[1] The meaning of “the right of shareholders” under Article 467-2(1) of the Commercial Act and whether the “the right of shareholders” includes the special right of shareholders under a contract to the company (negative)

[2] In a case where Gap corporation entered into a share purchase agreement with Eul to raise operating funds, and Gap corporation agreed to purchase Eul corporation's shares and separately lend money to Eul corporation, and Eul has the right to recommend one executive officer of Eul corporation, and Gap corporation entered into a payment agreement to pay Eul corporation monthly money in lieu of Eul's exercise of executive recommendation right, the case holding that the payment agreement cannot be deemed as a violation of Article 467-2 (1) of the Commercial Act

[1] “Rights of shareholders” under Article 467-2(1) of the Commercial Act refers to all rights that can be exercised as shareholders pursuant to the Act and the articles of incorporation, and includes not only public interest rights, such as voting rights at a general meeting of shareholders, representative litigation rights, and various litigation rights related to resolution of the general meeting of shareholders, but also self-interest rights such as right to claim dividends, right to claim distribution of residual property, right to claim distribution of preemptive rights, etc., but also does not include special rights under the contract to the company. In addition, “in relation

[2] In a case where Gap corporation entered into a share purchase agreement with Eul to raise operating funds, and Eul agreed to purchase Eul company's shares and separately lend money to Eul company, and Eul company entered into a payment agreement to pay Eul company monthly money in lieu of Eul's exercise of executive recommendation right, the case holding that Eul's recommendation right is a special right stipulated in the share purchase agreement, and it does not constitute a "shareholders' right" as stipulated in Article 467-2 (1) of the Commercial Act, and the payment agreement does not constitute a "shareholders' right" as stipulated in Article 467-2 (1) of the Commercial Act, on the ground that the right to recommend executives of Eul is a special right stipulated in the share purchase agreement, and it does not constitute a "right to recommend executives of Eul company Eul," and it does not constitute a violation of Article 467-2 (1) of the Commercial Act, since Eul's payment agreement merely agreed to provide Eul company with money for the purpose of influencing Eul's exercise of shareholder's right.

[1] Article 467-2 (1) of the Commercial Act / [2] Article 105 of the Civil Act, Article 467-2 (1) of the Commercial Act

[1] Supreme Court Order 2013Ma2397 dated July 11, 2014 (Gong2014Ha, 1572)

Minenam Automobile Co., Ltd. (Attorneys Kim Jong-dae et al., Counsel for the plaintiff-appellant)

Defendant 1 and one other (Attorneys Lee Sung-hee et al., Counsel for the defendant-appellant)

Daegu High Court Decision 2014Na1448, 1455 decided October 21, 2015

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

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

1. For the following reasons, the lower court determined that the agreement between the Plaintiff (Counterclaim Defendant; hereinafter “Plaintiff”) and the Defendant (Counterclaim Plaintiff; hereinafter “Defendant”) on the payment of KRW 2 million per month to the Defendants (hereinafter “instant payment agreement”) was in violation of Article 467-2(1) of the Commercial Act. In other words, the Plaintiff agreed to pay KRW 2 million per month to the Defendants in return for Defendant 1’s failure to exercise the right to recommend executives under the instant share purchase agreement. The “Recommendation right” refers to the Defendants’ recommendation by exercising the right to propose shareholders under Article 363-2(1) of the Commercial Act, and thus, the agreement on the payment of KRW 2 million per month is contrary to Article 467-2(1) of the Commercial Act.

2. However, it is difficult to accept such a determination by the lower court for the following reasons.

A. Interpretation of a juristic act is clearly confirming the objective meaning given by the party to an act of representation. In a case where the objective meaning is not clearly revealed by the party’s language and text, it shall be reasonably interpreted in accordance with logical and empirical rules and the common sense of social norms and transaction norms, by comprehensively taking into account the contents of the language and text, the motive and background leading up to the juristic act, the purpose and genuine intent to be achieved by the party through the juristic act, transaction practices, etc. (see, e.g., Supreme Court Decision 2010Da58230, Feb. 28, 2013).

Meanwhile, Article 467-2(1) of the Commercial Act provides that “a company shall not grant any property interest in connection with the exercise of shareholder’s rights.” Article 467-2(3) provides that “if a company has granted any pecuniary interest in violation of the provisions of paragraph (1), the person who received such benefit shall return it to the company.” Here, “the shareholder’s right” refers to all the rights entitled to exercise as a shareholder pursuant to the Act and the articles of incorporation. The term “the shareholder’s right” includes not only the public interest rights, such as the right to file a lawsuit, the right to institute a representative lawsuit, and all kinds of lawsuits regarding the resolution of the general meeting of shareholders, but also the right to receive dividends, such as the right to claim a distribution of residual assets, the right to claim a distribution of residual assets, and the right to acquire new stocks.” In addition, “in relation to the exercise of shareholder’s right,” means to exercise the shareholder’s right (see

