My Japanese Counterparty Hasn't Performed: Do I Still Have to Fulfill My Part of the Contract Under the "Dōji Rikō no Kōbenken"?

In any contractual relationship, particularly in business, the timely and proper performance of obligations by all parties is crucial. But what happens when your Japanese counterparty fails to perform their side of the bargain? Are you still obligated to proceed with your own performance, potentially exposing yourself to further risk or loss? Japanese law provides a significant protection in such scenarios: the "defense of simultaneous performance" (同時履行の抗弁権 - dōji rikō no kōbenken). This doctrine, enshrined in Article 533 of the Japanese Civil Code, allows a party to a bilateral contract to rightfully refuse their own performance until the other party tenders performance of their corresponding obligation.

This article explores the nature, requirements, and effects of the dōji rikō no kōbenken, a fundamental concept for ensuring fairness and reciprocity in contractual dealings in Japan.

1. What is the Defense of Simultaneous Performance (Dōji Rikō no Kōbenken)?

At its core, the defense of simultaneous performance is a right that arises in bilateral contracts (双務契約 - sōmu keiyaku) – contracts where both parties owe obligations to each other that are essentially reciprocal considerations for one another (e.g., in a sales contract, the seller's duty to deliver goods and the buyer's duty to pay the price).

Article 533, paragraph 1 of the Japanese Civil Code states: "A party to a bilateral contract may refuse to perform his/her own obligation until the other party tenders performance of his/her obligation; provided, however, that this shall not apply if the other party's obligation is not yet due."

The purpose of this defense is twofold:

1. To ensure fairness and maintain the reciprocity (牽連関係 - kenren kankei, meaning interdependence or linkage) of obligations: It prevents one party from being compelled to perform their part of the contract while the other party has not performed, or offered to perform, their corresponding part. This reflects the inherent understanding in bilateral contracts that performances are exchanged.
2. To provide security: It allows a party to withhold their performance as a form of security, encouraging the other party to perform their due obligation.

This defense is not merely a procedural tactic in litigation; it has substantive legal effects, most notably in preventing a party who rightfully asserts it from being considered in default.

2. Core Requirements for Asserting the Defense

For a party to validly assert the defense of simultaneous performance, several conditions must typically be met:

• Obligations Arising from the Same Bilateral Contract:
  The defense is predicated on the existence of a single bilateral contract from which both parties' obligations arise and are seen as exchanged for each other. It cannot be used to link independent obligations from separate contractual relationships. For instance, if Company A has two distinct repair contracts with Company B (one for machine X and another for machine Y), and Company A has paid for the repair of machine X but not for machine Y, Company B cannot use the dōji rikō no kōbenken to refuse delivery of the repaired machine X based on non-payment for machine Y. The obligations are not part of the same reciprocal exchange under a single contract. (In such a scenario, Company B might have a statutory lien – 留置権, ryūchiken – over machine Y for the unpaid repair costs of machine Y, but that is a different legal concept based on property rights, not this contractual defense).
• Counterparty's Obligation is Due for Performance (相手方の債務が弁済期にあること - aitekata no saimu ga bensaiki ni aru koto):
  The obligation of the counterparty (against whom the defense is being asserted) must be due for performance. A party cannot refuse their own performance if the counterparty is not yet legally required to perform their part. If the counterparty's obligation has a later due date, the defense is not yet available.
• Counterparty Has Not Tendered Performance (or Tender is Defective):
  The other party must have actually failed to perform or offer to perform their due obligation. If the counterparty has tendered performance, but the tender is incomplete, defective, or otherwise not in accordance with the contract, the defense may still be assertable, as the tender is not a proper one.

3. Legal Effects of Validly Asserting the Defense

When a party rightfully asserts the defense of simultaneous performance, it has several important legal consequences:

• Right to Refuse Performance:
  The most direct effect is that the party can lawfully withhold their own contractual performance without breaching the contract.
• No Default (履行遅滞 - rikō chitai):
  Crucially, a party who validly asserts the dōji rikō no kōbenken is not considered to be in default (rikō chitai) for their non-performance. This means that for the period they are rightfully withholding performance:
  • They are not liable for damages for delay (遅延損害金 - chien songaikin). For instance, if the obligation is to pay money, default interest will not accrue.
  • The counterparty cannot terminate the contract based on this non-performance.
• Judgment for Reciprocal Performance (引換給付判決 - hikikae kyūfu hanketsu):
  If the dispute goes to court, and the defendant (the party withholding performance) successfully raises the defense of simultaneous performance, the court will typically issue a judgment for "performance in exchange for counter-performance" (hikikae kyūfu hanketsu). This means the judgment will order the defendant to perform their obligation, but only on the condition that the plaintiff (the counterparty) simultaneously performs their corresponding obligation. This type of judgment reflects the interdependent nature of the obligations.

