Recovering payment and handling quality disputes in international sales of goods

1. When payment is refused, delivery is late, or quality is in issue

Checking the other party's position and the deadlines

The first points to check are what reason the other party gives for refusing to pay or to take delivery, what its notice says, when it was received, and whether a deadline for a reply has been set. Where you are the seller claiming the price, you also need to establish when delivery or the handing over of documents was completed, where in the contract the time for payment is provided for, and when and by what means payment was demanded.

A point to note here is that not every deadline stated by the other party is a deadline under the applicable law. Some are contractual deadlines, and some are no more than deadlines the other party has set for the purposes of the negotiations. At the same time, periods for giving notice that are fixed by legislation or by a treaty continue to run even if the other party does not mention them. Distinguishing between these types of deadline is the first task.

Material for establishing the content of the contract

The content of the contract is not always settled by the signed contract document alone. Purchase orders, messages accepting an order, master trading agreements, standard terms, specifications, and the emails by which these were exchanged can all be material for establishing whether a contract was formed and what it contains. That said, the fact that messages were exchanged does not lead to the simple conclusion that a contract was formed; it is necessary to work out which document evidences agreement on which points.

Acting while evidence is preserved

Before goods whose quality is in issue are returned, repaired, or disposed of, please check what effect that step would have on the evidence, including the goods themselves and any inspection records. This does not mean that preserving the goods must always take priority: the method and extent of preservation are considered in the light of matters such as storage costs and the need to source replacement goods.

Disposing of the goods can affect not only the evidence but also the right to terminate the contract or to require delivery of substitute goods. Even where you intend to reject goods that have been received, reasonable steps to preserve them may be required.

It is also important, even before a detailed investigation has been completed, to check in advance whether a notice is required and, if so, what it must contain and by when it must be given, according to the contract and the applicable law. However, sending a provisional notice does not in itself preserve your rights, and what a notice must contain depends on the rules that apply. Keep a record of the addressee, the method, and the content of each notice, together with material showing that it was sent and received. The consequences if a notice does not reach the other party differ according to the type of notice, so notices should not all be treated in the same way.

2. The law applicable to the contract, and whether the CISG applies

Checking the governing law

Where a Japanese court determines the governing law, it applies the Act on General Rules for Application of Laws. Under that Act, the formation and effect of a juridical act are governed by the law of the place chosen by the parties at the time of the act, and, where there is no such choice, by the law of the place with which the act is most closely connected. The first step is to check whether the contract contains a governing law clause. Where the dispute is to be heard by a foreign court or an arbitral tribunal, the conflict of laws rules applied in those proceedings need to be checked separately.

When the CISG applies

The United Nations Convention on Contracts for the International Sale of Goods (CISG) applies to contracts of sale of goods between parties whose places of business are in different Contracting States. Even where the places of business of both parties are not in Contracting States — that is, where the other party's place of business is in a State that is not a Contracting State — the Convention may still apply where the rules of private international law lead to the law of a Contracting State. Some States, however, have made a reservation in respect of that rule. In assessing whether the Convention applies, the date on which it entered into force for the countries and regions concerned, and the content of any reservations, also need to be checked. Where the Convention applies through the rules of private international law, the relationship with the country of the court or tribunal hearing the dispute, and with the law designated by those rules, is also considered.

Whether the Convention applies turns on where the parties have their places of business, not on their nationality. The idea that it applies "because the transaction is international" is not accurate. The Convention also excludes certain sales, such as sales of goods bought for personal or household use, and does not apply to contracts in which the preponderant part of the obligations of the party who furnishes the goods consists in the supply of labor or other services. This point needs to be considered in the case of toll processing arrangements or the supply of machinery with installation. For contracts for the supply of goods to be manufactured or produced, whether the party ordering the goods has undertaken to supply a substantial part of the materials needed is also relevant to whether the Convention applies.

Choosing Japanese law does not in itself put the CISG out of the picture

A point that calls for care is the understanding that, if the contract provides that "this contract is governed by the laws of Japan," the application of the CISG has been excluded. The choice of Japanese law and the exclusion of the Convention are generally treated as separate expressions of intention, and a choice of Japanese law alone does not necessarily exclude the Convention.

The Convention allows the parties to exclude its application. If you do not want the Convention to apply, we therefore recommend recording that expressly in the contract as a matter of agreement. When reviewing an existing contract, the first thing to check is whether an exclusion has been expressly agreed. The fact that Japanese law has been chosen, or that the Convention was not in the parties' minds when the contract was negotiated, is not by itself a basis for concluding that exclusion was agreed.

