[1] The legislative intent of Article 178(1)2 of the Financial Investment Services and Capital Markets Act and the standard for determining whether a case constitutes an illegal act prohibited under Article 178 of the same Act

[2] Details of the duty to protect investors borne by the collective investment business entity that created the investment trust, and the standard for determining how to manage the collective investment property

[3] The meaning of "an act of providing a conclusive judgment or informing information that is likely to mislead, mislead, or mislead, that is, certain matters" prohibited under Article 49 subparagraph 2 of the Financial Investment Services and Capital Markets Act, and the standard for determining whether an act constitutes an act of providing a conclusive judgment

[4] Details of the duty to explain borne by the financial investment business entity when recommending to make an investment to ordinary investors, and the standard for determining whether to provide a certain degree of explanation to the customer

[5] In a case where there is time difference between the time when the tort occurred and the time when the damage occurred, the time when the tort liability is established (=the time when the damage occurred) / The meaning of “damage” and “the time when the damage occurred” and the method of determining whether the damage occurred actually

[6] Where a financial investment business entity causes damage to an ordinary investor in violation of the duty to explain or prohibit unfair solicitation when it makes an investment recommendation, the amount of damage (i.e., the total amount of money paid for acquiring a financial investment instrument less the total amount of money recovered or recoverable from the product), and the starting date of the claim for damages (i.e., the point at which the outstanding amount of money was determined)

[1] Article 178(1)2 of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) prohibits “an act of seeking money or other benefits on property by using a document containing false description or representation of a material fact or omission of a description or representation of a material fact necessary to prevent others from being misled, or any other description or representation in connection with trading and other transactions of financial investment instruments.” This is to protect individual investors’ interests participating in trading and to enhance fairness and reliability in the capital market as well as to enhance fairness and reliability in the capital market, given that unfair trading in financial investment instruments may affect a large number of investors and make the entire capital market unsound. Determination should be made by comprehensively taking into account the structure and method of trading of financial investment instruments in question, the characteristics of the market where the financial investment instruments are traded, the rights and obligations of investors and the timing of termination thereof, the relationship between investors and the offender, and the circumstances before and after the act.

[2] A collective investment business entity that has created an investment trust has a duty to protect investors' interests by carefully managing the collective investment property based on the information collected within the extent possible. Specifically, how to manage the collective investment property should be determined by comprehensively taking into account the relevant statutes, the terms and conditions of the investment trust, and the economic situation and prospects at the time.

[3] Article 49 Subparag. 2 of the Financial Investment Services and Capital Markets Act prohibits a financial investment business entity from “providing a conclusive judgment on an uncertain matter or informing information that is likely to mislead, mislead, or mislead, any person to believe, that he/she is certain” when making an investment recommendation. Here, “providing a conclusive judgment on an uncertain matter” refers to an act of making a clear judgment on an investor’s reasonable investment decision or informing investors of any matter that may affect the value of the pertinent financial investment instrument that could not objectively prove the authenticity. Furthermore, whether an act constitutes an act of offering a conclusive judgment, etc. means an act of making a clear judgment on an uncertain matter, or an act of informing investors of any matter that is likely to mislead, that the authenticity is apparent. Furthermore, whether an act constitutes an act of offering a conclusive judgment, etc. ought to be determined objectively and objectively by comprehensively taking into account the expressions used by a financial investment business

[4] When a financial investment business entity solicits an ordinary investor to make an investment, it shall explain the details of the financial investment instrument, the risks involved in the investment, and other matters prescribed by Presidential Decree so that the ordinary investor can understand them, and shall not explain, fraudulently or distorted, or omit any material fact that may have a significant impact on the investor’s reasonable judgment of investment or the value of the pertinent financial investment instrument (Article 47(1) and (3) of the Financial Investment Services and Capital Markets Act). In such cases, whether a financial investment business entity is required to explain to an investor to a certain extent shall be determined by comprehensively taking into account the characteristics and risk level of the pertinent financial investment instrument,

[5] In principle, tort liability liability is established at the time of an illegal act; however, if there is an interval of time between the illegal act and the damage occurred, damage is established at the time of occurrence of the damage. Damage refers to any property disadvantage caused by illegal harmful act, i.e., the difference between the property condition that existed without the illegal act and the property condition after the illegal act. In addition, the time of occurrence of damage refers to the time of actual occurrence of the damage. Whether the damage actually occurred should be determined objectively and reasonably

[6] Where a financial investment business entity causes damage to an ordinary investor in violation of the duty to explain or prohibit unfair solicitation at the time of recommending an investor, the amount of damage is an amount calculated by subtracting the total amount of money recovered or recoverable from the financial investment instrument from the total amount of money paid to acquire the financial investment instrument (hereinafter “unclaimed amount”). As can be seen, damages to an ordinary investor due to a financial investment business entity’s breach of the duty to explain occur in reality at the time when the unclaimed amount becomes final and conclusive, and the point at which the investor’s interest in claiming damages for the financial investment business entity begins. Accordingly, if the occurrence of unclaimed amount has already been objectively determined at the time of payment for acquiring the financial investment instrument, the point at which the financial investment business entity paid the money to acquire the financial investment instrument shall be the initial date of claiming damages for the financial investment business entity.

