[2] Whether a debt guarantee or an evasion of law in violation of Articles 10-2(1) and 15 of the former Monopoly Regulation and Fair Trade Act is null and void under private law (negative)

[2] Although the former Monopoly Regulation and Fair Trade Act (amended by Act No. 14813, Apr. 18, 2017; hereinafter “Fair Trade Act”) stipulates that where Articles 10-2(1) and 15 are violated, corrective measures may be ordered or imposed (Article 16(1)), penalty surcharge (Article 17(2)), or penalty (Article 66(1)6 and 8), it does not directly state the judicial effect of the act in violation of Articles 10-2(1) and 15.

However, according to the language and text of the Fair Trade Act, the act of violating Article 10-2(1) of the Fair Trade Act has a relatively clear provision on the premise that the act of violating Article 10-2(1) has a judicial effect. In other words, when there exists an act of violating Article 10-2(1) of the Fair Trade Act, the Fair Trade Commission may order the cancellation of a debt guarantee as a corrective measure (Article 16(1)5). This is based on the premise that a debt guarantee in violation of Article 10-2(1) of the Fair Trade Act is valid under the private law, and that the said debt guarantee may be cancelled at the discretion of the Fair Trade Commission. If the Fair Trade Act considers the above debt guarantee as null and void under the private law, there is no reason to stipulate that the cancellation may be ordered as a corrective measure. Therefore, a debt guarantee in violation of Article 10-2(1) of the Fair Trade Act shall be deemed valid under the private law until the Fair Trade Commission revokes it as a corrective order.

This conclusion is also supported by the fact that the Fair Trade Act explicitly provides that a lawsuit for invalidation or invalidation may be brought against an act prohibited by the Fair Trade Act. Article 19(4) of the Fair Trade Act provides that “any contract, etc. that agrees to engage in an unfair collaborative act shall be null and void among business entities,” and Article 16(2) provides that “if a company is merged or established in violation of the restriction on the combination of enterprises and the restriction on the establishment of holding companies by an enterprise group subject to limitations on debt guarantee, the Fair Trade Commission may file a lawsuit for nullification or merger of a company.”

The purpose of Articles 10-2(1) and 15 of the Fair Trade Act is to prevent excessive concentration of economic power, promote fair and free competition, and ensure the balanced development of the national economy by prohibiting any debt guarantee or evasion of law against domestic affiliated companies of a company belonging to a business group larger than a certain scale. In order to achieve this, the validity of the said debt guarantee or evasion of the law need not be denied.

If a debt guarantee in violation of Article 10-2(1) and Article 15 of the Fair Trade Act or the judicial effect of an evasion of the law is deemed null and void, the company that committed such an act against the domestic affiliate company is exempted from its obligation, such as a surety obligation, without any consideration, even with the benefit accrued therefrom. On the other hand, the financial institution, which is the trading partner, is deemed to lose its personal security and increase the risk of unrefising claims. Furthermore, the financial institution is at risk of not accepting it even in cases where a debt guarantee

The proviso to Article 10-2(1) of the Fair Trade Act and Article 17-5 of the former Enforcement Decree of the Monopoly Regulation and Fair Trade Act (amended by Presidential Decree No. 28197, Jul. 17, 2017) provide a relatively broad ground for exception in which debt guarantees are allowed for affiliate companies. As such, if the Fair Trade Act prohibits debt guarantees for affiliate companies in principle but provides broad exceptional grounds, it cannot be deemed that a debt guarantees or an evasion of the law in violation of Articles 10-2(1) and 15 of the Fair Trade Act have significantly anti-social or anti-competence to the extent that such debt guarantees or an evasion of the law should be denied by itself.

1. Case summary and key issue

A. According to the reasoning of the lower judgment and the record, the following facts are revealed.

(1) The Seoul Mutual Savings Bank Co., Ltd. (hereinafter “Seoul Mutual Savings Bank”) agreed to obtain a loan of KRW 70 billion necessary for the ordinary share acquisition of the Seoul Mutual Savings Bank (hereinafter “Seoul Mutual Savings Bank”), and one Capital Co., Ltd. (hereinafter “I Capital”) from the Jeonbuk Bank (hereinafter “Seoul Mutual Savings Bank”).

(2) On September 2, 2011, Jeonbuk Bank and Han Capital established a JHW-based limited liability company (hereinafter “JHW”) for the smooth implementation of the said loan.

