Heung Life Insurance Co., Ltd. (Law Firm LLC, Attorney Cho Il-young, Counsel for the plaintiff-appellant)

Financial Services Commission

Financial Supervisory Service (Law Firm, Kim & Lee LLC, Attorneys Seo-Un et al., Counsel for defendant-appellant)

September 6, 2013

Seoul Administrative Court Decision 201Guhap37305 decided January 25, 2013

1. The part of the judgment of the first instance against the Defendant is revoked.

The plaintiff's claim against the Financial Services Commission is dismissed.

2. The plaintiff's appeal against the defendant Financial Supervisory Service is dismissed.

3. All costs of litigation between the Plaintiff and the Defendant Financial Services Commission and the costs of appeal between the Plaintiff and the Defendant Financial Supervisory Service are borne by the Plaintiff.

1. Purport of claim

Defendant Financial Services Commission’s imposition of a penalty surcharge of KRW 740,00,000 on August 30, 201 by the Plaintiff, which exceeds KRW 23,00,000,000, and Defendant Financial Supervisory Service’s revocation of warning to the Plaintiff on September 2, 2011 (the Plaintiff corrected its purport in the trial).

2. Purport of appeal

Of the judgment of the court of first instance, the part regarding the Plaintiff’s Defendant Financial Supervisory Service shall be revoked. Defendant Financial Supervisory Service’s warning to the Plaintiff on September 2, 2011 shall be revoked.

Defendant Financial Services Commission: as set forth in paragraph (1).

1. Details of the disposition;

On June 9, 2008, the Plaintiff entered into an agreement on the sale of golf membership rights (hereinafter “instant agreement”) with ○○○CC (hereinafter “△△△△ Party”) before entering into a membership agreement to pay 2. billion won (2.2 billion won per Gu unit) to the sales price of the corporate membership right of 10 units of the golf course (hereinafter “instant golf course”). On December 29, 2009, the Plaintiff entered into an agreement on the sale of golf membership rights (hereinafter “instant agreement”) with the Dong Forest Tourism Development Co., Ltd. (hereinafter “Dong Forest Tourism Development”). The Plaintiff entered into the Dong Forest Tourism Development Agreement and the membership agreement pursuant to the said agreement on December 29, 2009.

On August 26, 2011, the Financial Services Commission imposed upon the Plaintiff a penalty surcharge of KRW 740,000,000 for the ground for disposition (i) (ii) the ground for disposition 717,000,000 + (ii) the ground for disposition 23,000,000 won for the ground for disposition (hereinafter “instant penalty surcharge”). On September 2, 2011, the Defendant Financial Supervisory Service issued a warning disposition for the ground for disposition (hereinafter “instant warning disposition”) to the Plaintiff as follows: (iii), (iv), (v) the ground for disposition (hereinafter “instant warning disposition”).

○ On June 9, 2008, the Plaintiff agreed to purchase the right of preferential purchase of the ten unit of corporate membership (2.2 billion won per unit) of the instant golf course, the business approval of which was not completed from the Dong Forest Tourism Development, which was a major shareholder, and paid in advance the deposit amount of KRW 22 billion, thereby granting credit equivalent to the above 2.2 billion to the Dong Forest Tourism Development during the period from June 29, 2008 (the date of advance payment) to December 29, 2009 (the date of entry into a contract) (hereinafter “reasons for disposition”).

During the period from October 31, 2003 to December 22, 2003, the head of the Plaintiff’s former diving Branch: (a) distributed and disposed of 9 cases (the total amount of temporary payment premium KRW 752 million), including Non-Party 2’s new Schlages, and Non-Party 2’s insurance purchaser, etc., at the time of the locking Branch, as if three insurance solicitors, etc., belonging to the locking Branch were recruited, and provided KRW 34 million out of the recruitment allowance of KRW 38 million as special benefits to the policyholder (hereinafter “reasons for Disposition B”).

