Plaintiff 5, et al., Counsel for the plaintiff 5

Modern Securities Co., Ltd. (Attorney Yellow-gu et al., Counsel for the plaintiff-appellant)

April 2, 2015

Seoul Central District Court Decision 201Gahap122683 Decided September 6, 2013

Note 1) Compensation for damages

1. Of the judgment of the court of first instance, the part against the deceased Plaintiff 5 shall be modified as follows:

A. The defendant shall pay to the plaintiffs 5,859,563 won and each of the above amounts, 5% per annum from January 26, 2011 to April 23, 2015, and 20% per annum from the next day to the day of full payment.

B. The plaintiffs' primary claims and the remaining conjunctive claims are all dismissed.

2. 30% of the total costs of litigation shall be borne by the Plaintiffs, and the remainder by the Defendant, respectively.

3. Paragraph 1(a) of this Article may be provisionally executed.

1. Purport of claim

The defendant shall pay to the plaintiffs 2) 9,121,089 won and each of the above amounts with 5% per annum from January 26, 2011 to July 9, 2013 until the delivery date of a copy of the application for modification of the claim and the cause of the claim, and 20% per annum from the next day to the day of full payment.

2. Purport of appeal

[2] Of the judgment of the court of first instance, the part against the deceased plaintiff 5 is modified as follows. It is so decided as to the above purport of the claim

[Defendant] The part against the Defendant among the part against the deceased Plaintiff 5 of the judgment of the first instance court is revoked, and all of the plaintiffs' claims corresponding to the revoked part are dismissed.

1. Basic facts

The court's explanation on this part is consistent with the reasoning of the judgment of the court of first instance except for the modification as follows, and therefore, this part is cited in accordance with the main sentence of Article 420 of the Civil Procedure Act.

○ In the reasoning of the judgment of the first instance court, “Plaintiffs” in paragraph (1) of the Reasons for the Judgment shall be amended to “the deceased Plaintiff 5 and the co-Plaintiffs of the party in the judgment rendered separately

○ Amendment of Section 17 of the first instance judgment as follows.

The corporate bond of this case equivalent to the amount stated in the "in the list of the cited amount" in the attached Form 1 shall be amended to "the corporate bond of this case equivalent to the amount stated in the "value of the investment" on the date stated in the "the date of purchase of goods" in the attached Table 1."

○ On the 6th sentence of the first instance court, the following is added.

F. Plaintiff 5, who was the Plaintiff in the first instance trial, died on August 19, 2013, which was before the judgment was rendered after the date of the closing of argument in the first instance trial, and its inheritors are the Plaintiffs, who were the deceased Plaintiff 5’s children, respectively, and their inheritance shares are 1/2.

2. Judgment as to the main claim

A. Quotation of the first instance judgment

The court's explanation on this part is identical to the reasoning of the judgment of the court of first instance in accordance with Paragraph 2 of the reasoning of the judgment, and thus, referring to Paragraph 4 of Article 420 of the Civil Procedure Act.

B. Sub-committee

Therefore, the primary claim of the plaintiffs is without merit.

3. Judgment on the conjunctive claim

A. Summary of the plaintiffs' assertion

1) The Defendant recommended the net Plaintiff 5 to make an investment in the corporate bonds of this case. (1) The Defendant did not properly explain the financial status and liquidity of the Korea Shipping, but rather provided a conclusive judgment that the principal and interest would not be repaid through the investment prospectus, etc., or provided a false explanation that there was a misunderstanding that the principal and interest would not be repaid through the investment prospectus, etc. (2) At the time, the Korea Shipping was in progress with the foreign shipping company for the reduction of high-priced charterage, and (3) at the time, the Korea Shipping was in progress with the foreign shipping company for the reduction of the high-priced charterage, and (4) did not explain the above important matters that would have an influence on the reasonable investment decision of investors, even if the business entity was seriously in the ear structure without renegotiation, and (3) as to whether the principal and interest would be repaid with uncertain principal and interest, the Defendant provided a conclusive judgment or explained that there was a misunderstanding

This constitutes a case of failure to fulfill the duty to explain in violation of Article 47 of the Capital Markets Act. The defendant is liable to compensate the plaintiffs for damages in accordance with Article 48 of the Capital Markets Act.

