2013.11.21

2012 (Kyo) 43

Minshu Vol. 67, No. 8

Decision concerning whether or not a third party who is to be subject to the effect of a final and binding judgment that upholds a claim pertaining to an action seeking invalidation of a new share issue has standing to file an action for retrial against such final and binding judgment

Case of appeal with permission against the ruling to dismiss the appeal against an order to dismiss a claim for retrial

Decision of the First Petty Bench, quashed and remanded

Tokyo High Court, Decision of August 23, 2012

1. A third party who is to be subject to the effect of a final and binding judgment that upholds a claim pertaining to an action seeking invalidation of a new share issue obtains standing to file an action for retrial against said final and binding judgment, by filing an application for intervention as an independent party in the suit in which said final and binding judgment was rendered.

2. Where the litigation activities carried out by a stock company sued in an action seeking invalidation of a new share issue are extremely contrary to good faith and it is inappropriate, from the perspective of guaranteeing due process, to extend the effect of a final and binding judgment that upholds a claim pertaining to said action to a third party who is to be subject to the effect of said final and binding judgment, the grounds for retrial set forth in Article 338, paragraph (1), item (iii) of the Code of Civil Procedure exist with regard to said final and binding judgment.

3. Where a judgment that upholds a claim pertaining to an action seeking invalidation of a new share issue became final and binding, given the circumstances described in the judgment, including (1) through (4) below, it may be possible to find the grounds for retrial set forth in Article 338, paragraph (1), item (iii) of the Code of Civil Procedure with regard to the final and binding judgment that upholds a claim pertaining to said action because the litigation activities carried out by the stock company sued in said action are extremely contrary to good faith, and it is inappropriate, from the perspective of guaranteeing due process, to extend the effect of said final and binding judgment to a third party who is to be subject to the effect thereof:
(1) said third party was not aware of the pendency of the suit pertaining to said action or was given no opportunity to have him/herself involved in the proceedings of said suit;
(2) even before said suit had become pending before the court, said third party had insisted to said stock company that the issue of the shares that he/she acquired was valid, and if said third party had become aware of the pendency of said suit, said third party obviously would have intervened in said suit or taken other measures to protect his/her own right, thereby challenging the claim for invalidation of the share issue, and said stock company should have been fully aware of such a situation;
(3) said stock company did not at all contest the plaintiff's claim in said suit, but rather, according to the direction given by the court in charge of the case to submit additional proof regarding the facts constituting the cause of claim, said stock company voluntarily submitted the documentary evidence that supported the facts constituting the cause of claim; and
(4) said stock company did not notify said third party of the pendency of said suit although it could have easily done this.

(Concerning 1 to 3) Article 828, paragraph (1), item (ii) and Article 838 of the Companies Act; (Concerning 1) Part I, Chapter III of the Code of Civil Procedure (Parties), and Articles 47 and 338 of said Code; (Concerning 2 and 3) Article 2 and Article 338, paragraph (1), item (iii) of the Code of Civil Procedure

Companies Act
(Actions Seeking Invalidation of Acts Concerning the Organization of a Company)
Article 828
(1) Invalidation of the acts listed in the following items may only be asserted by filing an action during the periods specified respectively in those items:
(ii) share issue after the formation of a Stock Company: within six months from the day on which the share issue became effective (or, for a Stock Company which is not a Public Company, within one year from the day on which the share issue became effective)

(Persons Affected by an Upholding Judgment)
Article 838
A final and binding judgment upholding a claim relating to an Action Concerning Organization of Company shall also be effective against third parties.

Code of Civil Procedure
(Responsibilities of Courts and Parties)
Article 2
Courts shall endeavor to ensure that civil suits are carried out fairly and expeditiously, and parties shall conduct civil suits in good faith.

(Intervention as Independent Party)
Article 47
(1) A third party who asserts that his/her right would be prejudiced depending on the outcome of a suit or a third party who asserts that he/she is entitled to the whole or part of the subject matter of a suit may intervene in the suit as a party, designating either or both of the parties to the suit as his/her opponent(s).
(2) An application for intervention under the provisions of the preceding paragraph shall be made by means of a document.
(3) The document set forth in the preceding paragraph shall be served upon both parties.
(4) The provisions of Article 40, paragraphs (1) through (3) shall apply mutatis mutandis to the parties to a suit set forth in paragraph (1) and the person who has intervened in the suit pursuant to the provisions of said paragraph, and the provisions of Article 43 shall apply mutatis mutandis to an application for intervention under the provisions of said paragraph.

