What Remedies are Available for Breach of Contract (Saimu Furiko) in Japan?

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read

When a party to a contract fails to perform its obligations as agreed—an event known in Japanese law as saimu furikō (債務不履行) or "non-performance of an obligation"—the non-breaching party is not left without recourse. Japanese contract law, primarily under the Civil Code (Minpō), provides a range of remedies designed to protect the interests of the aggrieved party and address the consequences of the breach. The extensive revisions to the Civil Code, effective April 1, 2020, have further clarified and, in some aspects, restructured these remedies, generally aiming for a more coherent and practically applicable system. This article provides an overview of the principal remedies available for breach of contract in Japan: the right to claim performance, the right to claim damages, and the right of rescission.

Understanding "Saimu Furikō" (Non-Performance) under the Revised Civil Code

Before exploring the remedies, it's important to understand what constitutes saimu furikō. Article 415, paragraph 1 of the revised Civil Code provides a unified concept: non-performance occurs when "a debtor fails to perform his/her obligation in accordance with its main purpose (honshi - 本旨), or when performance of the obligation is impossible."

This represents a shift from the older, more rigidly categorized approach that traditionally distinguished between delay in performance (rikō chitai - 履行遅滞), impossibility of performance (rikō funō - 履行不能), and defective or incomplete performance (fukanzen rikō - 不完全履行). While these factual scenarios still occur, the revised law tends to address them under the broader umbrella of failing to perform "in accordance with the main purpose of the obligation," or outright impossibility, simplifying the conceptual framework for triggering remedies.

Primary Remedies for Breach of Contract

When saimu furikō occurs, the non-breaching party (the creditor) generally has access to one or more of the following primary remedies:

1. The Right to Claim Performance (履行請求権 - Rikō Seikyūken)

The most fundamental remedy is the right to demand that the defaulting party actually perform its contractual obligations as originally agreed. This is often referred to as claiming specific performance.

  • Compulsory Performance (履行の強制 - Rikō no Kyōsei - Civil Code Art. 414): If the debtor fails to perform voluntarily, the creditor can seek judicial enforcement. Article 414, paragraph 1 outlines that the creditor may request the court for compulsory performance through methods such as direct compulsion, substitute performance, or indirect compulsion, in accordance with the Civil Execution Act.
    • Direct Compulsion (直接強制 - chokusetsu kyōsei): For example, the physical transfer of specific property.
    • Substitute Performance (代替執行 - daitai shikkō): Where the obligation can be performed by a third party at the debtor's expense (e.g., hiring another contractor to complete unfinished work).
    • Indirect Compulsion (間接強制 - kansetsu kyōsei): Ordering the debtor to pay a certain sum of money for each day of delay until performance is rendered, to psychologically compel performance.
  • Limitations on Claiming Performance: The right to demand specific performance is not absolute and is subject to several limitations:
    • Impossibility of Performance (Rikō Funō - 履行不能 - Art. 412-2, Para. 1): A creditor cannot demand performance if it is impossible. The revised Civil Code clarifies that impossibility is judged "in light of the contract or other cause of the obligation and transactional common sense." This encompasses not only physical or legal impossibility but also situations where performance would be practically futile or extraordinarily unreasonable.
    • Nature of the Obligation (Art. 414, Para. 1 Proviso): If the "nature of the obligation does not permit" compulsory performance, it cannot be ordered. This typically applies to obligations that are highly personal in nature, such as an artist's obligation to paint a portrait or a singer's obligation to perform. Forcing such performance would infringe upon personal liberty.
    • Gross Unreasonableness or Bad Faith: Even if technically possible, specific performance might be denied if demanding it would be grossly unreasonable under the circumstances or would constitute an abuse of rights contrary to the principle of good faith (Civil Code Art. 1, Paras. 2 and 3).
  • Right to Claim Cure / Supplementary Performance (Tsuikan Seikyūken - 追完請求権):
    When the performance rendered is defective or incomplete, the creditor has the right to demand that the debtor "cure" the defect or supplement the performance to make it conform to the contract. This is a specific manifestation of the right to claim performance.
    • In sales contracts, Article 562 of the Civil Code explicitly grants the buyer the right to demand repair of defective goods, delivery of substitute conforming goods, or delivery of any missing quantity.
    • This principle of cure is applicable by analogy to other types of contracts, such as contracts for work (construction, software development), where the contractor may be required to rectify defects. The PDF previously examined notes that the specific rules for cure in sales (Art. 562) are often considered a model for understanding the general right to demand cure across various contract types, given the revised Civil Code's aim for consistency.

