How Is Intent for Occupational Breach of Trust Determined in Financial Support Among Affiliates? — Acts in Breach of Duty and the Scope of Discretion in Business Judgment

Origin of the Case and the Core Legal Question

Supreme Court Decision 2015Do12633 rendered on November 9, 2017 (Violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Fraud); Violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement); Violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Breach of Trust); Violation of the Act on External Audit of Stock Companies; Offering of Bribes; Violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Giving of Bribes, etc.)) squarely addresses the following question: what must be considered in determining whether support between affiliates belonging to the same business group was carried out within the scope of discretion of reasonable business judgment?

The Supreme Court's core conclusion may be summarised as follows. In addition to the background and motives of the business judgment, the nature of the business, the economic circumstances, and the probability of loss and of gain, consideration must also be given to the substantive integration of the affiliates, whether common interests were pursued, the objectivity of the decision to provide support, the lawfulness of the method of implementation, and whether appropriate compensation could be expected. Regarding the support provided through integrated purchasing and scrap-metal transactions as falling within the scope of reasonable business judgment, the Supreme Court reversed the conviction for breach of trust. The order reads: "The part of the judgment below finding guilt is reversed, and that part of the case is remanded to the Busan High Court. The prosecutor's appeal is dismissed." The judgment's mode of determination is comprehensive consideration (establishing a new standard).

This analysis follows the structure of the issues and the standards of determination appearing in the published judgment, and examines why the lower court and the court of final appeal read the same record differently.

Sources for this section: Supreme Court Decision 2015Do12633 rendered on November 9, 2017 — official text of the decision on the National Law Information Center

The Structure of the Issues Set by the Summary of Holdings and the Referenced Provisions

The framework of the summary of holdings set out in the judgment is as follows: the meaning of "an act in breach of one's duty" among the constituent elements of the crime of breach of trust / the circumstances in which a director, etc. of a company who lends company funds to another person commits an act of breach of trust against the company, and whether the same applies where the other person is an affiliate of the company providing the funds (affirmative) / the standard for determining whether intent for breach of trust can be found notwithstanding a claim of business judgment / the matters to be considered in determining whether support between affiliates belonging to the same business group was carried out within the scope of discretion of reasonable business judgment

The referenced provisions to be read together in this case are Article 355 (2) and Article 356 of the Criminal Act. The first step is to separate, among the constituent elements or the requirements for the arising of a right prescribed by the wording of the provisions, what belongs to the domain of statutory interpretation and what belongs to the domain of fact-finding in the individual case.

In relation to prior precedents, this judgment stands in the position of establishing a new standard. Read alongside the referenced precedents (Supreme Court Decision 99Do4923 rendered on March 14, 2000 (Gong2000Sang, 1011); Supreme Court Decision 2002Do661 rendered on July 8, 2004; Supreme Court Decision 2004Do5742 rendered on March 15, 2007 (Gong2007Sang, 569); Supreme Court Decision 2009Do1149 rendered on October 28, 2010 (Gong2010Ha, 2207); Supreme Court Decision 2013Do5214 rendered on September 26, 2013 (Gong2013Ha, 2021); Supreme Court Decision 2013Do10516 rendered on July 10, 2014), it can be seen how the Court, while maintaining the outer bounds of the existing legal principles, rearranged the factual elements of the specific case.

Sources for this section: Supreme Court Decision 2015Do12633 rendered on November 9, 2017 — official text of the decision on the National Law Information Center

