[1] Whether a penalty surcharge may be imposed on an identical act by applying both Articles 111(1)2 and 196(1)5 of the former Insurance Business Act and Articles 23(1)7 and 24-2 of the former Monopoly Regulation and Fair Trade Act (affirmative)

[2] In a transaction between an insurance company and a major shareholder, where the funds provided and provided to the other party are in a quid pro quo relationship on the premise of a transaction of specific goods or services, whether a transaction of assets prohibited by Article 111(1)2 of the Insurance Business Act, even if the terms and conditions of payment are clearly disadvantageous to the insurance company in light of ordinary transaction practices (affirmative)

[3] In a case where the terms and conditions of transaction of assets or credit extension are clearly unfavorable objectively to an insurance company, whether such terms and conditions fall under Article 111(1)2 of the former Insurance Business Act (affirmative in principle), and whether such terms and conditions fall under the above provisions to the extent that the rights and interests of policyholders, etc. are significantly damaged (negative

[1] In full view of Articles 11(1)2 and 196(1)5 of the former Insurance Business Act (amended by Act No. 10394, Jul. 23, 2010; hereinafter “Insurance Business Act”), Articles 23(1)7 and 24-2 of the former Monopoly Regulation and Fair Trade Act (amended by Act No. 12095, Aug. 13, 2013; hereinafter “Fair Trade Act”), the structure and contents of the said Act, the legislative intent and purpose of the said Act, the provisions prohibiting a major shareholder from trading assets or extending credit, and the protection of legal interests and interests of the Fair Trade Act prohibiting unfair support to a specially related person, penalty surcharges may be imposed on the same act by applying both penalty surcharge and the provisions of the Fair Trade Act.

[2] In full view of the forms and contents of Article 2 subparag. 12 of the former Insurance Business Act (amended by Act No. 10394, Jul. 23, 2010; hereinafter “Insurance Business Act”), Article 111(1)2 of the former Enforcement Decree of the Insurance Business Act (amended by Presidential Decree No. 22637, Jan. 24, 201); Article 2(1) of the former Enforcement Decree of the Insurance Business Act (amended by Presidential Decree No. 22637, Apr. 1, 2010), and Article 5-4 [Attachment Table 10] of the former Insurance Business Supervision Regulations (amended by Act No. 2010-7, Apr. 1, 2010) regarding the restriction on trading between an insurance company and its large shareholder, an insurance company’s act of offering assets to the large shareholder on significantly unfavorable terms, is distinguishable from the concept of an act of offering credit extension to the large shareholder, and thus, the term “an act of offering assets to the large shareholder’s ability to pay for payment.”

[3] In light of the legislative intent of Article 111(1)2 of the former Insurance Business Act (amended by Act No. 10394, Jul. 23, 2010; hereinafter “Insurance Business Act”) to strictly prevent the insolvency of assets held by an insurance company by regulating certain assets trading and credit extension to a major shareholder of the insurance company, where the transaction terms and conditions of assets trading and credit extension are objectively disadvantageous to the insurance company objectively, such transaction constitutes an act under Article 111(1)2 of the Insurance Business Act, barring any special circumstance. It does not necessarily mean that the said provision does not constitute the said Act to the extent that the transaction terms and conditions adversely affect the insurance company’s stability, profitability, etc. of asset management, and thereby undermine the insurance company’s ability to pay insurance proceeds.

[1] Articles 11(1)2 and 196(1)5 of the former Insurance Business Act (Amended by Act No. 10394, Jul. 23, 2010); Articles 23(1)7 and 24-2 of the former Monopoly Regulation and Fair Trade Act (Amended by Act No. 12095, Aug. 13, 2013); Articles 2 subparag. 12 (see current Article 2 subparag. 13) and 111(1)2 of the former Insurance Business Act (Amended by Act No. 10394, Jul. 23, 2010); Article 2(1) of the former Enforcement Decree of the Insurance Business Act (Amended by Presidential Decree No. 22637, Jan. 24, 2011) / [2] Article 13(1) of the former Insurance Business Act (Amended by Act No. 10394, Jul. 13, 2013>

Heung Life Insurance Co., Ltd. (Law Firm Han-ro, Attorneys Ook-in et al., Counsel for the plaintiff-appellant)

Financial Services Commission and one other (Bae, Kim & Lee LLC, Attorneys Kang Jong-gu et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2013Nu6260 decided October 18, 2013

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

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

A. According to Articles 11(1)2 and 196(1)5 (hereinafter “instant penal provisions”) of the former Insurance Business Act (amended by Act No. 10394, Jul. 23, 2010; hereinafter “Insurance Business Act”), an insurance company is prohibited from trading assets or providing credit extension under significantly unfavorable terms to the relevant insurance company in light of the trading terms with a major shareholder, and the Financial Services Commission may impose a penalty surcharge not exceeding 20/100 of the amount of the relevant credit extended or the book value of the relevant assets if the insurance company violates such provisions.

