My Debtor in Japan is Not Exercising Their Rights Against a Third Party. Can I Step in? Understanding the Obligee's Subrogation Right (Saikensha Daiiken)

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read

Imagine a scenario: you are owed a significant sum by a debtor in Japan. You discover that this debtor has a valid claim against a third party—perhaps a debt owed to them, or a right to recover property—but your debtor is inexplicably failing to pursue it. This inaction jeopardizes your own ability to eventually recover what you are owed. In such situations, Japanese law provides a powerful, albeit complex, remedy known as the "Obligee's Subrogation Right" (Saikensha Daiiken - 債権者代位権). This right, outlined in Articles 423 to 423-7 of the Japanese Civil Code (Minpō), allows a creditor, under certain conditions, to step into their debtor's shoes and exercise the debtor's rights against a third party.

What is the Obligee's Subrogation Right (Saikensha Daiiken)?

The Saikensha Daiiken is a creditor's right to exercise a transferable right belonging to their debtor when the debtor neglects to exercise it. The primary objective is to preserve or realize the debtor's assets, thereby safeguarding the creditor's own claim against the debtor. The Japanese Civil Code, particularly after its 2020 revisions, distinguishes between two main functions or types of this subrogation right:

  1. Subrogation for the Preservation of the Debtor's General Assets (責任財産保全型 - Sekinin Zaisan Hozen-gata):
    This is the traditional and primary form of the subrogation right. Its purpose is to maintain the overall value of the debtor's estate (their "liability property" - sekinin zaisan), ensuring that there are sufficient assets available to satisfy all of the debtor's creditors, including the one exercising the right. This type of subrogation typically requires the debtor to be insolvent (i.e., their liabilities exceed their assets).
  2. Subrogation for the Preservation or Realization of a Specific Claim of the Creditor (個別権利実現準備型 - Kobetsu Kenri Jitsugen Junbi-gata, also referred to as a "diverted application" or Ten'yō-gata - 転用型):
    This is a crucial extension of the doctrine, significantly developed through case law and now more clearly recognized in the revised Civil Code (e.g., Articles 423(3), 423-7). Here, the creditor uses the subrogation right not just to generally preserve the debtor's assets, but to directly facilitate the realization or protection of their own specific claim against the debtor, where that claim is dependent on the debtor exercising a related right. Importantly, for this type of subrogation, the debtor's insolvency is not generally a requirement. This has significant implications for creditors seeking to protect specific transactional interests, such as those involving real estate registration or secured assets.

Requirements for Exercising the Subrogation Right

The conditions for exercising the Saikensha Daiiken differ slightly depending on which type is being invoked.

A. For General Asset Preservation (Art. 423(1)):

  1. Existence of the Creditor's Claim to be Preserved (Hihozen Saiken - 被保全債権):
    • The creditor must have a valid, existing claim against the debtor. For this general preservation type, Article 423(1) of the revised Civil Code specifies that the claim to be preserved must be a monetary claim.
    • This monetary claim must generally be due for performance (rikōki ni aru koto - 履行期にあること). An exception exists if the creditor is exercising the debtor's right solely for an "act of preservation" (hozon kōi - 保存行為), such as interrupting the statute of limitations (prescription) on the debtor's claim against a third party. In such cases, the creditor's own claim need not be due (Article 423(2)).
  2. Debtor's Failure to Exercise Their Own Right (Fukōshi - 不行使):
    The debtor must have failed or neglected to exercise their own right against the third party. If the debtor is actively pursuing their right, subrogation is generally not permitted.
  3. Necessity for Preservation of the Creditor's Claim (Saiken Hozen no Hitsuyōsei - 債権保全の必要性) – Typically Requiring Debtor's Insolvency (Mushiryoku - 無資力):
    For this type of subrogation aimed at preserving the debtor's general assets, the creditor must demonstrate that it is necessary to preserve their claim. This usually means proving that the debtor is insolvent (their assets are insufficient to cover their liabilities - mushiryoku). If the debtor has other sufficient assets from which the creditor can obtain satisfaction, the creditor cannot use this general subrogation right. The burden of proving the debtor's insolvency typically rests with the creditor.

B. For Specific Claim Realization/Protection (Ten'yō-gata - Art. 423(3) and related provisions):

  1. Existence of the Creditor's Specific Claim: The creditor must have a specific claim (not necessarily monetary) whose realization or protection depends on the debtor exercising the subrogated right.
  2. Debtor's Failure to Exercise Their Right: Similar to the general type.
  3. No Requirement of Debtor's Insolvency: This is a key distinction. Article 423(3) states that the requirement of the creditor's claim being due (under paragraph 1) does not apply if the subrogation is for an act of preservation of the debtor's right. More broadly, for many "diverted" uses aimed at protecting specific claims (like perfecting a title or security), the debtor's insolvency is not a prerequisite. For example, Article 423-7 allows subrogation to preserve a claim for registration or delivery of specific property that is the subject of a real right or serves as security for the creditor's claim, without an insolvency requirement.

What Rights of the Debtor Can Be Subrogated? (Hi-Daii Kenri - 被代位権利)

Not all rights held by the debtor can be exercised by a creditor through subrogation.

Generally Permitted:

  • Rights that are part of the debtor's financial assets and could be subject to monetary execution if exercised by the debtor (e.g., claims for payment, rights to demand delivery of property).

