[1] The method of determining whether a transaction constitutes a transaction under substantially favorable terms under Article 23(1)7 of the Monopoly Regulation and Fair Trade Act, and the meaning of the normal interest rate, which serves as the basis for determining whether the payment and consideration are substantially favorable

[2] The case reversing the judgment of the court below on the ground that it was unlawful to determine whether the act of Gap affiliate company of a large enterprise group Gap's acquiring private equity bonds through the bank constitutes a transaction under substantially favorable terms under Article 23 (1) 7 of the Monopoly Regulation and Fair Trade Act, and whether the rate of return on the company's public offering guaranteed bonds issued by the affiliate company is considerably low since the maturity is considerably different from that of other companies

[1] Determination of whether a transaction constitutes a transaction under substantially favorable terms under Article 23(1)7 of the Monopoly Regulation and Fair Trade Act shall be made on a specific and individual basis by comprehensively taking into account not only the difference between payment and consideration, but also economic benefits arising from the scale of support and the type of support, the period and frequency of support, the timing of support, the economic situation at the time of support, and the economic situation of the recipient at the time of support. The normal interest rate, which serves as the basis for determining whether a benefit and consideration is substantially favorable to the recipient, means the interest rate applicable to a transaction between the recipient and an independent financial institution that has no special relationship with the recipient in the same or similar circumstances, such as the rate of interest to be applied when a financial transaction was made between the recipient and the recipient and the independent financial institution that has no special relationship with him/her in terms of the amount, time, type, scale, period, credit conditions, etc. of the financial transaction.

[2] The case reversing the judgment of the court below on the ground that it was unlawful to determine whether the act of Gap affiliate of a large enterprise group Gap's acquiring private equity bonds through the bank constitutes a transaction under substantially favorable terms under Article 23 (1) 7 of the Monopoly Regulation and Fair Trade Act, and whether the rate of return on the company's public offering guaranteed bonds issued by the affiliates around that time with a significant difference in maturity, etc. is considerably lower than normal interest rate, on the ground that it is unlawful.

[1] Article 23 (1) 7 of the Monopoly Regulation and Fair Trade Act / [2] Article 23 (1) 7 of the Monopoly Regulation and Fair Trade Act

[1] Supreme Court Decision 2001Du2881 Decided October 14, 2004 (Gong2004Ha, 1833) Supreme Court Decision 2001Du2935 Decided October 14, 2004 (Gong2004Ha, 1845) Supreme Court Decision 2003Du15171 Decided February 10, 2006 (Gong2006Sang, 432)

ELa District Damage Insurance Co., Ltd. (Law Firm Sejong, Attorneys Yellow-tae et al., Counsel for the plaintiff-appellant)

Fair Trade Commission (Law Firm Han, Attorneys Jeon Soo-soo et al., Counsel for defendant-appellant)

Seoul High Court Decision 2000Nu4868 delivered on February 3, 2004

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

1. As to the violation of the rules of evidence regarding the link between the subordinated loan of this case and the acquisition of the privately placed bonds of this case

A. In full view of the adopted evidence, the court below held that on December 31, 1997, the Plaintiff acquired the subordinated loan amounting to 48 billion won (hereinafter “instant subordinated loan”) from Boan Bank Co., Ltd. (hereinafter “IB”); on the same day, IBB Co., Ltd. (hereinafter “ELE”); and on the same day, IB acquired the instant subordinated loan amounting to 48 billion won (hereinafter “instant private equity loan”); on the same day, IBB Co., Ltd. (hereinafter “ELE”); on the date of borrowing the instant subordinated loan and the date of underwriting the instant private equity loan, the amount, interest rate and interest payment terms, maturity period, the total amount of 48 billion won per annum, 16% per annum, 16% per annum, 16% per annum, and 63 years after the date of acquiring the instant bonds (hereinafter “IBE”) with the Plaintiff’s total subscription rate; and on the same day, the Plaintiff was fully consistent with the date of the instant private equity loan.

