time that period expires is minor in the light of the contract and the common sense of the transaction. This is the statutory right of termination for non-performance. It is not a basis for ending a relationship at will where there is no non-performance, or for an ordinary refusal to renew.

Where, for example, performance of the whole obligation is impossible, or the obligor has clearly manifested an intention to refuse performance of the whole obligation, the contract may be terminated without a demand for performance. A mere delay in performance cannot be treated as a refusal to perform the whole obligation as a matter of course. There are other cases too in which no demand is required where the statutory requirements are met, such as where the purpose of the contract cannot be achieved unless performance is made by a certain time. Whether the whole contract may be terminated, or only part of it, also needs to be checked.

Where the non-performance is due to grounds attributable to the obligee, the obligee may not terminate under the Civil Code provisions on termination for non-performance. This restriction applies to termination under the Civil Code; how a contractual right of termination is treated is considered separately.

Rules for particular types of contract

For mandates and quasi-mandates, there is a provision under which either party may terminate at any time. It applies where the contract is a mandate or a quasi-mandate. The fact that a contract is called an "outsourcing agreement" does not mean that this provision applies to it as a matter of course. The effect and application of any special agreement, and the settlement of accounts after termination, are considered separately.

Where a mandate is terminated at a time disadvantageous to the other party, or where the mandator terminates a mandate that also has the mandatary's interests as its purpose, the terminating party must compensate the loss caused to the other party, unless there were unavoidable grounds. The "mandatary's interests" here do not include an interest consisting solely in obtaining remuneration. Nor is the full amount of the remuneration for the remaining term compensated as a matter of course.

Where outsourcing amounts to a contract for work, there is a provision under which the party ordering the work may terminate the contract before the work is completed by compensating the loss. The party carrying out the work does not have the same right of termination at will. We check whether the contract is a contract for work, whether the work has yet to be completed, whether a special agreement has been made, and what settlement and compensation follow termination.

Contracts between a company or a merchant and a commercial agent are subject to provisions on termination in the Companies Act and the Commercial Code. Where no term has been fixed, either party may terminate on two months' notice. Where there are unavoidable grounds, either party may terminate at any time, whether or not a term has been fixed. A commercial agent is a person who, not being an employee of the merchant or company, acts as an agent or intermediary for transactions falling within the ordinary business of that merchant or company. These provisions cannot be applied across the board to distributors or resellers. The effect and application of any special agreement on termination are checked separately.

Restrictions under the Antimonopoly Act and related legislation

Making use of a superior bargaining position over the other party to set or change the terms of a transaction, or to carry out a transaction, in a way that is disadvantageous to that party and unjust in the light of normal business practice, is prohibited under Japan's Antimonopoly Act. A relative superiority in the trading relationship, the use of that superiority and unjustness are required, and the fact that the other party is a large company, or that the relationship was ended one-sidedly, does not by itself establish a violation. How a particular termination is assessed depends on the facts of the case.

Unjustly refusing to deal with a business operator, restricting the quantity or the substance of the goods or services involved in a transaction with a business operator, or causing another business operator to do either of these things, is also prohibited under the Antimonopoly Act (as other refusals to trade under the Designation of Unfair Trade Practices). The requirement that the conduct be "unjust" means that the provision does not prohibit every unilateral ending of a business relationship. Ending a relationship in order to secure compliance with unlawful trading terms, or in order to exclude a competitor, may raise issues under the Antimonopoly Act. A refusal to trade carried out jointly with a competitor may engage different provisions.

Where the transactions are entrusted transactions covered by Japan's legislation on fair dealing in subcontracting transactions with small and medium-sized entrusted business operators, we also check the prohibitions on refusing to receive goods and other items already ordered when the relationship ends, on unjustly cancelling orders or changing their content, and on suspending dealings because a violation has been reported to the prescribed administrative authority. Not placing new orders in future and cancelling or failing to perform transactions already ordered are considered separately.

4. Initial response before giving notice and after receiving it — performance, evidence and the approach to negotiations

A manifestation of intention to terminate takes effect, as a general rule, when it reaches the other party. Where the contract contains provisions on the method of notice, the address for notices, deadlines for notice or the treatment of receipt, their content and effect need to be checked. Where the other party prevents the notice from arriving without justifiable grounds, the notice is deemed to have arrived at the time when it would ordinarily have arrived. The time when the manifestation of intention takes effect is checked separately from the time when the contract comes to an end after any notice period has run.

Whether notice is required, and for how long, is considered case by case, after checking the statutory and contractual rules on termination, in the light of the course of dealing, the other party's investment, the availability of alternative business and similar matters. There is no notice period common to all continuing business relationships, and there is no standard under which allowing a given period makes a termination lawful. The factors listed do not always carry the same weight.

Where the outsourcing is covered by the Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operators, we check whether the parties meet the requirements for a commissioning party and for a recipient, and how long the commission has lasted. Where a commissioning party of the prescribed kind terminates, or does not renew, continuing outsourcing that has lasted six months or more including renewals, notice must be given at least 30 days in advance by a method prescribed by law, such as a document or electronic mail, subject to the exceptions provided by law. If the other party makes a request during the period between the notice and the day on which the contract expires, the reasons for the termination must be disclosed without delay by the prescribed method, subject to the exceptions provided by law. Whether these procedural duties have been met is considered separately from whether the termination is valid under the Civil Code and the contract. Giving notice does not make a termination valid as a matter of course, and the absence of notice does not make it invalid as a matter of course.

