If you are a director of a company and have neglected to perform your duty willfully or gross negligence, causing damages to a third party, the period of statute of limitations within which an aggrieved party could bring a claim is 10 years. This is what the Supreme Court of Korea ruled in a damage compensation case brought against 2 former directors of Daewoo Electronics (2004Da63354, ruled on Dec. 22, 2006), confirming the judgment of the lower courts that had awarded 2 billion Won in damages to Woori Bank.

Woori Bank made some 40 billion Won and 30 Million USD loans to Daewoo Electronics during a period from 1997 to 1998 based on the company’s financial statements that included falsified earnings amounting to some 1.7 trillion Won and, after suffering damages from the loans made, filed a lawsuit against the then executives of the company.

The lawsuit by Woori Bank was mainly based on Article 401 of the Commercial Act of Korea which provides for the joint and several liabilities of directors to third person if they have neglected to perform their duties willfully or by gross negligence.

The Supreme Court stated in the judgment that the liability of directors to third persons under Article 401 of the Commercial Act is considered a special responsibility intended to protect third persons, and so the 10-year period of statute of limitation applicable to monetary and other claims (Paragraph 1 of Article 162 of the Civil Act) should apply.

The defendants had argued that a 3-year period of the statute of limitations under Paragraph 1 of Article 766 of the Civil Act should apply. Paragraph 1 of Article 766 of the Civil Act states that the right to claim for damages resulting from an unlawful act shall lapse if not exercised within 3 years commencing from the dates on which the injured party becomes aware of such damages and of the identity of the person who caused it.

The Supreme Court rejected the argument of the defendants stating that considering the importance of stock corporations in today’s economy and the role of directors in operations of a stock company, third persons must be protected from any willful or gross negligent acts of directors. And, therefore, the usual period of 10-year statute of limitations under the Civil Act must be applied to such liabilities of directors, and that the short 3-year period of statute of limitation provided under the Civil Act as an exception to the usual 10-year rule cannot be relied upon in this case.