What Happens if a Party to a Japanese Lawsuit Changes (e.g., Company Merger, Death)? Understanding "Succession to Litigation Status"

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

Lawsuits, particularly complex commercial ones, can often extend over a significant period. During this time, the original parties to the litigation may undergo changes: an individual might pass away, a company might merge with another or be acquired, or the very right or obligation being disputed might be transferred to a third party. Japanese civil procedure has established rules for "Succession to Litigation Status," or Soshō shōkei (訴訟承継), to address these situations. These rules are designed to ensure that lawsuits can continue in a fair and orderly manner, that judgments ultimately bind the correct parties in interest, and that judicial economy is maintained by avoiding unnecessary termination or restarting of proceedings.

I. Understanding "Succession to Litigation Status" (Soshō shōkei) in Japan

A. Definition and Purpose

Soshō shōkei refers to the transfer of a litigant's status—their position as plaintiff or defendant, along with the associated procedural rights and obligations—to another person or entity during the course of a pending lawsuit. This typically occurs when the substantive rights or obligations that form the subject matter of the litigation are transferred from the original party to a successor.

The primary purposes of the rules governing litigation succession are:

  1. Procedural Continuity: To allow a lawsuit to continue despite changes in the identity of the original parties, thereby preserving the progress made and avoiding the need to start afresh where possible.
  2. Judicial Economy: To prevent the waste of judicial resources and party expenses that would result from the premature termination of lawsuits due to such changes.
  3. Protection of Rights: To ensure that the true party in interest (the successor) has the opportunity to participate in the litigation and that the rights of the opposing party are also adequately protected against the correct counterpart.
  4. Ensuring Effectiveness of Judgments: To ensure that the final judgment accurately reflects the current holders of the rights/obligations and is binding upon them.

B. The Need for Succession Rules
Without clear rules for litigation succession, a change in party status could lead to procedural chaos, potentially forcing meritorious claims to be abandoned or allowing parties to evade their responsibilities through corporate restructuring or transfer of assets. The Japanese Code of Civil Procedure (Minji Soshō Hō 民事訴訟法) provides a framework to manage these transitions.

II. Universal Succession (Hōkatsu shōkei - 包括承継) Leading to Procedural Succession by Operation of Law (Often termed Tōzen shōkei - 当然承継 or managed via Soshō tetsuzuki no jukei - 訴訟手続の受継)

This type of succession occurs when an entity succeeds to all or a significant body of the rights and obligations of a former party by operation of law. The procedural consequences often involve an interruption and subsequent takeover of the litigation.

A. Grounds for Universal Succession Impacting Litigation (leading to Interruption of Proceedings - Soshō tetsuzuki no chūdan 訴訟手続の中断 under Code of Civil Procedure, Art. 124)

  1. Death of an Individual Party (Shizenjin no shibō 自然人の死亡) (Art. 124(1)(i) CCP):
    • If an individual plaintiff or defendant dies during a pending lawsuit, the proceedings are automatically interrupted by law.
    • Takeover of Proceedings (Soshō tetsuzuki no jukei 訴訟手続の受継): If the rights or obligations that are the subject matter of the suit are inheritable, the heir(s) (sōzokunin 相続人), an estate administrator (sōzoku zaisan kanrinin 相続財産管理人), an executor of a will (yuigon shikkōsha 遺言執行者), or other person who is to continue the action pursuant to laws and regulations, can "take over the litigation procedure" (Art. 124(1) CCP).
    • Procedure: A motion for takeover (jukei mōshitate 受継申立て) is typically filed by the successor or by the opposing party (Art. 126, Art. 127 CCP). The court examines the fact of death and the legitimacy of the succession.
    • Effect: The successor steps into the procedural shoes of the deceased party, and the lawsuit continues from where it was interrupted. The successor is generally bound by the procedural acts performed by the deceased party.
    • Non-Inheritable Claims: If the claim is purely personal to the deceased (isshin senzoku-teki na kenri 一身専属的な権利, e.g., a claim for defamation that does not involve property damage, or certain family law statuses), the lawsuit may terminate upon the party's death.
  2. Merger or Consolidation of a Corporate Party (Hōjin no gappei 法人の合併) (Art. 124(1)(ii) CCP):
    • If a corporation that is a party to a lawsuit ceases to exist due to a merger (where it is absorbed by another company) or a consolidation (where it combines with another to form a new company), the litigation proceedings are interrupted.
    • Takeover of Proceedings: The succeeding corporation (the absorbing company or the newly established company) takes over the litigation procedure.
    • Procedure and Effect: Similar to succession by death, a motion for takeover is filed, and the succeeding corporation continues the lawsuit.
  3. Loss of Capacity to Litigate or Extinction of Representative's Authority (Art. 124(1)(iii)-(v) CCP):
    Other grounds for interruption (and subsequent takeover or appointment of a new representative) include a party losing its capacity to litigate (soshō nōryoku 訴訟能力) during the suit (and not having a legal representative), or a legal representative dying or losing their authority to represent.

