[1] The legal nature of participation in a shareholder representative suit by a company under Article 404(1) of the Commercial Code (=joint intervention)

[2] Whether Article 394 (1) of the Commercial Act stipulating the representation of the auditor shall apply where the company files a lawsuit against a person who is not a director, even though the legal relationship which is the object of the lawsuit was due to a cause that occurred while in office (negative)

[3] The case holding that where a company participates in a shareholder derivative suit against all directors, the representative of the company is not the auditor but the representative director because the application of Article 394 (1) of the Commercial Act is excluded

[4] In a shareholder derivative suit where a company applied for a co-litigation before the judgment of rejection of the suit was rendered because it failed to maintain the shareholder requirements of the plaintiff in the shareholder derivative suit, whether such intervention is legitimate (affirmative)

[5] In a case where a participatory suit was rejected due to a defect in the requirements for a lawsuit after a participatory suit was made in the appellate trial procedure, whether the participatory suit is not permitted as being deprived of the interests of the instance level (negative)

[6] The contents of the duty of care of directors of a bank, which is a financial institution, and the standard for determining whether directors of a bank have neglected their duties in breach of duty of care

[7] The case holding that the representative director or director of a bank is liable for damages to the company on the ground that he neglected his duty of care due to a loan decision

[1] In a representative lawsuit by a shareholder, in case where the plaintiff's shareholder fails to properly perform a lawsuit as the plaintiff or is likely to infringe on the company's interest because it is insufficient to protect the rights of the company due to failure to perform a lawsuit as the plaintiff or in collusion with the director who is the other party, the company which is the party to whom the right to the judgment is effective should participate in the lawsuit as a legitimate party with the authority to perform a lawsuit to prevent it or to protect its rights. The company's participation in a representative lawsuit is not only to promote the litigation economy but also to cause contradiction and promotion of the judgment, and the legislative intent of Article 404 (1) of the Commercial Act to protect the company's rights and interests by considering the characteristics of the representative lawsuit by specially providing for participation provisions in Article 404 (1) of the Commercial Act, it is reasonable to interpret that the participation of the company under Article 404 (1) of the Commercial Act means a

[2] Article 394(1) of the Commercial Act provides that an auditor who is relatively objective in order to prevent a conflict of interest and to ensure fair performance of a lawsuit between a director and a company shall represent the company in connection with the lawsuit. Thus, Article 394(1) of the Commercial Act does not apply to a case where a company files a lawsuit against a director where the legal relationship which is the object of the lawsuit is due to a cause that occurred while in office as a director, and where a director already leaves the office of a director, unless there are special circumstances.

[3] The case holding that where a company participates in a shareholder derivative suit against all directors, a representative of the company is not the auditor but the representative of the company since the application of Article 394 (1) of the Commercial Act is excluded

[4] Although the plaintiff's shareholders failed to maintain the shareholder requirements in the representative lawsuit until the date of closing argument in the court of fact-finding lawsuit, it is deemed that the plaintiff's shareholders held standing to sue at the time of participating in the plaintiff's co-litigation intervenor, and thus the participation in the plaintiff's co-litigation intervenor was lawful. In addition, the plaintiff's intervention in the plaintiff's co-litigation intervenor is still maintained before the plaintiff's representative lawsuit is finally dismissed. Thus, if the company applied for the plaintiff's co-litigation prior to the judgment of rejection, it cannot be deemed that the lawsuit is pending at the time of the intervention or that the participation is unlawful.

[5] A co-litigation can be filed in an appellate trial, and even if the respondent is dismissed due to a defect in the requirements of the lawsuit after the intervention in the appellate trial is made, in light of the nature of the co-litigation participation recognized only when the purpose of the lawsuit is determined jointly against either party and the third party, the problem of deprivation of interest in the instance does not occur.