Analysis of the Supreme Court's Summary of the Decision and Its Key Holdings

The core of the summary of the decision set out by the Supreme Court is as follows. The crime of breach of trust is established where a person administering another's business, by an act in breach of his or her duty, obtains a pecuniary benefit or causes a third party to obtain it, thereby causing damage to the principal. Here, "an act in breach of one's duty" includes any act that betrays the relationship of trust with the principal by failing to do what, in light of the specific circumstances such as the content and nature of the business, is naturally expected to be done under the provisions of law, the terms of the contract or the principle of good faith, or by doing what is naturally expected not to be done. Where a director, etc. of a company, in lending company funds to another person, proceeded with the loan while fully aware that the other person had already lost the ability to repay debts and that lending funds to that person would cause damage to the company, or carelessly made the loan without taking appropriate and reasonable measures to secure recovery of the claim, such as obtaining sufficient security, such a loan constitutes an act of breach of trust against the company, being an act that causes the other person to obtain a benefit and causes damage to the company; the director of the company cannot escape criminal liability for breach of trust merely on the ground that it was a business judgment; and this principle does not differ where the other person is an affiliate of the company providing the funds. However, because risk is inherent in the management of an enterprise, there are cases in which, even though a manager has made a careful decision without any intention of obtaining personal benefit, on the basis of information gathered to the extent possible and in the belief that it would serve the interests of the enterprise, the prediction proves wrong and damage is caused to the enterprise; in such cases, criminal liability for occupational breach of trust cannot be imposed by relaxing the interpretive standard regarding intent. Here, whether intent for breach of trust can be found notwithstanding a claim of business judgment must be determined individually, according to whether, in light of all the circumstances, such as the background and motives leading to the business judgment in question, the nature of the business that was the object of the judgment, the economic circumstances faced by the enterprise, and the probability of incurring a loss and the probability of obtaining a gain, the act is found to have been an intentional act committed with the awareness that oneself or a third party would obtain a pecuniary benefit and that damage would be caused to the principal. Meanwhile, even where the pursuit of common interests in accordance with the common goals of a business group has significant factual and economic importance, each individual affiliate constituting the business group is an entity with a separate and independent legal personality, in which numerous interested persons such as its own creditors and shareholders are involved, and depending on the case, an affiliate may have its own interests that conflict with the common interests of the business group. Thus, even if support between affiliates belonging to the same business group is for the common interests of the affiliates at the level of the business group, it may entail the risk of pecuniary damage to the supporting affiliate; therefore, whether support between affiliates within a business group was carried out within the scope of discretion of reasonable business judgment must be determined with caution. Accordingly, in determining whether support between affiliates belonging to the same business group was carried out within the scope of discretion of reasonable business judgment, in addition to the various circumstances discussed above, sufficient consideration must also be given to such matters as whether the affiliates giving and receiving support are integrated in substantive aspects such as capital and business operations and are in a relationship of pursuing common interests and synergy effects; whether such support between the affiliates is intended to promote the common interests of the affiliates belonging to the business group, including the supporting affiliate, and not solely the interests of a specific person or a specific company; whether the selection of the supporting affiliate and the scale of support were determined objectively and reasonably, with sufficient consideration of the intentions and support capacity of the affiliate concerned; whether the specific act of support was carried out by normal and lawful methods; and whether, objectively, the supporting affiliate could expect appropriate compensation commensurate with the burden or risk arising from the support. If, taking the above circumstances together, the support between the affiliates in question is found to have been carried out within the scope of discretion of reasonable business judgment, it is difficult to find that such an act was an intentional act committed with the awareness that damage would be caused to the principal.

In particular, the sentence in the judgment that directly supports the conclusion is the following passage: "If the support between the affiliates in question is found to have been carried out within the scope of discretion of reasonable business judgment, it is difficult to find that such an act was an intentional act committed with the awareness that damage would be caused to the principal."

This sentence does not remain an abstract declaration; it functions as a reference point for identifying which legal premises the court below omitted, or which factual elements it overestimated or underestimated.

Sources for this section: Supreme Court Decision 2015Do12633 rendered on November 9, 2017 — official text of the decision on the National Law Information Center

Key Elements of Determination Set Out in the Judgment and a Record Comparison Table

The table below summarises the elements of determination to which the Court attached importance in the 2015Do12633 judgment and the role each element played in the order (partial reversal and remand).

Sources for this section: Supreme Court Decision 2015Do12633 rendered on November 9, 2017 — official text of the decision on the National Law Information Center

Competing Readings of the Same Facts

In this case, the court below found the charged facts of occupational breach of trust proven solely on the grounds stated in its decision. By contrast, under the Supreme Court's legal principles, whether the act was an intentional act committed with the awareness that damage would be caused to the principal is determined by taking together all the circumstances, such as the background and motives leading to the business judgment in question, the nature of the business, the economic circumstances, and the probability of loss and of gain.

Accordingly, when analysing similar cases, one should not merely cite the concluding sentence, but should test, as a counter-hypothesis, how the conclusion would change if any one of the elements of determination listed in the table above were absent.

Sources for this section: Supreme Court Decision 2015Do12633 rendered on November 9, 2017 — official text of the decision on the National Law Information Center

Remaining Questions and Conditions for Re-examination

A follow-up question that remains after reading this judgment is the following: where the supporting affiliate is in a state of capital impairment for accounting purposes and under creditor-bank management, how much financial deterioration is required before the support is regarded as exceeding its support capacity?

It is also clear which subsequent materials or precedents, once accumulated, should prompt a re-examination of this framework of determination. If legislation is enacted concerning the constituent elements of occupational breach of trust or the business judgment rule, or if a subsequent precedent alters the elements for determining support between affiliates, this reading should be verified again.

This is a research analysis prepared by comparing the original text and referenced provisions of Supreme Court Decision 2015Do12633 rendered on November 9, 2017, as published on the National Law Information Center, as of October 21, 2026; it does not substitute for the conduct of litigation by any particular party or for legal advice.

Sources for this section: Supreme Court Decision 2015Do12633 rendered on November 9, 2017 — official text of the decision on the National Law Information Center