2024.07.08

2022 (Ju) 1780

Minshu Vol. 78, No. 3

(Civil Case)Judgment concerning a case in which the court ruled that a resolution passed by the board of directors to pay to a retiring director the amount of retirement allowance calculated by reducing the base amount prescribed in the internal regulations cannot be regarded as going beyond the bounds of the board of directors' discretionary power or constituting an abuse of such power in the case where a resolution was passed at a shareholders meeting to leave it entirely to the board of directors to decide the retirement allowance for the retiring director according to the internal regulations

Case seeking retirement allowance, etc.

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

Fukuoka High Court, Miyazaki Branch, Judgment of July 6, 2022

Where a stock company has internal regulations that provide that a retirement allowance for a retiring director is decided on the basis of an amount that is unambiguously fixed by factors such as the monthly amount of remuneration at the time of retirement (the "base amount"), while also providing that the board of directors may reduce the base amount for a retiring director who has caused particularly serious damage while in office, and a resolution was passed at the company's shareholders meeting to leave it entirely to the board of directors to decide, according to the internal regulations, the retirement allowance for a person who is to retire as the director, given the following circumstances (1) to (4) as described in the judgment, the resolution passed by the company's board of directors to pay to that person, as retirement allowance, 57 million yen, which is the amount calculated by reducing the amount calculated as the based amount for the person's retirement allowance, 377.2 million yen, cannot be regarded as going beyond the bounds of the board of directors' discretionary power or constituting an abuse of such power:

(1) the board of directors passed the abovementioned resolution by taking into consideration that the abovementioned person acted as follows while in office as the representative director: [i] the person continued to receive accommodation expenses, etc. in excess of the maximum amount prescribed in the internal regulations from the company over a long period of time, and after this fact was revealed, the person increased the amount of their own remuneration with the intention of shifting the amount equivalent to the withholding tax on the amount of such excess, which the person had once borne, to the company, and ensuring that the payment of accommodation expenses, etc. in violation of the internal regulations would be made substantially permanently; and [ii] for several fiscal years, the person had the company pay an amount that was considerably in excess of the amount previously paid as entertainment expenses;

(2) the investigation report, which provided the results of the investigation, etc. conducted by the investigation committee composed of lawyers and other persons who had no interest relationship with the abovementioned person, pointed out that the person's act mentioned in [i] above could constitute the crime of aggravated breach of trust, that the person's act mentioned in [ii] above also cannot be justified, and that the person caused extensive damage to the company by committing these acts;

(3) the board of directors passed the abovementioned resolution while taking into account the content of the investigation report, and it does not seem that the information collected by the investigation committee in the course of the investigation, etc. was insufficient; and

(4) the board of directors also discussed the proposal presented by the investigation committee to file a first-hand crime report regarding the act mentioned in [i] above and pay no retirement allowance, but as a result of deliberation, it finally decided to considerably reduce the amount of retirement allowance without filing a first-hand crime report.

Article 361, paragraph (1), item (i) of the Companies Act

The judgment in prior instance is quashed, and the judgment in first instance is revoked.

All of the claims field by the appellee of final appeal are dismissed.

The total court costs shall be borne by the appellee of final appeal.

Concerning the reasons for a petition for acceptance of final appeal stated by the counsel for final appeal, IKEDA Hirohiko, et al. (except for the reasons excluded)

1. In this case, the appellee, who retired as the representative director of Appellant Miyazaki Telecasting Co., ltd. (hereinafter the "Appellant Company"), alleges, inter alia, that at the meeting of the board of directors, to which the decision of the retirement allowance for the appellee was delegated by the shareholders meeting of the Appellant Company, a resolution to pay the amount of retirement allowance reduced beyond the scope of the delegation was passed due to the intentional or negligent act of Appellant Y1, the Appellant Company's representative director, and accordingly, the appellee files claims including claims to seek compensation for loss or damage against Appellant Y1 under Article 709, etc. of the Civil Code and against the Appellant Company under Article 350, etc. of the Companies Act. The issues of the case include whether the resolution of the board of directors mentioned above goes beyond the bounds of its discretionary power or constitutes an abuse of such power.