[6] A bank which is a financial institution is operated as a stock company, but is in the position of a public role that should contribute to the stability of the financial market and the development of the national economy by protecting depositors' property and maintaining credit order and maintaining efficiency, unlike for a profit-making corporation that only aims at profit-making purposes. Thus, a director of a bank who conducts such business is required to fulfill his duty of care in line with the general stock company's duty of care and good faith. Therefore, whether a director of a financial institution has neglected his/her duties in breach of the above good manager's duty of care and duty of care should be determined comprehensively in light of various matters such as terms and conditions of the loan, size, repayment plan, existence and contents of security, debtor's property and management status, growth potential, etc. from the perspective of public role of the financial institution.

[7] The case holding that the representative director or director of a bank is liable for damages to the company on the ground that he neglected his duty of care in making a loan decision

[1] Articles 403 and 404(1) of the Commercial Act, Articles 76 and 234 of the Civil Procedure Act / [2] Article 394(1) of the Commercial Act / [3] Articles 394(1), 403, and 404(1) of the Commercial Act / [4] Articles 403 and 404(1) of the Commercial Act, Article 76 of the Civil Procedure Act / [5] Articles 76 and 226 of the Civil Procedure Act / [6] Articles 382(2), 39(1) and (2) of the Commercial Act, Article 681 of the Civil Act / [7] Article 399(1) and (2) of the Commercial Act

[2] Supreme Court Decision 77Da295 decided Jun. 28, 197 (Gong1977, 10197) / [5] Supreme Court Decision 62Da144 decided Jun. 7, 1962

Plaintiff’s Co-Litigation Bank (Law Firm Chungcheong, Attorneys Choi Ho-young et al., Counsel for the plaintiff-appellant)

Defendant 1 and three others (Dongyang-dong Law Office, Attorneys Choi Don-do et al., Counsel for the defendant-appellant)

Seoul High Court Decision 98Na45982 delivered on January 4, 2000

Each appeal is dismissed. The costs of appeal are assessed against the Defendants.

1. As to the assertion of misapprehension of legal principles as to the nature of participation

In a representative lawsuit by a shareholder, when the plaintiff shareholder fails to properly perform a lawsuit as the plaintiff or when there is a concern that the company's interest may be infringed because it is insufficient to protect the rights of the company due to lack of protection of the rights of the company, the company that is the party to whom the judgment is effective needs to participate in the lawsuit as a legitimate party who has the authority to perform the lawsuit in order to prevent it or protect its rights. The company's participation in the representative lawsuit is not only a litigation economy but also a possibility of causing contradiction and promotion of the judgment, and the legislative intent of Article 404 (1) of the Commercial Act to protect the company's rights and interests by taking into account the characteristics of the representative lawsuit by providing for the special provisions on participation of the company, it is reasonable to interpret that the participation of the company prescribed in Article 404 (1) of the Commercial Act refers to the participation in the co-litigation. Furthermore, such interpretation does not violate Article 2

Therefore, the court below's rejection of the defense that the participation of the plaintiffs and the co-litigants of the court of first instance (the two shareholders are dismissed at the court below, and the plaintiff and the intervenor of the court of first instance are referred to as "the intervenor of the court of first instance") in the case where the participation of the plaintiff co-litigation of the court below (hereinafter referred to as "the plaintiff co-litigation") is unlawful, on the premise that such participation is an intervention in the co-litigation, is justified, and there is no error in the misapprehension of legal principles as to the nature of the intervention of the plaintiff co-litigation.

We cannot accept this part of the Defendants’ respective grounds of appeal.

2. As to the assertion of misapprehension of the legal principle as to representative

Article 394(1) of the Commercial Act provides that an auditor who is relatively objective in order to prevent a conflict of interest and to ensure fair performance of a lawsuit between a director and a company shall represent the company in connection with the lawsuit. Even if the relation of right which is the object of the lawsuit is due to a cause that occurs while in office, the company does not bring the lawsuit against the person as a director, and if the director has already left the place of a director, unless there are special circumstances, Article 394(1) of the Commercial Act does not apply to the case where the company files a lawsuit against the person (see Supreme Court Decision 77Da295, Jun. 28, 197).