Matters the Convention does not govern

As a general rule, the CISG is not concerned with the validity of the contract or with the effect which the contract may have on the property in the goods. Questions concerning matters governed by the Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. It does not follow that, because a point is not written into the Convention, the Japanese Civil Code applies to it.

3. Disputes over the price and over quality, and the rules on examination and notice

The seller's claim for the price

Where the CISG applies, the buyer must pay the price for the goods and take delivery of them as required by the contract and the Convention. If the buyer is not bound to pay the price at any other specific time, it must pay it when the seller places either the goods or documents controlling their disposition at the buyer's disposal, and the buyer must pay the price when it falls due without the need for any request or other formality on the seller's part.

The buyer is not, however, bound to pay the price until it has had an opportunity to examine the goods, unless the procedures for delivery or payment agreed by the parties are inconsistent with there being such an opportunity.

On the seller's side, the notice demanding payment is prepared after setting out the make-up of the amount claimed, the basis for the time of payment, and the position on delivery and on the handing over of documents. Even where the buyer is raising quality issues, it is possible to negotiate for payment of the part that is not in dispute to be made first. The seller may require the buyer to pay the price or to perform its other obligations, but not where the seller has resorted to a remedy which is inconsistent with that requirement. Whether to continue to press for payment or to avoid the contract — the term the Convention uses for termination — and crystallize the loss is a choice to be made consciously at this stage.

Examination and notice under the CISG

Under the CISG, the buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances (adjustments to the time for examination are provided for where, for example, the goods are redirected in transit). If the buyer does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after it discovered it or ought to have discovered it, the buyer as a general rule loses the right to rely on that lack of conformity. The Convention does not fix a uniform number of days for this "reasonable time." It is assessed in the light of the nature of the goods and the circumstances of the transaction, and where the contract fixes a period for notice, the terms and effect of that provision are also checked.

In addition, if the buyer does not give notice of the lack of conformity within two years from the date on which the goods were actually handed over to it, the buyer loses the right to rely on that lack of conformity, unless this time limit is inconsistent with a contractual period of guarantee. It is not accurate to treat these two years either as a period during which notice may be given at any time or as a limitation period. The requirement of notice within a reasonable time must be satisfied separately.

On the other hand, the seller is not entitled to rely on the provisions on examination and notice that cause the buyer to lose its rights where the lack of conformity relates to facts of which the seller knew or could not have been unaware and which it did not disclose to the buyer. Further, where the buyer has a reasonable excuse for its failure to give the required notice, it may reduce the price or claim damages, except for loss of profit.

These two exceptions differ in their reach. Where there is a reasonable excuse for the failure to give notice, the relief available is limited to reduction of the price and damages other than loss of profit. Where, by contrast, the exception concerning the seller's knowledge and non-disclosure applies, the seller cannot rely on the provisions on examination and notice at all, including the two-year time limit. In either case, the specific requirements of each remedy must still be satisfied.

When the Commercial Code applies

The rules of the Japanese Commercial Code on examination and notice in respect of non-conforming goods fall to be considered where the corresponding provisions of the CISG do not apply and the sale is one between merchants governed by Japanese law. If the CISG applies to the sale, the Convention governs, so it is necessary to check whether the Convention applies before turning to the Commercial Code.

Under the Commercial Code, a buyer that has taken delivery of the goods must examine them without delay, and if on examination it discovers that the goods do not conform to the contract as to kind, quality, or quantity, it must immediately give notice to that effect to the seller; otherwise it may not demand cure of the performance, demand a reduction of the price, claim damages, or terminate the contract. The same applies where the non-conformity as to kind or quality is one that cannot be discovered immediately and the buyer discovers it within six months.

Those rules on loss of rights do not apply where the seller knew of the non-conformity. What does not apply in that case is the rule on loss of rights for failure to give notice; the duty to examine is not itself disapplied.

The two sets of rules are not the same

The CISG and the Commercial Code both require examination and notice, but they differ as to the period for notice, the point from which it runs, the consequences of losing the right, and the exceptions. A statement such as "the limitation period is two years under the CISG and six months under the Commercial Code" is not accurate as to either. The table below sets out the differences.

