Can a Sales Claim in Japan Expire? Understanding the Statute of Limitations Defense (消滅時効の抗弁)

In the world of commerce, the passage of time can have profound legal consequences. A common concern for businesses involved in sales transactions, particularly across borders, is whether an unpaid claim for goods or services can become unenforceable simply because too much time has elapsed. Under Japanese law, the doctrine of "extinctive prescription" (shōmetsu jikō - 消滅時効) addresses this very issue, allowing debtors to raise a powerful defense against stale claims. This article explores the concept of extinctive prescription as it applies to sales claims in Japan, detailing how this defense works and what creditors can do to counter it.

What is Extinctive Prescription (Shōmetsu Jikō) in Japanese Law?

Extinctive prescription is a legal principle, enshrined in the Japanese Civil Code, whereby a right is extinguished due to the failure of the right holder to exercise it for a certain period. The primary purposes behind this doctrine include:

• Ensuring Legal Stability: Preventing the indefinite enforceability of old claims contributes to legal certainty and allows individuals and businesses to finalize their affairs.
• Protecting Debtors: It shields debtors from the burden of defending against claims where evidence may have been lost or memories faded due to the passage of time.
• Encouraging Prompt Exercise of Rights: The system incentivizes creditors to be diligent in asserting their rights.

While the right itself is considered to be extinguished, the process is not automatic; it requires specific actions from the debtor, as we will see.

The Prescription Period for Sales Claims in Japan

The rules governing prescription periods for civil claims, including those arising from sales contracts, underwent significant reform with the amendment to the Japanese Civil Code, which came into effect on April 1, 2020.

General Rule under the Current Civil Code (Post-April 1, 2020):

Article 166, Paragraph 1 of the Civil Code provides a unified framework for the prescription of claims:
A claim is extinguished by prescription if:

1. The creditor does not exercise the right for five years from the time when the creditor became aware that the right could be exercised; OR
2. The creditor does not exercise the right for ten years from the time when the right could be exercised.

This dual-limbed rule means that the prescription period completes upon the earlier of these two conditions being met. For instance, if a creditor is immediately aware of their ability to exercise a sales claim (e.g., upon the agreed due date for payment), the five-year period from that awareness will likely be the operative one. If, for some reason, awareness is delayed, the overarching ten-year period from the moment the right became exercisable acts as a long-stop.

Commencement Point (Kisanten - 起算点) of the Prescription Period:

• "Time when the right could be exercised": This generally means the point at which there are no legal obstacles to the creditor exercising their right. For a sales price claim, this is often the agreed-upon payment due date. If no due date is set, it could be upon delivery of the goods or even upon contract formation, depending on the specific terms and applicable customs.
• "Time when the creditor became aware that the right could be exercised": This refers to the creditor's actual knowledge of both the existence of the claim and the possibility of exercising it.

A Note on Pre-Amendment Law (Relevant for Claims Arising Before April 1, 2020):

It's important to note that claims which became exercisable before the amended Civil Code took effect are generally subject to the prescription rules under the old law, due to transitional provisions. The old law featured a more fragmented system, including a general civil prescription period of ten years, a five-year prescription period for commercial claims (which typically covered sales between merchants), and various shorter prescription periods for specific types of claims (e.g., two years for a seller's claim for the price of goods sold in the course of their business). The 2020 amendment aimed to simplify and unify these rules. However, for the purpose of this article, the focus will remain on the current, amended law.

The Defense of Extinctive Prescription (Shōmetsu Jikō no Kōben - 消滅時効の抗弁)

Even if the prescribed period has passed, a sales claim is not automatically nullified. The debtor (defendant) must affirmatively raise the defense of extinctive prescription in court proceedings. This is known as shōmetsu jikō no kōben. The key factual allegations (Yokenjijitsu) the debtor must assert and, if disputed, prove are:

1. Expiration of the Applicable Prescription Period (Jikō Kikan no Manryō - 時効期間の満了):
   The debtor must demonstrate that the relevant statutory period (either five years from awareness or ten years from exercisability under the current law) has fully elapsed before any effective interruption or renewal occurred.
   • Calculation of the Period: The calculation generally follows Article 140 of the Civil Code, which stipulates that if a period is to be calculated by the day, month, or year, the first day of the period is not included in the calculation, unless the period commences at midnight. The Supreme Court of Japan affirmed this principle for prescription in a judgment on October 19, 1982.
2. Invocation of Prescription (Jikō no En'yō - 時効の援用):
   Crucially, the mere passage of the prescription period is insufficient to extinguish the claim for the court's purposes. Article 145 of the Civil Code states that "Prescription must be invoked by a party." The debtor must expressly declare their intention to benefit from the completed prescription.
   • How Invocation is Made: This invocation can be made either judicially (e.g., in the defendant's pleadings or oral arguments in court) or extra-judicially (e.g., by a clear declaration to the creditor). In litigation, it is typically raised as a defense.
   • To Whom Invocation is Made: The invocation must generally be directed to the person who directly benefits from the existence of the right (i.e., the creditor or their legal successor).
   • Legal Nature and Effect of Invocation: The prevailing legal theory, supported by Supreme Court precedent (e.g., judgment of March 17, 1986), considers that prescription, upon completion of the period and subsequent invocation by the debtor, definitively extinguishes the underlying right. The invocation is seen as a necessary condition for the legal effect of prescription to become perfected.

