My Japanese Counterparty Delayed Performance. What Types of "Damages for Delay" (Chien Baisho) Can I Claim?

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

In the realm of commercial contracts, timeliness is often of the essence. When a Japanese counterparty fails to perform its obligations by the agreed-upon deadline, the non-breaching party may suffer various losses. Under Japanese law, these losses can potentially be recovered as "Damages for Delay" (遅延賠償 - Chien Baisho). However, securing such compensation requires understanding what legally constitutes "delay in performance" (Riko Chitai) and the types of damages that are recognized as flowing from such a delay.

Understanding "Damages for Delay" (Chien Baisho)

"Damages for Delay" refers to the monetary compensation a creditor is entitled to for losses incurred specifically because the debtor did not perform their contractual obligations on time, assuming the primary performance itself is still possible and either eventually rendered or still being demanded. If a debtor ultimately performs their main obligation but does so late, they are generally required to provide not only that primary performance but also to compensate for any damages caused by the interim delay to fully satisfy their contractual duties.

For example, if a construction company is contracted to complete a new office building by a specific date but finishes several months late, the client might incur extra costs, such as extended rental fees for temporary office space. These additional rental costs, directly attributable to the construction delay, would be a classic example of Chien Baisho.

The critical prerequisite for claiming these damages is that the debtor must be legally considered in "Delay in Performance" (履行遅滞 - Rikō Chitai). Mere lateness does not automatically equate to actionable delay; specific legal criteria must be met.

Establishing "Delay in Performance" (Rikō Chitai) – Article 412

Article 412 of the Japanese Civil Code outlines when a debtor "bears responsibility for delay" (遅滞の責任を負う - chitai no sekinin o ō). The point at which delay commences varies depending on whether the obligation has a specified due date and the nature of that date:

1. Obligations with a Fixed Due Date (確定期限つき債務 - Kakutei Kigen-tsuki Saimu)

  • General Rule (Art. 412(1)): For obligations with a definite and fixed due date (e.g., "payment due on June 30th," "delivery by March 15th"), the debtor is considered in delay from the moment that due date passes without performance. For instance, if a lease agreement requires a car to be returned by April 10th, and it is not returned, delay commences after April 10th.
  • Exceptions:
    • Obligations Requiring Creditor's Prior Cooperation: If performance by the debtor is contingent upon some prior act or cooperation by the creditor (e.g., for "obligations to be picked up" - toritate saimu, where the creditor must come to collect goods), the debtor will not be in delay merely because the fixed date has passed if the creditor has not fulfilled their cooperative duty. If a buyer is supposed to designate a delivery location by a certain date for goods due on a later fixed date, failure to designate may prevent the seller from being in delay for non-delivery on the fixed date.
    • Certain Negotiable Instruments: For some obligations embodied in securities like promissory notes payable on a fixed day, specific commercial laws might require formal presentment and demand for payment after the due date before the obligor is deemed in delay (e.g., Civil Code, Art. 520-9 concerning order instruments).

2. Obligations with an Uncertain Due Date (不確定期限つき債務 - Fukakutei Kigen-tsuki Saimu)

  • Rule (Art. 412(2)): If an obligation is due upon the occurrence of an event that is certain to happen but the timing of which is unknown at the time of contracting (e.g., "payment due upon the death of X," "delivery upon the arrival of a specific ship"), the debtor is in delay from the earlier of the following two points:
    • (a) The time when the debtor receives a demand for performance from the creditor after the uncertain event has occurred.
    • (b) The time when the debtor becomes aware that the uncertain event has occurred.
      For example, if a party agrees to vacate a property "when they return from an overseas assignment," and they return but the other party is unaware, delay might only commence when the returning party is notified of the demand to vacate, or when they otherwise become aware their return (the uncertain event) has triggered the obligation to vacate and are then demanded to do so.

