"Punitive Division of Property Shaking Legal Stability"...Chey Tae-won's Third Trial Becomes Hotter-Legal advice by Boram Kim Managing Partner
Source : MONEY TODAY NEWS
① "Unprecedented Ruling" Legal Circle Stirs
"A largely punitive division of property that could shake legal stability."
The legal community has been shaken until the third day after the appellate court's ruling on the divorce lawsuit between Chey Tae-won, chairman of SK Group, and No So-young, director of Art Center Nabi. The appellate court overturned the first trial ruling and handed down an unprecedented ruling of "property division of 1.3808 trillion won and compensation of 200 billion won," which is seen as a result excessively reflecting punitive judgment against Chairman Chey.
There is also a reaction that the court's decision to recognize the allegation that 30 billion won in slush funds of the late former President No Tae-woo, No So-young's father, flowed into SK without clear verification and to consider it as No So-young's "contribution" during the marriage period for the division of property is "a decision that ignored social judgment on anti-social political funds."
Despite the precedent of the Supreme Court dismissing 9 out of 10 appeals in domestic relations cases without reviewing them and finalizing them as the original ruling, the voice is growing that it is difficult to predict the final outcome of this lawsuit. It is difficult to make a hasty judgment, but the observation that there will be another fierce legal battle in the Supreme Court is gaining weight.
The division of property worth 1.3808 trillion won and the compensation of 200 billion won ruled by the appellate court are both the largest in history, deviating greatly from existing precedents. Literally, compensation, which has the nature of compensation for damages, is usually decided at the level of up to 50 million won. The compensation of 1 billion won in the first trial ruling was also evaluated as exceptional, and the fact that it jumped to 20 billion won is drawing an evaluation that it is punitive.
A divorce specialist lawyer said, "Unless it is the case that a chaebol leader suffers greater mental shock or damage than ordinary people, it should be examined whether this is a punitive ruling or setting a new precedent."
Regarding the most controversial division of property, there are also questions raised as to whether the appellate court heavily reflected punitive elements rather than legal principles or legal verification. In particular, the dominant evaluation is that the inclusion of not only the stake in SK Inc. currently held by Chairman Chey, but also the SK Inc. stake worth 1 trillion won that he gifted to 23 relatives in 2018, as subject to the division of property, seems to have a heavy punitive character.
If the ruling is finalized as is, Chairman Chey will have to additionally pay and divide the "non-existent stake" to Director No. A lawyer who was a former chief judge said, "While the court cited in the ruling that Director No did not agree, there is also talk that it was 'presumed' as 'borrowed-name stocks' or 'parking shares,'" and added, "There are many opinions that the scope of the divisible property was excessively broad."
There are also unending criticisms that the recognition of Director No's "contribution" from the beginning and reflecting it in the division of property was itself a problem. The basis for the appellate court to recognize the allegation of the former president's slush funds flowing in was almost entirely the six 5 billion won promissory notes that Director No first disclosed in the appellate trial and the "Seonkyung 300" memo on a small envelope purportedly written by Kim Ok-soon, the wife of former President No, in April 1998 and February 1999. This raises the criticism that Director No's claim that she hid this fact for 30 years due to concerns of tracing the slush funds was accepted unilaterally.
A lawyer who was a former chief judge of the high court said, "Even if we accept the allegation that the former president's 30 billion won in slush funds flowed in, it is an ambiguous situation where it is difficult to measure how much the inflow of slush funds contributed to the growth of SK Group," and stated, "The fact that the appellate court mentioned the inflow of slush funds but did not specify the use itself reveals that it is difficult to derive the causal relationship between the slush funds and SK Group's growth to that extent, and there can be sufficient opinions that the actual division ratio is excessively arbitrary." The lawyer also said, "If the court found Chairman Chey's actions reprehensible, it should have reflected it in the compensation assessment, not the division of property," and added, "There is a concern that legal stability could be shaken."