B. Essence of Tōzen shōkei (Succession by Operation of Law)
In these cases of universal succession, the transfer of the litigant's status is often considered to happen "naturally" or "by operation of law" (tōzen shōkei 当然承継) due to the underlying substantive law changes. The procedural interruption and takeover are mechanisms to formally reflect this change in the ongoing lawsuit.

III. Succession to Specific Rights or Obligations During Litigation (Tokutei shōkei - 特定承継) and Its Procedural Consequences

This scenario arises when, during the pendency of a lawsuit, the specific right or obligation that is the subject matter of the litigation (e.g., a particular piece of property being disputed, a specific contractual claim) is transferred from an original party to a third party (a "successor in title" - tokutei shōkei'nin 特定承継人).

A. General Rule: No Automatic Succession to Party Status
Unlike universal succession, the mere transfer of the disputed right or obligation to a third party during litigation does not automatically make that third party a litigant in place of the original party. The original plaintiff or defendant generally remains the party of record, and the lawsuit continues between them. This is because the identity of the parties is fixed at the commencement of the suit for procedural stability.

B. Mechanisms for Involving the Successor in Title in the Litigation
However, to ensure the judgment is effective against the true holder of the right/obligation and to allow the successor to protect their interests, the Code of Civil Procedure provides specific mechanisms:

  1. Intervention by the Successor to Assume the Action (Intervention as Successor - Sanka shōkei 参加承継) (Code of Civil Procedure, Art. 49):
    • "A third party who has succeeded to the whole or part of the right or obligation that is the subject matter of the suit during its pendency may, upon obtaining leave of court for intervention, intervene in the suit to succeed to the position of a party with regard to said right or obligation by filing a petition against both parties or either party..." (Art. 49(1), simplified).
    • Nature: This allows the third-party successor to proactively step into the shoes of the original party they are succeeding.
    • Procedure: The successor files a motion to intervene. The court considers the motion, often applying mutatis mutandis the rules for independent party intervention (Art. 51 applying Art. 47). This may involve hearing the original parties.
    • Effect: If intervention is permitted, the successor typically becomes a party, and the original party they succeeded (the predecessor) may be allowed to withdraw from the litigation concerning the succeeded part, or the relationship among the three (predecessor, successor, and opponent) may resemble a tripartite lawsuit.
  2. Assumption of the Lawsuit by the Successor (Assumption of Litigation Status - Hikiuke shōkei 引受承継) (Code of Civil Procedure, Art. 50):
    This provision allows an existing party to bring the successor into the lawsuit, or for the successor to voluntarily take over.
    • Paragraph 1 (Assumption of Obligation): When a third party has succeeded to an obligation that is the subject matter of the suit during its pendency, the court may, upon a motion by a party, have said third party assume the suit by a ruling, after hearing the parties and said third party.
    • Paragraph 2 (Assumption of Right): When a third party has succeeded to a right that is the subject matter of the suit during its pendency, the court may, upon a motion by said third party, permit said third party to assume the suit by a ruling, after hearing the parties.
    • Effect: The successor becomes a party to the litigation, usually replacing the original party with respect to the succeeded right or obligation.
  3. Application of Independent Party Intervention Rules (Code of Civil Procedure, Art. 51):
    Article 51 importantly states that the provisions of Article 47 (which governs Independent Party Intervention - dokuritsu tōjisha sanka 独立当事者参加) shall apply mutatis mutandis to the intervention under Article 49 and the assumption under Article 50. This means that the procedural handling can become complex, potentially creating a three-sided litigation structure where a unified judgment is required, similar to independent party intervention.