2) In soliciting the company bonds of this case to the deceased plaintiff 5, the employees of the defendant or the defendant did not properly implement the investor information verification procedure that grasps information about the customer's investment purpose, property status, and investment experience through prior interviews and inquiries, and actively recommended the purchase of the company bonds of this case involving excessive risk in light of the investor's investment situation. This constitutes a violation of the suitability principle under Article 46 of the Capital Markets Act and the prohibition of unfair solicitation under Article 49. Accordingly, the defendant is liable to compensate the plaintiffs for damages in accordance with Article 750 of the Civil Act or Article 756 of the employee's act.

B. Occurrence of liability for damages

1) Determination as to whether a duty to explain has been violated

A) Facts of recognition

The existing investment experience, age, and occupation at the time of the purchase of the corporate bonds of this case by the deceased Plaintiff 5, the purpose and details of the investment in the corporate bonds of this case, and the explanation of persons in charge of sales of the corporate bonds of this case by the defendant, etc. are as shown in attached Table 1.

[Reasons for Recognition] Facts without dispute, Gap evidence 21, 180 to 200, Eul evidence 14 (including branch numbers; hereinafter the same shall apply) and the purport of the whole pleadings

B) Relevant legal principles

(1) The meaning and grounds of the duty to explain

When recommending an ordinary investor to make an investment, a financial investment business entity must explain the contents of the financial investment instrument, the risks associated with the investment, etc. so that the ordinary investor can understand (Article 47(1) of the Capital Markets Act).

The significance of the duty to explain is that, in trading financial investment instruments, the investment decision should be made under the "self-responsibility principle" that the investor who is the beneficiary of the profit must be under his/her own responsibility, but since the financial instruments market has expertise and the convenience of information related to the expertise and expertise, it is required to provide sufficient amount and questioning information so that the investor can make a reasonable investment decision at the time of making the investment decision, and such information should be understood specifically by the investor. Accordingly, it is possible for the investor to understand the contents and risk of the financial investment instrument and make an appropriate investment decision based on the explanation of the financial investment business entity. Such duty to explain is a prerequisite for the principle of self-responsibility.

(2) Explanations

When a financial investment business entity makes an investment recommendation to an ordinary investor, it shall explain to the ordinary investor the content and nature of the financial investment instrument, the risks associated with the investment, and other matters prescribed by Presidential Decree 6) the structure and nature of the investment nature, the fees, the conditions for early redemption, and the cancellation and termination of the contract (Article 47(1) of the Financial Investment Services and Capital Markets Act and Article 53(1) of the Enforcement Decree of the same Act). In addition, the financial investment business entity shall not make a false or distorted explanation or omit an important matter that may seriously affect the investor’s reasonable judgment on investment or the value of the relevant financial investment instrument (referring to the act of offering a conclusive judgment on, or informing, that it is likely to mislead or mislead any other matter) (Article 47(3) of the same Act).

In particular, the important matters to be explained by financial investment business entities in recommending investment in corporate bonds to ordinary investors include the characteristics and major contents of the corporate bonds, including the risks associated with the investment, profits and losses that investors can gain through the transaction, risk factors of loss, etc., and this includes the management conditions of the issuing entity of corporate bonds and the risk of loss due to changes in the financial situation.

Meanwhile, financial institutions must explain to the extent that customers can fully understand important transaction information as seen earlier by comprehensively taking into account the characteristics and risk level of the financial products, transaction purpose, investment experience and ability of the customers so that customers can accurately evaluate the structure and risk of the relevant financial investment instrument (see, e.g., Supreme Court en banc Decision 201Da53683, 53690, Sept. 26, 2013; Supreme Court Decision 2008Da52369, Nov. 11, 2010).

