When Does a Claim for Restitution of Unjust Enrichment Become Overdue in Japan?

The principle of unjust enrichment (不当利得 - futō ritoku), enshrined in Article 703 of the Japanese Civil Code, dictates that a person who has benefited from the property or labor of another without legal ground, thereby causing loss to the other, is obliged to return such benefit to the extent it still exists. A crucial subsequent question is: if this restitution is not made promptly, from what point is the beneficiary considered in "delay in performance" (履行遅滞 - rikō chitai), thereby triggering liability for default interest on the principal amount of the enrichment? The answer, like many in law, depends on the circumstances, particularly the beneficiary's state of mind—whether they were a bona fide or mala fide recipient of the benefit.

The General Principle: Delay Commences Upon Demand

In most instances, an obligation to return unjust enrichment is considered an "obligation without a set due date" (期限の定めのない債務 - kigen no sadame no nai saimu). For such obligations, Article 412, Paragraph 3 of the Japanese Civil Code provides a clear rule: the debtor (in this case, the beneficiary of unjust enrichment) is deemed to be in delay from the time the creditor (the party who suffered the loss) makes a "demand for performance" (履行の請求 - rikō no seikyū).

This principle has been consistently upheld by Japanese courts. An early Great Court of Cassation (Daishin'in) judgment on December 26, 1927 (Hōritsu Shimbun No. 2806, p. 15), and more recently, a Supreme Court judgment on December 21, 2006 (Hanrei Taimuzu No. 1235, p. 148), affirmed that the obligation to return unjust enrichment becomes overdue upon the creditor's demand for restitution. Some legal commentary on the 2006 judgment suggests that, for clarity and certainty, the service of a formal complaint in a lawsuit demanding restitution could serve as an unambiguous point of demand, though other forms of demand reaching the beneficiary are also legally effective.

Thus, for a bona fide beneficiary (善意の受益者 - zen'i no juekisha), one who received the benefit without knowing there was no legal ground for it, the clock for default interest on the principal sum to be returned generally starts ticking only after they have been formally asked to return it.

The Complication: The Mala Fide Beneficiary

The situation becomes more intricate when dealing with a mala fide beneficiary (悪意の受益者 - akui no juekisha). Article 704 of the Civil Code imposes stricter obligations on such a beneficiary: "A mala fide beneficiary shall return the benefit received together with interest. If there is any damage, the mala fide beneficiary shall also be liable for that damage." The "interest" mentioned here is generally understood to mean the fruits or profits derived from the enrichment, accruing from the time the benefit was received.

The critical question is whether this obligation to pay interest from the time of receipt under Article 704 also implies that the primary obligation to return the principal sum of the enrichment is itself in delay from the moment of receipt, irrespective of a later demand from the creditor.

There's a compelling argument for consistency here, particularly when comparing with the treatment of damages in tort law. As discussed in a previous article, under Japanese case law, default interest on tort damages typically accrues from the moment the tortious act occurs. If a mala fide beneficiary's retention of an unjust enrichment is viewed as a continuing wrongful state, akin to a tort, it could be argued that their obligation to make restitution of the principal should also be considered overdue from the moment they wrongfully received or retained the benefit with knowledge of its unjust nature.

If this line of reasoning is adopted, then for a mala fide beneficiary, the duty to return the principal enrichment would be in delay from the time of receipt. Consequently, the "interest" they are required to pay from the time of receipt under Article 704 could be interpreted as fulfilling the role of, or at least encompassing, the default interest for the delay in returning that principal sum. In such a scenario, a separate demand for performance under Article 412, Paragraph 3 would not be necessary to trigger the delay for the restitution of the principal by a mala fide beneficiary. The obligation would be inherently overdue from the outset of the mala fide enrichment.

It's important to note that "mala fides" in this context is not merely about the subjective knowledge (or lack thereof) of the absence of a legal ground. Legal scholars suggest it involves a normative assessment of the beneficiary's conduct and awareness concerning the enrichment.

Bona Fide Beneficiary Subsequently Becoming Mala Fide

What if a beneficiary initially receives the benefit in good faith but later becomes aware that there was no legal ground for the enrichment (i.e., they turn mala fide)?

Following the consistency argument, if a mala fide beneficiary is considered in delay from the moment of receipt (or from the moment their mala fides arises if not from the outset), then a beneficiary who was initially bona fide should be deemed in delay from the point in time they acquire knowledge of the lack of legal ground and thus become mala fide. From that moment onwards, their continued retention of the benefit becomes wrongful in a way that mirrors the position of an initially mala fide beneficiary.

