[1] The scope of “compensation for directors” under Article 388 of the Commercial Act, and whether the said provision constitutes a mandatory provision (affirmative)

[2] Whether the articles of incorporation or a general meeting of shareholders is permitted to comprehensively delegate matters concerning the remuneration of directors to the board of directors (negative), and in cases where specific matters concerning the remuneration of directors are delegated to the board of directors at the general meeting of shareholders, whether such matters

[3] In the case of a so-called one-person company, whether such a resolution may be deemed to have been made if a single-person shareholder’s intent conforms to the contents of the resolution of the general meeting of shareholders even if the procedure for convening the general meeting of shareholders was defective or the minutes of the general meeting of shareholders were not prepared (affirmative), and in the case of a non-one-person company, whether it is evident that such resolution would have been made or that such resolution would have been made clearly or that such a resolution was made (negative in principle)

[1] Article 388 of the Commercial Act provides, “The remuneration of a director shall be determined by a resolution of the general meeting of shareholders, if the articles of incorporation does not provide for the amount of remuneration.” The remuneration of the above provision includes all the remuneration paid as compensation for the performance of duties, regardless of the name of annual salary, allowance, bonus, etc. It is a mandatory provision to protect the interests of a company, shareholders, and company creditors by preventing the harm inflicted upon a director to

[2] Article 361 of the Commercial Act provides, “The general meeting of shareholders may adopt a resolution only on the matters stipulated in this Act or the articles of incorporation.” Such resolution of the general meeting of shareholders must be determined by the general meeting of shareholders, and even by the articles of incorporation or the resolution of the general meeting of shareholders, it shall not be delegated to other agencies or third parties. Therefore, it is possible to determine only the total amount or limit of remuneration for executives and delegate specific matters to the board of directors, such as the amount paid to individual directors. However, it is not allowed to comprehensively delegate matters concerning the remuneration of directors to the board of directors to the board of directors. Even if a general meeting of shareholders delegates specific

[3] In the case of a so-called one-called one-person company whose total shares are owned by a person holding total shares of a stock company, it is evident that such a shareholder will be constituted as a general meeting of all the shareholders if he/she attends the general meeting of shareholders as the sole shareholder and that the resolution would be made according to his/her intent. For this reason, even if there is a defect in convening the general meeting of shareholders or the minutes of the general meeting of shareholders have not been prepared, if one-person shareholder’s intent conforms to the contents of the resolution of the general meeting of shareholders, such a resolution may be deemed to have been made based on evidence. However, this is a legal doctrine that can be made only for one-person company. In the case of a stock company other than a single-person company, it cannot be deemed that

[1] Article 388 of the Commercial Act, Article 105 of the Civil Act / [2] Articles 361 and 388 of the Commercial Act / [3] Articles 363, 368, and 373 of the Commercial Act

[1] Supreme Court Decision 2018Da290436 Decided April 9, 2020 (Gong2020Sang, 906) / [2] Supreme Court en banc Decision 2016Da251215 Decided March 23, 2017 (Gong2017Sang, 863) / [3] Supreme Court Decision 74Da1755 Decided April 13, 1976 (Gong1976, 9101)

Law Firm Hart Co., Ltd. (Law Firm LLC, Attorneys Kim Sang-ok et al., Counsel for the plaintiff-appellant)

Defendant-Counterclaim Plaintiff (Law Firm Sejong, et al., Counsel for the defendant-Counterclaim plaintiff-appellant)

Seoul High Court Decision 2015Na2040638, 2040645 decided June 30, 2016

Of the lower judgment, the part on the claim for restitution of unjust enrichment and the claim for damages related to the principal claim, the part on the claim for damages related to the contract, the part on the claim for damages and the counterclaim are reversed, and that part of the case is remanded to the Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the claim for restitution of unjust enrichment relating to remuneration in the principal lawsuit