(3) Burden of proof

The substance of liability for damages caused by violation of the duty to explain, violation of the suitability principle, and unfair solicitation act, etc. under the Financial Investment Services and Capital Markets Act constitutes liability for damages caused by tort, and as long as there is no express provision on the conversion of the burden of proof with respect to the occurrence of liability, the person who asserts the establishment of tort as in

Article 48(2)7 of the Financial Investment Services and Capital Markets Act is merely a provision that mitigates the Plaintiff’s burden of proof as to the amount of damages due to the presumption of causation and damages between breach of duty of explanation and damage when a financial investment business entity committed a tort in a substantial violation of duty of explanation. Thus, the burden of proof as to the violation of duty of explanation can not be deemed to be converted to a financial investment

Therefore, the burden of proving the violation of the duty of explanation, the violation of the suitability principle, and the fact of unfair solicitation under the Capital Markets Act is the investor.

C) Determination

In light of the following circumstances that can be seen by comprehensively taking account of all the evidence and the purport of the entire pleadings as seen earlier, the Defendant, upon soliciting the deceased Plaintiff 5 to purchase the corporate bonds of this case, violated the duty to explain to ordinary investors pursuant to Article 47 of the Capital Markets Act. Thus, the Defendant is liable to compensate the deceased Plaintiff 5 for damages incurred by the deceased Plaintiff 5.

① The deceased Plaintiff 5 is an ordinary investor under Article 9(6) of the Financial Investment Services and Capital Markets Act. The Defendant employees recommended the deceased Plaintiff 5 to purchase the corporate bonds of this case, and appear to have simply explained the credit rating and interest rate of the Korean Shipping. As to the important matters to be referred to in the registration statement of this case or the investment prospectus of this case, it seems that Defendant 5 did not have been well aware of the investment recommendation, and that the deceased Plaintiff 5 did not explain them to the deceased Plaintiff 5).

② Defendant employees received a confirmation from the deceased Plaintiff 5 to refuse to receive the instant corporate bond investment prospectus, and did not deliver an investment prospectus to the deceased Plaintiff 5 according to the intention of refusal (No. 17 No. 4).

2) Determination on the violation of the suitability principle and the assertion of unfair solicitation

A) Article 46 of the Financial Investment Services and Capital Markets Act provides that a financial investment business entity shall verify whether an investor is an ordinary investor or a professional investor; and shall grasp information about the investment purpose, status of property, experience in investment, etc. of an ordinary investor through interviews, inquiries, etc. before recommending an investment; and shall not make an investment recommendation deemed inappropriate for an ordinary investor in light of the investment purpose, status of property, experience in investment, etc. of the ordinary investor. In addition, Article 49 of the same Act provides that a financial investment business entity shall not engage in an act of making an investment recommendation, such as providing a conclusive judgment or informing an uncertain matter that is likely to mislead an ordinary investor into being certain.

B) In the instant case, it is difficult to readily conclude that the Defendant recommended the Plaintiff 5 to invest in the instant corporate bonds, in light of the fact that the evidence submitted by the Plaintiffs alone alone is insufficient to recognize that the Defendant’s solicitation to invest in the instant corporate bonds is against the principle of Article 46 of the Capital Markets Act or an unfair solicitation under Article 49 of the same Act, and there is no other evidence to prove otherwise, in view of the following: (a) it is difficult to readily conclude that the Defendant recommended the Plaintiff 5 to invest in the instant corporate bonds; (b) it is reasonable to conclude that the Defendant’s recommendation to invest in the instant corporate bonds is against the principle of Article 46 of the Capital Markets Act; and (c) it is insufficient to acknowledge that the Defendant’s recommendation to invest in the instant corporate bonds is an unfair solicitation under Article 49 of the same Act.

Therefore, this part of the plaintiffs' assertion is without merit.

C. Scope of damages

(1) Method of calculation

Article 48 of the Financial Investment Services and Capital Markets Act provides that if an ordinary investor violates his/her duty to explain, the total amount of money, etc. paid or payable by the ordinary investor due to the acquisition of financial investment instruments shall be presumed to be the amount calculated by subtracting the total amount of money, etc. recovered or recoverable by the disposal or any other means

Here, “money, etc. collected or recoverable by an ordinary investor by other means” includes the amount equivalent to the value of new shares converted into investment and the amount to be recovered that is expected to be paid in cash according to the rehabilitation plan if an ordinary investor is to substitute for repayment of the existing bonds by conversion of investment through the method of issuance of new shares.

