In a case where the Securities and Futures Commission (“SFC”) imposed a surcharge on a Korean corporation for violating its disclosure obligations, the Seoul High Court held that the new provision on the statute of limitations included in the Former Financial Investment Services and Capital Markets Act (the “Former Capital Markets Act”) of 2007 which was enacted following the repeal of the Former Securities and Exchange Act (the “Former SEA”) for surcharges was retroactively applicable.  Therefore, the surcharge imposed by the SFC was canceled. 

Recently, the Supreme Court dismissed the appeal without further deliberation confirming the judgment of the Seoul High Court. 

Background:

The Former SEA had been criticized for its lack of a statute of limitations for surcharges, which resulted in additional insecurity to offenders.  When the Former Capital Markets Act was amended on August 3, 2007, a three-year statute of limitations was newly included, but the addenda stipulated that the provisions prior to the amendments would be applied to any surcharge imposed for an act of violation under the Former SEA, where the act took place before the effective date of the amendments to the Former Capital Markets Act.  This ignited controversy over the applicability of the newly established statute of limitations provision to violations made during the time the Former SEA was still in effect (i.e., prior to the effective date of the amended SEA). 

Previously, when the local tax laws were amended to include a statute of limitations while stipulating in the addenda that “the former provisions shall apply to local taxes imposed or to be imposed pursuant to the former provisions at the time this Act enters into force,” the Supreme Court had held that if the right to impose a local tax had risen prior to the effective date of the amendments to the laws, the former laws should be binding and the new amendments cannot be applied retroactively.

Our Representation:

Nonetheless, Kim & Chang successfully convinced the court to rule that the statute of limitations for surcharges should apply retroactively to violations of a company’s public disclosure obligations, which occurred before the effective date of the Former Capital Markets Act by distinguishing taxes from surcharges, and by emphasizing the need to apply the statute of limitations to ensure stability in the legal system to protect individuals, the need to maintain balance with other laws, reminding the court of the underlying intent for establishing a statute of limitations, equity among offenders, i.e., those offenders identified following the enforcement of the Former Capital Markets Act, and the importance of interpreting the law in light of the spirit of the Constitution.

The court’s ruling is particularly meaningful, because it provides an important criteria for judgment when the addenda of a law does not clearly provide for retroactive application of a new provision which was included for the benefit of offenders.