What Happens if a Litigating Company is Merged or a Party Dies During a Lawsuit in Japan? Understanding "Litigation Succession."

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

Civil lawsuits can often be lengthy processes, and during their pendency, the circumstances of the litigants can change significantly. An individual party might pass away, or a corporate party might undergo a merger, acquisition, or demerger. Such events raise a critical question: what happens to the ongoing lawsuit? Japanese civil procedure addresses these situations through a set of rules collectively known as "litigation succession" (訴訟承継 - soshō shōkei), designed to ensure procedural stability and allow for the continuation or fair resolution of the dispute with the correct parties.

This article explores the Japanese legal framework for litigation succession, detailing how proceedings are affected by events like party death or corporate reorganization, and the mechanisms for successors to become involved in the lawsuit.

I. The Core Problem: Maintaining Procedural Stability Amidst Substantive Change

When a party to a lawsuit ceases to exist in their original legal form (e.g., an individual dies, a company is dissolved through a merger) or when the specific right or obligation that is the subject of the lawsuit is transferred to a third party, the lawsuit cannot simply ignore these substantive changes. The principles of due process require that the actual interested parties are properly represented and have the opportunity to be heard. Litigation succession rules aim to:

  • Identify the correct successor(s) in interest.
  • Provide a mechanism for these successors to take over or participate in the ongoing proceedings.
  • Ensure that judgments are ultimately rendered against and binding upon the entities that hold the relevant rights or obligations.
  • Maintain procedural efficiency where possible, avoiding unnecessary restarts or delays.

Japan's Code of Civil Procedure (CCP) (民事訴訟法 - Minji Soshō Hō) offers two main approaches depending on the nature of the succession: (1) interruption and subsequent "taking over" (jukei) of proceedings, primarily for universal succession; and (2) intervention or assumption of the suit by successors to specific disputed rights or obligations.

II. Interruption and Taking Over of Proceedings (Soshō Tetsuzuki no Chūdan to Jukei) for Universal Succession

This set of rules primarily applies when a party's legal personality as a whole is succeeded to by another, such as in cases of death or certain types of corporate mergers.

A. Grounds for Interruption of Proceedings (CCP Art. 124(1))

Unless a lawsuit agent (attorney) has been appointed for the party (see Section II.D below), court proceedings are automatically interrupted upon the occurrence of certain events:

  1. Death of an Individual Party (Item (i)): If a plaintiff or defendant who is an individual dies. An exception exists if the claim is "strictly personal" (isshin senzoku-ken) to the deceased (e.g., a claim for defamation that does not survive the individual), in which case the lawsuit may terminate.
  2. Extinction of a Corporate Party by Merger (Item (ii)): If a corporate party ceases to exist due to a merger (吸収合併 - kyūshū gappei, where it is absorbed by another company; or 新設合併 - shinsetsu gappei, where two or more companies merge to form a new one). This is a critical provision for M&A scenarios.
  3. Loss of Litigation Capacity or Demise/Termination of Authority of a Legal Representative (Items (iii) and (iv)): If a party loses the capacity to sue or be sued (e.g., an adult declared incompetent) and has no legal representative, or if their existing legal representative dies or their authority terminates.
  4. Termination of a Trustee's Duties (Item (v)): If a party was litigating in their capacity as a trustee and their duties as trustee for the disputed matter terminate.
  5. Bankruptcy-Related Interruptions (CCP Art. 125): Specific rules apply if a party becomes subject to bankruptcy proceedings, which can lead to interruption and potential takeover by a bankruptcy trustee, depending on the nature of the claim.

B. Effect of Interruption

When proceedings are interrupted:

  • The lawsuit is automatically stayed; no further procedural acts can generally be taken by the court or the parties.
  • Time limits for procedural acts (e.g., for filing appeals, submitting briefs) generally cease to run for the duration of the interruption.

C. Taking Over of Proceedings (Jukei - 受継)

Interrupted proceedings can resume once a qualified successor formally "takes over" the litigation:

  • Who Can Take Over?
    • Heirs of a deceased individual party.
    • The surviving company or the newly formed company after a merger.
    • A newly appointed legal representative for a party who lost capacity.
    • A successor trustee.
  • Procedure for Taking Over:
    • Application by the Successor (CCP Art. 126): The successor in interest can file a motion with the court to take over the proceedings.
    • Application by the Opposing Party (CCP Art. 127): The opposing party can also file a motion requesting the court to order the successor to take over.
    • Court Order to Continue (CCP Art. 128): If no application for taking over is filed, the court may, on its own motion, order the successor to take over the proceedings.
      The court will examine the alleged succession and, if confirmed, issue an order for the proceedings to be taken over, at which point the lawsuit resumes.