We review the contract and any variations, the notice of termination and the record of its arrival, the records of orders, acceptances, deliveries and payments, the history of the renewal negotiations, and the documents relating to any request to hold stock or to invest in equipment. The obligations that remain to be performed after the notice are considered separately from whether there is a basis for suspending performance, and in the written reply, acknowledging receipt of the notice is distinguished from agreeing to the termination.

5. Settlement and damages on termination — unpaid price, stock, investment and lost profits

Whether the termination itself is permissible and whether it gives rise to an obligation to pay money are considered separately.

Where performance is not made in accordance with the tenor of the obligation, or performance is impossible, damages may be claimed for the loss thereby caused. This does not apply, however, where the non-performance is due to grounds not attributable to the obligor in the light of the contract or other source of the obligation and the common sense of the transaction. The fact that a business relationship has ended does not establish non-performance or liability in damages.

Damages for non-performance cover the loss that would ordinarily arise. Loss arising from special circumstances may also be claimed where the parties should have foreseen those circumstances.

The exercise of a right of termination does not preclude a claim for damages. This provides that a claim for damages is not lost as a matter of course through termination; it does not mean that damages follow as a matter of course where termination is permitted.

Where the contract provides for the purchase of stock or the settlement of equipment costs on termination, the first step is to check what is covered, on what conditions, and how the amount is calculated. Such contractual claims are distinguished from claims for damages for non-performance.

Where losses on stock, investment in dedicated equipment or future profits are claimed as damages for non-performance, we check the causal link with the breach of obligation, the scope of the loss and the evidence for the amount, item by item. For loss arising from special circumstances, we also consider whether the other party should have foreseen those circumstances. The purchase of the entire stock, the full recovery of the amount invested, and damages equal to a given period of future profits are not awarded as a matter of course.

The materials are organized according to what is claimed: for stock, the quantity, the acquisition cost and the possibility of resale; for equipment, the acquisition cost, the extent of use and the possibility of alternative use; for future profits, past trading results, profit margins and the costs that the termination makes unnecessary.

6. Negotiations, provisional dispositions and litigation, and how we assist

The party seeking to keep the relationship going may apply for a provisional disposition. A provisional disposition is a Japanese court procedure for interim relief pending a decision on the merits. We check what has to be shown on a prima facie basis.

In an application for a provisional disposition determining a provisional status, the applicant must make a prima facie showing both of the rights or legal relationship to be preserved and of the need for the disposition in order to avoid substantial harm or imminent danger. These are the statutory requirements for provisional relief. As a general rule, this type of provisional disposition requires a hearing or similar proceeding at which the other party can attend, and security may be required. We check what is to be applied for, what materials are needed and what the procedure involves. Whether there is a right to have the relationship continued, and whether a provisional disposition requiring continued supply or the like is granted, are matters for assessment in the individual case.

Whether the framework contract remains in force and whether particular orders or supplies can be demanded are considered separately. We check any agreement on minimum purchase quantities or supply volumes, whether individual contracts have been formed, and the time for performance, and we identify which obligation performance is sought of. The question of need, in the sense that the effect on the business is large, is kept separate from the question of the rights and legal relationship on which performance is sought.

Where there is an issue under the Antimonopoly Act, a report to the administrative authority is considered separately from civil steps such as a claim for performance under the contract, injunctive relief and damages. The requirements and the materials needed differ according to the basis relied on and the remedy sought.

We act, matter by matter, for companies considering ending a business relationship and for companies that have been given notice of termination, and assist, to the extent instructed, with reviewing the contract and the course of dealing, with considering whether and how the relationship can be ended, and with negotiations over settlement and damages on termination. We do not guarantee that a termination will be effective, that a relationship will continue, or that losses will be recovered.

Key legislation and official sources

English translations of legislation are provided for reference. The Japanese texts are authoritative.

Where it appears	Legislation	Source type
Freedom to enter into a contract and to determine its content	Civil Code（民法）	Japanese legislation
Termination for non-performance; termination without a demand for performance; grounds attributable to the obligee	Civil Code（民法）	Japanese legislation
Termination of a mandate or quasi-mandate; compensation on termination at a disadvantageous time	Civil Code（民法）	Japanese legislation
Termination of a contract for work before completion by the party ordering the work	Civil Code（民法）	Japanese legislation
Termination of a contract with a commercial agent	Companies Act（会社法）, Commercial Code（商法）	Japanese legislation
Abuse of a superior bargaining position; other refusals to trade	Act on Prohibition of Private Monopolization and Maintenance of Fair Trade（私的独占の禁止及び公正取引の確保に関する法律）	Japanese legislation
Other refusals to trade as an unfair trade practice	Designation of Unfair Trade Practices (Fair Trade Commission Public Notice No. 15 of June 18, 1982)（不公正な取引方法）	Official guidance
Advance notice and disclosure of reasons on termination or non-renewal of continuing outsourcing	Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operators（特定受託事業者に係る取引の適正化等に関する法律）	Japanese legislation
When a manifestation of intention takes effect; prevention of arrival	Civil Code（民法）	Japanese legislation
Damages for non-performance and their scope; termination and claims for damages	Civil Code（民法）	Japanese legislation
Provisional disposition determining a provisional status	Civil Provisional Remedies Act（民事保全法）	Japanese legislation

Legal information reviewed: 2026-09-18

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This article is provided for general informational purposes only and does not constitute legal advice on any specific matter. Please consult us regarding your specific situation. The content is based on the laws and regulations in effect as of the date of the last update.