A. As to the grounds of appeal by the Plaintiff (Counterclaim Defendant; hereinafter “Plaintiff”) and the Defendant on whether the determination and payment of remuneration for the Defendant (Counterclaim Plaintiff; hereinafter “Defendant”) are invalid in violation of the statutes and the articles of incorporation

1) Article 388 of the Commercial Act provides, “The remuneration of a director shall be determined by a resolution of the general meeting of shareholders, if the articles of incorporation does not provide for the amount of remuneration.” The remuneration under the above provision includes all remuneration paid as compensation for the performance of duties, regardless of the name of annual salary, allowance, bonus, etc. It is a mandatory provision to protect the interests of the company, shareholders, and company creditors by preventing harm to the director’s personal interests in relation to his/her remuneration (see, e.g., Supreme Court Decision 2018Da290436, Apr. 9,

Article 361 of the Commercial Act provides, “The general meeting of shareholders may adopt a resolution only on the matters stipulated in this Act or the articles of incorporation.” Such resolution of the general meeting of shareholders must be set at the general meeting of shareholders, and even if it is adopted by the articles of incorporation or the resolution of the general meeting of shareholders, it shall not be delegated to another institution or a third party (see Supreme Court en banc Decision 2016Da251215, Mar. 23, 2017). Therefore, it is possible to determine the total amount or limit of remuneration for executives at the general meeting of shareholders or the general meeting of shareholders to comprehensively delegate matters concerning the remuneration of directors to the board of directors, but it is not allowed to comprehensively delegate matters concerning the remuneration of directors to the board of directors. In addition, even if specific matters concerning the remuneration

On the other hand, in the case of a so-called one-called one-person company whose total shares are owned by one shareholder, it is evident that such a resolution will be made as the general meeting of all the shareholders if the shareholder attends the general meeting of shareholders as the sole shareholder and would be made according to the shareholder’s intent. For this reason, even if there is any defect in the convocation procedure of the general meeting of shareholders or the minutes of the general meeting of shareholders have not been prepared, if one-person shareholder’s intent conforms to the contents of the resolution of the general meeting of shareholders, such a resolution may be deemed to have been made by evidence (see Supreme Court Decision 74Da1755, Apr. 13, 1976, etc.). However, this legal doctrine is possible only for one-person company. In the case of a stock company which is not a single-person company, it cannot be deemed that such a resolution would have been made, or that there was

2) Review of the reasoning of the lower judgment and the record reveals the following facts.

A) The Defendant, as the representative director of the Plaintiff, received approximately KRW 1.92 billion annually from 2005 to January 2008, and from February 2008, the amount increased to the largest amount of remuneration. The increased amount among the remuneration the Defendant received, is KRW 5.18 billion from February 2008 to December 2008, 2008, KRW 5.55 billion from 2009, KRW 6.9 billion from 2010, and KRW 1.44 billion from January 201 to April 201. The sum of the increased amount is KRW 1.26 billion from February 2008 to December 2008.

B) The Plaintiff’s articles of incorporation, in Article 31-2, requires a resolution of the board of directors on the remuneration of an officer responsible for the highest management of a company. Article 34 of the same Act provides that the remuneration of directors shall be determined by the general meeting of shareholders. However, Article 31-2 was deleted upon the amendment and enforcement of December 28, 2010.

C) From February 2008 to April 201, 201, the Plaintiff’s composition and change details at the time of determining the Defendant’s remuneration at issue are as follows.

(1) In 2008, so-called so-called “St Holdings Holdings”) was the Plaintiff’s shareholder. The shares of so-called so-called “St Holdings” were owned by the so-called “St Holdings”) and its affiliated companies, and the Defendant. The shares of so-called “St Holdings” were owned by the Nonparty and their families, the representative director, and the Nonparty and their families.

(2) In 2009, the related company and the defendant owned all of the Plaintiff’s shares, and the shares of the related company were owned by the Nonparty, the representative director, and their families.

