Jeju Air Must Return 14 Billion Won Including Acquisition Deposit... Eastar Jet Violated Contract

Published 04 Nov.2024 12:22(KST)

Former largest shareholder of Eastar Airlines, Eastar Holdings, has been judged responsible for the failed merger and acquisition (M&A) and must return about 14 billion won to Jeju Air.

[Image source=Yonhap News]

The Supreme Court Civil Division 3 (Presiding Justice Lee Suk-yeon) on the 8th of last month upheld the lower court ruling partially in favor of Jeju Air in the miscellaneous (monetary) lawsuit (2024Da231308) filed against Eastar Holdings and former major shareholder Daedong Investment of Eastar Airlines, ordering “Eastar Holdings to pay 13.8 billion won and Daedong Investment to pay 450 million won to Jeju Air.”

Jeju Air and Eastar Airlines signed a stock purchase agreement in March 2020 and pursued an M&A, but the deal collapsed amid conflicts over the fulfillment of contractual preconditions such as resolving 25 billion won in unpaid wages.

Jeju Air claimed that Eastar Airlines failed to fulfill demands to resolve unpaid debts including 18.9 billion won in unpaid wages and 10.4 billion won in taxes, as well as breaches of important contractual obligations. Eastar Airlines countered that the preconditions in the contract had been completed.

In September 2020, Jeju Air filed a lawsuit against Eastar Holdings and Daedong Investment demanding the return of 23.45 billion won in deposits and liquidated damages. Eastar Holdings and others filed a counterclaim in April 2021 demanding payment of 5 billion won in purchase price.

The first trial accepted all of Jeju Air’s claims, ruling that Eastar Holdings must pay 23 billion won and Daedong Investment 450 million won to Jeju Air. The court stated, “Eastar Holdings materially breached the representations and warranties in the stock purchase agreement. Despite Jeju Air’s request for correction, Eastar Holdings failed to remedy within 10 business days, so Jeju Air’s termination of the stock purchase agreement on July 22, 2020, and claims for deposits and liquidated damages were lawful.”

The appellate court ordered Eastar Holdings to pay 13.8 billion won, reducing the liquidated damages by 20%. The payment amount for Daedong Investment remained the same as in the first trial.

The appellate court noted, “Although Eastar Airlines’ breach of contractual representations and warranties was material, it is difficult to conclude it was fundamental, and there is no evidence of intent, fraud, or concealment.”

It also considered that △ Jeju Air likely knew about Eastar Airlines’ poor financial condition before signing the stock purchase agreement △ Jeju Air agreed to Eastar Airlines’ shutdown (temporary suspension of flights) but did not approve the request to resume operations, resulting in flight suspension exceeding 60 days and expiration of the operating certificate (government safety license confirming aircraft operation suitability) △ After the stock purchase agreement, the amount of contractual breaches, unpaid wages, taxes, and aviation insurance premiums increased or new unpaid amounts arose, likely due to business downturn caused by COVID-19.

In the Supreme Court’s final review following appeals from both parties, the court found no issues with the appellate court’s judgment and confirmed the ruling. Eastar Holdings’ appeal was deemed inadmissible. The Supreme Court stated, “The appeal petition did not include the required court fee, and despite receiving an order to correct this, it was not corrected within the deadline.”