Under this interpretation, once the beneficiary's status shifts to mala fide, their obligation to return the principal sum of the enrichment would become immediately overdue, without the need for a demand from the creditor. The provisions of Article 412, Paragraph 3, requiring a demand, would cease to be applicable.

Nature of "Interest" in Article 704 versus Default Interest

It is crucial to distinguish conceptually between the "interest" payable by a mala fide beneficiary under Article 704 and the default interest (遅延損害金 - chien songaikin) that accrues due to a delay in fulfilling a monetary obligation.

• Interest under Article 704: This primarily refers to the actual profits, fruits, or benefits that the mala fide beneficiary derived from the enrichment while it was in their possession. It's a form of disgorgement of gains that would not have accrued to the beneficiary had they not been unjustly enriched.
• Default Interest (on the restitution of the principal): This is compensation owed to the creditor for the debtor's failure to timely perform the primary obligation—in this case, the failure to return the principal sum of the unjust enrichment once that obligation has become due and is in delay.

However, if the primary obligation to return the principal enrichment is deemed to be in delay from the moment of receipt for a mala fide beneficiary (as argued above for consistency), then the "interest" mandated by Article 704 effectively serves a dual purpose. It ensures the return of profits generated by the enrichment and simultaneously functions as compensation for the delay in returning the principal sum itself. Legal texts suggest that in such cases, the interest mentioned in Article 704 is treated as default interest on the restitution obligation, which is considered to have been in default from the time of its wrongful receipt.

Liquidation of "Benefit-type Enrichment" (給付利得の清算)

In some complex legal analyses concerning the "liquidation of benefit-type enrichment" (where the standard framework of Articles 703 and 704 might be argued as not directly applying, perhaps to preclude a bona fide beneficiary's defense of having lost the enrichment), the underlying principles regarding the timing of delay are suggested to remain consistent. Even if a different theoretical framework is used for the core restitution, if the aim is primarily to bypass the bona fide beneficiary's defense of lost enrichment, it does not necessarily require a different rule for when a mala fide party (or one who becomes mala fide) should be considered in delay for the restitution itself. The logic for treating a mala fide party as being in default from an earlier point (receipt or onset of mala fides) would still hold persuasive force.

Practical Ramifications for Claimants and Beneficiaries

The determination of when an unjust enrichment claim becomes overdue has direct practical consequences:

• For the Claimant (Creditor):
  • If the beneficiary is bona fide, a clear, unequivocal, and preferably documented demand for restitution is paramount. The date of this demand will be the baseline for calculating any default interest on the principal sum.
  • If the claimant believes the beneficiary is mala fide (either from the outset or subsequently), they may argue for default interest to accrue from the time of receipt or the onset of mala fides. This requires proving the beneficiary's mala fide status.
• For the Beneficiary (Debtor):
  • Upon receiving a demand for restitution, a bona fide beneficiary should assess the claim's validity. Delay in returning the benefit after a valid demand will lead to default interest.
  • A beneficiary aware of their mala fide status faces the risk of interest accruing from a much earlier date (time of receipt or when mala fides arose), significantly increasing their potential liability.
• Evidentiary Burden: Proving "mala fides" can be challenging and often depends on inferring the beneficiary's state of mind from objective circumstances and their conduct. The normative assessment of mala fides means that simply proving the beneficiary should have known might, in some circumstances, suffice.
• Calculation of Interest: The difference in the starting point for interest calculation can be substantial, especially if the unjust enrichment occurred long before a demand was made or before the beneficiary's mala fides became apparent to the claimant.

Conclusion

In Japanese law, the point at which an obligation to return unjust enrichment becomes overdue, thereby triggering default interest, generally depends on a demand for performance by the creditor, particularly when the beneficiary is bona fide. This aligns with the general principles for obligations without a specified due date. However, the presence of a mala fide beneficiary introduces significant complexity. Strong arguments exist for treating a mala fide beneficiary as being in delay from the moment of receiving the enrichment (or from when they become mala fide), to ensure consistency with the treatment of tortfeasors and to give full effect to the stricter liability imposed by Article 704 of the Civil Code.

While the Supreme Court has clearly affirmed the "time of demand" rule for unjust enrichment generally, the nuanced interplay with Article 704 and the definition of when a restitution obligation itself is considered "delayed" for a mala fide party continues to be an area of sophisticated legal discussion. For businesses and legal advisors, understanding these distinctions is vital for correctly assessing rights and liabilities in situations involving unjust enrichment.