2. The Right to Claim Damages (損害賠償請求権 - Songai Baishō Seikyūken - Civil Code Art. 415)

If the non-performance of an obligation causes loss or harm to the creditor, the creditor can claim monetary compensation (damages) from the debtor.

  • Basis for Claim (Art. 415, Para. 1): "If a debtor fails to perform his/her obligation in accordance with its main purpose, or if performance of the obligation is impossible, the creditor may claim damages arising from such non-performance."
  • Grounds for Debtor's Exemption from Liability (Art. 415, Para. 1 Proviso): A crucial aspect of the revised law is the formulation of the debtor's exemption. The debtor is not liable for damages if the non-performance was "due to grounds not attributable to the debtor (sa무sha no seme ni kisu koto ga dekinai jiyū - 債務者の責めに帰することができない事由), taking into account the contract or other cause of the obligation and transactional common sense."
    • This is a significant shift from the old Civil Code's explicit requirement of the debtor's "fault" (intention or negligence - kiseki jiyū - 帰責事由) as a positive element for liability. Now, the focus is more on whether the cause of non-performance is something for which the debtor should bear responsibility under the terms of the agreement and general transactional expectations. The burden is effectively on the debtor to prove that the non-performance was due to such non-attributable grounds. This aligns the Japanese approach more with risk allocation principles seen in some international conventions.
  • Scope of Recoverable Damages (Civil Code Art. 416): This article defines the extent of damages that can be claimed:
    • Paragraph 1 (Ordinary Damages - Tsūjō Songai - 通常損害): "A claim for damages for non-performance of an obligation shall be for compensation for such damages as would ordinarily arise from such non-performance." This covers losses that are a typical and direct consequence of the breach.
    • Paragraph 2 (Special Damages - Tokubetsu Songai - 特別損害): "Damages arising from special circumstances may also be claimed if the party should have foreseen such circumstances." The revised wording "should have foreseen" (yoken subeki de atta toki - 予見すべきであったとき) introduces a more objective, normative standard for foreseeability compared to the old law's "could foresee or did foresee." The relevant time for this foreseeability is generally considered to be the time of contracting.
  • Types of Damages:
    • Damages for Delay (Chien Baishō - 遅延賠償): Compensation for losses incurred due to the debtor's failure to perform on time.
    • Compensatory Damages in Lieu of Performance (Tenpo Baishō - 填補賠償 / Rikō ni Kawaru Songai Baishō - 履行に代わる損害賠償 - Art. 415, Para. 2): If performance has become impossible, or if the debtor definitively refuses to perform, or if the creditor has rescinded the contract, the creditor may claim damages equivalent to the value of the performance itself, instead of the performance.
  • Special Rules for Non-Performance of Monetary Obligations (Civil Code Art. 419):
    • Default interest is calculated at the legal interest rate (currently 3% p.a., variable) unless a different rate is agreed (subject to the Interest Rate Restriction Act).
    • The creditor does not need to prove the actual amount of loss suffered to claim this default interest.
    • The debtor cannot plead impossibility of performance as a defense for non-payment of money.

3. The Right of Rescission/Termination (契約の解除 - Keiyaku no Kaijo - Civil Code Arts. 540 et seq.)

Rescission allows the non-breaching party to terminate the contract, thereby extinguishing future performance obligations for both parties and typically triggering duties of restitution.