Another lawyer who was a former chief judge said, "Recognizing up to 35% of the divided property as Director No's share is a ruling that condones the daughter taking funds obtained through her father's criminal acts," and stated, "There will be an additional dispute in the Supreme Court over whether to reflect contributions made through unlawful means when determining the property division ratio and whether contributions made by a relative of one party can be considered that party's contribution."
Complex Calculation of Slush Funds Inflow and Gifted Stakes... Chey and No's Factual Circumstances to be Further Examined
② Key Issues for the Supreme Court
What remains is the judgment of the Supreme Court. After the appellate court ruling on the divorce lawsuit between Chey Tae-won, chairman of SK Group, and No So-young, director of Art Center Nabi, the final ruling moved to the Supreme Court as Chey's side expressed its intention to appeal.
The key issues are to what extent Director No's contribution to the growth of SK Group can be recognized and whether the property division ratio is appropriate. Director No's level of contribution is also linked to the allegation of the 30 billion won slush funds inflow from her father, the late former President No Tae-woo. While the appellate court judged that the 300 billion won fund of the former President No flowed to the late Chairman Chey Tong-hyun, Chey Tae-won's father, and that the former President No played a "shield" role for the SK Group, which was his son-in-law's company, allowing SK to grow rapidly, there is considerable controversy.
Above all, the analysis is that the fact that the appellate court recognized the 300 billion won inflow claim as true but did not judge the use of the 300 billion won is the spark. Regarding the acquisition of Taeyang Securities and Korea Mobile Telecommunications, Director No's side argues that the former President No's funds went in, while Chairman Chey's side counters that there was no money received from the former President No, and that Chairman Chey Tong-hyun mobilized funds from affiliates for the acquisition of Dongyang Securities.
The controversy over whether the allegation of the former President No's slush funds flowing in is true and whether he played a "shield" role will inevitably continue until the Supreme Court's final ruling. The court viewed six 5 billion won promissory notes and the "Seonkyung 300" memo written by Kim Ok-soon, the wife of former President No, in 1998 and 1999, as evidence of the transactions.
Even if the 300 billion won inflow claim is true, it remains an issue whether the father's "contribution" can be considered the daughter's contribution and whether illegally created slush funds can be recognized as a contribution. A lawyer who was a former chief judge of the high court said, "As this is a domestic relations case, it seems the court focused on the contribution to property formation rather than the legality of the funds," and added, "However, ruling that the property should be divided while acknowledging the existence and inflow of the slush funds is a point to be examined in that it is a result that condones the daughter taking her father's illegal funds."
A lawyer in Seocho-dong said, "It is a completely different issue for the public to think 'Since former President No's slush funds flowed into SK, the property should be divided for former Director No' and for the court ruling to state that illegal funds are recognized as a contribution," and commented, "As the Supreme Court is a place that examines legal principles, it will carefully judge this part, albeit being cautious about directly addressing it."
Another issue to be dealt with in the Supreme Court is whether the management control stake inherited from the father can be considered as joint marital property and subject to division of property. It is a matter of how much influence the manager, affiliates, and the manager's spouse should be recognized for in the increase in the value of SK Inc.'s stake.
The judgments of the first and second trials were different. The first trial court ruled that "The stake in SK Inc. was clearly distinguished and managed separately from the domestic economic community, being utilized only as a means to exercise management control over a large business group," excluding it from the subject of property division. The appellate court viewed the value of SK Inc. differently. There is no Supreme Court precedent in Korea regarding the division of property for an inherited management control stake.
It also appears that the Supreme Court will review the appellate court's determination of the divisible property at 4 trillion won. Citing that Director No did not agree, the appellate court included the 1 trillion won worth of SK shares that Chairman Chey gifted to 23 relatives in 2018 as subject to property division. From Chairman Chey's standpoint, he will have to re-divide the "non-existent shares."