[1] Article 178 of the Financial Investment Services and Capital Markets Act / [2] Article 79 of the Financial Investment Services and Capital Markets Act / [3] Article 49 subparagraph 2 of the Financial Investment Services and Capital Markets Act / [4] Article 47 (1) and (3) of the Financial Investment Services and Capital Markets Act / [5] Articles 393, 750, and 763 of the Civil Act / [6] Articles 393, 750, and 763 of the Civil Act; Article 48 (1) and (2) of the Financial Investment Services and Capital Markets Act

[1] Supreme Court Decision 200Do444 Decided January 19, 2001 (Gong2001Sang, 578) Supreme Court Order 2014Ma188 Decided April 9, 2015 / [2] Supreme Court Decision 2002Da63572 Decided February 27, 2004 (Gong2004Sang, 524) Supreme Court Decision 2014Da21458, 214595 Decided March 26, 2015 / [3] Supreme Court Decision 2014Do14924 Decided December 5, 2017 (Gong2018Sang, 1214) / [3] Supreme Court Decision 2017Da527164 Decided November 11, 2010 / [207Da5327169 Decided March 26, 2017

Samsungbow Scholarship Foundation, et al. (Law Firm Sejong, Attorneys Lee Jae-hee et al., Counsel for the defendant-appellant)

KTB Asset Management Co., Ltd. and one other (Attorneys Son Ji-yol et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2014Na60264 decided October 23, 2015

All appeals are dismissed. The costs of appeal are assessed against each party.

1. As to the grounds of appeal Nos. 1 and 2 by the plaintiffs

A. Article 178(1)2 of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) prohibits “an act of seeking money or other economic benefits by using a document containing false description or representation of a material fact or omission of a description or representation of a material fact necessary to prevent others from being misled, or any other description or representation in connection with trading and other transactions of financial investment instruments.” This is to protect individual investors’ interests in trading and to enhance fairness and reliability in the capital market (see, e.g., Supreme Court Decision 2000Do444, Jan. 19, 2001). Whether an act in relation to trading of financial investment instruments constitutes an unlawful act prohibited under Article 178 of the Capital Markets Act should be determined by comprehensively taking into account the structure and method of trading of the relevant financial investment instrument, the characteristic of the investor’s right and obligation arising from the trading of the financial investment instruments, the time and timing of the unfair trading, the relationship between the investor and the offender’s act and the offender’s relation.

B. The lower court acknowledged the facts as indicated in its reasoning based on its adopted evidence, and determined that it is difficult to view the Defendants as unfair trading even though they knew the financial status of the Busan Savings Bank at the time of soliciting the Plaintiffs.

C. Examining the aforementioned legal principles and the record, the lower court did not err in its judgment by misapprehending the legal doctrine regarding the requirements for establishing unfair trading, or by failing to exhaust all necessary deliberations regarding liability for damages caused by unfair trading, contrary to what is alleged in the grounds of appeal.

2. As to the third ground for appeal by the plaintiffs

A. A collective investment business entity that created an investment trust has a duty to protect investors’ interests by managing the collective investment property with caution based on the information collected within the extent possible. Specifically, how to manage the collective investment property should be determined by comprehensively taking into account all the relevant statutes, the terms and conditions of the investment trust, and the economic situation and prospects at the time (see, e.g., Supreme Court Decisions 2002Da63572, Feb. 27, 2004; 2014Da214588, 214595, Mar. 26, 2015).

B. The lower court acknowledged the facts as indicated in its reasoning based on the evidence duly admitted, and determined that it is difficult to acknowledge that the Defendants violated the duty to protect investors in the course of managing collective investment property solely on the circumstance or evidence submitted by the Plaintiffs.

C. Examining the aforementioned legal principles and records, the lower court did not err in its judgment by misapprehending the legal doctrine regarding the violation of the duty to protect investors in the course of operating the investment trust, or by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules.

3. As to the Defendants’ ground of appeal No. 1

A. Article 49 Subparag. 2 of the Financial Investment Services and Capital Markets Act prohibits a financial investment business entity from providing a conclusive judgment on an uncertain matter or informing information that is likely to mislead, mislead, or mislead, any person to believe, that the truth is uncertain, among matters that may affect an investor’s reasonable judgment or the value of the pertinent financial investment instrument. Furthermore, whether an act constitutes an act of providing a conclusive judgment, etc. ought to be determined objectively and objectively by comprehensively taking into account the expressions used by a financial investment business entity based on an average investor with ordinary care, as well as all relevant circumstances related to investment (see, e.g., Supreme Court Decision 2014Do14924, Dec. 5, 2017).