Excluded Rights (Civil Code Art. 423(1) Proviso, Art. 423-2):

  1. Rights Exclusively Personal to the Debtor (Isshin Senzoku Ken - 一身専属権): These are rights so intimately tied to the debtor's person, character, or personal circumstances that only the debtor can properly decide whether or how to exercise them. Examples include:
    • Certain family law rights (e.g., right to file for divorce).
    • The right to claim damages for defamation or infringement of purely personal interests.
    • The right to rescind a contract due to mistake, fraud, or duress, where this decision involves a highly personal judgment by the debtor.
    • Rights relating to the debtor's artistic or professional discretion.
  2. Rights Prohibited from Attachment/Seizure (Sashiosae o Kinjirareta Kenri - 差押えを禁じられた権利): Rights that, by law, cannot be seized in compulsory execution proceedings. These often include essential welfare benefits, a legally protected portion of wages necessary for subsistence, etc. The rationale is that if such rights cannot be seized directly by creditors, they should not be indirectly accessible through subrogation.

How is the Subrogation Right Exercised?

  1. Method of Exercise: The Saikensha Daiiken can be exercised either:
    • Judicially: By the creditor filing a lawsuit against the third party (the debtor's debtor). In this case, the creditor effectively sues in their own name but to exercise the debtor's right.
    • Extra-judicially: In some situations, such as making a demand for payment, the right might be exercised out of court.
  2. Creditor "Steps into the Debtor's Shoes": When exercising the subrogated right, the creditor is essentially acting on behalf of the debtor. Consequently, the third party against whom the right is exercised can raise any defenses against the subrogating creditor that they could have validly raised against the original debtor (e.g., payment already made to the debtor, statute of limitations on the debtor's claim).
  3. Scope of Exercise:
    • General Asset Preservation Type: If the subrogated right is a monetary claim, the creditor can generally only exercise it up to the amount necessary to preserve their own monetary claim against the debtor.
    • Direct Payment or Delivery to the Exercising Creditor (Civil Code Art. 423-3): A significant feature of the revised Civil Code (building on prior case law) is that if the subrogated right is for the payment of money or the delivery of movable property, the creditor exercising the subrogation right can demand that the third party make direct payment or delivery to themselves (the creditor). This provides a powerful tool for the exercising creditor to obtain satisfaction.
  4. Notification to the Debtor (Civil Code Art. 423-6): When a creditor initiates subrogation litigation against a third party, they must notify their debtor of the lawsuit without delay. The debtor then has the right to intervene in the litigation.

Effects of Exercising the Subrogation Right

The exercise of the Saikensha Daiiken has several important legal consequences:

  1. Benefit Accrues to Debtor's Assets (Theoretically): The traditional theory held that any money or property recovered through subrogation became part of the debtor's general assets, available to all creditors.
  2. De Facto Preferential Satisfaction for the Exercising Creditor: However, with the right to demand direct payment or delivery to oneself under Article 423-3, the exercising creditor often achieves direct satisfaction of their claim. This can result in a de facto preference over other unsecured creditors of the debtor, especially outside of formal insolvency proceedings.
  3. Restriction on Debtor's Power to Dispose (Civil Code Art. 423-5): Once the creditor has given the debtor notice of the commencement of subrogation litigation (or, for extra-judicial exercise, notice of exercising the right), the debtor is generally restricted from disposing of the subrogated right (e.g., waiving it, assigning it to someone else) in a manner that would prejudice the exercising creditor.
  4. Interruption of Prescription (Statute of Limitations): The creditor's act of exercising the subrogated right (e.g., by filing a lawsuit) can interrupt the running of the prescription period for the debtor's claim against the third party.

The "Diverted Application" (Ten'yō-gata): Subrogation for Specific Claim Realization

As mentioned, a crucial development in Japanese law is the recognition and clarification of the "diverted" or "specific claim realization" type of subrogation. This allows a creditor to use the Saikensha Daiiken not merely to preserve the debtor's general pool of assets, but to directly protect or facilitate their own specific legal interest, even if the debtor is not insolvent.

Key Examples of "Diverted Application":

  • Preserving a Claim for Registration of a Real Right (e.g., Ownership Transfer): If Creditor A buys real estate from Debtor B, but B has not yet obtained registered title from the previous owner, Third Party C, A can subrogate B's right to demand registration from C. This ultimately helps A secure their own registered title from B. (This is supported by principles now reflected in provisions like Art. 423-7).
  • Protecting a Lessee's Rights: A lessee (Creditor A) whose quiet enjoyment of leased property is disturbed by a trespasser (Third Party C) may subrogate the lessor's (Debtor B's) right to take action against C to remove the disturbance, thereby protecting A's possessory interest.
  • Protecting Security Interests: A secured creditor might use subrogation to exercise rights of the debtor that are necessary to preserve the value or enforceability of the collateral securing their loan.

The revised Civil Code has provided clearer statutory footing for these applications (e.g., Article 423(3) relaxing the "claim due" requirement for preservation acts; Article 423-7 specifically addressing subrogation to protect claims for registration or delivery of property that is the subject of a real right or security interest). This type of subrogation is a vital tool for creditors whose rights are intrinsically linked to rights held by their debtors against third parties.

Conclusion: A Proactive Tool for Creditors

The Obligee's Subrogation Right (Saikensha Daiiken) is a distinctive and potent feature of Japanese contract and creditors' rights law. It empowers creditors to take proactive steps to protect their interests when their debtors fail to do so. The distinction between the traditional asset-preservation model (generally requiring the debtor's insolvency) and the increasingly important "diverted" model for specific claim realization (which does not typically require insolvency) offers flexibility. For businesses, understanding when and how this right can be exercised—either to bolster a debtor's general assets or to directly facilitate one's own specific transactional objectives—can be crucial for effective debt recovery and protection of contractual entitlements in Japan. However, given its complexities and strict requirements, legal counsel should always be sought when considering its use.