Based on such issues, there are also forecasts that the Supreme Court will effectively play the role of a "trial of fact." The Supreme Court's appeal trial is a "trial of law" that examines whether there are legal issues in the first and second trial judgments. As it focuses on whether the legal interpretation was done properly rather than the facts, the content of the ruling generally does not change significantly in ordinary cases. However, as the scale of the divisible property is in the tens of trillions of won and there are clear differences between the first and second trial judgments, the legal community's opinion is that the possibility of the conclusion changing is not low.
If the Supreme Court points out that the part where it viewed the credibility of one side's evidence as higher among the submitted evidence was wrong and wants to change the result, the logic of "violation of evidence rules" (the manner that must be followed when selecting evidence) can be employed. If the lower court wants to revive evidence excluded from various claims, it can reprimand the lower court's ruling for "omission of judgment" (insufficient trial).
A legal circle official said, "Chairman Chey's side, which objects to the subject and ratio of the property division, will strongly argue violations of evidence rules and insufficient trial through the grounds for appeal," and added, "If the Supreme Court decides to remand the case after the trial, the lower court will adjust the property division ratio in accordance with that intent."
Chey's legal representative stated in a statement after the appellate court ruling last month, "The inflow of slush funds and various tangible and intangible benefits have not been proven at all, and the judgment based solely on vague conjectures is unacceptable," and revealed, "We will definitely correct the wrong parts through an appeal."
Normally 40 Times Compensation...The Reason "Excessive Reprehensibility Applied to Chey Tae-won" is Said
③ 200 Billion Won in Compensation in Addition to Property Division... "Excessive Mental Compensation" Pointed Out
The legal community has continued to evaluate the ruling ordering the payment of 20 billion won in compensation in the appellate trial of the divorce lawsuit between Chey Tae-won, chairman of SK Group, and No So-young, director of Art Center Nabi, as exceptional. Even the 1 billion won in compensation determined by the first trial court in December 2022 sparked controversy for greatly exceeding the convention of at most 50 million won, and the fact that it increased by as much as 20 times suggests a heavy punitive character.
In particular, the analysis emerges that there is no other interpretation than that the court vastly increased the compensation while accepting the property division amount of nearly 14 trillion won.
Kim Boram, Managing Partner of Law Office Haeon, said, "In ordinary divorce cases, 30 million won is the maximum, and only when accompanied by a long period of adultery or violence does compensation reach the level of 50 million won," adding, "In this lawsuit, it seems that an amount recognized as having substantive punitive meaning was set, considering the degree of specific misconduct and the economic situation of the parties."
A lawyer who was a former judge of the family court also said, "Despite the property division being done separately, there is an aspect to examine whether the court viewed that chaebol families suffer greater mental shock than ordinary people by substantially increasing the compensation corresponding to mental damages."
However, there are also opinions that the exceptional precedent of compensation may serve as a new precedent in other divorce lawsuits. Yang So-young, representative lawyer of Law Firm Soong-in, said, "There are cases where property flows out to the partner in adultery during the process of misconduct," and commented, "This ruling is noteworthy in that there has been a tendency for the amount of compensation not to sufficiently reflect such aspects."
Controversy over Appellate Court's Ruling on 65:35 Property Division for Chey and No
Controversy is arising over the Seoul High Court's ruling last month ordering Chey Tae-won, chairman of SK Group, and No So-young, director of Art Center Nabi, to divide their property at a ratio of 65:35.
This ruling was heavily influenced by the judgment that the slush funds of the late former President No Tae-woo, No So-young's father, were used in SK Group's expansion through the acquisition of securities firms and telecommunications companies. However, there are voices pointing out that factors such as SK Group's entry into the telecommunications business occurring during the late President Kim Young-sam's era and relatives forgoing inheritance at the time of Chey's succession as chairman were not considered.
When Did SK Enter the Telecommunications Business?
According to the industry on the 3rd, SK Group (formerly Sunkyung Group) entered the mobile telecommunications business in August 1994, which was during the Kim Young-sam administration, not the No Tae-woo government. Earlier, the appellate court in the divorce trial between Chey and No stated, "It appears that former President No played a 'shield' role in the process of SK Group acquiring Taeyang Securities (present-day SK Securities) and entering the mobile telecommunications business." However, the late former Presidents No and Kim were not on friendly terms during their lifetimes. The late former President No was arrested and imprisoned in 1995 due to the late former President Kim's "correcting history" movement.