In addition, according to Articles 23(1)7 and 24-2 of the former Monopoly Regulation and Fair Trade Act (amended by Act No. 12095, Aug. 13, 2013; hereinafter “Fair Trade Act”), where a business entity conducts an act that is likely to impede fair trade by providing provisional payment, loans, etc. to a related party, etc. or by transacting under substantially favorable terms, the Fair Trade Commission may impose a penalty surcharge on the relevant business entity to the extent that such act does not exceed the amount calculated by multiplying the sales amount determined by the Presidential Decree by 5/100.

In full view of the structure and contents of the Insurance Business Act and the Monopoly Regulation and Fair Trade Act, the legislative intent and purpose of the above Act, specific asset transactions to major shareholders, and the legal interests protected by the Fair Trade Act that prohibit unfair support to specially related persons, etc., it is interpreted that the penalty surcharge provisions of this case and the Fair Trade Act can be imposed on the same act by applying the overlapping provisions of the said

B. The gist of this part of the grounds of appeal is that the provisions of this case, which provide for the imposition of a penalty surcharge on a single act concurrently with the penalty surcharge under the Fair Trade Act, are unconstitutional in violation of the principle of prohibition of double punishment or in violation of the principle of excessive prohibition.

C. (1) However, in the principle of prohibition of double punishment as stipulated in Article 13(1) of the Constitution, the term “Punishment” refers to the exercise of the State’s penal authority against the crime, and all of the sanctions and disadvantageous measures taken by the State are not included in the term “Punishment”. Therefore, there is no room to directly apply the principle of prohibition of double punishment to the imposition of penalty surcharge provisions of the Insurance Business Act and penalty surcharge under the Fair Trade Act (see, e.g., Supreme Court Decisions 2006Du4554, Jul. 12, 2007; 2001Hun-Ga25, Jul. 24, 2003).

(2) In addition, the Insurance Business Act and the Monopoly Regulation and Fair Trade Act are different from their legislative purpose and legal interest, and it is difficult to readily conclude that the legislative purpose of the Insurance Business Act can be sufficiently achieved only by various regulations under the

In light of the provisions of the instant penalty surcharge and the language, contents, purport, etc. of the relevant provision on the grounds of imposition of penalty surcharges under the Fair Trade Act, the imposition of penalty surcharges under both Acts is discretionary acts. Since each imposing authority has the discretion to determine whether to impose penalty surcharges and the amount thereof by comprehensively taking into account the degree and content of the violation and the various circumstances such as the size of profit acquired from the violation, the penalty surcharges under both Acts cannot be deemed to be imposed concurrently with respect to the same violation. In particular, the Financial Services Commission’s announcement, which provides for the standards for imposition of penalty surcharges under the Insurance Business Act, stating that “the provisions on inspection and sanctions by financial institutions,” which are the Financial Services Commission’s announcement, may not impose penalty surcharges equivalent to the penalty

In addition, since the assets of an insurance company consisting of insurance premiums, etc. paid by customers who are policy holders are financial resources to be appropriated for insurance proceeds to customers, and it is highly necessary to preserve them. Therefore, there is a high need to regulate the unauthorized leakage of the assets of the insurance company with special interests such as large shareholders, etc. for the purpose of supporting

In light of these circumstances, the penal provisions of this case, which allowed the imposition of penalty surcharge separately from the Fair Trade Act, cannot be deemed to contravene the principle of excessive prohibition under the Constitution.

D. Therefore, the lower court’s determination of the legality of the instant penalty surcharge on the premise that the instant penalty surcharge provisions are valid is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the principle of prohibition of double punishment and the principle of excessive prohibition

2. As to the grounds of appeal Nos. 2 through 4

A. (1) As seen earlier, an insurance company’s act of trading assets or extending credit under significantly unfavorable terms to the pertinent insurance company in light of the trading terms with its major shareholders is prohibited pursuant to Article 111(1)2 of the Insurance Business Act.

According to Article 2 subparag. 12 of the Insurance Business Act, “credit extension” refers to loans or purchase of securities (limited to the purchase of securities in the nature of financial support) and direct and indirect transactions with an insurance company that involve credit risk, which are determined by the Financial Services Commission, as prescribed by the Presidential Decree. According to Article 2(1) of the former Enforcement Decree of the Insurance Business Act (amended by Presidential Decree No. 22637, Jan. 24, 2011), the scope of credit extension includes “loans” (Article 1), “purchase of bills and bonds” (Article 2 subparag. 2), and “other transactions that may cause losses to the insurance company when a partner becomes insolvent” (Article 2 subparag. 3) as well as “transactions that may cause losses to the insurance company when an insurance company becomes insolvent” (Article 4).