If the debtor successfully establishes both the expiration of the period and their invocation of prescription, the sales claim will be dismissed as unenforceable.

Countering the Prescription Defense: Suspension and Renewal of the Prescription Period

A creditor (plaintiff) whose claim is met with a prescription defense is not without recourse. Japanese law provides for mechanisms that can either temporarily halt the completion of the prescription period or reset it entirely. Under the amended Civil Code, these concepts are referred to as "suspension (of completion) of prescription" (jikō no kansei yūyo - 時効の完成猶予) and "renewal of prescription" (jikō no kōshin - 時効の更新). These were formerly known as "suspension" (teishi - 停止) and "interruption" (chūdan - 中断), respectively. If these events have occurred, the creditor can raise them as a rebuttal (sai-kōben - 再抗弁) to the debtor's prescription defense.

Grounds for Suspension of (Completion of) Prescription (Jikō no Kansei Yūyo):

These grounds prevent the prescription period from being completed while they are in effect, or for a specified time thereafter. Common grounds include:

• Judicial Claim: Filing a lawsuit, applying for conciliation, etc. (Article 147). Prescription is suspended until the proceedings conclude.
• Demand for Payment (Shiharai Tokusoku - 支払督促): A specific summary court procedure for debt collection.
• Provisional Attachment, Provisional Disposition, or Security Interest Auction: These enforcement-related actions also suspend prescription.
• Out-of-Court Demand/Notice (Saikoku - 催告): A formal demand for payment made by the creditor to the debtor. This suspends the completion of prescription for six months from the time of the demand (Article 150). This allows the creditor time to take further legal action.
• Agreement to Negotiate: An agreement in writing between parties to discuss the claim can suspend prescription for a certain period (typically one year from the agreement, extendable up to five years in total) (Article 151).

Grounds for Renewal of Prescription (Jikō no Kōshin):

These grounds cause the prescription period that has run so far to be nullified, and a new prescription period begins to run from scratch from the time the ground for renewal ceases to exist. Key grounds include:

• Debtor's Acknowledgement (Shōnin - 承認) of the Right: If the debtor acknowledges the creditor's right (e.g., by making a partial payment, requesting a deferral of payment, or otherwise admitting the debt), the prescription period is renewed (Article 152).
• Final and Binding Judgment Confirming the Right: When a court judgment affirming the claim becomes final and binding, the prescription period for that adjudicated right is renewed and starts as a new ten-year period (regardless of the original period's nature) (Article 147, Paragraph 2, referencing Article 169).

The creditor bears the burden of alleging and proving the facts constituting these grounds for suspension or renewal.

Prescription in International Sales Transactions

When dealing with international sales, determining which country's law applies to the prescription of a claim is a critical preliminary issue, governed by the conflict of laws rules (private international law) of the forum. If Japanese law is deemed applicable to the substance of the claim, then the Japanese rules on extinctive prescription will apply.

It is also worth noting the existence of the Convention on the Limitation Period in the International Sale of Goods (New York, 1974). This convention provides uniform international rules for limitation periods for contracts for the international sale of goods. However, Japan is not a contracting state to this convention. Therefore, in Japanese courts, the Japanese Civil Code provisions will generally be the primary reference unless a different applicable law is established.

Practical Advice for Businesses

The doctrine of extinctive prescription has significant practical implications:

• For Creditors:
  • Diligent Receivables Management: Regularly monitor outstanding claims and payment due dates.
  • Timely Follow-Up: Don't let claims grow stale. Send reminders and formal demands (saikoku) if payments are overdue.
  • Secure Acknowledgement: If possible, obtain written acknowledgement of the debt from the debtor, as this renews the prescription period.
  • Take Legal Action Promptly: If payment is not forthcoming, initiate legal proceedings or other prescription-suspending actions well before the potential expiry of the prescription period.
• For Debtors:
  • Awareness of Rights: Understand that prescription can be a valid defense against old claims.
  • Formal Invocation: Remember that the defense is not automatic; it must be explicitly invoked.
  • Document Retention: Maintain records that might be relevant to when a claim arose or when it might have been acknowledged (or not).

Conclusion

Extinctive prescription is a fundamental legal principle in Japan that can serve as a complete defense to an otherwise valid sales claim if the conditions are met. The rules, especially after the 2020 Civil Code amendments, provide a structured framework involving specific time limits counted from the exercisability or awareness of the right, coupled with the crucial requirement of the debtor's invocation. For businesses engaged in transactions with Japanese entities, a thorough understanding of these prescription rules, including the mechanisms for suspension and renewal, is essential for both effectively pursuing legitimate claims and for defending against those that time has rendered unenforceable.