B. In light of the records, the above fact-finding and judgment of the court below are just and acceptable, and there is no error of law of misconception of facts due to violation of the rules of evidence as otherwise alleged in the ground of appeal.

2. As to the misapprehension of legal principles as to the calculation of normal interest rate, and violation of the rules of evidence

A. In full view of the adopted evidence, the court below acknowledged the following facts: ELE, one bank, at the rate of KRW 100 billion on December 30, 1997, which is the day before the date of acquiring the private equity bonds of this case, and at the rate of KRW 88.26 billion at the rate of KRW 11.74% on a three-year public equity bonds with the maturity of KRW 25% per annum (27.4%) and at the rate of KRW 8.26 billion at the rate of KRW 11.74% on a three-year basis: the rate of return on the company bonds with the maturity of KRW 30.89% per annum on December 30, 197, on which the public equity bonds of this case were issued and subscribed; and the rate of return on the company bonds with the maturity of 3 years on December 31, 197, which was 28.9% per annum.

Furthermore, the court below held that, on the grounds that the subscription price of one bank should be higher than the arm's length price for the subscription of the bonds to be supported, the subscription price of the bonds is determined by the subscription rate, and that the subscription price of the bonds should be compared with the subscription rate of the bonds in consideration of the subscription rate at the time of issuance and subscription, and that the above subscription bond is subject to the subscription rate of 11.74%, while the subscription bond of this case is subject to the subscription rate of 1.74%, while the subscription bond of this case would be more severe than the simple subscription rate of the two bonds. The above subscription rate of the company bond with the maturity of 3 years on December 30, 197 and on the 31st of the same month on the 3th of the same month, which was the issuance date of the above two bonds, was more than 30%, but the subscription rate of the bonds of this case should be higher than the subscription rate of 14% after the issuance and subscription rate of the bonds of this case.

B. However, we cannot accept the above determination by the court below for the following reasons.

Determination as to whether a transaction constitutes a transaction on substantially favorable terms under Article 23(1)7 of the Monopoly Regulation and Fair Trade Act shall be made on a specific and individual basis by comprehensively taking into account not only the difference between the payment and the consideration, but also economic benefits arising from the scale of the support, the period and frequency of the support, the timing of the support, the timing of the support, the economic situation at the time of the support act, etc. The normal interest rate, which serves as the basis for determining whether the benefit and the consideration are substantially favorable, means the interest rate applicable to the transaction between the support entity and the support entity if the financial transaction was made between the support entity and an independent financial institution that has no special relationship with the entity in the same or similar circumstances in terms of the time, type, size, period, credit conditions, etc. (see, e.g., Supreme Court Decision 2001Du2935, Oct. 14, 2004; 201Du5371, Oct. 14, 2004).

Examining the record in light of the above legal principles, there are differences in the issue amount, method of issuance, etc. of the private equity bonds and the public equity bonds of this case. While the maturity of the private equity bonds of this case is six years, the maturity of the above public equity bonds of this case is three years, and there was a considerable difference in the maturity of the above public equity bonds of this case. At the time of the subscription of the private equity bonds of this case, the general interest rate was set lower than the short-term interest rate, and the long-term interest rate was set lower than the normal high interest rate.

If so, the court below should have reviewed whether the rate of return of the above public offering bond is considerably low or not, rather than determining whether the rate of interest of the private offering bond of this case is significantly low or not, the company having the same or similar credit rating with the same or similar credit rating with the private offering bond of this case in terms of the time, size, maturity, etc. of the private offering bond of this case, and judged whether the interest rate of the above public offering bond of this case was significantly low or not. However, the court below determined the rate of interest of the above public offering bond of this case with a significant difference in maturity, etc. as normal interest rate. Thus, the court below erred in the misapprehension of legal principles as to the calculation of normal interest rate, and this part of the ground of appeal is with merit.

3. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, the judgment below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Ji-hyung (Presiding Justice)