(Grounds for Retrial)
Article 338
(1) Where any of the following grounds exist, an appeal may be entered by filing an action for retrial against a final judgment that has become final and binding; provided, however, that this shall not apply where a party, when filing the appeal to the court of second instance or final appeal, alleged such grounds or did not allege them while being aware of them:
(i) The court rendering judgment was not composed in accordance with law.
(ii) A judge who shall not be allowed by law to participate in making the judgment participated in making the judgment.
(iii) The judgment was made in the absence of the authority of statutory representation, authority of representation in a suit or the delegation of powers necessary for performing procedural acts.
(iv) The judge who participated in making the judgment has committed a crime in relation to his/her duties with regard to the case.
(v) Another person's act that is criminally punishable caused the party to admit any fact or prevented him/her from advancing allegations or evidence that should have affected a judgment.
(vi) The documents or any other objects used as evidence for making the judgment were forged or altered.
(vii) False statements by a witness, an expert witness, interpreter or a party or statutory agent who had sworn were used as evidence for making the judgment.
(viii) The judgment or other judicial decision on a civil or criminal case or administrative disposition, based on which the judgment pertaining to the appeal was made, has been modified by a subsequent judicial decision or administrative disposition.
(ix) There was an omission in a determination with regard to material matters that should have affected a judgment.
(x) The judgment pertaining to an appeal conflicts with a previous judgment that has become final and binding.
(2) Where any of the grounds set forth in items (iv) through (vii) of the preceding paragraph exist, an action for retrial may be filed only if, with regard to a punishable act, a judgment of conviction or judgment of a non-criminal fine has become final and binding, or a final and binding judgment of conviction or final and binding judgment of a non-criminal fine cannot be obtained due to grounds other than grounds of lack of evidence.
(3) When the court of second instance has made a judgment on the merits with regard to the case, no action for retrial may be filed against the judgment made by the court of first instance.

The decision in prior instance is quashed.
The case is remanded to the Tokyo High Court.

I. Outline of the case
1. This is a case of an action for retrial filed by the appellant, who is to be subject to the effect of a final and binding judgment that upheld a claim pertaining to an action seeking invalidation of a share issue after the formation of a stock company (hereinafter referred to as an "action seeking invalidation of a new share issue"), alleging that the grounds for retrial set forth in Article 338, paragraph (1), item (iii) of the Code of Civil Procedure exist with regard to said final and binding judgment.

2. According to the case records, the outline of the case is as follows.
(1) On February 7, 2011, Appellee of Final Appeal Y1 issued 1,500 common shares as a result of the appellant's exercise of share options (hereinafter this share issue shall be referred to as the "Share Issue"), and the appellant became a shareholder of these shares.
At the time of the Share Issue, the appellant was a representative director of Appellee Y1. On March 15, 2011, the appellant was dismissed as a representative director, and subsequently, by content-certified mail dated March 30, Appellee Y1 gave notice to P, who claimed to have obtained a pledge created on Appellee Y1's shares held by the appellant, to state that, inter alia, the Share Issue had been conducted by creating the appearance of the necessary payment having been made by using show money and therefore it was invalid. In response, by content-certified mail dated April 1, 2011, the appellant and P gave notice to Appellee Y1 to state, among others, that the Share Issue was valid.
(2) On July 13, 2011, Appellee Y2, who is a shareholder of Appellee Y1, filed with the Tokyo District Court an action against Appellee Y1 to seek a declaratory judgment of the absence of the Share Issue, and later filed an action alternatively seeking invalidation of the Share Issue (hereinafter the suit pertaining to these actions shall be referred to as the "Previous Suit"). In the Previous Suit, Appellee Y2 alleged that the Share Issue was nothing more than the result of creating the appearance of the necessary payment having been made using show money.
On the first date for oral argument in the proceedings of the Previous Suit, Appellee Y1 agreed with Appellee Y2's claim and gave an answer admitting all facts constituting the cause of action. However, the court in charge of the Previous Suit examined the documentary evidence submitted by both parties and decided to continue oral argument while directing Appellee Y2 to consider submitting additional proof regarding the facts constituting the cause of claim. On the second date for oral argument, the court examined the written statement submitted by Appellee Y1 stating that the Share Issue had been conducted by using show money, and concluded oral argument, and on September 27, 2011, it rendered a judgment to invalidate the Share Issue (hereinafter referred to as the "Previous Judgment"). The Previous Judgment became final and binding upon the passing of October 14, 2011.
(3) On October 19, 2011, the appellant became aware of the fact that the Previous Suit had been initiated and the Previous Judgment had been rendered, and on November 11, 2011, the appellant filed an application for intervention in the Previous Suit as an independent party (hereinafter the intervention as an independent party by this application shall be referred to as the "Intervention as Independent Party"), and filed this action for retrial.