B. The lower court acknowledged the facts as indicated in its reasoning based on its adopted evidence, and determined that, based on an average investor with ordinary care, the Defendants made an investment recommendation to the Plaintiffs, “an act of providing a conclusive judgment or informing the Plaintiffs of any content that could lead them to mistake as certain as certain,” and thereby, the lower court determined that the Plaintiffs made an investment decision in the state that there was interference with the formation of a correct awareness about the risk of investment.

C. Examining the aforementioned legal principles and records, the lower court did not err in its judgment by misapprehending the legal doctrine regarding unfair solicitation or by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, contrary to what is alleged in the grounds of

4. As to the Defendants’ ground of appeal No. 2

A. When a financial investment business entity solicits an ordinary investor to make an investment, it shall explain the details of the financial investment instrument, the risks associated with the investment, and other matters prescribed by Presidential Decree so that the ordinary investor can understand them, and shall not make a false or distorted explanation or omit any material fact that may significantly affect the investor’s reasonable judgment or the value of the relevant financial investment instrument (Article 47(1) and (3) of the Capital Markets Act). In such cases, whether a financial investment business entity is required to explain to an investor to a certain extent shall be determined by comprehensively taking into account the characteristics and risk level of the relevant financial investment instrument, investor’s experience and ability to make an investment (see, e.g., Supreme Court Decisions 2008Da52369, Nov. 11, 2010; 2013Da17674, Apr. 23, 2015).

B. Based on its adopted evidence, the lower court recognized the fact that the Defendants emphasized only the certainty of 12% annual revenues without adequately explaining information on investment returns, such as the possibility of loss in the instant investment, etc., and determined that the Defendants failed to provide information necessary for the risk factors of investment when recommending investment against the Plaintiffs, who are ordinary investors, or failed to provide adequate explanation.

C. Examining the aforementioned legal principles and records, the lower court did not err in its judgment by misapprehending the legal doctrine on the subject and degree of the duty to explain, or by failing to exhaust all necessary deliberations, as alleged in the grounds of appeal.

5. As to the Defendants’ ground of appeal No. 3

A. In principle, tort liability liability is established at the time of an illegal act; however, if there is an interval of time between the time of the illegal act and the time of damage, damage is established at the time of occurrence of the damage (see, e.g., Supreme Court Decision 2012Da29649, Jan. 24, 2013). Damage refers to any property disadvantage caused by an illegal harmful act, i.e., the difference between the property condition that existed without the illegal act and the property condition after the illegal act. Also, the time of occurrence of damage refers to the time of actual occurrence of the damage. Whether the damage actually occurred should be determined objectively and reasonably in light of social norms (see, e.g., Supreme Court Decision 2010Da76368, Jul. 28,

Where a financial investment business entity causes damage to an ordinary investor in violation of its duty to explain or prohibit unfair solicitation when recommending an investor, the amount of damage is an amount calculated by subtracting the total amount of money already recovered or recoverable from the financial investment instrument from the total amount of money paid to acquire the financial investment instrument (hereinafter referred to as “unclaimed amount”). As can be seen, the damages incurred by an ordinary investor due to a financial investment business entity’s breach of its duty to explain occur in reality at the time when the unclaimed amount becomes final and conclusive. The damages incurred by an investor due to the financial investment business entity’s breach of its duty to explain occur in reality at the time when the outstanding amount becomes final and conclusive, and the time at which the investor’s interest in claiming damages for the financial investment business entity begins (see, e.g., Supreme Court Decisions 2015Da1917, 19124, Sept. 30, 2016; 2016Da21272, Jun. 15, 2018).

B. The lower court acknowledged the facts as indicated in its reasoning based on the adopted evidence, and determined as follows.

The damages suffered by the Plaintiffs due to the Defendants’ breach of their duty to explain are the amount calculated by subtracting the total amount of money recovered or recoverable from the instant beneficiary certificates from the investment funds paid to acquire the instant beneficiary certificates. However, since the converted preferential stock value, which is the underlying asset of the Fund, is zero won, the amount recoverable from the instant beneficiary certificates is also zero won. This does not change on the ground that the Plaintiffs held a damage claim against Busan Savings Bank, a company issuing convertible preferential stock, with the company issuing convertible stock, with the claim for damages arising from window dressing accounting, etc. It does not change. Ultimately, the Plaintiffs’ damages amount is equivalent to the investment principal, and such damages were determined objectively at the time when the Plaintiffs paid the investment principal in light of the financial status of the Busan Savings Bank. Accordingly, the date of

C. Examining the aforementioned legal principles and records, the lower court did not err in its judgment by misapprehending the legal doctrine on the amount of damages and damages for delay, contrary to what is alleged in the grounds of appeal, thereby failing to exhaust all necessary deliberations or exceeding the bounds of the principle of free evaluation of evidence

6. The plaintiffs' ground of appeal No. 4 and the defendants' ground of appeal No. 4

Examining the reasoning of the lower judgment in light of the record, the lower court did not err by misapprehending the legal doctrine on the grounds for limitation of liability and limitation of liability, or by failing to exhaust all necessary deliberations, as otherwise alleged in the grounds of appeal.

7. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against each party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim So-young (Presiding Justice)