(3) In 2010, related companies and the Defendant owned approximately 80% of the Plaintiff’s voting shares, and the Nonparty, the representative director, and their families owned a majority.

(4) In 2011, related companies and the Defendant actually held approximately 60% of the Plaintiff’s voting shares.

D) After February 2008, the Plaintiff, while paying remuneration to executive officers including the Defendant, prepared a document stating the specific annual salary amount for each executive officer in the personnel team, reported it to the Nonparty’s representative director, and obtained approval, and subsequently, passed a resolution of the board of directors and the general meeting of shareholders to present the proposal setting the limit on the total amount of remuneration to be paid to all executive officers in the pertinent year to the general meeting of shareholders. In this case, the total annual salary amount of individual executive officers approved by the Nonparty and the total amount of remuneration for the executive officers approved by the general meeting of shareholders were inconsistent

E) During the period from February 2008 to April 201, 201, there was no resolution of the Plaintiff’s board of directors regarding the Defendant’s specific amount of remuneration for the chief executive officer as the chief executive officer, and there was no resolution of the Plaintiff’s general meeting of shareholders.

3) On the grounds indicated in its reasoning, the lower court determined, on the following grounds, that the remuneration for the increased portion remaining after deducting the amount equivalent to the remuneration before January 2008, the Plaintiff was the adequate amount of remuneration, among the remuneration that the Defendant received from the Plaintiff from January 201 to April 2011, constitutes the profit obtained without legal grounds (not regarding a claim for restitution of unjust enrichment and a claim for damages arising from selective consolidation). However, the lower court determined that the increased portion of remuneration that the Defendant received from the Plaintiff from February 2008 to 2010 cannot be deemed as the profit obtained without legal grounds.

A) Although the Plaintiff’s general meeting of shareholders only passed a resolution to set the amount of remuneration for directors, the amount of remuneration for each director was determined and paid within the scope of the specific amount of remuneration, and if a shareholder who holds at least 2/3 of the voting stocks with voting rights equivalent to the degree that the amount of remuneration for directors can be determined through an amendment of the articles of incorporation in the process of determining and paying individual directors’ remuneration, approval for the determination and payment of remuneration, barring any special circumstance, it can be deemed that a resolution by the general meeting of shareholders would result in a resolution to pay the remuneration.

B) At the time when the Defendant’s remuneration was determined in 2008, the Nonparty, who was the Plaintiff’s single-person shareholder, approved the Defendant’s remuneration, and at the time when the Defendant’s remuneration was determined in 2009, the Plaintiff’s shareholder was the relevant company and the Defendant. At that time, the Nonparty, the actual controller of the relevant company, at that time, approved the Nonparty’s remuneration. Furthermore, considering the circumstances that each general meeting of shareholders approved the Defendant’s consent on the total amount of remuneration for directors, the determination and payment of increased remuneration to the Defendant during the above period is clearly a matter of course, even if the Defendant’s resolution was adopted on the general meeting of shareholders on the specific amount of remuneration.

4) Of the lower judgment, the determination on the increase in remuneration from around January 201 to April 201 is somewhat inappropriate, but the conclusion that recognized the Defendant’s obligation to return unjust enrichment is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules, or by exceeding the bounds of the principle of free evaluation of evidence in breach of the rules of logic and experience, such as interpretation of Article 388 of the Commercial Act, the normative nature of the articles of incorporation, the role of directors and shareholders under the Company Act, the cure of the absence

However, in light of the aforementioned legal principles and records, the lower court’s determination on the increase in remuneration from February 2008 to 2010 is difficult to accept for the following reasons.

