2020.09.08

2019 (Ju) 61

Minshu Vol. 74, No. 6

Judgment concerning the case in which the Court found that the orderer's act of acquiring claims to receive penalties from a bankrupt based on a contract work agreement concluded prior to the suspension of payments by the bankrupt, who is the contractor, can be considered to have occurred due to "A cause that had occurred before the person who owes a debt to the bankrupt came to know the fact" referred to in Article 72, paragraph (2), item (ii) of the Bankruptcy Act and concluded that it is permissible to conduct a set-off by considering the aforementioned claims for penalties as active claims

Case seeking payment of the cost of the contract work

Judgment of the Third Petty Bench, quashed and decided by the Supreme Court

Fukuoka High Court, Judgment of September 21, 2018

Bankrupt P, who is the contractor, had concluded multiple contract work agreements with Orderer Y before P suspended payments. Each of said agreements contains a provision to the effect that, if a construction work cannot be completed within the scheduled construction period due to any reason attributable to P, Y may cancel the agreement and also a provision to the effect that, if the agreement is canceled under the aforementioned provision, Y would be entitled to acquire a claim for a certain amount of penalty. Under these circumstances, Y's acts of canceling some of the aforementioned contract work agreements for which the construction works had not been completed after Y came to know the suspension of payments by P and consequently acquiring claims for penalties can be considered to have occurred due to "A cause that had occurred before the person who owes a debt to the bankrupt came to know the fact that the bankrupt had suspended payments." Therefore, it is permissible to conduct a set-off between the aforementioned claims for penalties and the claims for compensations that are receivable based on some of the aforementioned contract work agreements for which compensations have not been paid by considering the claims for penalties as active claims and the claims for compensations as passive claims regardless of whether these active claims and passive claims arise based on the same contract work agreements or not.

Article 72, paragraph (1), item (iii) and Article 72, paragraph (2), item (ii) of the Bankruptcy Act



Bankruptcy Act

Article 72, paragraph (1), item (iii)

(1) A person who owes a debt to the bankrupt may not effect a set-off in the following cases:

(iii) Where the person has acquired a bankruptcy claim after the bankrupt suspended payments, and the person knew, at the time of acquisition of the claim, the fact that the bankrupt had suspended payments; provided, however, that this shall not apply if the bankrupt was not unable to pay debts at the time when the bankrupt suspended payments.



Bankruptcy Act

Article 72, paragraph (2), item (ii)

(2) The provisions of item (ii) to item (iv) of the preceding paragraph shall not apply where the acquisition of a bankruptcy claim prescribed in these provisions arose from any of the causes listed in the following items:

(ii) A cause that had occurred before the person who owes a debt to the bankrupt came to know the fact that the bankrupt had been unable to pay debts, that the bankrupt had suspended payments or that a petition for commencement of bankruptcy proceedings had been filed

1. Of the judgment in prior instance, the part against the appellant of final appeal is quashed.

2. Regarding the part related to the preceding paragraph, the appeal of the appellee of final appeal is dismissed.

3. The costs of appeal and the costs of final appeal shall be borne by the appellee.

Concerning Reasons IV-1 and IV-2 for a petition for acceptance of final appeal stated by the counsel for final appeal, YAMAMOTO Norio and MATSUMURA Tatsuki

1. This is a case in which the appellee, who is a bankruptcy trustee, requested the appellant to pay compensations under multiple contract work agreements concluded between the bankrupt and the appellant. The appellant alleged that the appellant acquired claims for penalties based on some provisions set forth in some of the contract work agreements before the commencement of the bankruptcy proceedings and demanded a set-off by using the claims for penalties as active claims.

2. The outline of the facts lawfully determined by the court of prior instance is as follows.

(1) During the period from September 2015 to April 2016, the appellant and Nishikensetsu Kabushiki Kaisha (the "bankrupt company") concluded multiple contract work agreements stated in A to D of the attached list of contract work agreements (hereinafter individually referred to as "Agreement A," etc. and collectively as the "Agreements") with the appellant as the orderer and the bankrupt company as the contractor.

(2) Each of the Agreements contains the following provisions (the "Provisions") in summary.

A. The orderer may cancel the agreement if the construction work is not completed within the scheduled construction period due to any reason attributable to the contractor.

B. If the agreement is canceled under the provision referred to in A. above, the contractor shall pay a penalty equivalent to one tenth of the amount of compensation.

(3) The bankrupt company completed the construction work contracted under Agreement C by June 10, 2016. However, regarding the construction works contracted under the rest of the Agreements, namely, Agreement A, Agreement B, and Agreement D (hereinafter collectively referred to as the "Unfulfilled Agreements"), the bankrupt company explained to the appellant on June 15, 2016 that the bankrupt company was experiencing financial problems and having difficulty in continuing the construction works. In response, the appellant instructed the bankrupt company to submit a notice of incapability to continue the construction works.

(4) The appellant, who learned of the suspension of payments by the bankrupt company, expressed its intention to the bankrupt company by June 20, 2016, to the effect that the appellant would cancel the Unfulfilled Agreements under the Provisions. Consequently, under the Provisions set forth in the Unfulfilled Agreements, the appellant acquired claims for penalties (the "Claims for Penalties") of 21,986,532 yen in total and also another claim of 751,142 yen. The total of all claims added up to 22,737,674 yen. On the other hand, the bankrupt company acquired claims for compensations of 22,686,429 yen in total (the "Claims for Compensations") under Agreement A to Agreement C by the aforementioned date.

(5) On June 23, 2016, the bankrupt company received a decision of commencement of the bankruptcy proceedings. The appellee was appointed as the bankruptcy trustee.