The late former President Kim was also not favorable toward SK's entry into the mobile telecommunications market. In 1992, the No Tae-woo government issued a public notice to select the second mobile telecommunications operator other than Korea Mobile Telecommunications, a subsidiary of Korea Telecommunications (present-day KT). As a result of competition among six companies, SK was selected as the operator. Kim, who was the presidential candidate of the Democratic Liberal Party, protested that "granting the business rights to the president's in-law company is a special favor." The late Chairman Chey Tong-hyun of SK Group said, "We cannot conduct business while facing allegations of special favors. We will compete with our capabilities under the next administration free of concerns of misunderstanding to gain legitimacy," and returned the business rights just a week after being selected as the operator.
The selection of the second mobile telecommunications operator resumed under the Kim Young-sam government (late 1993). However, the late Chairman Chey also decided not to participate at the time to block allegations of special favors. Instead, he decided to participate in the public bidding for the privatized Korea Mobile Telecommunications (present-day SK Telecom). At the time, Korea Mobile Telecommunications' stock price had surged more than four times within a month after the government decided on privatization.
An industry official said, "SK actually suffered losses from allegations of special favors in the process of entering the mobile telecommunications business."
Relatives Forgoing Inheritance Stakes... "Chairman Chey is a Succession-Inheriting Entrepreneur"
There is also discussion about Chairman Chey's process of forming his SK stake. The court stated, "Chairman Chey's SK shares were acquired during the marriage period," and judged, "It appears that around 1991, a substantial amount of funds flowed from former President No to the side of the former Chairman Chey regarding SK's listing and the formation and value increase of the shares accordingly." In response, Chey's side lamented, "It did not address at all the inheritance process and agreement among relatives that could view Chairman Chey as a succession-inheriting entrepreneur."
Chey became the group chairman at the age of 38 in 1998. At the time, SK was in a situation where it could have been embroiled in a management control dispute as the late Chairman Chey Tong-hyun had suddenly passed away without a will. The children of the late Chairman Chey Tong-hyun, the founder of SK, and the late Chey Jong-gun, the elder brother of Chairman Chey Tong-hyun, held a family meeting and unanimously appointed Chairman Chey as the successor. In particular, Chey Jae-won, the younger brother of Chairman Chey and senior vice chairman of SK, gave up all his stakes and position to his older brother. As other relatives also forfeited their inheritance stakes, Chairman Chey was able to inherit most of the late Chairman Chey Tong-hyun's stakes and become the largest shareholder of SK. They also came forward to purchase stakes and jointly defend the management control when Sovereign Asset Management tried to seize Chairman Chey's management control in 2022.
A business analysis expert analyzed, "Disputes over management control among the owner family weaken a company's growth momentum," adding, "SK has played a positive role in enhancing corporate value by having the owner family work together to increase management stability." Chairman Chey also previously gifted 4.68% of SK Inc. shares worth 1 trillion won to his relatives in 2018, saying, "I am grateful to the family members who have allowed SK to exist in its current form."
It is also controversial that this ruling officially branded SK Group with the stigma of "collusion between politics and business." An industry official said, "As it is a result that views SK Group's management activities as the product of collusion between politics and business, the damage to the internal and external image of the company SK has become inevitable." Employees also express a sense of deflation from such a stigma. An SK Group employee said, "It is natural to take personal responsibility as a culpable spouse, but judging that the former President No made a significant contribution to SK Group's growth is an insult to the group's employees."
For now, Chey's side has stated its position after this result, saying, "We express deep regret over the excessively biased process and conclusion of the trial," and revealed, "We will definitely correct the wrong parts through an appeal."
Park Ga-young, reporter
Jeong Jin-sol, reporter
Shim Jae-hyeon, reporter
Yang Yun-woo, reporter
Park Mi-ri, reporter
