[1] Standard for determining whether a company’s manager had an intent to commit a breach of trust in relation to a business judgment

[2] In a case where a representative director of a company lends company funds to another person who is in excess of debt, rather than loss of debt repayment ability, or provides another person's debt as joint and several surety or company property as security for another person's debt, whether it can be determined as a breach of trust against the company (negative)

[1] Articles 355(2) and 356 of the Criminal Act / [2] Articles 355(2) and 356 of the Criminal Act

[1] Supreme Court Decision 2002Do4229 Decided July 22, 2004 (Gong2004Ha, 1480), Supreme Court Decision 2007Do10415 Decided January 14, 2010 / [2] Supreme Court Decision 2004Do520 Decided June 24, 2004 (Gong2004Ha, 1266), Supreme Court Decision 2009Do914 Decided November 25, 2010, Supreme Court Decision 2013Do5214 Decided September 26, 2013 (Gong2013Ha, 2021)

Defendant

Defendant

Attorney Lee Im-soo et al.

Seoul High Court Decision 2012No3208 decided February 8, 2013

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined.

1. In determining whether there was an intention in breach of trust to a manager of a company in relation to the management judgment, the same legal doctrine as the method of proving intent in the general crime of occupational breach of trust is applied. However, even if the management of a company has inherent risks at source and made a careful decision with the belief that it would coincide with the interests of the company on the basis of the information collected in good faith and without intent to take any personal benefits, the prediction may occur even if it is difficult. As such, if a company is held liable for an occupational breach of trust by relaxing the interpretation criteria on intent, then such determination goes against the principle of no punishment without the law, as well as if the company, which is the source of operating income, causes a serious loss to the society as well as to the relevant company. Therefore, even if the legal doctrine that the crime of breach of trust under the current Criminal Act is a dangerous crime, it is difficult to deny the legal doctrine that the company is liable for damages to the principal, such as the process and motive leading up to the management judgment at issue, details of the business at issue, economic situation of the company, probability of losses and profits, etc.

Furthermore, if the representative director of the company knew that it would cause damage to the company in the event of lending the company's fund to another person, guaranteeing the company's debt in the name of the company, or offering the company's property as security for the company's debt, such act would constitute a breach of trust against the company, but even if the other person exceeds his debt, it cannot be readily concluded that the lending of fund or the offering of joint and several surety or the offering of collateral constitutes a breach of trust against the company (see Supreme Court Decision 2004Do520, Jun. 24, 2004, etc.).

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

A. On January 19, 2010, Nonindicted Co. 1 (hereinafter “Nonindicted Co. 1”) entered into a confidentiality agreement with Nonindicted Co. 2 (hereinafter “Nonindicted Co. 2”) and opened a board of directors on March 3, 2010 to carefully review the entry into the ELD’s business, and decided to invest KRW 5,00,000,000 for the purpose of expanding facilities for production of ELD’s 35 million.

B. In light of the maximized interests and minimizing risks arising from the promotion of the new ELD processing project, Nonindicted Co. 3, who was working in the department in charge of Nonindicted Co. 1’s new ELD projects, shall secure equipment and human resources within the factory of Nonindicted Co. 1 and directly operate the ELD-based processing project (Article 1), give a subcontract to a separate company (Article 2), and operate the ELD-based processing (Article 3). After establishing an independent company with human resources working in Nonindicted Co. 1 as of the present, it shall prepare a plan to operate the ELD-based processing (Article 3) to give a subcontract to the relevant company (Article 3), and shall examine each chapter and the main points, and shall prepare a report to the effect that it is appropriate to adopt the three proposal by deeming that it is relatively superior in terms of the items such as investment cost, growth and sustainability, risk, maintenance of the status of small and medium enterprises of Nonindicted Co. 1, as well as technical capabilities, etc.

C. Around April 14, 2010, Nonindicted Co. 1 concluded an OEM supply contract with Nonindicted Co. 2. Nonindicted Co. 4, who was a director of Nonindicted Co. 1, proposed that Nonindicted Co. 1 establish an independent company directly in accordance with the proposal 3 to accept a subcontract again for ELD processing that Nonindicted Co. 1 received from Nonindicted Co. 2. Such proposal obtained the Defendant’s approval through the management planning office of Nonindicted Co. 1.

