The client is a representative of a company engaging in the manufacture and supply business of toy products (“Company A”). The client entered into an exclusive supply and distribution agreement with a company, which is one of the leading toy distributors in Korea (“Company B”), for manufacture and supply of toy products, such as robots appearing the first series of a robot animation produced by an animation production (“Company C”) (the “Agreement”). Under the Agreement, Company B agreed to the initial minimum requirement of KRW5 billion.

Due to the failure of the first series of the animation, however, the sales of related robot products were sluggish, and Company B was left with a huge amount of inventory. Under these circumstances, it was decided that the robots of the first series would not appear in the second series. Company B claimed that when the client made a presentation and meeting with Company B officials regarding the animation series, the client stated that the robots appearing in the first series would continue to appear in the second series. Company B accused the client of violating the Act on Aggravated Punishment of Specific Economic Crimes (Fraud), alleging that the client deceived the officials of Company B and that Company B was misled into entering to the Agreement, thereby defrauding it of more than KRW5 billion. The prosecutor deemed the allegations admissible and prosecuted the client.

After being appointed as the defense counsel of the client at the first trial stage, we argued at the trial proceedings that the defendant was not guilty of deception on the following grounds:

① The client did not may any deceptive statements to Company B that the robots of the first series would continue to appear in the second series;

② Not only did Company B not mistakenly believe that the robots of the first series would continue to appear in the second series, but whether or not the robots of the first series would appear in the second series was not a factor determining the conclusion of the Agreement, so there was not causal relationship between the alleged mistake and the act of disposition; and

③ Even after it was confirmed that the robots of the first series would not appear in the second series, the defendant continued to negotiate with Company B and Company C so that the robots of the first series could appear in the second series.

In order to prove the client’s innocence, we carefully reviewed a vast amount of evidence and statements of the parties involved, including the Agreement, the presentation at the meeting regarding the animation series, and the client’s statements. We also cross-examined witnesses who were hostile to the client, eliciting testimonies favorable to the client or finding inconsistencies in their testimonies against the client. We persuaded the trial court by pointing out the unfairness of the prosecutor’s and Company B’s arguments through logical argument.

The court of first instance accepted our arguments and acquitted the client, stating:

① Based on the description of the presentation and the remarks made by the client at the meeting regarding the animation series, it cannot be said that the client meant that the robots of the first series would continue to appear in the second series;

② Given that the Agreement, which was executed after prolonged negotiation, did not contain any provisions regarding whether the robots of the first series would appear in the second series, and that the Agreement stipulated that oral agreements other than those contained in the Agreement were invalid, the appearance of robots was not a determining factor in the conclusion of the Agreement, and therefore, it could not be said that Company B entered into the Agreement in error due to the defendant’s statement;

③ In view of the fact that there was no prior agreement that the robots of the first series would not appear in the second series, and that the Company C, not Company A or the client, had the authority to decide the appearance of robots in the animation series in the first place, there is no causal relationship between the alleged acts of deception, mistake and disposition; and

④ If the client had intended to defraud Company B, there was no reason for the client to notify Company B that the robots of the first series would not appear in the second series before the order and payment for the products of the first series were completed, so it is difficult to say that the client was guilty of defrauding Company B. Therefore, the client’s criminal offense was not proved beyond a reasonable doubt.

The prosecutor appealed the acquittal of the first instance. On appeal, the prosecutor filed a motion to amend the indictment to add a preliminary charge that “the defendant committed deception by omission, failing to notify company B of the appearance of robots of the first series in the second series despite its obligation to do so”. We argued against this preliminary charge on the grounds that (i) the appearance of the robots in the second series was not a material factor for Company B to decide to enter into the Agreement, given the wording of the Agreement and the circumstances before and after the Agreement was signed; and (ii) even if different robots would appear in the second series, since it had no effect on the legal status of Company B under the Agreement, the defendant could not be found to have an obligation to notify. In addition to citing the reasons for the trial court’s ruling, the appellate court also accepted our defense on the preliminary charge of the case, found the client not guilty and dismissed the prosecutor’s appeal.

 

4. Significance of the decision

The court’s ruling in this case can be seen as a deterrent to the practice of industry dominant companies suing small and medium enterprises and their representatives for fraud, alleging deception in order to pass on their losses caused by the failure of a contract that they entered into based on their own business judgment. It is also significant in that this ruling shows that even in unfavorable circumstances, such as the witnesses being hostile to the client in court, it is possible to obtain an acquittal by logically convincing the tribunal through careful review of evidence and thorough preparation of witness examination.


□ Attorneys in charge: Ryu Jong-myoung and Yi Jai-jeon