3. Obligations with No Due Date Specified (期限の定めがない債務 - Kigen no Sadame ga Nai Saimu)

  • General Rule (Art. 412(3)): For obligations where no specific performance due date has been agreed upon (e.g., a simple loan with no repayment date specified), the debtor is in delay from the time they receive a demand for performance (履行の請求 - rikō no seikyū) from the creditor.
    Such obligations are legally due from the moment they arise. This means the creditor can, in principle, demand performance at any time, and the statute of limitations for the claim typically begins to run from the claim's inception (Civil Code, Art. 166(1)(i)).
  • Exceptions and Specific Cases:
    • Loan for Consumption with No Repayment Date: Under Article 591, Paragraph 1, if a loan of money or other fungibles is made without a specified repayment term, the lender must demand repayment by giving the borrower a "reasonable period" to prepare for repayment. Delay commences only after this reasonable period has elapsed following the demand.
    • Damages Claims for Torts (不法行為 - fuhōkoi): A significant exception established by case law is that for tort claims, delay (and thus the accrual of delay interest on the damages amount) commences from the time of the tortious act itself, without any need for a demand from the victim (Great Court of Cassation, April 4, 1921; Supreme Court of Japan, September 4, 1962).
    • Damages for Breach of Safety Consideration Duty (安全配慮義務違反 - anzen hairyogimu ihan): In contrast to torts, if an employer breaches their contractual duty to ensure employee safety, leading to a claim for damages, delay for this contractual claim commences from the time the employee demands performance (i.e., payment of damages). This was clarified by the Supreme Court on December 18, 1980 (Minshu Vol. 34, No. 7, p. 888). The framing of a claim (as tort or contract) can thus impact when delay damages start accruing.
    • Unjust Enrichment Claims (不当利得返還債務 - futō ritoku henkan saimu): Japanese case law generally applies Article 412(3), meaning delay starts from the time the enriched party receives a demand for return of the enrichment. However, some scholarly criticism exists, particularly regarding bad-faith beneficiaries, with arguments that delay should commence earlier, akin to torts.
    • Debtor's Definitive Refusal: If a debtor unequivocally and definitively refuses to perform, or if it becomes objectively clear through other means that they will not perform, the principle of good faith may render a formal demand for performance unnecessary for delay to commence.
    • Urgency: In situations where performance is evidently urgent (e.g., emergency repairs to prevent further significant damage), a formal demand might also be dispensed with under good faith principles.

Conditions for Claiming Damages for Delay

Simply being in Riko Chitai is not, by itself, sufficient to ground a claim for damages for delay. The general requirements for a contractual damages claim under Article 415 of the Civil Code must also be satisfied. This means:

  1. Absence of Grounds for Exemption Attributable to the Debtor: The delay must not be due to reasons for which the debtor is legally excused. If, for example, a delay was caused by a truly unforeseeable and unavoidable force majeure event that only postponed performance (rather than rendering it impossible), the debtor might not be liable for damages specifically arising from that period of delay.
  2. Debtor Lacks Valid Defenses for Non-Performance: The debtor must not have a legitimate legal defense for withholding performance. Common examples include:
    • Defense of Simultaneous Performance (同時履行の抗弁権 - Dōji Rikō no Kōbenken): In bilateral contracts (e.g., a sale), where obligations are meant to be exchanged concurrently, a party is not in culpable delay if they withhold their performance because the other party has not tendered their own corresponding performance (e.g., a seller can refuse delivery if the buyer has not paid or tendered payment, assuming payment is due concurrently).
    • Right of Retention / Lien (留置権 - Ryūchiken): If the debtor is lawfully exercising a right of retention over the subject matter of the obligation, they are generally not in culpable delay for not delivering it.

Types of Recoverable Damages for Delay

Once culpable delay (Riko Chitai) is established, the scope of recoverable damages for that delay is determined by Article 416 of the Civil Code, distinguishing between ordinary and special (foreseeable) damages.

