Whether an auditor who has not filed a lawsuit against a director in a lawsuit filed by one of the multiple auditors of a stock company has the authority to withdraw the lawsuit (affirmative)

In the event that a stock company files a lawsuit against a director, the auditor has the authority to represent the company with respect to all the litigation procedures up to the conclusion of the lawsuit including the decision on whether to institute the lawsuit, the institution of the lawsuit, and the withdrawal thereof. If there are two or more auditors, they shall be jointly represented by all the auditors, and there is no ground to limit their authority, and there is no reasonable need to do so, and each auditor shall be entitled to exercise their authority solely on behalf of the company. Accordingly, other auditors who do not institute a lawsuit shall be entitled to withdraw the lawsuit on behalf of the company.

[1] Articles 389(1), 394(1), and 403(1) of the Commercial Act

[Plaintiff-Appellant] Plaintiff 1 and 1 other (Law Firm Gyeong, Attorneys Park Jae-soo et al., Counsel for plaintiff-appellant)

Postal Industry Co., Ltd. (Attorney Kim Young-hoon et al., Counsel for the defendant-appellant)

Hexinite (Attorney Ansan-tae et al., Counsel for the plaintiff-appellant)

Busan District Court Decision 2001Gahap17865 delivered on July 11, 2002

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the plaintiff.

1. Purport of claim

With respect to the plaintiff 1,452,50,000 won and its 541,00,000 won, 13% per annum from January 26, 1998 to December 25, 1998; 19% per annum from that next day to that of service of a copy of the application for extension of claim of this case; 25% per annum from that of the following day to that of the full payment; 20% per annum from March 10, 1998 to June 30, 198; 17% per annum from that of June 30, 1998 to that of June 30, 198; and 13% per annum from that following day to June 30, 1998 to that of June 30, 199; and 19% per annum from that of the following day to 11% per annum; and

2. Purport of appeal

The judgment of the court below is revoked. The case is remanded to Busan District Court.

1. Basic facts

The Plaintiff filed the instant lawsuit claiming damages of KRW 1,452,50,000 on behalf of the Plaintiff Company against the Defendant, who is a joint representative director of the Plaintiff Company, on account of embezzlement of the Plaintiff Company’s funds. On May 14, 2002, when the trial was in progress, the Plaintiff Company’s withdrawal of the instant lawsuit was submitted to the lower court on the ground that another auditor Kim Jong-chul of the Plaintiff Company would withdraw the instant lawsuit. On May 22, 2002, the fact that the Defendant was served with the said withdrawal and did not raise an objection is apparent in the record.

2. Determination on the Plaintiff’s assertion that the withdrawal of lawsuit is invalid

A. Summary of the assertion

Article 394(1) of the Commercial Act provides that an auditor shall represent the company in a case where a corporation files a lawsuit against a director. Thus, an auditor who is entitled to represent the company in a lawsuit against a director among several auditors of a corporation shall be limited to the pertinent auditor who files the lawsuit, and other auditors who do not institute a lawsuit shall not be entitled to withdraw the lawsuit. This is obvious in light of the fact that, upon a claim by a minority shareholder pursuant to Article 403(1) of the Commercial Act, an auditor who files a lawsuit against a director on behalf of the company pursuant to the latter part of Article 394(1) of the Commercial Act cannot withdraw the lawsuit. In this case, the auditor who did not institute a lawsuit is not entitled to withdraw the lawsuit of this case by the auditor, and is null and void as a litigation by a person without the authority to do so, even if it is not so, it constitutes a breach of trust which causes damage to the plaintiff and thus becomes null and void.

(b) Markets:

On the other hand, when a corporation files a lawsuit against a director, the auditor has the authority to represent the company with respect to all the litigation procedures until the completion of the lawsuit including the decision on whether to file a lawsuit, the institution of a lawsuit, and the withdrawal thereof. If there are not less than two auditors, all auditors shall jointly represent the company, and there is no ground to limit their authority, and there is no reasonable need to do so. Accordingly, each auditor may exercise his authority on behalf of the company on behalf of the plaintiff company. One of the auditors of the plaintiff company shall also be entitled to withdraw the lawsuit of this case on behalf of the plaintiff company.

Article 389(1) of the Commercial Act provides that "the company shall select a representative director at a general meeting of shareholders, subject to a resolution of the board of directors; however, it may be determined by the articles of incorporation to select a representative director at a general meeting of shareholders; and Article 389(2) provides that "any several representative directors may jointly represent the company in cases falling under the preceding paragraph." Thus, each representative director may independently represent the company even if there are several persons. However, in cases of a joint representative, such as where a joint representative is determined by a resolution of the board of directors, etc., if there are several persons, it is apparent that such a joint representative can be jointly represented by a resolution of the board of directors (the same shall apply to a joint manager under Article 12 of the Commercial Act and a joint representative

Furthermore, even in cases where minority shareholders claim a lawsuit against the company to enforce the liability of directors pursuant to Article 403(1) of the Commercial Act, the auditor has the authority to represent the company in all litigation procedures, such as decision on whether to institute a lawsuit, institution of a lawsuit, and withdrawal thereof, under the latter part of Article 394(1) of the Commercial Act. Meanwhile, in cases where minority shareholders do not institute such lawsuit on behalf of the company directly pursuant to Article 403(3) of the Commercial Act, and where minority shareholders have filed a lawsuit on behalf of the company directly, it is particularly due to Article 403(6) of the Commercial Act to prevent such minority shareholders from withdrawing the lawsuit without permission of the

However, in a case where an auditor files a lawsuit on behalf of a company against a director, other auditors are deemed able to withdraw the lawsuit on behalf of the company, and the other auditors terminate the lawsuit in collusion with the defendant's director, thereby failing to enforce the director's liability. Thus, damages to the company may be inflicted upon the company. However, as such, the plaintiff's assertion cannot be accepted as long as it can be resolved to a certain extent due to the auditor's failure to perform the duties under Article 414 of the Commercial Act

3. Conclusion

Therefore, the lawsuit of this case is legally terminated by the withdrawal of the lawsuit of this case from May 14, 2002 by the auditor Kim Jong-soo, who representing the plaintiff company, and the judgment of the court below which declared the termination of the lawsuit of this case as to the plaintiff's application of this case's fixed date designation is just as the conclusion is consistent with this conclusion. Thus, the plaintiff's appeal is dismissed as it is without merit. It

Judges Kim Jong-jin (Presiding Justice)