Point to check	Where the CISG applies	Where the Commercial Code applies
Time for examination	Within as short a period as is practicable in the circumstances	Without delay after taking delivery of the goods
Period for notice	Within a reasonable time after the buyer discovered the lack of conformity or ought to have discovered it	Immediately, where the buyer discovers the non-conformity on examination
Outer time limit / non-conformity that is hard to discover	Notice of a lack of conformity is generally subject to a limit of two years from the date the goods were actually handed over (with an exception turning on a contractual period of guarantee)	Where a non-conformity as to kind or quality cannot be discovered immediately, the same rule applies if the buyer discovers it within six months
Exception based on the seller's knowledge and non-disclosure	Where the lack of conformity relates to facts of which the seller knew or could not have been unaware and which it did not disclose to the buyer, the seller cannot rely on the provisions on examination and notice, including the two-year limit	Where the seller knew of the non-conformity (the rules on loss of rights do not apply)
Exception where there is a reasonable excuse for the failure to give notice	Limited to reduction of the price and damages other than loss of profit; does not extend to the two-year limit	—
Consequence of failing to give notice	As a general rule, the buyer loses the right to rely on the lack of conformity	The buyer may not demand cure, demand a reduction of the price, claim damages, or terminate the contract

Which set of rules applies is determined by the governing law and by whether the CISG applies. The table is an outline; in a particular matter, the analysis has to follow the wording of the provisions and the course of the transaction.

Separating non-conformity with the specifications from loss or damage in transit

Matters brought to us as quality problems include both cases where the goods do not conform to the specifications and cases of loss of or damage to the goods in transit, and what needs to be checked differs between them.

In assessing conformity, we look not only at what the specifications say but also at the ordinary purposes for which goods of the same description would be used, any particular purpose made known to the seller, any sample or model, and the packaging. Where a defect comes to light after the risk has passed to the buyer, the seller may still be liable for a lack of conformity that already existed at that time.

Under the CISG, loss of or damage to the goods after the risk has passed to the buyer does not discharge the buyer from its obligation to pay the price, unless the loss or damage is due to an act or omission of the seller. The time at which the risk passes is provided for separately for sales involving carriage, sales of goods sold in transit, and other cases. Where the contract adopts Incoterms, check the edition, the three-letter abbreviation of the rule, and the named place or point. Incoterms deal with delivery, the passing of risk, and the allocation of costs, as well as the division of obligations such as arranging carriage and insurance and clearing the goods for export and import, but they do not deal with the payment terms or with the transfer of title. It should also be borne in mind that the party bearing the costs and the party bearing the risk are not necessarily the same.

4. Requiring performance, avoiding the contract, and damages

The threshold for avoidance

Under the CISG, a breach of contract is fundamental if it results in such detriment to the other party as substantially to deprive it of what it is entitled to expect under the contract, subject to an exception relating to foreseeability. The fact that there was a quality problem, or that delivery was late, does not necessarily amount to a fundamental breach; the purpose of the contract, the extent of the detriment, and foreseeability are assessed case by case.

Fundamental breach is not the only route to avoidance. Where the goods are not delivered, the buyer may fix an additional period of time and declare the contract avoided on the ground that performance has not been made within that period; the seller has a corresponding route where the price is not paid or the obligation to take delivery is not performed. The types of non-performance covered are limited, however, and it cannot be said in general terms that a contract can be avoided where there is a quality problem simply by fixing a period and demanding performance.

The seller may fix an additional period of time of reasonable length for performance by the buyer of its obligations. Unless the seller has received notice from the buyer that it will not perform within that period, the seller may not, during that period, resort to any remedy for breach of contract (the right to claim damages for delay in performance is not lost). Whether to fix an additional period is a decision to be made in the light of the constraints that apply during that period.

Avoidance under the CISG is effected by notice to the other party, and in certain cases the declaration must be made within a reasonable time. A contract is not avoided automatically by the fact of a breach.

The buyer's choice of remedy

The buyer's remedies for a lack of conformity include requiring repair, requiring the delivery of substitute goods, and reduction of the price, and the requirements for each differ. Requiring delivery of substitute goods calls for the lack of conformity to amount to a fundamental breach, among other things, and reduction of the price is subject to rules on how the reduction is calculated and on its relationship with cure by the seller. Which remedy to pursue is a decision that takes account of the needs of the business and of the prospects of satisfying the requirements.

Where repair or substitute goods are to be required, it is not enough to give notice of the lack of conformity: the request must also be made either together with that notice or within a reasonable time afterwards. Giving notice does not keep the choice of remedy open indefinitely. How to respond if the seller offers to cure should be considered at the same time.

The measure of damages

Under the CISG, damages for breach of contract consist of a sum equal to the loss, including loss of profit, suffered as a consequence of the breach, but may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract. It is not appropriate to plan on the basis that all of the loss incurred can be recovered; causation and the amount of the loss have to be proved, and any contractual limitation of liability clause also needs to be checked.

Further, where the party relying on the breach has not taken reasonable measures to mitigate the loss, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated. A particular substitute purchase or resale is not always required, however; whether the measure was reasonable, and how much loss could have been mitigated, are assessed on the facts.