  • Monetary Obligations:
    For delay in paying a sum of money, the primary and most common form of Chien Baisho is "delay interest" (遅延利息 - chien risoku). This is governed by Article 419, which typically sets the damage at the statutory interest rate (or a higher agreed-upon rate for delay). Such delay interest is usually considered an ordinary damage under Article 416(1), meaning specific proof of its foreseeability is not required.
  • Non-Monetary Obligations:
    When the delayed obligation is non-monetary (e.g., delivery of goods, provision of services), damages for delay can include:
    • Ordinary Damages (Art. 416(1)): These are losses that directly and typically flow from such a delay in the ordinary course of events.
      • Cost of Substitute Arrangements: For instance, if a contractor delays completion of a new facility, the reasonable cost incurred by the client in renting alternative premises during the period of delay would be a common example of ordinary damage. (This mirrors the scenario in CASE 138, involving extra rent for accommodation due to construction delays).
      • Loss of Use: If the delayed performance deprives the creditor of the normal use of an item, the reasonable rental value of a similar item for the period of delay might be claimed.
      • Diminution in Value (in specific circumstances): If the utility or value of the performance itself is diminished specifically because of the delay (e.g., seasonal goods delivered too late for their intended market), this might be an ordinary damage, though substantial diminutions could also be framed as partial non-performance or lead to termination.
    • Special Damages (Art. 416(2)): These are other, more indirect losses that arise due to special circumstances particular to the creditor's situation, and are recoverable only if those circumstances and the potential for such loss were foreseen or reasonably foreseeable by the debtor at the time of contracting.
      • Lost Profits from Specific Downstream Contracts: If the creditor lost specific profits from subsequent contracts with third parties that were dependent on the timely performance by the debtor, these may be recoverable if the debtor was (or should have been) aware of these downstream arrangements and the risk of such profit loss.
      • Penalties Paid to Third Parties: If the debtor's delay causes the creditor to incur contractual penalties to their own clients or customers, these might be recoverable if the debtor had reason to foresee such a consequence.
      • Costs of Mitigation: Reasonable expenses incurred by the creditor in attempting to mitigate further losses arising from the delay can also be claimed, often as special damages.

Interaction with Other Contractual Remedies

A claim for damages for delay often exists alongside, or as an alternative to, other remedies:

  • Right to Demand Performance: The creditor can usually claim damages for the delay and continue to demand the (now overdue) primary performance, assuming it is still possible and desired.
  • Right to Terminate the Contract (解除権 - Kaijoken): If the delay is sufficiently material to frustrate the purpose of the contract, or if a stipulated deadline was of the essence, the creditor may also gain the right to terminate the entire contract (under Articles 541 or 542 of the Civil Code). If the contract is terminated, the creditor can still claim damages, which would then typically be for the overall non-performance (damages in lieu of performance) plus any damages accrued due to the delay up to the point of termination. However, if the debtor has already validly tendered performance before termination, the right to terminate for mere delay may be lost.
  • Damages for Delay vs. Damages in Lieu of Performance: It is important to distinguish these. Chien Baisho compensates for losses specifically caused by the lateness of performance, when performance itself still occurs or is expected. If performance ultimately does not happen at all (e.g., it becomes impossible, or the contract is validly terminated due to the breach), the nature of the damages shifts to compensating for the non-receipt of the value of the performance itself (this is referred to as 填補賠償 - tenpo baishō, or damages in lieu of performance).

The Defense of Simultaneous Performance and Its Impact on Delay Damages

In bilateral contracts where obligations are to be exchanged concurrently (e.g., payment against delivery in a sales contract), the Defense of Simultaneous Performance (同時履行の抗弁権 - Dōji Rikō no Kōbenken; Article 533) can be a significant factor in determining whether a party is in culpable delay.

If a party (Party A) fails to perform, and the other party (Party B) sues Party A for damages for delay, Party A might argue that they were entitled to withhold their performance because Party B had not performed, or tendered performance of, their own concurrent obligation. The traditional legal view is that the rightful assertion of this defense can negate the "culpability" or "illegality" of the delay, meaning Party A would not be liable for delay damages.

There has been some theoretical discussion in Japan regarding whether the mere existence of the right to this defense is sufficient to prevent delay ("Existence Effect Theory" - 存在効果説 - Sonzai Kōka Setsu), or whether the party wishing to rely on it must actively assert or exercise it ("Exercise Effect Theory" - 行使効果説 - Kōshi Kōka Setsu). In practice, if obligations are clearly concurrent, a party claiming delay damages against the other will generally need to demonstrate that they themselves were ready, willing, and able to perform their side of the bargain, or that the other party had definitively repudiated their obligation, thus making tender by the claimant futile.

Conclusion

When a Japanese contractual partner delays performance, the aggrieved party has the right to claim damages (Chien Baisho) for the losses caused by this lateness, provided the debtor is legally in "delay of performance" (Riko Chitai). Establishing Riko Chitai requires careful attention to the contractual due date (whether fixed, uncertain, or unspecified) and any requirements for formal demand. The actual damages recoverable will then be assessed based on the principles of ordinary and foreseeable special damages under Article 416 of the Civil Code. Furthermore, the debtor may have valid defenses, such as the right of simultaneous performance, which can excuse the delay and preclude a claim for delay damages. Navigating these rules effectively requires a clear understanding of the specific contractual terms and the overarching principles of Japanese contract law.