3. The court of prior instance dismissed the appellant's claim pertaining to this action for retrial, holding that: [i] the appellant is to be subject to the effect of the Previous Judgment and is entitled to intervene in the Previous Suit through supporting intervention as a quasi-coparty, and therefore the appellant can be deemed to have standing to file this action for retrial; [ii] however, even where the appellees had led the Previous Judgment to become final and binding without notifying the appellant of the pendency of the Previous Suit, and this resulted in prejudice to the appellant's right, such a situation cannot be regarded as representing that the grounds for retrial set forth in Article 338, paragraph (1), item (iii) of the Code of Civil Procedure exist.

II. Review by this court's own authority
A third party who is to be subject to the effect of a final and binding judgment that upholds a claim pertaining to an action seeking invalidation of a new share issue is not a party to the suit in which said final and binding judgment was rendered, and therefore even by filing an action for retrial against said final and binding judgment as a plaintiff in retrial, such third party is not entitled to perform any procedural act with regard to the merits of said suit and does not have the status to affect the determination in said final and binding judgment. Accordingly, even where said third party files an action for retrial against said final and binding judgment, he/she is unable to attain the aim of the action and therefore cannot be deemed as a matter of fact to have standing to file such action for retrial.
However, where said third party files an application for intervention as an independent party in addition to filing said action for retrial, said third party is to perform a procedural act through such intervention as an independent party after an order of commencement of retrial becomes final and binding, and due to the requirement of determination of the subject matter in a single form for both a party to the suit and a third party, he/she will be able to affect the determination in said final and binding judgment. In such case, proceedings of the suit in which the final and binding judgment was rendered will be resumed when an order of commencement of retrial is made, and in this respect, it can be deemed that there is a pending suit in which said third party is to intervene, which is a requisite for applying for intervention as an independent party.
Assuming so, it should be said that a third party who is to be subject to the effect of a final and binding judgment that upholds a claim pertaining to an action seeking invalidation of a new share issue obtains standing to file an action for retrial against said final and binding judgment, by filing an application for intervention as an independent party in the suit in which said final and binding judgment was rendered. The judicial precedent, 1984 (O) No. 1122, judgment of the Second Petty Bench of the Supreme Court of November 10, 1989, Minshu Vol. 43, No. 10, at 1085, was a case in which, under the Former Code of Civil Procedure, a third party who was to be subject to the effect of a final and binding judgment was unable to file a lawful application for intervention as an independent party and the court denied said third party's standing to file an action for retrial. This precedent does not pose a conflict with this case.
According to the case records, the court in first instance made an order to dismiss a claim pertaining to this action for retrial on March 30, 2012, and subsequently, in the case in which the appellant filed an application for the Intervention as Independent Party, a judgment was rendered on April 3, 2012, to dismiss said application due to the absence of the pending suit in which the appellant was to intervene, and at present, said case is pending before the court of second instance. And yet, the court of prior instance, without examining the legality of the Intervention as Independent Party from the abovementioned viewpoint, held that the appellant was to subject to the effect of the Previous Judgment and was entitled to intervene in the Previous Suit through supporting intervention as a quasi-coparty, and immediately acknowledged the appellant's standing to file this action for retrial. Such holdings of the court of prior instance contain violation of laws and regulations that apparently affects the judicial decision.