D. When establishing Nonindicted Co. 5 (hereinafter “Nonindicted Co. 5”), Nonindicted Co. 4 (hereinafter “Nonindicted Co. 5”) appointed Nonindicted Co. 4, 6, and 3 as internal directors, and Nonindicted Co. 7 as auditors, respectively. The 12 major shareholders of Nonindicted Co. 5 were employees who were in charge of new ELD business in Nonindicted Co. 1, and Nonindicted Co. 7 was concurrently in charge of the audit of Nonindicted Co. 5 in the status where Nonindicted Co. 5 was concurrently in charge of the head of the financial group of Nonindicted Co. 1. Nonindicted Co. 4 was appointed as the representative director, and Nonindicted Co. 4 was concurrently in charge of the internal director of Nonindicted Co. 1 before February 25, 20

E. On May 1, 2010, Nonindicted Co. 1 entered into a contract for the lease of equipment with Nonindicted Co. 5, which requires the Nonindicted Co. 5 to follow a separate contract for the lease of equipment with respect to the lease of equipment. According to the transaction agreement between Nonindicted Co. 1 and Nonindicted Co. 5 on June 1, 2011, Nonindicted Co. 5, a separate contract for the lease of equipment with respect to the lease of equipment, which is equivalent to KRW 6504,236,257 of the market price of the 70th equipment owned by Nonindicted Co. 1 and KRW 2,310,531,85 of the 25th market price of the equipment owned by Nonindicted Co. 2 and KRW 2,310,531,85 of the 25th market price of the equipment owned by Nonindicted Co. 1 and Nonindicted Co. 5, a separate contract for the lease of equipment or equipment from Nonindicted Co. 1, 2011.

F. In May 2010, Nonindicted Co. 1 subcontracted Nonindicted Co. 5 to Nonindicted Co. 5 a subcontracting process of ELD equivalent to KRW 83,691,825 (excluding value-added tax; hereinafter the same shall apply) and KRW 4,086,113,00 in 2010; KRW 6,395,647,00 in 201; and KRW 6,397,00 in 200 in ELD DD process, each of which is subcontracted to Nonindicted Co. 5, which was contracted from Nonindicted Co. 2, instead of directly investing in a factory and equipment, made Nonindicted Co. 5 enter into a subcontract to Nonindicted Co. 5, thereby enabling Nonindicted Co. 2 to carry out a business in the way of giving the profits equivalent to 5% of the sales of ELDD (the difference between the amount contracted by Nonindicted Co. 2 to Nonindicted Co. 2 and the amount subcontracted to Nonindicted Co. 5).

(g) Of its joint and several sureties, the Defendant provided 0.0 won for a loan of 0.0 to Nonindicted Company 10, 010, 000, 010, 000, 000, 010,0000, 000,0000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,00,000,00,00,00.

H. Meanwhile, around August 25, 2010, Nonindicted Co. 5 purchased a land for factory of KRW 2,315 square meters at KRW 3,50,000,000,00 in Bupyeong-gu, Incheon. In order to secure a loan to the Korea Development Bank, Nonindicted Co. 5 created a collateral security right of KRW 2,400,000 with respect to the said land around October 29, 201, the collateral security right of KRW 6,00,000 with maximum debt amount, the collateral security right of KRW 6,00,000 with respect to the said land, and the collateral security right of KRW 9,00,000 with respect to a factory building at around December 16, 2011, around June 28, 2011.

3. Examining these facts in light of the legal principles as seen earlier, the Defendant, the representative director of Nonindicted Co. 1, committed an independent company to conduct the contracted business after having the Nonindicted Co. 2 contracted ELD process by ELDD, and let Nonindicted Co. 5 establish the said company. In the process of lending the factory and equipment to Nonindicted Co. 5 for a fee, and sub-subcontracting Nonindicted Co. 2 to Nonindicted Co. 5 again contracting ELDD process that was contracted by ELDDD processing with Nonindicted Co. 2, while leasing the factory and equipment to Nonindicted Co. 5 for a fee, it is difficult to view Nonindicted Co. 5’s company as its joint and several liability or joint and several liability payment for the purpose of smooth execution of the ELD processing business, and it appears that Nonindicted Co. 5 had not been able to obtain a loan from Nonindicted Co. 1 from the financial institution for the purpose of using the factory site fund, factory equipment installation cost, or company operation fund, etc., and thus, it appears that the Defendant had not been aware that it would have lost or lost the Defendant’s debt or guaranteed the Defendant’s business.

Nevertheless, the lower court, solely on the grounds stated in its reasoning, found that the Defendant, as the representative director of Nonindicted Company 1, did not take any measures expected to protect the property of Nonindicted Company 1 as a matter of course and could recognize the establishment of occupational breach of trust on the grounds that Nonindicted Company 1 had caused large amounts of loans, provision of security, and joint and several sureties. In so doing, the lower court erred by misapprehending the legal doctrine on the act of breach of trust and intent in breach of trust, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment.

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Jo Hee-de (Presiding Justice)