In accordance with the evidence of the court below, the plaintiff co-litigation, which is a company where the parties are likely to lose the standing to sue in a representative lawsuit, as a result of a resolution for free retirement by the board of directors concerning the shares held by the plaintiffs and the intervenors of the court of first instance, had the plaintiff co-litigation participate in the lawsuit of this case on July 1, 1999 against the previous representative director or the defendants who held office as the former representative director of the intervenor company or the former director as the representative director in the lawsuit of this case on the ground of his failure to perform his duties during his term of office. The defendants, before the date of his co-litigation of the intervenor company, retired from the position of the representative director or director in the intervenor company and did not have any position at the time of the date of his co-litigation. Further, there is no special circumstance to suspect the fair performance of the lawsuit between the representative director of the intervenor company and the defendants. Under such circumstance, the representative director of the plaintiff co-litigation company of this case shall be deemed to be the representative director in accordance with the general principle, and the auditor shall not be applied by applying Article 394(1).

In the same purport, the court below is just in holding that the intervenor of the plaintiff co-litigation participates in the instant co-litigation as the representative director, and there is no error in the misapprehension of legal principles as to the representative of the company litigation.

Defendant 3, 4, and 1’s respective grounds of appeal are rejected.

3. As to the assertion of misapprehension of legal principles as to the requirements for plaintiff participation

The record reveals that the plaintiffs and the intervenors of the first instance trial lose the standing to sue in a representative lawsuit because all the shares held by the plaintiffs and the intervenors of the first instance trial were retired without compensation, and that the plaintiffs lose their standing to sue in the representative lawsuit on July 9, 199, which was after the plaintiff's motion to intervene in the plaintiff's co-litigation. Thus, even if the plaintiffs failed to meet the shareholder requirements in the representative lawsuit until the closing of argument in the court below's judgment, the plaintiffs had legitimate standing to sue at the time of the plaintiff's intervention, and thus the participation in the plaintiff's co-litigation is lawful. In addition, the participation in this case is still maintained until the plaintiff's and the intervenors of the first instance trial are finally dismissed. Thus, prior to the dismissal judgment, the plaintiff's motion to intervene in the plaintiff's co-litigation in this case cannot be deemed to continue the lawsuit at the time of the plaintiff's motion to intervene in the lawsuit or thereby the participation is unlawful

Furthermore, the intervention in the co-litigation can be conducted in the appellate court (see Supreme Court Decision 62Da144, Jun. 7, 1962), and even if the participation in the appellate court is dismissed due to the deficiency of the requirements for the litigation after the intervention in the co-litigation was made, the problem of deprivation of interest in the instance does not occur in light of the nature of the intervention in the co-litigation, which is recognized only when the purpose of the litigation is determined jointly with one of the parties and the third parties.

In the same purport, the decision of the court below that the intervenor of the plaintiff co-litigation was lawful to participate in the instant co-litigation in the appellate proceedings is just, and there is no error of law by misapprehending legal principles as to the requirements for participation in

Defendant 2’s ground of appeal on this part is rejected.

4. As to the assertion of misunderstanding of facts, incomplete deliberation, and misapprehension of legal principles as to the establishment of liability

A. The judgment of the court below

The court below, after compiling his adopted evidence, found facts as stated in its reasoning, and determined as follows with regard to the establishment of the liability for damages against the plaintiff co-litigants due to the defendants' breach of duty.

(1) On October 193, 193, the Intervenor of the Plaintiff Co-Litigation Co-Litigation Co-Litigation Co-Litigation Co-Litigation Co-Litigation Co-Litigation (hereinafter referred to as “Korea Steel”) loaned large amount of funds to the outside for the construction of the Korea Steel. While the funds were composed mainly of short-term loans, the financial structure was inferior. The Defendants also knew or could have sufficiently known that the financial structure of the Korea Steel Co-Litigation was insufficient due to the above circumstances, and even at the time of new loans, the financial structure of the Korea Steel Co-Litigation was poor compared to that of the industry. In light of the fact that the Plaintiff Co-Litigation’s representative director or the Defendants as directors of the Plaintiff Co-Litigation Co-Litigation were stated as the subject company prohibited in principle as a result of credit review, and that the Plaintiff Co-Litigation’s financial structure at the time of new loans was equal to those of the same industry, and that the Defendants should have been provided with new management loans to the Korea Steel Co-Litigation without being provided with new management loans in violation of the principle of credit review.