D. The Crucial Exception: When a Lawsuit Agent (Attorney) is Appointed (CCP Art. 124(2))

This is a highly significant practical exception to the automatic interruption rules:

  • General Rule of Non-Interruption: If the party whose status changes (e.g., dies or is merged out of existence) was represented by a lawsuit agent (訴訟代理人 - soshō dairinin, typically an attorney or bengoshi), the court proceedings are not interrupted by the events listed in CCP Art. 124(1)(i) to (v).
  • Rationale: The appointment of a lawsuit agent indicates that the party has entrusted the conduct of the litigation to a professional. The agent's authority is generally considered to continue (or to be transferable to represent the successor) unless specifically terminated, thus ensuring procedural continuity and efficiency. The agent can continue to act on behalf of the successor interest.
  • Important Nuance – Service of Judgment: A critical exception to this non-interruption rule arises concerning the service of the judgment (判決正本送達 - hanketsu seihon sōtatsu). Even if a lawsuit agent was appointed, the Supreme Court has held (e.g., Judgment of July 15, 1965, Minshū Vol. 19, No. 5, Page 1273) that if a party dies before the judgment is served, the proceedings do interrupt at the point of service with respect to that party. This is to ensure that the successor (e.g., heirs) has a proper opportunity to become aware of the judgment and decide whether to file an appeal, as the original party's mandate to the agent might be seen as terminating upon death for such a crucial decision. This ensures the successor's right to appeal is protected.

III. Succession to the Disputed Right or Obligation (Specific Succession) and Litigation Involvement

This category deals with situations where, during the pendency of a lawsuit, the specific right or obligation that is the subject matter of the litigation is transferred from one of the original parties to a third party. This is a "specific succession" as opposed to the "universal succession" seen in death or merger.

A. Intervention by a Successor to a Right or Obligation (Sanka Shōkei - CCP Art. 49)

  • Who: A third party who, during the pendency of the lawsuit, has succeeded to all or part of the plaintiff's claimed right or the defendant's contested obligation (e.g., an assignee of a debt that is being sued upon, a purchaser of a piece of property whose ownership is in dispute between the original plaintiff and defendant).
  • Action: This third-party successor can, by their own motion, apply to the court to intervene in the pending lawsuit as a plaintiff or defendant, effectively stepping into the shoes of or alongside the original party whose interest they acquired.
  • Procedure: The rules for independent party intervention (独立当事者参加 - dokuritsu tōjisha sanka under CCP Art. 47) apply mutatis mutandis. The intervenor essentially becomes a principal party with respect to the succeeded interest.

B. Assumption of Suit by a Successor to a Right (Hikiuke Shōkei - CCP Art. 50)

  • Who: A third party who, during the pendency of the lawsuit, has succeeded to the right (or part of the right) that is the subject matter of the litigation from one of the original parties (e.g., someone who purchased a claimed patent right from the original plaintiff).
  • Action: The opposing party in the lawsuit can file a motion with the court to compel this third-party successor to assume the lawsuit. If the successor acquired the right from the original plaintiff, they would typically be made to assume the suit as a new plaintiff or co-plaintiff. If they acquired it from the original defendant (e.g., a defendant transferred disputed property to them), the dynamics are more complex and might involve joining them as a defendant.

C. Assumption of Suit by a Successor to an Obligation (CCP Art. 51)

  • Who: A third party who, during the pendency of the lawsuit, has succeeded to the obligation that is the subject matter of the litigation from the original defendant (e.g., a company that contractually assumed a debt being sued upon).
  • Action: The plaintiff can file a motion with the court to compel this third-party successor to assume the lawsuit as a defendant, either in place of or alongside the original defendant.

Rationale for Arts. 49-51: These provisions aim to ensure that the litigation continues with and the judgment binds the entity that is the actual current holder of the disputed right or obligation. This prevents the original party from divesting themselves of the subject matter to frustrate the lawsuit and promotes the finality and effectiveness of judgments.

IV. Corporate Reorganizations (Mergers, Demergers/Spin-offs) and Litigation Succession

Corporate reorganizations are common events that directly engage litigation succession rules.

