San-Ching Engineering Co., Ltd., Cathay Life Insurance Co., Ltd. and Cathay Construction Co., Ltd violated the Fair Trade Law for their "combination act"

Chinese Taipei

Case:

San-Ching Engineering Co., Ltd., Cathay Life Insurance Co., Ltd. and Cathay Construction Co., Ltd violated the Fair Trade Law for their "combination act"

Key Words:

combination action, affiliated enterprise, control of business operation, hiring and firing employees

References:

Fair Trade Commission Decision of September 15, 1993 (the 102nd Commission Meeting); Disposition (82) Kung Chu Tzu 070

Industry:

Construction Business (460); Life Insurance Industry (6710)

Relevant Laws:

Article v6(1)(v) and Article 11(1) and Article 11(2) of Fair Trade Law

Summary:

1.The respondents, San-Ching Engineering Co., Ltd., Cathay Life Insurance Co., Ltd. and Cathay Construction Co., Ltd. are under the control and management of the relatives of Mr. Wan Lin Tsai. Mr. Tsai's relatives hold, through several investment companies owned by Mr. Tsai's business group (including Wan Pao Development, Lin Yuan, Yu Ling, Wan Ta and Paw Hsin Investment), 47.51% of the total shares of Cathay Life Insurance Co., Ltd.; 66.35% of the total shares of San-Ching Engineering Co., Ltd.; and 49.14% (including 23.28% of the employees retirement fund of Cathay Life Co., Ltd.) of the total shares of Cathay Construction Co., Ltd. through investment transfer arrangements by Cathay Life Insurance Co., Ltd., San-Ching Engineering Co., Ltd. and Wan Pao Development Co., Ltd. Furthermore, the defendants through the aforesaid investment companies acting as their representatives, also acquired one-third of the seats of Boards of directors and supervisors of Cathay Life Insurance Co., Ltd., one-fifth of the seats of directors and one-half of the seats of directors and supervisors of Cathay Construction Co., Ltd., and eight-ninths of the seats of directors and two-thirds of the seats of supervisors of San-Ching Engineering Co., Ltd. Consequently, there exists a control and subordinate relationship among Cathay Life Insurance Co., Ltd., Cathay Construction Co., Ltd. and San-Ching Engineering Co., Ltd.

2.On March 23, 1993, after obtaining the approval from Investment Commission of the Ministry of Economic Affairs, the First Trust Investment Co., Ltd. held a special meeting of shareholders to elect supplemental directors and supervisors. San-Ching Engineering Co., Ltd. won seven director seats and two supervisor seats. Functionally speaking, the board of directors of a company limited by shares is the mechanism responsible for execution of the business operations and, according to Article 29(2) of the Company Law, has the power to appoint and discharge managerial personnel of the company; while the supervisors of the company are responsible mainly for monitoring whether the directors are carrying out the business operations strictly in compliance with the applicable laws and regulations, the Articles of Incorporation and the resolutions adopted by shareholders meeting or not. After the foregoing election, the number of seats of directors and supervisors of First Trust Investment Co., Ltd. obtained by San-Ching Engineering Co., Ltd. has entitled it with adequate power to effect direct control of the business operations and personnel employment and discharge of First Trust Investment Co., Ltd.; thereupon, Cathay Life Insurance Co., Ltd. and Cathay Construction Co., Ltd. are also able to effect indirect control, through San-Ching Engineering Co., Ltd., over the operation of First Trust Investment Co., Ltd. Consequently, the arrangement whereby San-Ching Engineering Co., Ltd., Cathay Life Insurance Co., Ltd. and Cathay Construction Co., Ltd. are empowered with the right of direct and indirect control of the business operations and the personnel employment and discharge has constituted an action of combination as defined in Article 6(1)(v) of the Fair Trade Law.

3.Furthermore, as Cathay Life Insurance Co., Ltd. holds a market share nearly 50% in local life insurance market; and the annual operation revenue achieved by the three companies in the preceding fiscal year are around NT$146,960,000,000 (Cathay Life Insurance Co., Ltd.), NT$8,420,000,000 (Cathay Construction Co., Ltd.) and NT$5,160,000,000 (San-Ching Engineering Co., Ltd.) respectively, which reflects that the operation revenue of each company has exceeded the NT$2,000,000,000 threshold announced in public by the FTC for identification of an action of combination.

4. Although the three defendants filed an application for approval of business combination on May 8, 1993, they had violated Article 11(1) of the Fair Trade Law because their unauthorized combination was completed on March 30 of the same year (1993) before obtaining the approval of the applied combination.

Summarized by Chang, Hsiang-Hsin
Supervised by Hu, Kuang-Yu Hu

＄: For information of translation, click here

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