[1] Where a shareholder opposing the merger, etc. requests the company to purchase unlisted stocks, the method of determining the purchase price

[2] The probative value of appraiser's appraisal result

[3] The purport of Article 54(1) and Article 56(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act stipulating the supplementary evaluation method of unlisted stocks as “the weighted average of net profit and loss per share and the net asset value per share” and determining the net profit and loss per share as “the net profit and loss per share for three years before the base date of appraisal”

[4] In a case where there is no example of normal transactions that properly reflects the company’s objective value in the determination of the sales price of unlisted stocks upon the application of the opposing shareholder for merger, whether the sales price of unlisted stocks can be determined by evaluating the profit value according to the method of calculating net profit and loss value under the Enforcement Decree of the Inheritance Tax and Gift Tax Act (affirmative); and in a case where the net profit and loss amount of the business year to which the reference date of appraisal of unlisted stocks belongs is sharply changed and the cause is not temporary or contingent but a fundamental change in the business foundation or the business environment, whether it is legitimate to exclude the net profit and loss amount of the business year to which the reference date of appraisal belongs from the calculation basis by applying the method of calculating net

[1] In a case where a shareholder opposing a merger, etc. of a company requests the company to purchase unlisted stocks, if there is a normal transaction example in which the company’s objective value is deemed to be properly reflected with respect to the relevant stocks, such transaction price shall be deemed the fair price of stocks and the purchase price shall be determined. However, in the absence of such a transaction example, a variety of appraisal methods such as market value method, net asset value method, profit-value method, etc. generally recognized as pertaining to the assessment of unlisted stocks should be used, and fair price should be determined by comprehensively considering the

If the transaction price of unlisted stocks is determined to have failed to properly reflect the objective value of the company, the court may consider the transaction price as an element to calculate the fair value of stocks, together with other evaluation factors such as net asset value or profit value, in consideration of the reasons determined as such, etc., or the price adjusted according to reasonable standards.

[2] If an appraisal requires special knowledge and experience in determining certain matters, such knowledge and experience as a means to assist the appraisal. The appraiser’s appraisal result shall be respected unless the appraisal method, etc. is contrary to the rule of experience or unreasonable. If a judge recognizes facts based on the appraisal result, it cannot be deemed unlawful unless it violates the rule of experience or logical rules.

[3] Article 60 of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax Act”) provides that the value of the property on which the inheritance tax or gift tax is levied shall be based on the market price as of the base date of appraisal, and where it is difficult to calculate the market price, the value assessed according to the supplementary evaluation methods stipulated in Articles 61 through 65 shall be deemed the market price. Articles 54(1) and 56(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act set the supplementary evaluation method of unlisted stocks as “the weighted average of the net value per share and the net asset value per share” according to the delegation of the Inheritance Tax and Gift Tax Act, and set the basis of “the net value per share for three years prior to the base date of appraisal” in calculating the net value per share. This is to accurately grasp the current stock value by predicting future earnings based on the past performance.

[4] The court may utilize an appraisal of the value of non-listed stocks under the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax Act”) and the Enforcement Decree thereof at the time of determining the purchase price of non-listed stocks upon a request of a party opposing a merger. In other words, in the event that there is no ordinary transaction that may reasonably reflects the objective value of the company, a sales price of non-listed stocks may be determined by assessing the profit value according to the method of calculating the net profit and loss value under the Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”). It is reasonable to estimate the future profit and loss of the company based on the net profit and loss amount for three years because the net profit and loss amount of the company changes each business year. However, the above provisions of the Inheritance Tax and Gift Tax Act and its Enforcement Decree provide for the method of assessing the value of non-listed stocks to ensure the legal stability and predictability of

In a case where the net profit and loss amount of the business year to which the date of appraisal belongs is sharply changed, whether to calculate the net profit and loss value, including such net profit and loss amount, shall be determined by taking into account the reasons for the change. Even if the net profit and loss amount of the business year to which the date of appraisal of the unlisted stock belongs is sharply changed, if it is merely a temporary and contingent case, it may be deemed that the net profit and loss value should be calculated excluding the net profit and loss amount of the business year to which the date of appraisal belongs, if it is not a temporary or contingent case, but a fundamental change in the physical foundation of the business or the business environment. However, an assessment of the net profit and loss value, including the net profit and loss amount of the business year to which the date of appraisal belongs, can be deemed as appropriately reflecting the company’s future profit and loss value when calculating the value of the unlisted stock in accordance with the application for the determination of the stock purchase value of the opposing shareholder for merger, applying the calculation method prescribed in Article 56(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act

[1] Articles 360-5, 360-22, 374-2, and 522-3 of the Commercial Act / [2] Article 202 of the Civil Procedure Act / [3] Articles 60, 63(1)1(b) of the Inheritance Tax and Gift Tax Act, Articles 54(1) and 56(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act / [4] Article 52-3 of the Commercial Act, Articles 60, 63(1)1(b) of the Inheritance Tax and Gift Tax Act, Articles 54(1) and 56(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act