(3) On September 8, 201, JHW concluded the first loan agreement in this case as indicated in the lower judgment that received a total of KRW 70 billion from the Jeonbuk Bank and Han Capital. According to such agreement, the loans should be used for the purpose of lending e-ray capital pursuant to the “loan Agreement under which JHW lends in 70 billion won to JHW” and (2) in the event of shortage in the financial resources for the repayment of principal and interest of loan, e-mail entered into an agreement to supplement funds that lend the relevant insufficient funds to JHW. On the same day, JW concluded the first loan agreement in this case as of the same day.

(4) On September 8, 201, he/she entered into an agreement on the supplementation of funds with respect to the First Loan Agreement (hereinafter “instant loan coverage agreement”). The instant loan coverage agreement provides that ① in cases where the principal and interest of loan of JHW falls short of the financial resources for the repayment of the principal and interest of the instant loan, he/she shall lend a shortage in the amount to JHW in the form of subordinated loan; ② in cases where he/she fails to perform his/her duty to supplement funds, he/she shall assume the obligation to assume the obligation to jointly accept and repay the obligation of the First Loan Agreement.

(5) The Defendants divided and acquired the contractual status of the instant loan from one Capital to one Capital.

(6) After the occurrence of the reasons for compensating for the funds, he did not perform his duty to compensate for the funds under the instant funding arrangement.

(7) On October 11, 2012, the Seoul Central District Court decided to commence rehabilitation proceedings with respect to the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the payment of the deposit.

(8) After that, in the above rehabilitation procedure, the eroding Holdings was divided, thereby newly established, and the rights and obligations under the instant first loan agreement and the Fund Supplementary agreement were succeeded to Taekel; and the Plaintiff was appointed as the manager of TaekelP.

B. The Plaintiff asserted that the instant funding supplement agreement constitutes an evasion of the law of debt guarantee prohibited under Articles 15 and 10-2(1) of the former Monopoly Regulation and Fair Trade Act (amended by Act No. 14813, Apr. 18, 2017; hereinafter “Fair Trade Act”), and Article 21-4(1) of the former Enforcement Decree of the Monopoly Regulation and Fair Trade Act (amended by Presidential Decree No. 28197, Jul. 17, 2017; hereinafter “Enforcement Decree of the Fair Trade Act”). However, the lower court determined that the instant funding supplement agreement was valid only in violation of Article 15 of the Fair Trade Act.

C. The main issue of this part is whether the instant monetary supplement agreement constitutes an evasion of the law of debt guarantee prohibited under Articles 15 and 10-2(1) of the Fair Trade Act, and Article 21-4(1) of the Enforcement Decree of the Fair Trade Act, and is thus null and void under the private law.

2. Judicial effects of violations under Articles 10-2 (1) and 15 of the Fair Trade Act;

A. The main text of Article 10-2(1) of the Fair Trade Act provides that “any company belonging to an enterprise group subject to the limitations on debt guarantee shall not provide any debt guarantee to any domestic affiliate company,” and Article 15(1) provides that “any person shall not perform any act of evading the application of the provisions of Article 10-2(1)” and Article 15(2) provides that “any person shall not perform any act of evading the application of the provisions of Article 10-2(1).” Article 21-4(1)2 of the Enforcement Decree of the Fair Trade Act delegates the type and standards of the evasion of the law to the Presidential Decree. An evasion of the law prohibited under Article 15(1)2 of the Fair Trade Act is an act of having a company belonging to an enterprise group subject to the limitations on debt guarantee under Article 10-2(1) of the Fair Trade Act bear the same obligation with the same content without the discharge of his existing debt debt guarantee to any domestic financial institution [(a)] and any other company or its affiliate [b].

B. For the following reasons, an evasion of the law prohibited under Articles 10-2(1) and 15 of the Fair Trade Act cannot be deemed as null and void under private law.

In cases where an Act explicitly provides for the validity of a juristic act in violation of a certain obligation to a party to a juristic act, such as a contract, or an Act prohibiting a certain act, the existence or invalidity of the juristic act ought to be determined pursuant to the relevant provision. If an Act provides that a juristic act in violation of the relevant provision is null and void or the relevant provision provides that a juristic act in violation of the relevant provision is null and void, the juristic act in violation of the relevant provision shall be deemed null and void. On the other hand, in cases where the validity of a juristic act in violation of the prohibition provision is not clearly determined, the legislative background and purport of the provision, the legal interest and protection of the relevant provision, the seriousness of the violation, whether the relevant party intended to violate the legal provision, the impact of the violation on the party to the juristic act or a third party, the social, economic, ethical assessment of the violation, and the attitude of the law on any act similar or closely related thereto, such determination shall be made by comprehensively taking into account various circumstances (see Supreme Court Decisions 2008Da7519, Dec. 23, 2010>

Although the Fair Trade Act stipulates that when violating Article 10-2(1) and Article 15, corrective measures may be ordered or penalty surcharges (Article 16(1)), or penalty surcharges (Article 17(2)) may be imposed (Article 66(1)6 and 8), it does not directly state the judicial effect of the violation of Articles 10-2(1) and 15.