Meanwhile, Article 5-4 [Attachment 10] of the former Regulations on Supervision of Insurance Business (amended by the Financial Services Commission No. 2010-7, Apr. 1, 2010) provides that “Where an insurance company trades assets, such as securities, real estate, intangible property, etc., under a significantly unfavorable condition to its large shareholder” means the case where assets, such as valuable securities, real estate, intangible property, are traded under a significantly unfavorable condition than the arm’s length price, and “credit extension to a large shareholder of an insurance company” is not limited to the classification of accounts corresponding to credit extension in the course of accounting, and the term “credit extension to a large shareholder of an insurance company is not limited to the classification of accounts corresponding to credit extension in the course of accounting, and the terms and conditions of the transaction, such as interest rate, type, size, period, credit condition, etc., are similar to those of the relevant financial transaction, and is disadvantageous to

In full view of the legislative forms, contents, purport, and structure, etc. of the Act and subordinate statutes on the Restriction on Transactions between Insurance Companies and Large Stockholders, an insurance company’s act of trading assets under significantly unfavorable terms with a large shareholder and an insurance company’s act of offering credit to a large shareholder is conceptually distinguishable from each other. Here, “credit extension” refers to a transaction with a conceptual indication that entails credit risk in financial transactions, and thus, its repayment is at risk of insolvency or with the same risk, depending on the other party’s future payment ability. Thus, if the funds provided and provided to the other party are deemed to have a quid pro quo relationship on the premise of a transaction of specific goods or services, it may be deemed an act of trading assets. Thus, even if the payment terms of the consideration are clearly unfavorable to the insurance company in light of ordinary transaction practices, such as prior performance, etc. of the payment terms are prohibited by Article 111(1)2 of the Insurance Business Act, and it does not constitute an act of offering credit.

(2) In addition, considering the legislative intent of Article 111(1)2 of the Insurance Business Act aiming to prevent the insolvency of assets held by an insurance company in advance by regulating certain assets transactions and credit extension to its major shareholders, where the transaction terms and conditions of assets transaction or credit extension significantly unfavorable objectively to the insurance company, barring any special circumstance, they may be deemed to fall under Article 111(1)2 of the Insurance Business Act, barring any special circumstance. It does not necessarily mean that the said provision is to the extent that it significantly undermines the rights and interests of policyholders, etc. by undermining the insurance company’s asset management stability and profitability, etc. due to the pertinent transaction, and thereby undermining its ability to pay

B. According to the reasoning of the judgment below and the evidence duly admitted, ① the Plaintiff entered into an agreement on the sale of golf membership to pay 22 billion won (2.2 billion won per 1 unit) with the ○○○CC (hereinafter “instant golf membership”) prior to the membership agreement with the Plaintiff on June 9, 2008 as the sale price for ten unit corporate membership rights (hereinafter “instant golf membership”), and ② the agreement on the sale of golf membership to acquire preferential ownership (hereinafter “instant agreement”) includes not only the purpose of the agreement is the sale of golf membership rights, but also the agreement on the lower limit of the sale price to be determined later, penalty, etc., and the agreement on the sale of membership rights to protect the status of the Plaintiff, ③ the Plaintiff actually purchased the instant golf membership rights to the 11st recruitment period (from December 19, 2009 to December 28, 2009) under the agreement on the sale of membership rights to the said golf membership with the Plaintiff for the reason that it was clearly favorable to the Plaintiff under the agreement on the sale of membership rights.

C. Examining these facts in light of the above legal principles, since the instant agreement has the nature of a sales contract for the instant golf club membership rights, and the sales price is directly related to the said golf club membership rights, the Plaintiff’s act of entering into the instant agreement and paying KRW 22 billion for the development of the dong Forest Tourism was not the actual payment of funds provided or lent, but the payment was made in the course of trading assets. However, it is reasonable to deem that the Plaintiff purchased the golf club membership rights from the major shareholder under significantly unfavorable conditions in light of the ordinary transaction conditions for the sale of the golf club membership rights, such as that the Plaintiff pays the sales price in advance before the execution of the instant golf club membership rights at the time of the first recruitment period.

D. Nevertheless, on the grounds indicated in its reasoning, the lower court erred by misapprehending that (1) the Plaintiff deposited 22 billion won in advance from June 29, 2008 when the Plaintiff paid the deposit under the instant agreement from June 29, 2008 to December 29, 2009 when the membership agreement was concluded, thereby providing credit equivalent to the interest amount on the development of the forest, and determined that the instant agreement can be deemed as having traded assets under substantially unfavorable conditions with the development of the forest, and determined that the Defendant’s disposition of imposition of penalty surcharge is legitimate on the premise that the said agreement constitutes the extension of credit as above.

Therefore, the lower court’s decision that the Plaintiff’s act of paying KRW 22 billion to the development of the forest tourism pursuant to the instant agreement constitutes credit extension is erroneous in misapprehending the legal principles on the interpretation and application of Article 111(1)2 of the Insurance Business Act, thereby making a judgment on the legal nature of the instant agreement, thereby affecting the conclusion of the judgment on the imposition of penalty surcharges by the Financial Services Commission.

In addition, as long as a transaction under the instant agreement is deemed not both credit extension and asset transaction but also an asset transaction, the content and meaning of the offense that constitutes the premise of the Defendant Financial Supervisory Service’s agency warning disposition differs, it is reasonable to reverse the part of the judgment of the court below regarding the Defendant

3. Conclusion

Therefore, 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 Kim Shin (Presiding Justice)