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

(1) The Appellant Company has internal regulations on retirement allowances for directors which specify matters such as the basis for calculating retirement allowances for retiring directors (hereinafter referred to as the "Internal Regulations"). The Internal Regulations provide that a retirement allowance for a retiring director is decided on the basis of an amount that is unambiguously fixed by factors such as the monthly amount of remuneration at the time of retirement (hereinafter this amount is referred to as the "base amount"), while also providing that the board of directors may reduce the base amount for a retiring director who has "caused particularly serious damage while in office" (hereinafter referred to as the "Provision on Reduction"). The Internal Regulations do not provide for the extent or limit of the reduction of the base amount.

(2) The appellee assumed the office of representative director of the Appellant Company in June 2004.

During the period from 2012 to 2015, the appellee received accommodation expenses, etc. in excess of the maximum amount prescribed in the internal regulations from the Appellant Company. In 2015, this fact was revealed as a result of the tax inspection conducted for the Appellant Company, and the amount of such excess, which totaled about 16.1 million yen, was recognized as remuneration for the appellee. Accordingly, the appellee was supposed to bear an amount equivalent to the withholding tax based on the abovementioned recognition of remuneration, which was paid by the Appellant Company. In July 2016, when the appellee decided their own remuneration for FY2016 as a representative director to whom the decision on this matter was delegated by the Appellant Company's board of directors, the appellee increased the amount of their remuneration by 23.08 million yen from the amount for the previous fiscal year, and continued to receive the increased amount of remuneration until retirement. This increase in the amount of remuneration was made because the appellee intended to shift the burden of the abovementioned amount equivalent to the withholding tax to the Appellant Company, and ensure that the payment of accommodation expenses, etc. in violation of the internal regulations would be made substantially permanently (hereinafter this series of acts of the appellee are referred to as "Appellee's Act 1"). Appellee's Act 1 was covered by newspapers and other media and became widely known in society.

The amount paid by the Appellant Company as the appellee's entertainment expenses in FY2012 was about 49.25 million yen. In each fiscal year from FY2013 to FY2016, the appellee had the Appellant Company pay an amount that was considerably in excess of the abovementioned amount (the amount of excess totaled about 100.79 million yen) as entertainment expenses. Furthermore, the appellee had the Appellant Company's regulations on overseas travel expenses revised, and during the period from 2012 to 2016, the appellee had the Appellant Company pay an amount that exceeded the amount under the regulations on overseas travel expenses before the revision by around 5.45 million yen, as money for preparation for the appellee's business trips (hereinafter these acts of the appellee are referred to as "Appellee's Act 2").

(3) At the meeting of the Appellant Company's board of directors held in May 2017, the appellee expressed their intention to resign as the company's representative director and director at the time of conclusion of its annual shareholders meeting to be held in June 2017, due to poor health.

(4) At the Appellant Company's annual shareholders meeting held on June 16. 2017, a resolution was passed to leave it entirely to the board of directors to decide the retirement allowance for the appellee according to the Internal Regulations. Before the passing of this resolution, the appellee, who chaired the meeting, explained that the retirement allowance for the appellee, as a matter of policy, would be decided by the board of directors after establishing a neutral and fair investigation committee and taking into consideration the results of the investigation conducted by the committee, and that the appellee would follow the board of directors' decision.

(5) Soon after that, an investigation committee composed of three lawyers and one certified public accountant who had no interest relationship with the appellee and one full-time corporate auditor of the Appellant Company (hereinafter referred to as the "Investigation Committee") was established, and the Investigation Committee conducted investigation on the facts relating to the retirement allowance for the appellee. In December 2017, the Investigation Committee submitted a detailed final report which compiled the results of the investigation (hereinafter referred to as the "Investigation Report"), to Appellant Y1, the Appellant Company's representative director. The summary of the Investigation Report is as follows.

a. Appellee's Act 1 is a malicious act and it cannot be denied that this act could satisfy the requirements for the crime of aggravated breach of trust. Out of Appellee's Act 2, the appellee's act involved in the payment of entertainment expenses caused the Appellant Company to pay an obviously excessive amount without going through any reasonable procedure, and the revision of the regulations on overseas travel expenses was also made without reasonable grounds. None of these acts of the appellee can be justified.