C. Binding Effect of Judgment on Successors in Title (Code of Civil Procedure, Art. 115(1)(iii))
Even if a successor in title to the disputed right or obligation does not formally join or assume the litigation through Articles 49 or 50, a final and binding judgment rendered between the original parties will still extend its res judicata effect to:
"A person who has become a successor in title of a party after the close of oral arguments" (kōtō benron shūketsu-go no tokutei shōkei'nin 口頭弁論終結後の特定承継人).

  • This critical provision prevents litigants from evading the consequences of an impending unfavorable judgment by transferring the disputed asset or right at the last minute. The "close of oral arguments" is the point at which the factual basis for the judgment is typically fixed.

IV. Distinguishing Procedural Succession from Substantive Assignment

It is important to distinguish the procedural act of succeeding to litigation status from the substantive law act of assigning a right or assuming an obligation.

  • A valid assignment of a contractual right under the Civil Code transfers the right itself. However, if that right is already the subject of a pending lawsuit by the assignor, the assignee does not automatically become the plaintiff. The procedural steps for sanka shōkei or hikiuke shōkei would generally be necessary if the assignee wishes to become the formal litigant.
  • If no procedural succession occurs, the original assignor might continue the litigation, potentially in a capacity similar to a trustee for the assignee, or the assignee might await the outcome and then enforce their acquired right based on the judgment (subject to rules on binding effects).

V. Impact on Business Transactions Involving Litigating Entities or Assets

The rules of litigation succession have significant practical implications for businesses:

  • Mergers and Acquisitions (M&A):
    • If a company involved in active litigation is acquired by or merges with another company, the surviving or newly formed entity will, through the process of interruption and takeover (jukei), typically step into the shoes of the original litigating company.
    • Thorough due diligence on all pending and potential litigation is therefore crucial before any M&A transaction.
  • Asset Sales:
    • If a specific asset (e.g., real estate, a patent, a significant piece of machinery) that is the subject matter of an ongoing lawsuit is sold, the buyer (as a successor in title) needs to be aware of the pending litigation.
    • The buyer might consider intervening as a successor (sanka shōkei) to protect their newly acquired interest. Alternatively, the original parties might seek to have the buyer assume the litigation (hikiuke shōkei).
    • Even if the buyer does not formally join, they could be bound by the judgment if the transfer occurred after the close of oral arguments (Art. 115(1)(iii)).
  • Assignment of Claims (e.g., Debt Factoring):
    • If a creditor assigns a debt that is already the subject of a collection lawsuit, the assignee (the factoring company, for example) may wish to take over the litigation to directly control its prosecution.
  • Insolvency Proceedings: If a party becomes bankrupt, a bankruptcy trustee (hasan kanzai'nin) is appointed and generally takes over litigation concerning the bankrupt's estate.

VI. Procedural Steps and Court Involvement

  • Motions for takeover of proceedings, intervention as successor, or assumption of litigation are filed with the court where the lawsuit is pending.
  • The court will examine the factual basis for the alleged succession (e.g., death certificate and proof of heirship, merger registration, assignment agreement) and its legal validity.
  • The opposing party (and in cases of intervention/assumption, the original party being succeeded) will generally have an opportunity to be heard and to raise objections.
  • The court's decision on allowing procedural succession is typically made by a court ruling (kettei 決定).

Conclusion

Changes in the identity or status of parties during the course of litigation are an inevitable reality, particularly in long-running commercial disputes. Japanese civil procedure, through the mechanisms of interruption and takeover (jukei) for universal succession (like death or merger) and the more complex rules for intervention as successor (sanka shōkei) and assumption of litigation status (hikiuke shōkei) for specific succession (transfer of disputed rights/obligations), provides a structured framework to manage these transitions. These rules strive to balance procedural continuity and judicial economy with the protection of the rights of all involved parties, ensuring that lawsuits can proceed to a meaningful conclusion and that judgments ultimately bind the true parties in interest. For businesses involved in or affected by such changes, understanding these succession principles is key to navigating the litigation process effectively.