How Is Loss Calculated in Breach of Fiduciary Duty Cases in South Korea?
Table of Contents
- 1. What Is the “Loss” in a South Korean Breach of Fiduciary Duty Case?
- 2. Applicable Law: Criminal Act Article 355 and the Aggravated Punishment Act Article 3
- 3. How Is the Loss Calculated? Supreme Court Precedents by Case Type
- 4. Why Does the Loss Calculation Matter So Much?
- 5. Atlas Legal Case Study: KRW 700 Million Complaint Reduced to KRW 100 Million Indictment
- 6. FAQ
Case in Brief: A client came to us facing a criminal complaint for breach of fiduciary duty under South Korea’s Aggravated Punishment Act, with an alleged loss of approximately KRW 700 million. The complaint treated the entire amount paid as the loss. The actual loss was far smaller. The outcome of the case turned on a single legal question: how is the loss calculated in a South Korean breach of fiduciary duty case?
Why the Total Amount Paid Is Not the Loss
※ The following case description is based on an actual matter handled by Atlas Legal. All identifying information has been anonymized.
In South Korean corporate crime cases, complainants frequently characterize the entire amount paid by the accused as the loss. The larger the figure, the more likely the Aggravated Punishment Act applies—and the greater the pressure on the accused. Courts, however, apply a different standard. Because the essence of breach of fiduciary duty is the actual diminution of the principal’s assets, any portion of the payment that represents fair consideration for services actually rendered must be excluded from the loss calculation.
The defense team applied this principle from the outset of the investigation, directly challenging the complainant’s loss figure at the prosecutorial inquiry stage. Contracts, records of services performed, market pricing data, and transaction histories were gathered and submitted to prosecutors to demonstrate, with specific figures, the fair value of the services Y had actually provided.
As a result, prosecutors accepted that the actual loss to complainant X was approximately KRW 100 million—not the KRW 700 million stated in the complaint. The gain was determined to fall below the KRW 500 million threshold of the Aggravated Punishment Act, preserving the client’s eligibility for a suspended sentence.
1. What Is the “Loss” in a South Korean Breach of Fiduciary Duty Case?
Breach of fiduciary duty under South Korean law is committed when a person managing another’s affairs acts in breach of their duty and thereby causes loss to the principal. How that loss is calculated is one of the most consequential issues in practice.
Actual Loss Means the Difference — Not the Total
Consider a straightforward example. The representative director of Company X enters into a service contract at KRW 150 million, knowing that the fair price for the same services is KRW 100 million, in order to benefit a company the director personally owns. What is Company X’s loss?
One might instinctively say KRW 150 million. South Korean courts do not agree. Company X received services worth KRW 100 million; that portion is not a loss. The loss is the KRW 50 million paid in excess of fair value.
The Supreme Court of Korea has consistently held that “the existence of loss must be determined not by legal analysis but from an economic standpoint” (Supreme Court of Korea, Decision 2004Do5742, March 15, 2007).
2. Applicable Law: Criminal Act Article 355 and the Aggravated Punishment Act Article 3
Understanding the statutory framework is essential to appreciating why the loss calculation is so consequential.
Criminal Act Article 355(2) — The Basic Provision
Article 355(2) of the Criminal Act provides:
“A person who manages another’s affairs and causes loss to the principal by an act in breach of their duty, obtaining a pecuniary advantage for themselves or a third party, shall be punished in the same manner as the preceding paragraph.”
The preceding paragraph provides for imprisonment of up to five years or a fine not exceeding KRW 15 million.
Aggravated Punishment Act Article 3 — Enhanced Penalties
Article 3(1) of the Act on the Aggravated Punishment of Specific Economic Crimes provides that where a person commits an offence under Article 355 or 356 of the Criminal Act and the amount of gain obtained, or caused to be obtained by a third party, is KRW 500 million or more, the following enhanced penalties apply.
| Amount of Gain | Penalty | Suspended Sentence Available? |
|---|---|---|
| Below KRW 500 million (ordinary breach of fiduciary duty) | Up to 5 years’ imprisonment or fine up to KRW 15 million | Yes |
| KRW 500 million – KRW 5 billion (Aggravated Punishment Act) | Imprisonment for 3 years or more | No |
| KRW 5 billion or more (Aggravated Punishment Act) | Life imprisonment or imprisonment for 5 years or more | No |
Where the Aggravated Punishment Act applies, the mandatory minimum of three years’ imprisonment makes a suspended sentence legally impossible regardless of mitigating circumstances. This is why the loss calculation is so critical to the accused.
The Supreme Court has explicitly held that the “amount of gain” under Article 3(1) of the Aggravated Punishment Act refers to the actual, substantive gain — not a nominal or gross figure (Supreme Court of Korea, Decision 95Do825, June 30, 1995).
3. How Is the Loss Calculated? Supreme Court Precedents by Case Type
The method of calculating loss differs depending on the nature of the breach. The following sets out the principles established by the Supreme Court of Korea for the most common case types.