(2) The Defendants, even after the acts of paragraph (1), assume duties as the representative director or director of the Plaintiff co-litigation, the principal bank of the Han Steel Co-Litigation, as the main bank of the Han River.

(1) Even when the Han Steel received a loan thereafter, there was no asset to provide collateral except for the iron found in the process of construction, and even the success of the steel manufacturing project is unclear. Therefore, in preparation for the situation, it should have been prepared for preparation by acquiring certain collateral at each time of loan in preparation for the situation, it provided credit only with credit and caused the risk of impossible recovery by providing credit.

② Around January 1994, the financial structure of the Han Steel continued to worsen, the report on precision credit analysis of the Korea Credit Information Company, the report on self-credit investigation and the business evaluation of the Korea Credit Information Company, the report on September 195, 196, the report on corporate diagnosis of the Korea Credit Information Company, etc., the modification of the steel product business plan and its contents, the expansion of business expenses, and all related problems were analyzed. Since there were concerns over the feasibility of the construction of the Han Steel Complex depending on external loans of the Han Steel, a thorough examination of the business plan of the Han Steel should be conducted to determine the feasibility of the construction of the Han Steel Complex, and if there is doubt about the ability to repay by ascertaining the adequate scale of credit, it is necessary to devise comprehensive and effective credit management measures such as immediately reducing the credit and securing the collateral, and rather, it was decided that it continuously provides large amount of credit without collateral by expanding the scale of the credit.

③ Since a resolution was made on a large amount of loans to the Han Steel, it is obligated to examine the progress of the construction project of the Han Steel and the feasibility of business changes, etc., to monitor whether the loans are being used for an appropriate purpose, and to examine whether the amount of funds provided is appropriate. However, although the scale of the construction of the Han Steel began to exceed KRW 1,50 billion, around July 1994, the scale of the construction of the Han Steel began to be approximately KRW 3,690 billion, and around December 1996, it was decided to provide credit continuously as required by the Han Steel without thoroughly examining the circumstances, such as large amount of loans increased to KRW 5,726.5 billion, and even around July 1996, it was decided to provide credit continuously as required by the Han Steel Steel without thoroughly examining the circumstances.

④ Since the bank’s opinion of credit examination is the most important material in determining whether to grant a loan, it is necessary for the person in charge to objectively evaluate and prepare the borrower’s credit conditions, such as the financial structure, business prospects, collateral guarantee, and repayment ability of the borrower through various data or answers. However, the Defendants, who were the president of the bank, determined the credit provision policy in advance and instructed the person in charge of the affairs to prepare a written opinion of credit examination with the standing to grant a loan. The remaining Defendants were aware of, or could be sufficiently determined as, the aforementioned written opinion, but did not raise any objection.

⑤ The purport of Article 35 of the Banking Act’s lending limit to the same person is to prevent risks caused by excessive extension of credit to the same person, so if the lending limit to the bank account under the restriction of the same person reaches the lending limit, the lending limit should no longer be used. However, Han Steel continued to provide credit to the same person through another trust account without such restriction.

④ Defendant 3 loaned KRW 209.8 billion to Han Steel Steel to acquire oil source construction upon Nonparty 2’s request, which was a means of providing large amount of loans to Han Steel.

7) Defendant 3 and 4 violated the duty of care or good faith to each of the co-litigants by taking out a large amount of bribe from Nonparty 2 as a result of the lending of the above loan to the Han Steel Steel.

(3) In determining whether to grant a loan, the manager of the bank must carefully determine whether there is a risk of impossibility of recovery through objective data, and if there is a concern about the risk of impossibility of recovery, he/she shall not avoid such risk, and even if granting a loan, he/she shall be obliged not to obtain a certain security to cause damage to the bank

