[1] In a case where the person who acquired or disposed of shares claims compensation for damages caused by a false description in the business report to a stock-listed corporation, etc. under Article 162 of the Financial Investment Services and Capital Markets Act, the person who bears the burden of proving the existence of causation between the false description in the business report and the damage (=the stock-listed corporation, etc.) and the method and degree

[2] Whether liability may be limited pursuant to the principle of comparative negligence or the principle of fairness in a claim for damages governed by Article 162 of the Financial Investment Services and Capital Markets Act (affirmative)

[1] Article 162 of the Financial Investment Services and Capital Markets Act / [2] Article 162 of the Financial Investment Services and Capital Markets Act, Article 396 of the Civil Act

[1] [2] Supreme Court Decision 2006Da16758, 16765 decided Oct. 25, 2007 (Gong2007Ha, 1806) / [1] Supreme Court Decision 2008Da92336 decided Aug. 19, 201 (Gong2010Ha, 1776)

Plaintiff (Law Firm Han & Yang LLC, Attorneys Kim Young-han et al., Counsel for plaintiff-appellant)

Han JinT Co., Ltd. (Attorneys Son Ji-yol et al., Counsel for the defendant-appellant)

Seoul Central District Court Decision 2012Na30457 Decided February 13, 2014

All appeals are dismissed. The costs of appeal are assessed against each appellant.

The grounds of appeal are examined.

1. As to the Defendant’s first ground of appeal

A. In a case where a person acquiring or disposing of stocks claims compensation for damages incurred by a stock-listed corporation due to a false description in a business report, etc. based on Article 162 of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”), the person acquiring or disposing of stocks does not need to prove the existence of causation between the false description in a business report and the occurrence of losses pursuant to Article 162(4) of the Capital Markets Act, and to exempt the stock-listed corporation from liability, etc. from liability. Furthermore, the proof of “non-existence of causation of damages” under Article 162(4) of the Capital Markets Act can be made by means of proving that the relevant unlawful act, such as false disclosure, directly or indirectly, did not have any influence on the occurrence of damages, or by other factors than the pertinent unlawful act, such as false disclosure, etc. In such a case, it may be assumed that a specific case had not been purchased based on the data prior to the occurrence of the shares, such as an estimated return on shares and an estimated return on shares, etc., based on the premise of the price decline in excess of 200.

B. The reasoning of the lower judgment and the evidence duly admitted by the lower court reveal the following.

(1) From May 15, 2009 to August 16, 2011, the Defendant prepared a false financial statement that the total amount of capital, total amount of liabilities, sales, and net income is excessive or insufficient, and submitted such false financial statement to the Financial Services Commission and the Korea Exchange (hereinafter “instant business report, etc.”) including such false financial statement.

(2) The financial statements of the eighth (2008) that the Defendant prepared were recorded the actual net income of approximately KRW 11.7 billion, but were recorded falsely. The financial statements of the Nine (2009) were recorded falsely as records the net income of KRW 8.5 billion, even though they actually recorded the net income of KRW 1.6 billion. The financial statements of the Nine (2009) were recorded falsely as records the net income of KRW 8.5 billion. The financial statements of the Ten (2010) were recorded falsely as records the net income of KRW 5.3 billion, even though the actual net income of KRW 3.6 billion was recorded in the first half (201) financial statements of the Eleven (2011), and were recorded as records the net income of KRW 2.6 billion from KRW 208 to KRW 3.8 billion, including false statement as false.

(3) Around the first half of the year 201, Samsung Heavy Industries Co., Ltd. (hereinafter “Tsung Heavy Industries”) negotiated on the transfer of shares between the Defendant’s major shareholders and the Defendant’s shares (hereinafter “instant transfer of shares”). Around July 1, 201, this content was reported to the media on July 1, 201, and on July 4, 201, the Defendant announced that the Defendant’s major shareholders are participating in negotiations on the sale of part of shares held by Samsung Heavy Industries and the Defendant’s shares.

(4) On July 12, 2011, Samsung Heavy Industries entered into a contract with the Defendant’s major shareholders to acquire 41,536,174,200 won (hereinafter “instant share transfer contract”) of the Defendant’s shares of KRW 2,612,338 (27% of the total number of outstanding shares) (hereinafter “instant share transfer contract”). On July 13, 201, the Defendant publicly announced the conclusion of the instant share transfer contract.

(5) The instant share transfer agreement between the Samsung Heavy Industries and the Defendant’s major shareholders provides that, in the event that there is a difference between the financial statements prepared according to the Defendant’s financial statements as of December 31, 2010 and the financial statements prepared according to the verification room, Samsung Heavy Industries may request the Defendant’s major shareholders to adjust the purchase price. The Defendant’s major shareholders state and guarantee the accuracy of the financial statements and accompanying statements for the latest three fiscal years, and that Samsung Heavy Industries may cancel the contract in case the Defendant’s major shareholders violate their statements and guarantee.

(6) In the process of the Defendant’s actual inspection of Samsung Heavy Industries on the Defendant’s financial status, the accounting firm, which confirmed the Defendant’s window dressing accounting, reported to the Korea Exchange, the Korea Exchange suspended the transaction of the Defendant’s shares on September 6, 2011, and the Defendant’s major shareholders and Samsung Heavy Industries and the Defendant’s major shareholders and the Samsung Heavy Industries terminated the agreement on the transfer of the instant shares on December 5, 201.