[1] Supreme Court Order 2005Ma958 Decided November 23, 2006 (Gong2007Sang, 421), Supreme Court Order 2010Ma315 Decided February 24, 2012 / [2] Supreme Court Decision 2010Da93790 Decided November 29, 2012 (Gong2013Sang, 5) Supreme Court Decision 2016Da249557 Decided June 8, 2017 (Gong2017Ha, 1457) / [3] Supreme Court Decision 2005Du15311 Decided November 29, 2007

See the list of applicants as shown in the attached Table (Limited Law Firm, Attorneys Ansan-sik et al., Counsel for the plaintiff-appellant)

Smers Co., Ltd. (Law Firm LLC, Attorneys Song-yeong et al., Counsel for the plaintiff-appellant)

Daejeon High Court Order 2013Ra150 dated February 1, 2016

The order of the court below is reversed, and the case is remanded to Daejeon High Court.

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

1. Basic factual basis

According to the reasoning of the first instance decision as cited by the lower court and the record, the following facts are revealed.

A. The principal of the instant case and Sclon Co., Ltd. (hereinafter “Sclon”) and NAS Co., Ltd. (hereinafter “SS”), both of which are manufacturing and selling facilities for semiconductor manufacturing, were subsidiaries of Samsung Electronic Co., Ltd. (hereinafter “S”) as non-listed corporations.

B. On October 18, 2012, the instant principal, Sclon, and SS, held a board of directors meeting on October 18, 2012, resolved to continue to exist by the principal of the instant case and to effect a merger agreement between Sclon and SP, and entered into a merger agreement on the same day. On November 29, 2012, the instant principal, etc.: (a) held a general meeting of shareholders on November 29, 2012; (b) made a resolution to approve the merger; and (c) completed the merger registration on January 3, 2013 (hereinafter “instant merger”). The value of Sclon’s stocks for calculating the merger ratio at the time were set at KRW 85,00 per share.

C. The applicants, who hold 15,520 shares issued in Sclon, notified the intent of opposing the merger of this case and requested purchase of shares on or before December 2012, and filed the instant application to the effect that consultation on the purchase price was not reached.

2. Calculation of stock purchase price based on the transaction price of unlisted stocks (the first ground for re-appeal of the principal of the case);

A. In a case where a shareholder opposing the merger, etc. of a company requests the company to purchase unlisted stocks with respect to the company, if there is an example of normal transactions, which can be deemed that the company’s objective value is properly reflected in the company’s stocks, the transaction price shall be deemed the fair price of the stocks, and the purchase price shall be determined. However, if there is no such example of transactions, a number of appraisal methods, such as market value method, net asset value method, profit value method, etc. generally recognized as pertaining to the assessment of unlisted stocks, and a fair price should be calculated by comprehensively taking into account the company’s situation, characteristics of business type, etc. (see Supreme Court Order 2005Ma9

If the transaction price of unlisted stocks is determined to have failed to properly reflect the objective value of the company, the court may consider the transaction price as an element for calculating fair value of stocks, along with other evaluation factors such as net asset value or profit value (see Supreme Court Order 2010Ma315, Feb. 24, 2012).

B. For the following reasons, the lower court determined that: (a) the sales price of KRW 85,00 per share, which is an average trading price of KRW 60,973 per share or a total of KRW 119,730 per share of 10,730 per share, based on the results of the fact-finding inquiry by the lower court, cannot be calculated on the basis of a normal transaction practice that reflects objective exchange values; and (b) further, it cannot be considered as an element to calculate fair stock values.

(1) The fact-finding inquiry by the court below is merely about 25 shareholders, and its trading volume does not exceed 500 shares per shareholder. The price is too diverse from 30,000 won per share to 96,50 won, and it is difficult to view that the average value is a normal transaction practice reflecting objective exchange values.

(2) Transactions between Samsung Industries and 108 are not conducted between many unspecified persons in an open over-the-counter stock market, but the transaction amount was conducted through a stock sales contract between individual shareholders and Samsung Industries, and all of them are the same as KRW 85,000 per share. The most of the trades was concentrated between the three-month meeting from September 10, 2012 to October 15, 2012 immediately before the resolution of the instant merger was reached, and most of the buyers were the former and present officers and employees of the three-way loan.

C. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine, the lower court’s conclusion is just and acceptable. In so determining, the lower court did not err by misapprehending the legal doctrine on the principle of price preference, contrary to what is alleged in the grounds of reappeal.

3. Assessment of asset value of unlisted stocks (the second ground for re-appeal of the case principal);

An appraisal is used as a means to assist a court in the determination of certain matters, where special knowledge and experience are required by the court. The appraiser’s appraisal result should be respected unless the appraisal method, etc. is contrary to the empirical rule or unreasonable (see, e.g., Supreme Court Decision 2010Da93790, Nov. 29, 2012). Where a judge recognizes facts based on the appraisal result, it cannot be deemed unlawful unless it violates the empirical rule or logical rules (see, e.g., Supreme Court Decision 2016Da249557, Jun. 8, 2017).