The Defendant, as the representative director of the Plaintiff, received only approximately KRW 1.92 billion annual remuneration from February 2, 2008 to April 201, 201, and as a result, the sum of the increased remuneration that the Defendant received during the above-term period reaches KRW 18.26 billion. However, even though the Plaintiff’s articles of incorporation stipulate that the determination of remuneration for the chief executive officer of the highest management responsibility requires a resolution of the board of directors, there was no resolution of the board of directors regarding the specific amount of remuneration to be increased and paid. In addition, during the above-term period in which the Defendant received increased remuneration, the Plaintiff’s general meeting of shareholders only approved the limit of the total annual remuneration to be paid to all executives, and cannot be deemed to have determined the amount of individual remuneration directly at a general meeting of shareholders, such as where the Defendant did not have any specific resolution with respect to the payment of individual remuneration.

At the time when the Plaintiff’s general meeting of shareholders, which determines the total amount of directors’ remuneration for the year 2008, was held on March 14, 2008, the Plaintiff’s shareholder was one so-called so-called so-called “Stentening Holdings.” No evidence was found that the Plaintiff approved the payment of individual remuneration to be paid to the Defendant or that such resolution was made at the general meeting of shareholders or the board of directors of so-called “public meeting of so-called so-called “one person company of the Nonparty.” No evidence exists to deem that the Nonparty was one company of the Nonparty at the time when the Plaintiff’s general meeting of shareholders determined the director’s remuneration for the pertinent year was held on March 19, 2009 and March 18, 2010. In this case, inasmuch as there was no evidence to deem that the Nonparty was a director’s resolution on the remuneration of the Defendant each year as the representative director or substantial controller of the Plaintiff’s major shareholder, and that the Plaintiff paid the remuneration to the Defendant therefrom, it cannot be deemed that there was a director’s resolution

Nevertheless, on the grounds indicated in its reasoning, the lower court determined that the portion of the increase in remuneration that the Defendant received from February 2, 2008 to 2010 cannot be deemed to be profits obtained without legal grounds under the premise that it satisfies the requirements of Article 388 of the Commercial Act. In so determining, the lower court erred by misapprehending the legal doctrine on the right to claim remuneration of directors, thereby adversely affecting the conclusion of the judgment. The Plaintiff’s ground of appeal

B. As to the defendant's ground of appeal on ratification of invalid act and defense of non-performance of debt

Based on the circumstances indicated in its reasoning, the lower court determined that it is difficult to view that the Plaintiff’s ex post ratifications the payment of remuneration for the Defendant from January 2, 2011 to April 201, or that the payment of remuneration constitutes a non-debt repayment as stipulated under Article 742 or 744 of the Civil Act.

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court’s aforementioned determination is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules

C. As to the Defendant’s ground of appeal on simultaneous performance and set-off

Based on the circumstances indicated in its reasoning, the lower court determined that it is difficult to recognize that the Plaintiff provided labor to the Defendant by providing the Defendant with labor exceeding the amount equivalent to the amount of the existing remuneration paid by increasing the amount of remuneration from January 201 to April 201, 208, rather than the full remuneration paid to the Defendant from January 2011 to January 2008. In so doing, the lower court rejected the Defendant’s simultaneous performance and defense, premised on the Plaintiff’s claim for return of value due to nonperformance of the Plaintiff’s duty to return labor.

Examining the reasoning of the lower judgment in light of relevant legal principles and records, the lower court’s aforementioned determination is justifiable, and contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the bounds of the principle of free evaluation of evidence

D. As to the Defendant’s ground of appeal on a violation of the good faith principle

Based on the circumstances stated in its reasoning, the lower court determined that the Plaintiff’s seeking for return of unjust enrichment in relation to the remuneration paid to the Defendant from January 2, 2011 to April 2011 cannot be deemed as violating the good faith principle.

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court’s aforementioned determination is justifiable. In so determining, contrary to what is alleged in the grounds of appeal, there were no errors by exceeding the bounds of the principle of free evaluation of evidence

2. As to the Defendant’s remaining grounds of appeal

A. As to the claim for damages relating to the main claim

For reasons indicated in its holding, the lower court rejected the Defendant’s claim on the limitation of liability for damages, on the ground that the Defendant’s act of having the Plaintiff enter into a contract for construction works with the Defendant’s family company and engaged in the subcontract for construction works is in breach of the duty of care to the Plaintiff, and accordingly, the Defendant is liable to the Plaintiff for damages equivalent to the difference between the construction cost arising from the contract and the subcontract price arising from the subcontract with the Plaintiff and the prime contractor.