4. Scope of the Defense – How Much Can Be Withheld?

A practical question often arises: if the counterparty's non-performance is only partial, or if one party has a smaller counter-claim against the other, can the defense be used to withhold the entirety of one's own performance?

• General Principle: The defense generally allows withholding the entire performance.
• When the Counter-Obligation or Counter-Claim is Smaller:
  Consider a scenario where a building contractor has substantially completed a building but there are minor defects, and the owner has a claim for damages (or cost of repair) for these defects. If the owner still owes a significant portion of the contract price, can they withhold the entire remaining payment until the (smaller) damage claim is satisfied or the defects are rectified?
  The Supreme Court judgment of February 14, 1997 (Minshū Vol. 51, No. 2, p. 337), addressed a comparable situation in the context of a construction contract. The court indicated that a party (e.g., the property owner) can generally refuse their entire remaining performance (e.g., payment of the full outstanding contract price) even if their counter-claim (e.g., for damages due to defects) is for a lesser amount, as long as asserting the defense for the full amount is not contrary to the principle of good faith and trust (shingisoku). This is to prevent the party with the counter-claim from being forced into default on their larger obligation while their valid, albeit smaller, counter-claim remains unsatisfied by the other party. The limits of "good faith" in such a situation would be assessed based on the specific facts, such as the severity of the defect relative to the overall contract value and the conduct of the parties.
• Applicability to Secondary Obligations:
  The defense of simultaneous performance is not strictly limited to the primary exchange obligations. It can extend to secondary obligations that arise from the same bilateral contract if they are considered to be in a similarly reciprocal or interdependent relationship. This can include:
  • Claims for damages arising from non-performance or defective performance (as seen in the construction example above, and as explicitly contemplated by the parenthesis in Article 533 of the Civil Code, which refers to a "claim for damages in lieu of performance").
  • Restitutionary obligations that arise after a contract has been terminated (解除 - kaijo). When both parties have obligations to restore benefits received under the terminated contract, these restitutionary obligations are also generally considered to be in a relationship of simultaneous performance (Article 546, which applies Article 533).

5. When the Defense is NOT Available

It is equally important to understand when the dōji rikō no kōbenken cannot be asserted:

• Obligation to Perform First: If the contract itself, or a relevant legal provision, stipulates that one party must perform their obligation before the other (e.g., a contract requiring prepayment by the buyer before the seller ships goods), then the party obliged to perform first cannot assert this defense.
• Creditor's Own Fault Preventing Counter-Performance (Article 536, paragraph 2): If the counterparty's inability to perform is due to a cause attributable to the party wishing to assert the defense (this relates to the rules on "creditor's risk" - 債権者危険負担, saikensha kiken futan), then that party cannot refuse their own performance.
• Against Third Parties Not Party to the Contract: The defense of simultaneous performance is fundamentally a contractual defense arising from the specific bilateral relationship between the contracting parties. It generally cannot be asserted against a third party who is not a party to that contract, even if that third party has acquired rights related to the subject matter. For example, if a repairer (B) is owed repair fees by the owner (A) of a car, and A then sells the car to C, C (as the new owner) can demand the car from B. B cannot assert the defense of simultaneous performance of A's payment obligation against C because C is not a party to the A-B repair contract. In this scenario, B would typically rely on a statutory lien (ryūchiken) to retain the car until paid, which is a real right assertable against third parties, rather than the contractual defense of simultaneous performance.

Conclusion: A Cornerstone of Contractual Fairness in Japan

The defense of simultaneous performance (dōji rikō no kōbenken) is a fundamental and frequently invoked principle in Japanese contract law. It serves as a vital safeguard, ensuring that parties to a bilateral contract are not unfairly compelled to render their performance when they have not received, or are not reasonably assured of receiving, the agreed-upon counter-performance from the other party. By allowing a party to lawfully withhold their own performance in such circumstances without being deemed in default, this doctrine plays a critical role in maintaining equilibrium in contractual relationships and protecting parties from the adverse consequences of their counterparty's failure to perform. For businesses engaging in contracts governed by Japanese law, understanding when and how this defense can be utilized is an important aspect of managing contractual rights and obligations.