2) The amount invested by the deceased plaintiff 5

The amount invested in the corporate bonds of this case shall be as stated in the “investment amount” column of the attached Table 1 of the details of investment.

3) The amount collected by the deceased plaintiff 5

(a)the amount recovered from conversion of investment;

(1) Relevant legal principles

In the event that a conversion of shares into equity is to substitute for repayment of existing bonds through a conversion of shares and there is no agreement or agreement on the value of existing bonds to be extinguished by a conversion of shares into equity, it is reasonable to view that the value of new shares is assessed as of the effective date of issuance of new shares and the amount of existing bonds equivalent to the appraised value has been repaid, barring special circumstances (see Supreme Court Decision 208Da18376, Jul. 24, 2008, etc.

Meanwhile, in calculating the amount of damages caused by a violation of the duty to explain, Article 48(1) of the Financial Investment Services and Capital Markets Act, the amount calculated by subtracting the total amount of money, etc. collected or recoverable by an ordinary investor by disposal of the financial investment instrument or by any other means (hereinafter “paid amount”) from the total amount of money, etc. paid or to be paid by the ordinary investor due to the acquisition of the financial investment instrument (hereinafter “amount of money, etc.”) shall be deemed as the amount of damages. In order to include the amount of the stocks converted into investment in exchange for the investors as the amount of money recovered, the amount equivalent to the value of the stocks shall be deemed to have been paid in kind as of the time the investors

As to the instant case, according to the aforementioned evidence, the issue price of the Korea Shipping shares was suspended in the stock market on the effective date of the issuance of new shares into equity swap, and Plaintiff 5 was able to receive new shares on the day following the expiration of the aforementioned period, not “the day following the expiration of the period of protection of new shares,” in light of the following: (a) the date of the issuance of new shares into equity swap was at least 100 shares; and (b) the time of the issuance of new shares to be converted into equity swap was at least 100 shares; and (c) the former Plaintiff 5 applied the period of protection for six months; and (d) there

(2) Amounts to be recovered from conversion of investment due to the decision of approval of the rehabilitation plan dated October 14, 201

Comprehensively taking account of the evidence and the purport of the entire arguments as seen earlier, 40% of the investment amount to the creditors holding the company bonds of this case under the approval decision of the rehabilitation plan as of October 14, 201 in the rehabilitation procedure for the Korea Shipping, as of October 14, 201, shall be paid in cash for 10 years, and the remaining 60% of the investment amount shall be determined to be converted into 10,000 won per share in accordance with the rehabilitation plan. The fact that the issuance of common shares for the conversion into equity (this is deemed as the effective date of issuance of new shares) was made on October 22, 201 in accordance with the above rehabilitation plan (this is deemed as the effective date of issuance of new shares), the issued shares were listed on November 24, 201, and the transaction of the Korea Shipping shares was resumed, and it is recognized that those who acquired 100 or more shares of the creditors holding the company shares, as such, have been protected for six months, and that the Plaintiff’s shares and the Korea Securities Depository column “15 shares” were included in the new shares.

According to the above facts, Plaintiff 5, who acquired 100 shares or more, can be deemed to have recovered the amount equivalent to the market price of the shares converted into investment on May 24, 2012, which became possible to dispose of the shares by replacing the securities account as a whole after the period of protection expires. Therefore, the Plaintiff’s amount of damages ought to be deducted as the recovered amount the amount stated in the “amount of the “amount of the first conversion into investment” of the attached Table 2 of the “amount of the shares converted into investment” of the “amount to be recovered” of the “amount of the shares converted into investment” of the attached Table 2 of the same Act, calculated in the amount equivalent to the market price of the shares converted into investment on May 24, 2012.

(3) The amount of money recovered from conversion of investment due to the modification of the plan of March 28, 2013.

