My Claim Against a Japanese Company is Old: Is It Too Late to Sue Due to Japan's Statute of Limitations?

In the world of commerce, time is often of the essence, not only for business operations but also for the enforcement of legal rights. One critical aspect that creditors must vigilantly manage is the statute of limitations, known in Japan as "extinctive prescription" (消滅時効 - shōmetsu jikō). Allowing a claim to become "stale" can result in the irreversible loss of the right to enforce it, regardless of its original merit. For businesses with claims against Japanese companies, understanding Japan's rules on extinctive prescription is vital for effective receivables management and dispute resolution strategy.

This article provides an overview of the Japanese Civil Code's provisions concerning extinctive prescription, focusing on the prescription periods, the commencement date of these periods, the mechanisms to postpone or renew the prescription clock, and the procedures for invoking or waiving the benefit of prescription. This is particularly pertinent given the significant revisions to these rules under the 2020 amendments to the Civil Code.

1. Understanding Prescription Periods in Japan

The Japanese Civil Code sets forth general prescription periods for claims, with specific rules for certain types of claims. The 2020 amendments brought significant clarity and some changes to these periods.

• General Prescription Period for Claims (Civil Code, Article 166, paragraph 1):
  For most civil claims, including typical commercial claims like unpaid invoices or contractual damages, a dual-track system applies. A claim will be extinguished by prescription if:
  1. The obligee (creditor) does not exercise the right for five years from the time the obligee became aware that the right could be exercised (subjective commencement); OR
  2. The obligee does not exercise the right for ten years from the time the right could first be exercised (objective commencement).
     The prescription is completed when the earlier of these two periods expires. This dual system aims to balance the creditor's awareness with a definitive long-stop date for legal certainty.
• Rights Established by Final and Unappealable Judgment (Civil Code, Article 169, paragraph 1):
  If a right has been confirmed by a final and binding judgment, or by a judicial settlement, conciliation, or other act having the same effect as such a judgment, its prescription period becomes ten years, regardless of whether the original prescription period was shorter. This does not apply if the original due date for performance set by the judgment has not yet arrived.
• Torts (Unlawful Acts - 不法行為, fuhōkōi):
  Claims for damages arising from torts have their own specific prescription rules (Civil Code, Article 724 and 724-2):
  • The right to claim damages is extinguished if not exercised within three years (or five years in cases of wrongful death or personal injury) from the time the victim or their legal representative became aware of the damages and the identity of the perpetrator.
  • Irrespective of such awareness, the right is also extinguished if not exercised within twenty years from the time of the tortious act. This 20-year period was previously considered a "period of exclusion" (joseki kikan) but is now explicitly treated as a prescription period, meaning it can be subject to postponement and renewal.

It's crucial for businesses to identify the correct prescription period applicable to their specific claim to manage their enforcement timeline effectively.

2. When Does the Clock Start Ticking? The Commencement Date (Kisanten - 起算点)

The starting point (起算点 - kisanten) for calculating the prescription period is critical.

• "Time when the right could be exercised" (権利を行使することができる時 - kenri o kōshi suru koto ga dekiru toki) - Objective Commencement:
  This is the traditional basis for commencement. It generally means the point at which there are no legal obstacles to the creditor exercising their right.
  • For claims with a fixed due date (確定期限付債権 - kakutei kigen-tsuki saiken), such as a loan repayable on a specific date, the prescription period typically starts running from the day after that due date (due to the principle of not including the first day in calculations, Article 140 of the Civil Code). The Great Court of Cassation judgment of June 9, 1931, affirmed this principle for due dates not starting at midnight.
  • For claims with an unfixed due date (不確定期限付債権 - fukakutei kigen-tsuki saiken), e.g., "upon the occurrence of X event," the period starts when that event occurs and the creditor becomes aware of it.
  • For claims with no due date specified (期限の定めのない債務 - kigen no sadame no nai saimu), the period generally starts when the claim arises.
• "Time when the obligee became aware that the right could be exercised" (権利を行使することができることを知った時 - kenri o kōshi suru koto ga dekiru koto o shitta toki) - Subjective Commencement:
  This five-year period, clearly established by the 2020 amendments, starts when the creditor has actual knowledge both of the existence of their claim and that it has become due and enforceable. This subjective element aims to protect creditors who may have been excusably unaware of their ability to exercise their rights.

The calculation of periods generally follows the calendar, and the first day is usually not included unless the period starts at midnight (Civil Code, Article 140).

3. Stopping and Restarting the Clock: Completion Postponement (Kansei Yūyo - 完成猶予) and Renewal (Kōshin - 更新)

Previously known as "interruption" and "suspension" of prescription, the 2020 Civil Code amendments reorganized these concepts into "completion postponement" (猶予 - yūyo, essentially tolling) and "renewal" (更新 - kōshin, essentially restarting the clock). These are crucial for creditors wishing to preserve their claims.