Interest

If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages. The Convention does not, however, fix the rate of interest. Whether interest accrues and what the rate is are separate questions. There are differing views on how the rate is determined: one approach applies the law designated by the rules of private international law, and another derives the rate from the general principles of the Convention. What has been agreed in the contract, and the approach taken by the court or arbitral tribunal hearing the matter, both need to be checked. Where the contract or the invoices provide for interest on late payment, whether that wording forms part of the contract also needs to be checked.

Exemption

The CISG contains provisions on exemption where a party fails to perform because of an impediment beyond its control. For an exemption to be available, the party claiming it must prove not only that the failure was due to an impediment beyond its control, but also that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

The party claiming the exemption must give notice to the other party of the impediment and its effect on its ability to perform, and if the notice is not received by the other party within a reasonable time after the party knew or ought to have known of the impediment, it is liable for damages resulting from that non-receipt.

Even where an exemption is available, its effect is limited to relieving the party of liability in damages; other remedies are not automatically lost. The view that force majeure extinguishes all obligations and all liability is not accurate: the requirements for the exemption and the requirements for each remedy are considered separately.

5. Negotiation, court proceedings, arbitration, and the means of recovery

Where the dispute is to be resolved

Separately from the choice of governing law, we check whether there is a jurisdiction agreement or an arbitration agreement and whether it is effective. A choice of Japanese law does not in itself mean that proceedings can be brought in Japan, and the existence of an arbitration agreement does not necessarily mean that a claim will be dismissed. How the matter proceeds depends on the validity and scope of the agreement and on how the other party responds.

Provisional measures against assets in Japan

Even where the substance of the dispute is being contested abroad, provisional attachment in Japan may be worth considering if the other party has assets here. Provisional attachment is a Japanese court procedure by which a debtor's assets are frozen before judgment so that later enforcement remains possible; it is not something to be left until a decision has been obtained. Under the Civil Provisional Remedies Act, an application for a provisional remedy order may be made only where an action on the merits may be filed with a Japanese court, or where the property to be provisionally attached or the subject matter in dispute is located in Japan. An order for provisional attachment may be issued in respect of a monetary claim where it would otherwise become impossible to enforce the claim or where enforcement would face considerable difficulty, and the applicant must make a prima facie showing both of the right or legal relationship to be preserved and of the necessity for preservation. The fact that the other party is a foreign company, or that it is refusing to pay, does not in itself establish that necessity.

A provisional remedy order may be issued either on the provision of security or without security. In practice security is often required, and the amount of the security and the time needed to deposit it should be allowed for. Where there is an arbitration agreement, an application to a court for a provisional remedy is not precluded, and this rule applies as well where the seat of the arbitration is outside Japan or has not been determined.

Checking the payment terms and any security

Where recovery of the price is in issue, the payment terms used for the transaction can determine the outcome. Where a letter of credit was used, a separate question arises, alongside the claim under the contract of sale, as to whether documents complying with the terms of the credit were presented. Because banks decide on the basis of what the documents say, that question is considered separately from any dispute about whether the goods were defective. For a letter of credit, also check the rules that apply to it, its expiry date, and the deadline for presentation and the place of presentation.

Where there is an advance payment, a guarantee, a parent company guarantee, or insurance, check the terms of each and the deadline for claiming under it. Where there are concerns about the other party's financial position, these may be more realistic options than litigation or arbitration.

Deciding whether to continue the trading relationship

Where there is an ongoing supply relationship, stopping shipments unilaterally may expose you to a claim for breach of contract. Continuing to ship while the price remains unpaid, on the other hand, increases the loss.

The first point to check here is whether the contract allows shipments to be suspended on the ground of late payment. Where the CISG applies, a party may suspend the performance of its obligations if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of its obligations as a result of a serious deficiency in its ability to perform or in its creditworthiness, or of its conduct in preparing to perform or in performing the contract. This is not limited to cases where the ability to perform or the creditworthiness has declined after the contract was concluded; it also covers a deficiency that existed from the time of conclusion and became apparent later. There are also rules on preventing the goods from being handed over to the buyer where the grounds become apparent after the goods have been dispatched.

A party that suspends performance must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of its performance. If you suspend, make the reason and the scope of the suspension clear, and consider what assurance you will ask for before resuming. Whether an assurance is adequate is assessed on the particular facts, so the terms put forward by the suspending party are not the only ones that can qualify.