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court’s aforementioned determination is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence inconsistent with logical and empirical rules, or by misapprehending the legal doctrine on the duty of care, the occurrence of

B. As to the claim for restitution of unjust enrichment related to the sale of the forest in the principal lawsuit

The court below rejected the defendant's assertion that since the plaintiff purchased the forest owned by the defendant without the approval of the board of directors and paid the purchase price to the defendant's designated person without the approval of the board of directors is null and void in violation of Article 398 of the Commercial Act, the defendant has a duty to return unjust enrichment equivalent to the purchase price to the plaintiff, and

Examining the reasoning of the lower judgment in light of relevant legal principles and records, the lower court’s aforementioned determination is justifiable, and contrary to what is alleged in the grounds of appeal, there were no errors by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules

C. As to the claim for damages relating to the costs of drivers among the main claim

Based on the circumstances indicated in its reasoning, the lower court rejected the Defendant’s claim on limitation of liability for damages, on the ground that the Defendant’s having the Plaintiff operate a driving engineer for the Defendant’s spouse and required the Defendant to pay expenses is a violation of the duty of care against the Plaintiff, and accordingly, the Defendant is liable to compensate the Plaintiff for the damages equivalent to the expenses.

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court’s aforementioned determination is justifiable. In so determining, contrary to what is alleged in the grounds of appeal, there were no errors by exceeding the bounds of the principle of free evaluation of evidence

D. As to the counterclaim

Based on the circumstances stated in its reasoning, the lower court determined that the Plaintiff was liable for delay from the day following the delivery of a copy of the counterclaim of this case, for which the Plaintiff received a claim for performance from the Defendant, on the ground that the Plaintiff’s retirement allowance obligation

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court’s aforementioned determination is justifiable, and contrary to what is alleged in the grounds of appeal, there were no errors by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending

3. Scope of reversal

The lower court rejected the part concerning the claim for return of unjust enrichment related to remuneration and the claim for damages from February 2, 2008 to April 2010, among the claims that the Plaintiff sought as the principal lawsuit, and recognized the claim for return of unjust enrichment related to remuneration from January 2, 2011 to April 201, the claim for damages related to contract, the claim for return of unjust enrichment related to forest sale and purchase, the claim for damages related to expenses incurred by the driver, and the claim for retirement benefits that the Defendant sought as a counterclaim. Then, the lower court accepted the Defendant’s simultaneous performance defense among the Plaintiff’s claims, and determined that the sum of the Plaintiff’s claims, excluding the claim for return of unjust enrichment related to the sale and purchase of the forest, the sum of the Plaintiff’s claims, and part of the Defendant’s claim for counter-claim, excluding the claim for return of unjust enrichment related to the sale and purchase order, were extinguished on an equal basis by set-off, thereby admitting the Defendant’s obligation to pay the remainder of the Defendant’s claim.

Meanwhile, inasmuch as the Defendant’s portion of the increased remuneration that he received from January 4, 2011, as well as the portion of the increased remuneration that he received from February 2008 to 2010, is deemed to have established the obligation to return unjust enrichment with respect to the increased remuneration that he received from February 2008, and the lower judgment is entirely reversed, the judgment on the grounds of appeal as to the calculation of unjust enrichment

4. Conclusion

Therefore, among the judgment below, the part concerning the claim for return of unjust enrichment and the claim for damages related to the principal claim, the part concerning the contract, the part concerning the cost of driving engineer, and the part concerning the counterclaim shall be reversed, and this part of the case shall be remanded to the court below for further proceedings consistent with this Opinion. The defendant's appeal shall be dismissed.

Justices Kwon Soon-il (Presiding Justice)