(1) Inflated Service or Construction Contracts — Only the Excess Is the Loss
Where a person with authority to conclude a contract on another’s behalf causes that person to undertake an obligation at an inflated price, the loss is the difference between the contract price and the fair contract price (Supreme Court of Korea, Decision 99Do883, April 27, 1999).
Importantly, breach of fiduciary duty in South Korea is a crime of endangerment (위태범). The offence is complete the moment the inflated obligation is incurred — it is not necessary for actual payment to have been made. However, the loss for purposes of calculating the gain is always the difference, not the gross contract amount.
(2) Shares Purchased at an Inflated Price — Difference from Fair Market Value
Where a director causes a company to purchase shares at a price above their fair market value, the loss is the difference between the purchase price and the fair market value of the shares (Supreme Court of Korea, Decision 2004Do5742, March 15, 2007).
For unlisted shares, where there is a genuine arm’s-length transaction reflecting the objective exchange value of the shares at or around the relevant time, that transaction price is used as the fair market value. The purchase price alone does not establish the loss.
(3) Unauthorized Salary Increase — Only the Excess Above Normal Remuneration
Where a director increases their own salary in breach of a board resolution, the loss is not the full amount of the increased salary. Only the difference between the salary actually paid and the normal, legitimate remuneration that the director was entitled to receive constitutes the loss (Supreme Court of Korea, Decision 2008Do12112, August 20, 2009).
“Normal remuneration” means any amount payable as fair consideration for work performed, regardless of how it is characterized.
Summary: Loss Calculation by Case Type
| Type of Breach | Method of Loss Calculation | Leading Authority |
|---|---|---|
| Inflated service / construction contract | Contract price minus fair contract price | Supreme Court 99Do883 |
| Shares purchased at inflated price | Purchase price minus fair market value | Supreme Court 2004Do5742 |
| Unauthorized salary increase | Salary paid minus normal remuneration | Supreme Court 2008Do12112 |
| Aggravated Punishment Act gain calculation | Actual substantive gain (not gross figure) | Supreme Court 95Do825 |
4. Why Does the Loss Calculation Matter So Much?
In practice, complainants in South Korean corporate crime cases almost invariably characterize the entire amount paid as the loss. The larger the figure, the more likely the Aggravated Punishment Act applies — and the greater the pressure on the accused.
The Practical Difference Between Ordinary and Aggravated Breach of Fiduciary Duty
Where the Aggravated Punishment Act applies, the mandatory minimum sentence of three years’ imprisonment means that no matter how compelling the mitigating circumstances, a suspended sentence cannot be imposed as a matter of law. Where ordinary breach of fiduciary duty applies — gain below KRW 500 million — the court retains full discretion on sentencing, including the power to impose a suspended sentence.
Why Challenging the Loss Figure at the Investigation Stage Is Essential
Prosecutors determine which provision to charge — the Aggravated Punishment Act or the ordinary Criminal Act — based on the gain figure. If the defense does not actively contest the complainant’s loss calculation during the investigation, with specific evidence and legal argument, prosecutors may proceed on the Aggravated Punishment Act charge as stated in the complaint. Challenging the loss figure at trial, after an aggravated indictment has already been filed, is a far more difficult position.
5. Atlas Legal Case Study: KRW 700 Million Complaint Reduced to KRW 100 Million Indictment
This is a matter handled directly by Atlas Legal. Client Y was the subject of a criminal complaint filed by Company X alleging breach of fiduciary duty under the Aggravated Punishment Act. The complaint stated the loss as approximately KRW 700 million.
The Issue at the Complaint Stage
Complainant X treated the entire amount paid to Y as the loss. Had that figure been accepted, the Aggravated Punishment Act (Article 3(1)(2): gain of KRW 500 million to KRW 5 billion) would have applied, carrying a mandatory minimum of three years’ imprisonment with no possibility of a suspended sentence.
The Defense Strategy — Establishing the Actual Loss
The defense team challenged the loss figure directly from the outset of the prosecutorial inquiry. Contracts, records of services performed, market pricing comparisons, and relevant transaction records were gathered and submitted to prosecutors to demonstrate, with specific figures, the fair value of the services Y had actually provided to the company.
Result
Prosecutors indicted Y under the ordinary breach of fiduciary duty provision of the Criminal Act — not the Aggravated Punishment Act. The gain recognized at the indictment stage was approximately KRW 100 million, compared to the KRW 700 million alleged in the complaint — a difference of KRW 600 million. By falling below the KRW 500 million threshold, the client retained eligibility for a suspended sentence.
This case illustrates how a methodical, evidence-based challenge to the loss calculation at the earliest stage of a South Korean criminal investigation can be decisive to the outcome.
6. FAQ
In South Korean breach of fiduciary duty cases, loss calculation is far more than an arithmetic exercise. It determines which statute applies and whether a suspended sentence is legally available. Drawing on extensive experience in corporate criminal defense, the attorneys at Atlas Legal work to establish the actual economic loss — with specific evidence — from the moment an investigation begins.
※ The information in this article is provided for general informational purposes only and does not constitute legal advice. The applicable law and outcome will vary depending on the specific facts of each case. Please consult a qualified attorney regarding your particular circumstances.