Furthermore, during the period from FY2014 to FY2016, the appellee had the Appellant Company pay expenses for the support project for cultural and artistic activities, etc. (hereinafter this act of the appellee is referred to as "Appellee's Act 3," and Appellee's Acts 1 to 3 are collectively referred to as the "Appellee's Acts"). About 205.58 million yen out of the amount paid was obviously an excessive payment.

All of the Appellee's Acts caused extensive damage to the Appellant Company. The amount of financial damage caused by the Appellee's Acts totaled about 355.51 million yen.

b. The Appellant Company's board of directors should pass a resolution not to pay any retirement allowance to the appellee if it decides to file a first-hand crime report regarding Appellee's Act 1. On the other hand, if the board of directors decides not to file a first-hand crime report regarding Appellee's Act 1, even when it passes a resolution to pay a certain amount of retirement allowance to the appellee, the directors cannot be deemed to have breached their duty of care of a prudent manager. If retirement allowance is to be paid to the appellee, it is reasonable to adopt the method of calculating the amount of retirement allowance by deducting all or a considerable portion of the amount of financial damage mentioned in a. above from the base amount relevant to the appellee.

(6) The Appellant Company's board of directors, at its meeting held on February 2, 2018, deliberated on the retirement allowance for the appellee. In this deliberation, various opinions were stated based on the content of the Investigation Report, such as that the Appellant Company should file a first-hand crime report regarding Appellee's Act 1 and pay no retirement allowance to the appellee, or that it is appropriate to pay a considerably reduced amount of retirement allowance as a punitive measure. Finally, the board of directors supported Appellant Y1's proposal that it is appropriate not to file a first-hand crime report regarding Appellee's Act 1 but to pay 57 million yen, the amount calculated by deducting an amount equivalent to about 90% of the amount mentioned in (5) a. above (about 355.51 million yen) from the amount calculated as the base amount of retirement allowance relevant to the appellee (377.2 million yen), as the retirement allowance for the appellee. The board of directors passed a resolution to pay the abovementioned amount of retirement allowance to the appellee (hereinafter referred to as the "Board of Directors' Resolution").

Subsequently, the Appellant Company paid 57 million yen as the retirement allowance to the appellee.

3. Based on the facts mentioned above, the court of prior instance determined as summarized below, and ruled that both the appellee's claim against Appellant Y1 to seek compensation for loss or damage under Article 709 of the Civil Code and the appellee's claim against the Appellant Company to seek compensation for loss or damage under Article 350 of the Companies Act should be upheld.

The Provision on Reduction stipulates that in calculating the amount of retirement allowance for a retiring director, an amount equivalent to the damage caused by the act committed by the director while in office, which caused particularly serious damage to the Appellant Company, can be reduced from the base amount, and it is considered that it is impermissible to reduce the amount of retirement allowance for such director by taking into consideration any damage caused by another act of the director. The Appellant Company's board of directors reduced the amount of retirement allowance for the appellee by taking into consideration the payment of expenses involved in Appellee's Act 3 even though Appellee's Act 3 cannot be regarded as an act that caused particularly serious damage to the Appellant Company, and in this respect, the Appellant Company's board of directors erroneously interpreted and applied the Provision on Reduction, and the Board of Directors' Resolution goes beyond the bounds of its discretionary power or constitutes an abuse of such power.

4. However, the determination by the court of prior instance mentioned above cannot be affirmed, for the following reasons.