In full view of the results of appraisal commission and fact-finding conducted by an appraiser, the lower court calculated the value of assets per share of Sclon. In light of the aforementioned legal principles and records, the lower court did not exhaust all necessary deliberations or did not err by misapprehending the legal doctrine on value assessment, or by omitting judgment, contrary to what is alleged in the grounds of

4. Evaluation of profit value of unlisted stocks (applicant's grounds for reappeal);

A. Article 60 of the Inheritance Tax and Gift Tax Act (hereinafter “Inheritance Tax Act”) provides that the value of the property on which the inheritance tax or gift tax is levied shall be based on the market price as of the base date of appraisal, and where it is difficult to calculate the market price, the value assessed according to the supplementary evaluation methods prescribed in Articles 61 through 65 shall be deemed the market price. Articles 54(1) and 56(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act (hereinafter “Enforcement Decree of the Inheritance Tax and Gift Tax Act”) set the supplementary evaluation method of unlisted stocks as “the weighted average value of net profit per share and loss per share and net asset value per share” upon delegation of the Inheritance Tax and Gift Tax Act. In determining the net profit and loss value per share, it is intended to accurately understand the current stock value by forecasting future profit based on the past performance (see, e.g., Supreme Court Decision 2005Du15311, Nov. 29, 2007).

In other words, in a case where there is no ordinary transaction that can be deemed as properly reflecting the objective value of the company, the sales price of unlisted stocks may be assessed according to the method of calculating the net profit and loss value prescribed by the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and the sales price of unlisted stocks may be determined in accordance with the method of calculating the net profit and loss value prescribed by the Enforcement Decree of the Inheritance Tax and Gift Tax Act. Since the net profit and loss of the company is changed in each business year, it is reasonable to estimate the future profit and loss of the company based on the net profit and loss amount for three years. However, since the above provisions of the Inheritance Tax and Gift Tax Act and its Enforcement Decree set the valuation method of unlisted stocks to ensure the legal stability and predictability of the taxpayer, it is not necessary to apply the same to the case of determining the sales

In a case where the net profit and loss amount of the business year to which the date of appraisal belongs is sharply changed, whether to calculate the net profit and loss value, including such net profit and loss amount, shall be determined by taking into account the reasons for the change. Even if the net profit and loss amount of the business year to which the date of appraisal of the unlisted stock belongs is sharply changed, if it is merely a temporary and contingent case, it may be deemed that the net profit and loss value should be calculated excluding the net profit and loss amount of the business year to which the date of appraisal belongs, if it is not a temporary or contingent case, but a fundamental change in the physical foundation of the business or the business environment. However, an assessment of the net profit and loss value, including the net profit and loss amount of the business year to which the date of appraisal belongs, can be deemed as appropriately reflecting the company’s future profit and loss value when calculating the value of the unlisted stock in accordance with the application for the determination of the stock purchase value of the opposing shareholder for merger, applying the calculation method prescribed in Article 56(1) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act

B. Examining the following circumstances revealed in the record, the net profit and loss amount of the 2012 detailed resolution date of the board of directors for the instant merger cannot be deemed to have changed rapidly in the case, compared to the net profit and loss amount for the previous three years, in comparison with the net profit and loss amount for the previous three years.

(1) Although Sclon recorded the lowest sales of approximately KRW 5.5 billion in 2008 and approximately KRW 70.7 billion in 2009, which began in the U.S. financial crisis, approximately KRW 7.9 billion in net profit of KRW 16.9 billion in 2010, approximately KRW 209.6 billion in net profit of KRW 209.6 billion in 201, KRW 12 billion in net profit of KRW 284.2 billion in 201, and KRW 17.3 billion in net profit of KRW 284.3 billion in 2012. From 2010, Sclon’s sales and net profit of KRW 17.3 billion in net profit of KRW 284.

(2) The Sclon invested in new projects (inspection equipment, logistics automation equipment, etc.) in 2009 and 2010, and the result was found from 2011.

(3) Of the sales of Sclon, the sales and profit-making structure are largely dependent on Samsung Industries, including the average of 82.3% of the sales of Samsung Industries and its affiliated companies. Samsung Industries recorded the sales of approximately KRW 136,20 billion in 209, approximately KRW 154, KRW 600 billion in 201, KRW 164, KRW 700 in 201, KRW 201, KRW 100 in 201, KRW 201 in 2012.

(4) As such, the rapid increase in the sales of the Sclon seems to have been due to the fact that the semiconductor market was simply entering the Scular era as well as the development of the information technology industry (IT) industry and the expansion of the smartphone market.

C. Nevertheless, the lower court erred by misapprehending the relevant legal doctrine that the lower court calculated the profit value only based on the annual performance in 2009, 2010, and 2011, which was the three preceding business years, after excluding 2012 years by applying Article 56(1) of the Enforcement Decree of the Inheritance and Gift Tax Act as it is, thereby adversely affecting the conclusion of the judgment. The applicant’s ground of reappeal assigning this error

5. Conclusion

The order of the court below is reversed without examining the remaining grounds for reappeal by the principal of this case, 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.

[Attachment] List of Applicants: Omitted

Justices Lee Dong-won (Presiding Justice)