  • Mergers (合併 - Gappei):
    • As noted (CCP Art. 124(1)(ii)), a merger resulting in the extinction of a corporate party typically leads to interruption and jukei by the surviving or newly formed company, unless a lawsuit agent was appointed for the merged entity. This is a form of universal succession.
  • Company Demergers/Spin-offs (会社分割 - Kaisha Bunkatsu):
    • These are generally treated as forms of specific succession. The outcome depends on which company (the demerging company or the newly formed/successor company) inherits the specific rights or obligations that are the subject matter of the pending lawsuit, according to the demerger plan.
    • If the disputed right/obligation is transferred to a successor company, that company may need to intervene under Article 49 or be compelled to assume the suit under Articles 50 or 51.
    • A careful analysis of the demerger plan and the allocation of assets and liabilities is crucial to identify the proper party to continue the litigation.

V. Succession After Conclusion of Oral Arguments and Res Judicata

It's also important to consider succession that occurs after the fact-finding stage of litigation has concluded.

  • CCP Article 115(1)(iii) provides that a final and binding judgment has res judicata effect against a person who became a successor to a party after the conclusion of oral arguments (口頭弁論終結後の承継人 - kōtō benron shūketsu-go no shōkeinin).
  • In such cases, the successor is bound by the judgment even though they did not formally take over or participate in the proceedings (as those were already closed). This is particularly relevant for the enforcement of the judgment against the current holder of the relevant assets or obligations.

VI. Comparing with Substitution of Parties in Common Law (e.g., U.S. FRCP Rule 25)

For US practitioners, FRCP Rule 25 provides for "Substitution of Parties" in cases of:

  • Death (Rule 25(a))
  • Incompetency (Rule 25(b))
  • Transfer of Interest (Rule 25(c))
  • Public Officers (Rule 25(d))

Similarities: Both Japanese and U.S. systems provide mechanisms to allow lawsuits to continue or for judgments to be effective despite changes concerning the original litigants or the interests in dispute.

Differences:

  • The Japanese CCP's structural distinction between (a) interruption and jukei for universal succession (like death or statutory merger, where the party's legal personality itself is affected) and (b) intervention/assumption for specific succession of the res (the disputed right/obligation) is a key characteristic.
  • The automatic non-interruption of proceedings in Japan if the affected party is represented by a lawsuit agent (CCP Art. 124(2)) is a significant practical rule that often streamlines the process considerably compared to systems that might require a formal motion for substitution even with counsel present.
  • The specific procedures, timelines, and judicial discretion involved can vary.

VII. Strategic Considerations for Litigants

  1. For Companies Undergoing M&A:
    • During due diligence for mergers, acquisitions, or demergers, identify all pending litigation involving the target/transferor entities.
    • Understand how litigation succession will apply under Japanese law based on the transaction structure.
    • Ensure that lawsuit agents (attorneys) are properly instructed and their mandates confirmed if non-interruption of proceedings is desired for efficiency.
    • Clearly allocate responsibility for ongoing litigation in transaction agreements.
  2. For Parties Litigating Against an Entity Undergoing Reorganization:
    • Monitor any corporate restructuring of the opposing party.
    • If a disputed right or obligation is transferred, promptly consider filing a motion for assumption of suit (Arts. 50, 51) to ensure that the correct entity is involved and will be bound by the judgment.
  3. When an Individual Party Dies:
    • The opposing party should ascertain the heirs and consider a motion for them to take over the proceedings (jukei) if the deceased was not represented by a lawsuit agent or if the agent's authority is unclear post-death.
  4. The Value of Appointing and Maintaining a Lawsuit Agent:
    • For continuity, especially for corporate entities that might undergo restructuring, having a Japanese lawsuit agent (attorney) formally appointed in any litigation is highly advantageous as it generally prevents automatic interruption of the proceedings for most common changes in corporate status.

VIII. Conclusion

Japanese civil procedure provides a detailed and logical framework for "litigation succession" (soshō shōkei) to address the inevitable changes that can occur to parties or the subject matter of a dispute during the course of a lawsuit. The rules distinguish clearly between universal succession (often leading to interruption and a formal "taking over" of proceedings, unless an attorney is involved) and specific succession of the disputed right or obligation (which may trigger intervention by the successor or their compelled assumption of the suit).

The presence of a lawsuit agent plays a pivotal role in mitigating procedural disruptions, particularly in cases of corporate mergers or a party's death. For businesses involved in or anticipating litigation in Japan, a proactive understanding of these succession rules is essential for managing litigation risks, ensuring procedural continuity, and ultimately securing judgments that are effective against the true parties in interest.