Goods that the buyer does not take

Where the buyer is in delay in taking delivery of the goods, or where payment of the price and delivery of the goods are to be made concurrently and the buyer has not paid, the seller, if it is in possession of the goods or otherwise able to control their disposition, must take such steps as are reasonable in the circumstances to preserve them. Unless the expense would be unreasonable, the goods may be deposited in a warehouse of a third person at the other party's expense.

A party that is bound to preserve the goods may sell them by any appropriate means if the other party has unreasonably delayed in taking possession of the goods, in taking them back, or in paying the price or the cost of preservation. In that case, reasonable notice of the intention to sell must be given to the other party.

Separately from that, where the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, reasonable measures must be taken to sell them. This is an obligation, not one option among several. Here too, notice is to be given to the other party so far as possible.

A party selling the goods is entitled to retain out of the proceeds an amount equal to the reasonable expenses of preserving and selling them, and must account to the other party for the balance. This is to be distinguished from the situation in which a party avoids the contract, enters into a substitute transaction, and claims the difference as damages.

Giving effect to a decision once it has been obtained

To enforce a foreign judgment in Japan, a final and binding execution judgment is required; to enforce an arbitral award, a final and binding execution decision is required. Succeeding abroad does not mean that recovery can be made in Japan straight away. On the procedures and the material required, see the guide on the recognition and enforcement of foreign judgments and arbitral awards in Japan. Where proceedings are to be taken in the country where the other party is located, the local procedure, the costs, the time involved, and the prospects of enforcement are checked together with local specialists.

6. What to share with us, and the points we check

Documents

Contracts, records of orders, shipments and inspections, correspondence with the other party, test results, and details of any additional costs help in identifying the issues once they can be compared with one another. This does not mean that you need to have everything to hand before contacting us. If you share what you have, we will suggest an order in which matters can be checked.

Contract clauses and deadlines

For force majeure clauses, limitation of liability clauses, and sanctions clauses, we consider the obligation to perform and liability in damages separately, in the light of the wording and the applicable law. Where a foreign law applies, the validity and interpretation of the clause need to be checked separately under that law.

While negotiations continue, the deadlines for notice and the limitation periods keep running under the rules that apply to each. The fact that negotiations are continuing does not remove the need to address them. As regards limitation, we also check, according to the applicable law, whether the running of time has been postponed or renewed, for example by an agreement to hold discussions or by an acknowledgment of the right.

Resolution by settlement

Where a settlement or payment by installments is being considered, we set out the payment dates, the currency, who bears the remittance costs, any security, the scope of the release, and what is to happen if the agreement is breached. The other party's ability to perform, and the prospects of enforcement if the agreement is not performed, are also checked.

7. How we work on these matters

We begin by checking which law applies and whether the CISG applies, and by establishing whether notices are required and by when. We then identify the basis of the claim and consider the content of the notices to, and replies to, the other party. Whether a provisional remedy is needed and whether one is available are considered at an early stage, including the question of sequencing against notices to the other party and negotiations. Where a negotiated resolution is difficult, we consider litigation or arbitration in accordance with the dispute resolution clause in the contract. Where the content of a foreign law will determine the outcome, we set out the points that need to be checked and divide the work with lawyers qualified in that country.

Lawyers with in-house experience and lawyers with previous experience as judges work together, with the aim that what we suggest reflects both the commercial decision to be made and the likely course of the matter if it goes to court.

Related pages

International legal services / Recognition and enforcement of foreign judgments and arbitral awards in Japan / Initial response to business email compromise, and the allocation of loss / Regulatory issues in cross-border M&A / Litigation and dispute resolution

Key legislation and official sources

English translations of legislation are provided for reference. The Japanese texts are authoritative.

Where it appears	Legislation	Source type
Checking the governing law	Act on General Rules for Application of Laws（法の適用に関する通則法）	Japanese legislation
When the CISG applies; examination and notice; remedies; passing of risk; interest; exemption	United Nations Convention on Contracts for the International Sale of Goods（国際物品売買契約に関する国際連合条約）	Treaty
Examination and notice in sales between merchants	Commercial Code（商法）	Japanese legislation
Limitation periods and their postponement or renewal	Civil Code（民法）	Japanese legislation
Provisional attachment of assets in Japan	Civil Provisional Remedies Act（民事保全法）	Japanese legislation
Provisional remedies where there is an arbitration agreement	Arbitration Act（仲裁法）	Japanese legislation
Execution judgments and execution decisions	Civil Enforcement Act（民事執行法）	Japanese legislation

Legal information reviewed: 2026-09-18

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This article is provided for general informational purposes only and does not constitute legal advice on any specific matter. Please consult us regarding your specific situation. The content is based on the laws and regulations in effect as of the date of the last update.