III. Concerning the reasons for appeal argued by the appeal counsel, ENOMOTO Mineo, MATSUI Satoshi, and HIRATA Kazuo
It is provided that in an action seeking invalidation of a new share issue, only the stock company that has issued the shares has standing to be sued (Article 834, item (ii) of the Companies Act). Hence, as long as such stock company has been conducting a suit pertaining to such action, even if a third party who is to subject to the effect of a final and binding judgment of said suit was not aware of the pendency of said suit or was given no opportunity to have him/herself involved in the proceedings of said suit, it cannot immediately be said that the grounds for retrial set forth in Article 338, paragraph (1), item (iii) of the Code of Civil Procedure exist with regard to said final and binding judgment.
However, parties must conduct civil suits in good faith (Article 2 of the Code of Civil Procedure), and in particular, since a stock company which is granted standing to be sued in an action seeking invalidation of a new share issue is in effect also in the position to be involved in proceedings on behalf of a third party who is to be subject to the effect of said final and binding, such stock company is required to carry out litigation activities while giving consideration to the interest of such third party and placing more emphasis on good faith. Assuming so, from the perspective of guaranteeing due process, we cannot agree to the view that said third party is not allowed at all to subsequently challenge the effect of said final and binding judgment, whatever litigation activities said stock company has conducted. Rather, in cases where the litigation activities carried out by said stock company are extremely contrary to good faith and it is inappropriate, from the perspective of guaranteeing due process, to extend the effect of said final and binding to said third party, it should be said that the grounds for retrial set forth in Article 338, paragraph (1), item (iii) of the Code of Civil Procedure exist with regard to said final and binding judgment.
In this case, even before the Previous Suit had become pending before the court, the appellant had insisted to Appellee Y1 by content-certified mail that the Share Issue was valid. If the appellant had become aware of the pendency of the Previous Suit, the appellant obviously would have intervened in the Previous Suit or taken other measures to protect his/her own right, thereby challenging Appellee Y2's claim for invalidation of the Share Issue, and Appellee Y1 should have been fully aware of such a situation.
Nevertheless, Appellee Y1 did not at all contest Appellee Y2's claim in the Previous Suit, but rather, according to the direction given by the court in charge of the case to submit additional proof regarding the facts constituting the cause of claim, Appellee Y1 voluntarily submitted the documentary evidence that supported the facts constituting the cause of claim. Moreover, Appellee Y1 did not notify the appellant of the pendency of the Previous Suit when the appellant had not been aware of it although it could have easily done this. As a result, the appellant lost the chance to intervene in the Previous Suit or take other measures to contest the claim for invalidation of the Share Issue.
In view of such series of developments in the situation, the litigation activities carried out by Appellee Y1 in the Previous Suit are extremely contrary to good faith if they are considered as those to be carried out by a person who is granted standing to be sued under the Companies Act, and it is inappropriate, from the perspective of guaranteeing due process, to extend the effect of the Previous Judgment to the appellant, and therefore it may be possible to find the grounds for retrial set forth in Article 338, paragraph (1), item (iii) of the Code of Civil Procedure with regard to the Previous Judgment. And yet, the court of prior instance failed to fully examine the case from the abovementioned viewpoint, and denied the existence of said grounds for retrial. Hence, the holdings of the court of prior instance mentioned above contain violation of laws and regulations that apparently affects the judicial decision. The appeal counsel's arguments are well-grounded in that they allege this point.

IV. Conclusion
For the reasons presented above, the decision in prior instance should inevitably be quashed. Therefore, we remand the case to the court of prior instance in order to have the court, according to the explanation given hereinabove, fully examine whether or not the appellant has standing to file this action for retrial, and, if the appellant is found to have such standing, further examine whether or not the grounds for retrial set forth in Article 338, paragraph (1), item (iii) of the Code of Civil Procedure exist.

Therefore, the decision has been rendered in the form of the main text by the unanimous consent of the Justices.

Justice SHIRAKI Yu
Justice SAKURAI Ryuko
Justice KANETSUKI Seishi
Justice YOKOTA Tomoyuki
Justice YAMAURA Yoshiki