○ On April 1, 2009, the Plaintiff provided 9,712,000 won of rent from April 2009 to December 201, 2010 by leasing part of 24 stories of the headquarters of interesting life to the solar industry, and providing 29.53 square meters free of charge, for the purpose of the office of Nonparty 1 (the Nonparty 1) who is a major shareholder (the Nonparty 1) (hereinafter “reasons for disposition”).

○ At the time of the inspection conducted by the Defendant Financial Supervisory Service from February 23, 2009 to March 13, 2009, the Plaintiff submitted “the current status of lump-sum payments” data, and omitted and submitted 51 contracts including 50 insurance contracts with six specially related parties, including major shareholders, etc. (hereinafter “reasons for No.S. Disposition”).

○ During the period from February 3, 1998 to September 28, 200, the Plaintiff concluded an insurance contract with a specially related person under the name of another person and managed it, and the Plaintiff arbitrarily changed the total of 60 insured workers from January 24, 1998 to February 13, 1998 (hereinafter “the reasons for disposition”).

○ On May 24, 2010, the Plaintiff terminated and handled the social insurance that Nonparty 4 (the mother of Nonparty 1 (the Nonparty 1) (the Nonparty 1)’s major shareholder, and paid KRW 61,521,073 of the termination refund in cash and did not report to the Commissioner of the Korea Financial Intelligence Unit until the date of inspection (the date of December 9, 2010) (hereinafter “Grounds for Disposition”).

[Reasons for Recognition] Facts without dispute, Gap evidence Nos. 1 and 2, Gap evidence Nos. 7 through 15, Eul evidence Nos. 1, 5, 7, 16, and 17, and the purport of the whole pleadings

2. Whether each of the dispositions of this case is legitimate

A. The plaintiff's assertion

The instant agreement is not a golf membership transaction, but a transaction was conducted under the terms and conditions that are substantially unfavorable in light of the ordinary terms and conditions of transaction. Therefore, the Defendant Financial Services Commission’s disposition was unlawful as it did not recognize the above grounds for disposition. In addition, considering all the circumstances, including (3), (4), (5), and (6) the grounds for disposition were attributable to the employee’s negligence in the course of performing his duties, the Defendant Financial Supervisory Service’s disposition was excessively excessive and is illegal

(b) Related statutes;

It is as shown in the attached Form.

C. Determination

1) Whether the disposition of imposition of the penalty surcharge of this case is legitimate

Article 2 subparag. 12 of the former Insurance Business Act (amended by Act No. 10394, Jul. 23, 2010; hereinafter “Insurance Business Act”) provides that "credit extension" means loans or purchase of securities (limited to the purchase of securities in the nature of financial assistance) and other direct and indirect transactions of an insurance company which involve credit risk in financial transactions and which are determined by the Financial Services Commission, as prescribed by Presidential Decree. Article 111(1)2 of the same Act prohibits an insurance company from directly or indirectly transferring its assets to its large shareholders and stockholders without compensation or from trading or exchanging its assets with the relevant insurance company under significantly unfavorable terms in light of ordinary terms and conditions of transactions.

However, in addition to the statements in the above evidence, considering the following circumstances, the Plaintiff’s act of this case was acknowledged, in light of the background leading up to the act of this case, the economic situation of the forest tourism development at the time of the act of this case, the difference between benefits and consideration, the scale of transaction, and the economic benefits of the forest tourism development, etc., the act of this case can be deemed to have provided economic benefits by converting the price of membership into the price of 10 billion won only when it comes to the point of time when it is possible after the Plaintiff deposited the price of membership with interest without interest in advance after it was possible to sell it. In other words, the Plaintiff’s act of this case constitutes a sale of 10 billion won under the terms of the above 21 billion won under the terms of the 10 billion won of the 201 billion won of the 21 billion won of the 200 billion won of the 201 billion won of the 200 billion won of the 201 billion won of the 201 billion won of the 2100 billion won of the Ga.