(7) The Defendant’s share price was maintained at around 15,00 won before and after the report or disclosure of the instant share transfer plan with Samsung Heavy Industries. However, the Defendant’s share transfer plan with Samsung Heavy Industries entered the upper limit of July 4, 201, which was published, and recorded KRW 18,050 on July 12, 201 when the instant share transfer contract with Samsung Heavy Industries was concluded, and entered into a lower limit of KRW 19,850 on July 13, 201, which was the date following the date on which the lower limit of KRW 19,850, which was the highest price on July 222, 2011, which was the date on which the instant share transfer contract was concluded with Samsung Heavy Industries, and entered KRW 24,850 on September 19, 201, which was the date on which the instant share transfer contract was concluded again, and subsequently re-converted to enter into a new share transfer transaction.

(8) Meanwhile, according to the research results of Nonparty 1 and 2 as to the relation between the Defendant’s stock transfer plan and the report and public notice of the instant stock transfer plan with Samsung Heavy Industries, it was found that, during the instant period, the actual stock price by the date of the instant period is significantly higher than the normal stock price by the date of the instant period, based on the revolving formula derived from the public index, such as KOSDAQ index and KOSDAQ manufacturing index, etc., during the period (presumed period) from the date of the report or public announcement to the day before the suspension of the transaction of the Defendant’s stocks. Based on this, the normal stock price by the date of the instant period, which would have been formed without the report and public notice of the instant stock transfer plan with Samsung Heavy Heavy Industries, was calculated based on a comparison with the actual stock price by the date of the instant period.

C. We examine the above facts in light of the legal principles as seen earlier.

In light of the facts that the Defendant’s share price limit was recorded on the date of the announcement of the instant stock transfer plan with Samsung Heavy Industries, the report and announcement of the instant stock transfer plan with Samsung Heavy Industries, as a result of the instant research, is recognized as having affected the Defendant’s share price.

However, the business report stating the matters concerning the company's financial status and the specifications annexed thereto, etc., has a critical impact on the assessment of the company's value and futureity, including the share price, by being published in the market. Thus, as the business report, etc. prepared falsely through the window dressing accounting was published in the market, the Defendant was judged to be a superior company continuously generating net income in terms of past management performance and future profitability, unlike actual ones, and due to these circumstances, Samsung Heavy Industries was trusted that the business report, etc. of this case was duly prepared and published and made public, thereby promoting the stock transfer contract of this case by setting the price based on the evaluation thereof. When the stock transfer plan was reported and publicly announced, it is reasonable to view that the Defendant's share price increase as above, as the result, was concentrated on the investor's share purchase that has positive assessment of the effect that the stock transfer of this case to the Defendant upon the report and public announcement of the stock transfer plan.

In addition, in light of the contents of the instant share transfer agreement, which provides for the cancellation of a contract in the event of a violation of any statement or guarantee regarding the accuracy of financial statements and the details of the instant share transfer agreement after the conclusion of the instant share transfer agreement, the Defendant’s large-scale window dressing accounting in the process of the actual inspection, etc., the actual Samsung Heavy Industries, other than the circumstances asserted in the Defendant’s grounds of appeal, such as technical power and the need for merger, was considered as an important basis for determining whether to implement and conclude the instant share transfer agreement.

Therefore, in light of these circumstances, it is difficult to view the increase portion of Defendant’s share price due to the report and public announcement of the instant stock transfer plan with Samsung Heavy Industries as having no causal relationship with the Defendant’s window dressing accounting or the instant business report, etc., and even after examining the submitted evidence, there is no sufficient evidence to acknowledge the share price increase portion or the amount of the share price increase only due to other factors than the Defendant’s window dressing accounting or the instant business report, etc.

D. The lower court’s rejection of the Defendant’s assertion that the Defendant’s share price increase portion arising from the report and public announcement of the instant stock transfer plan with Samsung Heavy Industries should be excluded from the scope of damage compensation on the grounds that there is no causation with the false description of the instant business report, etc., is in accord with the aforementioned legal doctrine as seen earlier. Therefore, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the non-existence of causation, or by exceeding the bounds of

2. Plaintiff’s ground of appeal and Defendant’s ground of appeal No. 2

A. In cases of a lawsuit seeking compensation for damages governed by Article 162 of the Financial Investment Services and Capital Markets Act, the basic ideology of the Act on the Fair Compensation for Damages, i.e., fair burden of damages, can be applied. Therefore, comparative negligence can be set off or liability can be limited based on the equitable principle, on the ground that the victim was negligent in causing and expanding damages. In particular, given that there are extremely diverse and multiple factors at the same time, it is extremely difficult to determine which specific factors have exercised influence, in addition to unlawful acts such as false disclosure, etc., the overall situation of the relevant company or the stock market during the period from the time of purchase to the time of occurrence of losses may also be deemed to have affected the occurrence of damages. In such a case, it is extremely difficult to prove the amount of damages arising from such other circumstances in light of the ideology of the system on the fair apportionment of damages (see, e.g., Supreme Court Decision 2006Da167586, Oct. 25, 2007).

On the other hand, the fact-finding or the ratio of limitation of liability for offsetting negligence or fair burden of damages in a damage compensation case belongs to the exclusive authority of the fact-finding court unless it is deemed that it is remarkably unreasonable in light of the principle of equity (see Supreme Court Decision 2008Da31751, Nov. 27, 2008, etc.).

B. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and the evidence duly admitted, the lower court did not err by misapprehending the legal doctrine on comparative negligence or limitation of liability, contrary to what is alleged in the grounds of appeal.

3. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against each appellant. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim So-young (Presiding Justice)