• Renewal of Prescription (時効の更新 - jikō no kōshin): This causes the prescription period to start running anew from zero.
  • Acknowledgment (承認 - shōnin) (Article 152, paragraph 1): If the debtor acknowledges the existence of the debt (e.g., by making a partial payment, requesting a payment extension, or explicitly confirming the debt), the prescription period restarts from the time of acknowledgment. This is often the simplest way to renew the period.
  • Final and Unappealable Judgment, etc. (Article 147, paragraph 2): When a judicial claim results in a final and binding judgment confirming the right, the prescription renews from that point (often for a new 10-year period under Article 169).
• Completion Postponement (時効の完成猶予 - jikō no kansei yūyo): This temporarily stops the completion of the prescription period while certain procedures are ongoing. The clock doesn't reset but is paused.
  • Judicial Claim, Payment Demand, Conciliation, or Mediation (Article 147, paragraph 1): Filing a lawsuit, applying for a payment demand order, or initiating conciliation or mediation proceedings postpones the completion of prescription until the proceedings conclude (and if the right is confirmed, prescription is then renewed).
  • Commencement of Compulsory Execution, Exercise of Security Interest, etc. (Article 148): Taking steps to enforce a claim, such as applying for compulsory execution or exercising a security interest, postpones completion until the procedure ends.
  • Provisional Seizure or Provisional Disposition (Article 149): Obtaining a provisional attachment or injunction postpones completion for six months from the end of that procedure.
  • Demand (催告 - saikoku) (Article 150): Making a formal demand (typically a written notice) for performance postpones prescription completion for six months from the demand. This is a relatively simple measure but has limitations: a subsequent demand does not grant further postponement. It is often a precursor to more formal legal action.
  • Agreement to Consult (協議を行う旨の書面による合意 - kyōgi o okonau mune no shomen ni yoru gōi) (Article 151): If parties agree in writing to engage in consultations regarding a claim, the completion of prescription is postponed for one year from the agreement (or a shorter period if agreed, or until one party notifies the other of refusal to continue consultations). This can be renewed by further agreement, but the total postponement cannot exceed five years from the original postponement. This was a significant addition in the 2020 reforms, aimed at facilitating out-of-court dispute resolution.

Understanding which of these measures to take, and their precise effects, is crucial for creditors facing an impending prescription deadline.

4. Who Can Assert the Statute of Limitations? (Invoking Prescription - Jikō no En'yō - 時効の援用)

Even if a prescription period has objectively expired, the claim is not automatically extinguished. The benefit of prescription must be formally invoked (時効の援用 - jikō no en'yō) by a party entitled to do so (Civil Code, Article 145).

The right to invoke prescription is granted to the "parties" (当事者 - tōjisha). The 2020 Civil Code amendments clarified that this includes not only the principal debtor but also guarantors, third-party security providers (物上保証人 - butsujō hoshōnin), third-party acquirers of mortgaged property, and other persons who have a legitimate interest in the extinguishment of the right by prescription.

Once prescription is validly invoked, the claim is deemed to have been extinguished retroactively to the time it first arose. The effect of invoking prescription is generally relative (相対効 - sōtaikō), meaning it primarily benefits the party who invoked it and does not automatically extinguish the debt with respect to other co-obligors or interested parties unless they also invoke it or are covered by specific rules (e.g., a guarantor may invoke the prescription of the principal debt).

5. Waiving the Benefit of Prescription (Jikō Rieki no Hōki - 時効利益の放棄)

It is possible for a party to waive the benefit of an already completed prescription.

• No Waiver Before Completion (Article 146): A party cannot validly waive the benefit of prescription before the prescription period has actually completed. This rule prevents creditors from unfairly pressuring debtors to give up their future right to invoke prescription at the time of contracting.
• Waiver After Completion: However, once the prescription period has run its course, the debtor (or other entitled party) can choose to waive its benefit. This waiver is often inferred from an acknowledgment of the debt made after the prescription has completed. If the debtor, knowing the prescription has completed, still acknowledges the debt or promises to pay, this is typically treated as a waiver of the right to invoke prescription. The Supreme Court judgment of April 20, 1966 (Minshū Vol. 20, No. 4, p. 702) dealt with situations where an acknowledgment after prescription completion could lead to the loss of the right to invoke prescription, often based on the principle of good faith.
• Effect on Third Parties: If a principal debtor waives the benefit of prescription, this generally does not prevent a guarantor from invoking the prescription of the principal debt to extinguish their own guarantee obligation (Great Court of Cassation judgment of December 25, 1916, Minroku Vol. 22, p. 2494). The guarantor has an independent interest in the extinguishment of the principal debt.

Conclusion: Proactive Management is Key

The Japanese system of extinctive prescription, especially after the 2020 Civil Code amendments, presents a detailed framework that balances the interests of creditors in enforcing their rights with the need for legal certainty and the protection of debtors from stale claims. For businesses with claims against Japanese entities, it is imperative to:

• Accurately determine the applicable prescription period and its commencement date.
• Diligently monitor deadlines.
• Understand and utilize the available mechanisms for completion postponement and renewal if a claim is at risk of becoming time-barred (e.g., through timely demands, negotiations under a written agreement, or initiation of legal proceedings).
• Be aware of the requirements for invoking prescription and the possibility of its waiver.

Failure to proactively manage prescription periods can lead to the unfortunate situation where a perfectly valid claim becomes unenforceable simply due to the passage of time. Consulting with legal counsel in Japan is advisable for navigating the complexities of these rules, particularly in high-value or cross-border claims.