Nora Shih
The Supreme Court rendered the 108-Tai-Shang-778 Decision of January 16, 2020 (hereinafter, the “Decision”), since the Securities and Exchange Law does not expressly provide for the qualifications of a manager who has committed the offense of special breach of trust, relevant provisions of the Civil Code and the Company Law should be considered for reference and substantive determination should be made based on the scope of authorization stipulated by the company’s Articles of Incorporation or by contract.
According to the facts underlying this Decision, Defendant X was the Senior Vice President of Company A and served as the Director General of the SMT (Surface Mounting Technology) Development Committee of A’s corporate group (hereinafter, the “SMT Committee”) during 2006 through the end of 2011 and was in charge of business such as the collective evaluation, procurement, maintenance and resource allocation for SMT processing equipment, spare parts and consumables with decision-making authority for procurement of up to NT$1 million. Employed by Company A at the end of 2004, Defendant Y served as the Manager of the SMT Committee of A’s corporate group in 2010 as well as the Deputy Director General of the SMT Committee, who was X’s deputy in charge of business such as the collective evaluation, procurement, maintenance and resource allocation of the equipment, spare parts and consumables for SMT processing which were commonly needed within A’s corporate group. Defendant Z, who was the legal representative of Company B in mainland China, actually controlled Company C and managed his personal connections at the SMT Committee of A’s corporate group and various business groups and suppliers of A’s group for a long time and got to know X and Y very well. Defendant Z strove to become an agent or distributor of goods such as SMT equipment and spare parts traded by A’s corporate group also through his personal connections and professional backgrounds in order to charge a commission which was percentage of the trading price. The Sales Vice President of Company E in mainland China, which was an agent of mounters manufactured by Company D, agreed with Z, due to the belief that Z had good connections with the top management of the SMT Committee, that Company E would retain Company C, controlled by Z, to be E’s agent and help E distribute goods to Company A and Company E would pay commissions for that. To curry favor with X and Y, Z asked X to increase A’s corporate group’s procurement volume of the mounters produced by Company D. D also indicated that he was willing to pay his commissions to X as kickbacks and pay kickbacks equivalent to 0.1% of the selling price of mounters to Y. Later, a business group under A’s corporate groups conducted testing and evaluation of mounters produced by different companies in order to satisfy its production capacity requirements for a certain product. It turned out that the evaluation results of Company D’s mounters did not meet the mass production requirements and standard, and X and Y both knew the results clearly. Subsequently, the President of Company A decided not to procure mounters from Company D. However, X and Y communicated their criminal intent to commit a breach of trust in order to receive kickbacks by jointly changing the purchased brand as Company D’s mounters without authorization, followed by Y’s handling of purchase orders and X’s approval of them, in violation of the decision of A’s corporate group and without following the procurement application or procurement approval process of A’s corporate group, obtaining the approval of Company A’s President or conducting any meeting to discuss with the Vice President or managers of the business group in charge of the production. The acts of X and Y caused Company A to sustain property damage due to the increase of the price differentials between its procurement costs. After examining all kinds of evidence, the original trial court held that X only had the approval authority for procurement up to NT$1 million, and procurement above NT$1 million should be submitted to the top management of A’s corporate group for approval. In addition, since Company A did not include X and Y as managers and disclose changes to their shareholding in its financial reports, the original trial court determined that X and Y were not managers of Company A, and that the behavior of X and Y was not governed by the offense of special breach of trust under Article 171, Paragraph 1, Subparagraph 3 of the Securities and Exchange Law.
According to this Decision, the actor of the offense of special breach of trust is a “director, supervisor or managerial officer of a company issuing securities pursuant to Law.” Since the Securities and Exchange Law does not specifically define a “managerial officer,” relevant provisions of the Civil Code and the Company Law should be considered for reference. Under Article 533, Paragraph 1 of the Civil Code, a managerial officer shall refer to a person authorized by a firm to manage its affairs and to sign on behalf of the firm. The provisions about the General Manager under the Article 29, Paragraph 1 (the last part) and Paragraph 3 of the Company Law and the provisions about the Deputy General Manager, Assistant Vice President or Deputy Manager of Articles 38 and 39 were removed from the Company Law. In addition, the requirement that a managerial officer shall sign books of tables or forms under Article 35 of the same law was deleted, and Article 31, Paragraph 2 was added to the same law to provide that a managerial officer has the right to manage the affairs of the company and sign for the company within the scope of authorization stipulated by the company’s Articles of Incorporation or by contract. Therefore, a manager’s qualifications should be substantively determined based on the scope of authorization stipulated by the company’s Articles of Incorporation or by contract.
It was further indicated in this Decision that even though A’s corporate group had an internal approval mechanism for procurement, still relevant evidence showed that X and Y used to give their signatures in the fields for authorized signatures in procurement contracts valued above NT$1 million. Therefore, it was not without question whether X and Y had the right to sign a procurement contract with an outside party within the scope of their authorization pursuant to the Articles of Incorporation or contract of A’s corporate group. Moreover, a witness stated that during X’s tenure as the Senior Vice President of Company A, when both parties to a contract had already reached an agreement, the contract would be signed in manners pursuant to the letter of legal authorization for a specific type of contract. If X was there to sign a contract, there would always be a letter of authorization. Since X and Y could change the purchased brands and models of the mounters on their own with Y preparing the purchase order for Company D’s mounters for X’s approval. And then a formal purchase order would be immediately issued to Company D. This seems to suggest that X and Y could sign procurement contracts with external parties on behalf of A’s corporate group. Since such matters are tied to the determination of whether X and Y are the “managerial officers” under Article 171, Paragraph 1, Subparagraph 3 of the Securities and Exchange Law and to the establishment of the offense of special breach of trust under such subparagraph, it is certainly necessary to conduct detailed investigation for clarification. Since the original trial court jumped to the decision without careful investigation, it was erroneous for failure to investigate the evidence that should have been investigated and for insufficient grounds. Therefore, the original decision was reversed and remanded to the Taiwan High Court.