However, according to the language and text of the Fair Trade Act, the act of violating Article 10-2(1) of the Fair Trade Act has a relatively clear provision on the premise that the act of violating Article 10-2(1) has a judicial effect. In other words, when there exists an act of violating Article 10-2(1) of the Fair Trade Act, the Fair Trade Commission may order the cancellation of a debt guarantee as a corrective measure (Article 16(1)5). This is based on the premise that a debt guarantee in violation of Article 10-2(1) of the Fair Trade Act is valid under the private law, and that the said debt guarantee may be cancelled at the discretion of the Fair Trade Commission. If the Fair Trade Act considers the above debt guarantee as null and void under the private law, there is no reason to establish a provision that the cancellation may be ordered as a corrective measure. Therefore, a debt guarantee in violation of Article 10-2(1) of the Fair Trade Act should be considered to be effective under the private law. Likewise, it can be deemed that an evasion of law is also valid under the private law.

This conclusion is also supported by the fact that the Fair Trade Act explicitly provides that an act prohibited by the Fair Trade Act may be invalidated under the private law or may file a lawsuit seeking nullification thereof. Article 19(4) of the Fair Trade Act provides that “any contract, etc. that agrees to engage in an unfair collaborative act shall be null and void among business operators,” and Article 16(2) provides that “if a company is merged or established in violation of the restriction on the combination of enterprises and the restriction on the establishment of holding companies by an enterprise group subject to limitations on debt guarantee, the Fair Trade Commission may file a lawsuit seeking nullification of the merger

The legislative purpose of Articles 10-2(1) and 15 of the Fair Trade Act is to prevent excessive concentration of economic power, promote fair and free competition, and promote the balanced development of the national economy by preventing any debt guarantee for domestic affiliated companies of a company belonging to a business group larger than a certain size, or from evading such debt guarantee. In order to achieve this, the validity of the said debt guarantee or evasion of the law need not be denied.

If a debt guarantee in violation of Article 10-2(1) and Article 15 of the Fair Trade Act or the judicial effect of an evasion of the law is deemed null and void, a company that committed such an act against a domestic affiliate company is exempted from its obligation, such as a guaranteed debt, without any consideration, even if it gains profit therefrom. On the other hand, a financial institution that is the counterparty to the transaction is deprived of its personal security and is likely to increase the risk of unpaid claims. Furthermore, a financial institution may not accept it even in cases where a debt guarantee is granted pursuant to the relevant provisions

The proviso of Article 10-2(1) of the Fair Trade Act and Article 17-5 of the Enforcement Decree of the Fair Trade Act provide a relatively broad ground for exception in which debt guarantee for affiliate companies is allowed. As such, if the Fair Trade Act prohibits debt guarantee for affiliate companies in principle, but provides wide exceptions, it cannot be deemed that a debt guarantee or an evasion of the law, which violates Articles 10-2(1) and 15 of the Fair Trade Act, has a very anti-social or anti-competence as long as it should be denied its judicial effect.

3. Appropriateness of the grounds for appeal

In addition to whether the instant funding supplement agreement constitutes an evasion of the law under the Fair Trade Act, the lower court’s determination that the instant funding supplement agreement is valid under the private law is justifiable in light of the foregoing legal doctrine. In so determining, the lower court did not err by misapprehending the legal doctrine on the validity provision, contrary to what is

In addition, in light of the relevant legal principles and records, no circumstance exists to deem the instant monetary supplement agreement as contrary to the principle of trust and good faith or as null and void as an anti-social juristic act. Therefore, the lower court did not err in its judgment by misapprehending the legal principles on justice and equity, the principle of trust and good faith, and the validity of anti-social juristic act, contrary to what is alleged in the grounds of appeal.

4. Conclusion

The Plaintiff’s appeal is dismissed in entirety as it is without merit, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Dong-won (Presiding Justice)