  • No Fault Generally Required for Rescission: One of the most significant changes in the revised Civil Code is that the debtor's fault (kiseki jiyū) is generally no longer a prerequisite for the creditor to exercise the right of rescission. The focus has shifted to the objective failure of the contractual exchange and whether the purpose of the contract can still be achieved.
  • Grounds for Rescission:
    • Rescission After Demand (Saikoku Kaijo - 催告解除 - Art. 541): If the debtor delays performance, the creditor may set a reasonable period for performance and, if performance is not made within that period, may rescind the contract. This is the general rule for curable breaches.
    • Rescission Without Demand (Musaikoku Kaijo - 無催告解除 - Art. 542): In certain more serious situations, the creditor can rescind immediately without prior demand:
      • If performance is wholly impossible.
      • If the debtor clearly and definitively manifests an intention not to perform their main obligation.
      • If only part of the performance is impossible, or if the debtor clearly refuses to perform only part of their main obligation, but the purpose of the contract cannot be achieved with the remaining part.
      • For a "periodic act" (teiki kōi - 定期行為) – a contract where performance at a specific time or within a specific period is essential to achieving its purpose (e.g., catering for a wedding reception) – if the debtor fails to perform by that time.
      • In other cases where, due to the debtor's non-performance (for which demand is made but not complied with), it is clear that the purpose of the contract cannot be achieved even if the creditor were to demand performance of the remaining part.
      • If the creditor cannot achieve the purpose of the contract due to grounds attributable to the creditor themselves, they cannot rescind (Article 543).
  • Effects of Rescission (Civil Code Art. 545):
    • Extinction of Future Obligations: Both parties are released from their obligations to perform further under the contract.
    • Duty of Restitution (Genjō Kaifuku Gimu - 原状回復義務): Each party must take measures to restore the other party to the state they were in prior to the conclusion of the contract. This typically involves returning any payments made or property transferred. If goods were delivered, they must be returned; if money was paid, it must be refunded (with interest from the time of receipt if money was received).
    • Damages Not Precluded (Art. 545, Para. 4): The exercise of the right of rescission does not prevent the creditor from also claiming damages for any losses suffered due to the breach.

Interrelation and Choice of Remedies

The availability of one remedy does not necessarily exclude others. For example:

  • A creditor can claim specific performance and, additionally, damages for any losses caused by the delay in performance.
  • A creditor can rescind the contract and also claim damages for the breach that led to the rescission.

The choice of which remedy or combination of remedies to pursue will depend on the specific circumstances of the breach and the creditor's objectives (e.g., whether they still want the performance or prefer to exit the contract and seek compensation).

The Role of Contractual Stipulations

Parties are generally free to stipulate specific remedies for breach in their contract, such as:

  • Liquidated Damages Clauses (損害賠償額の予定 - Songai Baishōgaku no Yotei - Art. 420): Parties can agree in advance on the amount of damages payable in the event of a breach. This can simplify proof of loss but is subject to certain controls if grossly unreasonable.
  • Limitations or Exclusions of Liability (免責条項・責任制限条項 - Menseki Jōkō / Sekinin Seigen Jōkō): Clauses attempting to limit or exclude liability are permissible to some extent but are strictly construed and may be unenforceable if they violate public policy (Art. 90), mandatory statutes, or, in B2C contracts, the Consumer Contract Act (e.g., excluding liability for intentional acts or gross negligence).

Conclusion: A Modernized and More Coherent System of Remedies

The Japanese Civil Code, particularly after its 2020 revisions, provides a comprehensive framework of remedies for breach of contract. The overarching aims of these reforms were to enhance clarity, align with modern commercial practices, and provide a more balanced and accessible system for aggrieved parties. Key developments include the unified concept of saimu furikō, the refined rules for damages (especially the normative standard for foreseeability of special damages and the debtor's grounds for exemption), and the significant change making rescission generally available without requiring the debtor's fault.

For businesses engaging with Japanese law, understanding these remedies—the right to demand performance (including cure), the right to claim damages based on a nuanced assessment of attributability and foreseeability, and the strengthened right of rescission—is critical for effectively enforcing contractual rights and managing the consequences of non-performance.