① In light of the fact that the forest tourism development, which was difficult to raise funds due to excess of the initial loan, was required to repay the existing principal and interest of loan and construct the golf course, the Plaintiff was required to make a prior deposit in the forest tourism development under the orders of Nonparty 1 (In addition to the instant golf course construction project) of the Group Chairperson. At the time, the forest tourism development was difficult to expect that high-priced membership can be sold smoothly due to the decline in the price of golf course membership due to the absence of any particular revenue source other than the instant golf course construction project and the international financial crisis. The forest tourism development was conducted with the authorization of the implementation plan on June 19, 2009 after the commencement of the construction of the instant golf course on August 1, 2009, the Plaintiff did not receive a prior deposit to Nonparty 1,1220,000,000,000 won, and the Plaintiff did not receive a prior deposit in the form of the agreement, such as the Plaintiff’s withdrawal of membership deposit, regardless of the type of the agreement.

② around March 2008, the sale price of private membership rights in the same size as the instant golf course was KRW 819 billion per unit, and the transaction price of private membership rights in neighboring golf courses was KRW 500 million from KRW 575 million per unit to KRW 1260 million. Such transaction price of private membership rights in neighboring golf courses was already reflected in the appraisal of the existing users in the status of being used after the completion of the golf course. On the other hand, the instant golf course was not completed not only at the time of the commencement of the instant act but also at the time of construction of the golf course. It was difficult to view that the Plaintiff purchased private membership rights in the instant case without being deposited with the Plaintiff on December 1, 2009.

③ Since the Plaintiff received a secured loan at an annual interest rate of 7.8% at the time when the forest tourism development was paid prior deposit money for the forest tourism development, it is reasonable to regard the actual purchase amount that the forest tourism development received from the Plaintiff as a purchase of golf club membership rights as the sum of interest at an annual interest rate of 7.8% during the deposit period of 22 billion won.

2) Whether the warning disposition of the instant case is lawful

Among the above grounds for disposition, the grounds for disposition Nos. 1 and 3, 5, and 6 are acknowledged as mentioned above, and there is no dispute as to the grounds for disposition, and Article 17 (1) 7 of the Regulations on Inspection and Sanctions of Financial Institutions (Notice No. 2008-4, Apr. 4, 2008) provides that sound management is damaged or property damage is caused to the financial institution, financial company, financial company, etc. by engaging in an act impeding the sound operation or business of the financial institution, but the degree of violation is relatively minor, and most of the assets of the insurance company is highly public interest by forming insurance premiums paid by customers who are policyholders, so it should be strictly prohibited to use them for private purposes, such as supporting funds with strong public nature, and it should be viewed that the act of offering special benefits to policyholders, etc. and reporting large cash transactions constitutes sound management as detrimental to the sound operation or business of the financial institution, and there is no deviation or abuse of discretion of the financial institution, and thus, the disposition of this case is justified.

3. Conclusion

Therefore, all of the plaintiff's claims against the defendants shall be dismissed as without merit. Since the judgment of the court of first instance is unfair with different conclusions, the plaintiff's appeal against the defendant Financial Services Commission shall be accepted, and the plaintiff's appeal against the defendant Financial Services Commission shall be dismissed, and it is so decided as per Disposition.

[Attachment Form 5]

Judges Lee Jae-won (Presiding Judge) et al.

1) Since the 1st unit of corporate membership corresponds to the 2nd unit of individual membership rights, the 10th unit of corporate membership rights purchased by the Plaintiff may be assessed into 20 units of individual membership rights.

2) The judgment on the part that the Plaintiff violated Article 23(1)7 of the Fair Trade Act by purchasing the instant golf course membership rights under substantially favorable terms and providing unfair support (Supreme Court Decision 2013Du2266 Decided May 9, 2013) was finalized (see Supreme Court Decision 2013Du2266, May 9, 201). Such an act constitutes “the act of trading under substantially unfavorable terms to the relevant insurance company” under Article 111(1)2 of the Insurance Business Act.