(6) On August 5, 2016, the appellant expressed its intention to conduct a set-off between the Claims for Penalties, etc. mentioned in (4) above, etc. of 22,737,674 yen in total and the Claims for Compensations of 22,686,429 yen in total by considering the former claims as active claims and the latter claims as passive claims (out of this set-off, the part conducted by using the Claims for Penalties as active claims shall be hereinafter referred to as the "Set-off").

3. Based on the aforementioned facts, the court of prior instance found the effect of the Set-off as follows and partially accepted the appellee's request.

(1) The orderer acquired the Claims for Penalties when the orderer exercised the right to cancel due to the reason set forth in the Provisions. Thus, the Claims for Penalties can be considered to be "bankruptcy claims" referred to in Article 72, paragraph (1), item (iii) of the Bankruptcy Act.

(2) Article 72, paragraph (2), item (ii) of the Bankruptcy Act specifies that a set-off shall not be prohibited in order to satisfy a reasonable expectation to the effect that a set-off will perform the function of providing security even in a case where the set-off involves a bankruptcy claim referred to in Article 72, paragraph (1), item (iii) of said Act. For this reason, it can be considered to be reasonable to expect a set-off between the claims for penalties based on the Provisions of certain contract work agreements and the claims for compensations based on those contract work agreements, which should be subject to simultaneous performance in a compensatory sense, by considering the claims for penalties as active claims and the claims for compensations as passive claims. However, it would be unreasonable to expect a set-off to be conducted by using a claim for a compensation based on a different contract work agreement by considering said claim as a passive claim. Thus, out of the Set-off, any set-off between a claim for a penalty, i.e. active claim, and a claim for a compensation, i.e. passive claim, that do not arise based on the same contract work agreement should not be permitted.

4. However, although it is possible to uphold the determination of the court of prior instance presented in 3. (1) above, the determination presented in 3. (2) above cannot be upheld for the following reasons.

(1) Article 72 of the Bankruptcy Act can be interpreted as follows: in order to protect the objective of bankruptcy proceedings, which must be conducted based on the basic principle of ensuring fair and equal treatment of creditors in terms of their bankruptcy claims, the main clause of Article 72, paragraph (1), item (iii) specifies that, if any person who has a debt to the bankrupt has learned of the suspension of payments and acquired a bankruptcy claim receivable from the bankrupt, a set-off by considering said claim as an active claim must not be conducted; on the other hand, Article 72, paragraph (2), item (ii) does not prohibit a set-off, if the aforementioned bankruptcy claim is acquired due to "A cause that had occurred before the person who has a debt to the bankrupt came to know the fact that the bankrupt had suspended payments," because said person's expectation that a set-off would perform the function of providing security can be considered to be reasonable and also because the satisfaction of such expectation would not go against the objective of the aforementioned bankruptcy proceedings (2012 (Ju) No. 908, judgment of the First Petty Bench of the Supreme Court of June 5, 2014, Minshu Vol. 68, No. 5, at 462).

(2) A. The appellant actually acquired the Claims for Penalties as a result of canceling the Unfulfilled Agreements based on the Provisions after having learned of the suspension of payments by the bankrupt company. Therefore, the Claims for Penalties can be considered to be bankruptcy claims referred to in Article 72, paragraph (1), item (iii) of the Bankruptcy Act.

B. All of the Claims for Penalties arise based on the Unfulfilled Agreements concluded between the appellant and the bankrupt company before the suspension of payments by the bankrupt company. The Provisions included in each of the Unfulfilled Agreements specify that the appellant is entitled to acquire a claim for a certain amount of penalty only if a construction work is not completed within the scheduled construction period due to any reason attributable to the bankrupt company and only if the appellant expresses the intention to cancel the agreement. It can be said that the appellant and the bankrupt company planned to conduct a simultaneous settlement by considering the claims for penalties based on the Provisions as active claims and the bankrupt company's claims for compensations as passive claims if the bankrupt company suspends payments. It can be said that, as of the time of the conclusion of each of the Unfulfilled Agreements, the appellant had a reasonable expectation that, if the appellant conducted a set-off by using the Claims for Penalties, the set-off would perform the function of providing security regardless of whether the active claims and the passive claims had arisen based on the same contract work agreements. Even if said set-off is permitted, it would not go against the objective of the aforementioned bankruptcy proceedings.

Therefore, the Claims for Penalties can be considered to have been acquired due to "A cause that had occurred before the person who owes a debt to the bankrupt came to know the fact that the bankrupt had suspended payments" referred to in Article 72, paragraph (2), item (ii) of the Bankruptcy Act. Thus, a set-off between the Claims for Penalties, i. e., active claims, and the Claims for Compensations, i.e., passive claims, should be permitted regardless of whether the active claims and the passive claims had arisen based on the same contract work agreements or not.

5. On these grounds, the determination of the court of prior instance that the Set-off should not be permitted unless a claim for a penalty, i.e., active claim, and a claim for a compensation, i.e., passive claim, had arisen based on the same contract work agreement contains violation of laws and regulations that obviously affects the judgment. Regarding this point, the counsel's arguments are well-grounded. Of the judgment in prior instance, the part against the appellant should inevitably be quashed. On these grounds, all of the appellee's requests are groundless. Since the judgment in first instance that dismissed the requests is justifiable, the aforementioned part of the appeal filed by the appellee should be dismissed.

Accordingly, the Court unanimously decides as set forth in the main text of the judgment.

Justice HAYASHI Keiichi

Justice TOKURA Saburo

Justice MIYAZAKI Yuko

Justice UGA Katsuya

Justice HAYASHI Michiharu