B. Review of the reasoning of the lower judgment and the record reveals the following circumstances.

(1) The Plaintiff’s total number of shares is 143,812 shares, and most of its employees have been managing the Plaintiff. From around 2001, the Plaintiff, five directors among the Plaintiff’s management, one auditor, and the employee stock ownership association entered into the instant stock purchase agreement with Defendant 1 to raise operating funds. The main contents of the agreement are ① purchase of KRW 40,00 per share of 40 million among the shares owned by the members of the employee stock association, and KRW 200,000 per share of 140,000,000 won is paid to the Plaintiff by July 14, 2005 (paragraphs 1 and 2), ② lending KRW 100,000,000 to the Plaintiff by Defendant 1’s total number of shares owned by Defendant 1 to KRW 400,000,000,000,000 to KRW 140,000,000,00,000.

(2) After the conclusion of the share purchase agreement, the Plaintiff and Defendant 1 entered into the instant payment agreement with Defendant 1 to pay KRW 2 million per month to the Defendants instead of exercising the recommendation right under the share purchase agreement. Accordingly, the Plaintiff began to pay KRW 2 million per month to the Defendants on July 31, 2005, and the Plaintiff paid KRW 2,500,000 per month from May 11, 2013 to July 11, 2013. The Plaintiff paid KRW 2,50,000 per month to the Defendants under the instant payment agreement until the suspension of payment on August 2013. The Plaintiff entered the account book as “in the name of the adviser,” but there is no material to deem that the Defendants actually provided the advisory service.

(3) The Plaintiff repaid the borrowed amount of KRW 400 million to Defendant 1 by September 2008, and during the borrowed period, the Plaintiff paid KRW 830,000 per interest to Defendant 1 or Defendant 2, the borrowed amount of KRW 100,000 per month.

C. We examine these circumstances in light of the legal principles as seen earlier.

(1) In full view of the language and text of the instant share purchase agreement, its motive and background, the parties’ purpose and intent, etc., the main contents of the instant share purchase agreement are that Defendant 1 has the right to recommend executives and the right to preferentially purchase shares held by the employee stock ownership association in return for raising operating funds of KRW 200 million and loans to the Plaintiff. Here, Defendant 1’s right to recommend executives is reasonable to deem that Defendant 1 has the right to recommend executives through the Plaintiff’s management and the employee stock ownership association’s resolution with the board of directors and the general meeting of shareholders, and to decide on remuneration corresponding to the full-time officer. Considering the lower court’s determination that the recommendation right granted to Defendant 1 is the right to recommend candidates by exercising the right to recommend executives under the Commercial Act, which is naturally a minority shareholder’s right to recommend executives, such as exercising the right to recommend shareholders under the commercial law, which is naturally a right to recommend executives, the agreement would be made with an explicit provision that does not need to be placed under the contract provisions of the instant share purchase agreement.

(2) The instant payment agreement, instead of exercising the recommendation right under the instant stock transaction agreement, is to pay KRW 2 million per month to the Defendants instead of Defendant 1’s exercise of the recommendation right. Defendant 1’s exercise of the recommendation right is a consideration for raising the operating capital of KRW 600,000 per month to the Plaintiff faced with financial difficulties, and thus, it can be deemed that the Defendants, instead of the recommendation right, had to receive KRW 2,00,00 per month, was a consideration for raising such operating capital.

(3) Comprehensively taking account of such circumstances, the right to recommend executives held by Defendant 1 is a special right under the instant share purchase agreement, and it cannot be deemed as a shareholder’s public interest or self-interest right. Thus, it does not constitute “shareholders’ rights” under Article 467-2(1) of the Commercial Act. Furthermore, the instant payment agreement merely provides that Defendant 1 shall pay to the Plaintiff the price for raising the operating fund of KRW 600 million in total, and does not mean that Defendant 1 would provide money to the Plaintiff for the purpose of influencing the exercise of shareholder’s rights. Accordingly, the instant payment agreement cannot be deemed as a violation of Article 467-2(1) of the Commercial Act.

3. Nevertheless, based on its stated reasoning, the lower court determined that the instant payment agreement was null and void in violation of Article 467-2(1) of the Commercial Act. In so determining, the lower court erred by misapprehending the interpretation of a juristic act and the legal doctrine on Article 467-2(1) of the Commercial Act, thereby adversely affecting the conclusion of the judgment.

However, the Plaintiff asserts that the payment of the amount under the instant payment agreement violates the principle of shareholder equality. Therefore, the lower court should also examine and determine whether the Plaintiff’s assertion is reasonable, and if so, the scope of payment that violates the principle of shareholder equality.

4. Therefore, without examining the remaining grounds of appeal, the judgment of the court 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 Jo Hee-de (Presiding Justice)