Therefore, as seen above, although Defendant 3 and 4 could have sufficiently predicted the risks of impossibility of collecting loans from Han Steel, the act of taking advantage of such risks and continuously providing large amounts of loans to the subordinate staff of Han Steel without providing security to the subordinate staff of Han Steel, was neglected to perform their duties as the chief executive officer of the bank. In addition, Defendant 1 and 2 knew of the risks of loans to Han Steel during the period of being in office as the director of the plaintiff co-litigation, even if they are well aware of the risks of loans to Han Steel, it is clear that the bank neglected its duties as the company's company's company's company's company's company's resolution and approved it by the resolution of the board of directors without stopping the decision of provision of false and uniform loans to the Han Steel Steel. Thus, the defendants are liable to compensate for damages suffered by the plaintiff co-litigation of the plaintiff co-litigation as of the date of

B. The judgment of this Court

Since directors of a stock company have the duty of care as a good manager against the company (Article 382(2) of the Commercial Act and Article 681 of the Civil Act), they are deemed to have fulfilled the duty as a director when they faithfully perform the duty.

In addition, even though the loan that a director of a stock company which is a financial institution has become difficult to recover or impossible to recover, it cannot be concluded that the representative director or director who immediately issued the loan decision violates the duty of good faith or good faith.

However, a bank, which is a financial institution, is operated as a stock company, but is in the position of the public role that should contribute to the stabilization of financial markets and the development of the national economy by protecting depositors' property and maintaining credit order and maintaining efficiency in financial intermediary functions, unlike the general stock company that aims only at profit-making profit-making purposes, and therefore, it is required that the director of the bank, who is in the execution of such business, should fulfill his duty of care that is consistent with the general nature of the bank's director's duty of care.

Therefore, whether a director of a financial institution neglected his/her duties in breach of the above duty of care as a good manager should be comprehensively determined in light of various matters such as the terms and conditions of the loan, size, repayment plan, existence and contents of security, debtor's property and management status, growth potential, etc. from the perspective of public role as a financial institution.

In light of the above legal principles in comparison with the evidence of the record, the court below is just in its conclusion that the defendants neglected to perform their duties as a bank manager or director after comprehensively taking into account all the circumstances such as the circumstance and scale leading up to the defendants' decision of the loan of this case, the overall situation and securing of security for the loan of Han Steel at that time, and the negative evaluation results on the financial structure and profitability of Han Steel. Thus, the court below did not err in the misapprehension of legal principles as to the plaintiff's joint intervenor's duty of care or incomplete hearing due to violation of the rules of evidence, or the directors' duty of care or the company's liability or illegality.

Furthermore, in the reasoning of the judgment below, it is evident that Defendant 2 was aware of, or was able to make a full determination of, the above circumstances, and therefore, it is clear that the court below has neglected the above duties by adopting a resolution of the standing directors related to loans without any objection. Therefore, there is no illegality in the grounds for appeal.

All of the defendants' arguments in their respective grounds of appeal are rejected.

5. As to the assertion of misapprehension of legal principles as to liability under Article 399(2) of the Commercial Act

In accordance with the evidence of the record, the board of directors which the Defendants resolved to grant each of the loans of this case is not a regular board of directors under the Commercial Act consisting of all the directors of the plaintiff co-litigants, but a standing director consisting of president, managing director, managing director, executive director, etc. in order to deal with matters delegated by the board of directors pursuant to the above provisions of the Bank'

However, in full view of the reasoning of the judgment below, the court below held that the Defendants neglected to perform their duties in violation of the duty of care or good faith by attending the resolution of the standing directors related to loans and consenting thereto without any objection, the part of the judgment of the court below that the Defendants consented to the resolution of the standing directors' meeting is not recognized as a director of the board of directors' liability under Article 399 (2) of the Commercial Act with the approval of the resolution of the standing directors' meeting, but it is understood that the Defendants neglected to perform their duties in violation of the duty of care or good faith by having known or at least it was inappropriate to determine whether the loan decision was unfair or inappropriate.

Therefore, the court below does not accept each of the defendants 4 and 1's assertion on the premise that the above defendants are liable under Article 399 (2) of the Commercial Act.

6. Conclusion

Therefore, each appeal by the Defendants is dismissed, and all costs of appeal are assessed against the Defendants. It is so decided as per Disposition by the assent of all Justices who reviewed the appeal.

Justices Shin Shin-chul (Presiding Justice)