(1) The Provision on Reduction stipulates that if a retiring director causes particularly serious damage to the Appellant Company while in office, the board of directors may reduce the base amount relevant to the director. It is understood that the purpose of this provision is to ensure that the Appellant Company's directors perform their duties properly by allowing the board of directors, an organ that supervises directors, to impose an appropriate sanction on an act committed by a director while in office. If a resolution was passed at the Appellant Company's shareholders meeting to leave it entirely to the board of directors to decide the retirement allowance for a retiring director according to the Internal Regulations, the board of directors needs to determine whether the retiring director can be regarded as having "caused particularly serious damage while in office" as referred to in the Provision on Reduction, and if the retiring director is regarded as such, what would be the amount of retirement allowance for the director as a result of the reduction. In light of the abovementioned purpose of the Provision on Reduction, the board of directors should make a determination on these issues from the perspective of supervising the performance of duties by directors, while comprehensively taking into consideration circumstances such as the content and nature of the retiring director's act due to which the director is assessed as having caused particularly serious damage to the Appellant Company, the impact of the act on the Appellant Company, and the retiring director's position in the Appellant Company. In light of the facts that these circumstances are matters that are suitable to be determined by the board of directors, which is responsible for making decisions on the execution of the operations of the company and supervising the performance of duties by directors, and that the Internal Regulations provide nothing about matters such as the extent of the reduction under the Provision on Reduction, it should be said that the board of directors has a broad discretionary power to make a determination on the abovementioned issues, and it is reasonable to construe that the board of directors' resolution can be regarded as going beyond the bounds of its discretionary power or constituting an abuse of such power only when its determination is unreasonable in light of the purpose of delegation by the shareholders meeting (the court of prior instance held that the Provision on Reduction stipulates that reduction may be made only by an amount equivalent to the damage caused by the act committed by a retiring director while in office that caused particularly serious damage to the Appellant Company, but the Provision on Reduction cannot be interpreted as having such meaning).

(2) In this case, based on the facts mentioned above, the Appellant Company's board of directors passed the Board of Directors' Resolution while taking into consideration that the appellee committed the Appellee's Acts while in office as the representative director. Among these acts, Appellee's Act 1 is an act whereby the appellee, who served as the Appellant Company's representative director, continued to receive accommodation expenses, etc. in excess of the maximum amount prescribed in the internal regulations from the Appellant Company over a long period of time, and after this fact was revealed, the appellee increased the amount of their own remuneration with the intention of shifting the amount equivalent to the withholding tax on the amount of such excess, which the appellee had once borne, to the Appellant Company, and ensuring that the payment of accommodation expenses, etc. in violation of the internal regulations would be made substantially permanently. It seems that the Appellant Company's social credibility was damaged because Appellee's Act 1 became widely known in society due to media coverage. In addition, the Investigation Committee, which was established according to the policy presented at an annual shareholders meeting and composed of lawyers and other persons who had no interest relationship with the appellee, compiled the Investigation Report in which the committee pointed out that Appellee's Act 1 could constitute the crime of aggravated breach of trust, that Appellee's Act 2 also cannot be justified, and that the appellee caused extensive damage to the Appellant Company by committing these acts. The board of directors passed the Board of Directors' Resolution while taking into account such content of the Investigation Report. It does not seem that the information collected by the Investigation Committee in the course of the investigation, etc. was insufficient. Furthermore, in consideration of the matters pointed out as above, the board of directors also discussed the proposal presented by the Investigation Committee to file a first-hand crime report regarding Appellee's Act 1 and pay no retirement allowance, but as a result of deliberation, it finally decided to considerably reduce the amount of retirement allowance without filing a first-hand crime report. Thus, it can be said that the board of directors conducted substantial deliberations to a considerable degree.

Taking all these circumstances into consideration, it can be said that the assessment that Appellee's Act 1 and Appellee's Act 2 by nature had caused extensive damage to the Appellant Company is based on a certain degree of reasonable grounds, and the board of directors' decision to reduce the amount of retirement allowance for the appellee by regarding the appellee as having "caused considerable damage while in office" as referred to in the Provision on Reduction, irrespective of whether Appellee's Act 3 caused damage to the Appellant Company, and to determine the amount of retirement allowance for the appellee to be 57 million yen, cannot be considered to be unreasonable in light of the purpose of the delegation by the shareholders meeting.

For the reasons stated above, the Board of Directors' Resolution cannot be regarded as going beyond the bounds of its discretionary power or constituting an abuse of such power.

5. The determination by the court of prior instance that is contrary to the above contains a violation of law or regulation that has clearly influenced the judgment. The appeal counsel's arguments are well-grounded, and the judgment in prior instance should inevitably be quashed. According to the explanation given above, all of the appellee's claims against the appellants in this case are groundless. Therefore, the judgment in first instance should be revoked and all of those claims should be dismissed.

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

Justice MIYAMA Takuya

Justice YASUNAMI Ryosuke

Justice OKA Masaaki

Justice SAKAI Toru

Justice MIYAGAWA Mitsuko