According to the aforementioned facts and the overall purport of evidence, evidence, evidence, evidence, evidence, evidence, and evidence, evidence, evidence, and evidence, evidence, of Gap 208, were established in the rehabilitation procedure for the Korea Shipping to determine that the creditors holding the bonds of this case would convert 90% of the principal and interest prior to the commencement into cash and pay 10% to the creditors holding the bonds of this case in accordance with the revised rehabilitation plan as of March 28, 2013. According to the revised rehabilitation plan, the issuance of common shares for the conversion into equity on March 29, 2013 was made. The issued shares were listed on May 9, 2013, and the transaction of the Korea Shipping was resumed. As such, among creditors holding the converted shares, those who acquired more than 10 shares, such as the deceased plaintiff 5, etc. were protected to the Korea Securities Depository for six months, and it was acknowledged that the above shares were transferred to the Korea Securities Depository on November 11, 2013 as of the date of the entry into a new shares.

According to the above facts, Plaintiff 5, who acquired 100 shares or more, can be deemed to have recovered the amount equivalent to the market price of the shares converted into investment on November 11, 2013, which became possible to dispose of the shares by replacing the securities account as a whole after the period of protection expires. Therefore, the Plaintiff’s amount of damages should be deducted from the amount of money to be recovered as the amount of money to be collected under the “amount recovered” of the “amount recovered” of the “amount recovered” of the “amount recovered” of the attached Table 2-to-equity swap as indicated in the “amount recovered” of the “amount recovered” of the “amount recovered” of the “amount recovered” of the attached Table 2-to-equity swap as of November 11, 2013.

(B) the amount recoverable from cash payments;

According to the revision of the rehabilitation plan dated March 28, 2013, the plaintiffs recognized that 10% of the principal and interest accrued prior to the commencement of the rehabilitation plan had been repaid in installments over nine years. Accordingly, if the amount that can be recovered by the plaintiffs due to the cash repayment is calculated at the current value, it shall be as stated in the "current value" column of the "claim to be repaid after the alteration of rights" in the attached Table 3.

4) Calculation of damages

A) Accordingly, if the amount of the Plaintiffs’ damages is calculated by deducting the amount equivalent to the value of the converted shares, which is the recovery amount, from the amount invested, and the amount of cash installment payment, the amount in the “investment amount” column of the “amount of divided payment” and the “amount of converted shares” column of the “amount of loss” shall be the amount indicated in the “amount of

B) Limitation of liability

Article 48 of the Financial Investment Services and Capital Markets Act provides for the presumption of the amount of damages to be compensated as seen earlier, but there is no difference in that the basic ideology of the damage compensation law, which is fair burden of damages, applies in cases of claims for damages governed by this provision, so it is still possible to set off negligence or limit liability based on the equitable principle on the ground that the victim was negligent in causing and expanding damages.

The Defendant’s liability against the Plaintiffs is limited to 30% of the amount of damages, in light of the deceased Plaintiff 5’s investment experience, etc., which were acknowledged in the 3-B-1 of the above 3-B-1 of the attached Table 1 of the investment content.

C) Therefore, the defendant is obligated to pay to the plaintiffs 5,859,563 won each (the "amount recognized" in attached Form 4) multiplied by inheritance ratio 1,719,127 won, 11,719,127 won each, and delay damages calculated at the rate of 5% per annum as prescribed by the Civil Act, from January 26, 2011, which the plaintiffs seek that the dispute over the existence and scope of the defendant's performance obligation is reasonable until April 23, 2015, which is the date this decision is rendered, and from the next day to the day of full payment, 20% per annum as prescribed by the Act on Special Cases concerning the Promotion, etc. of Legal Proceedings.

4. Conclusion

Therefore, the plaintiffs' primary claim against the defendant is dismissed as it is without merit, and the conjunctive claim is justified within the scope of the above recognition, and the remainder of the conjunctive claim shall be dismissed as it is without merit. However, the judgment of the court of first instance is inappropriate as it is partially different from this conclusion. Therefore, it is so changed as per Disposition by the court of first instance

[Attachment]

Judges Jeong Jong-chul (Presiding Judge)

Note 1) This judgment is a judgment on the remainder after a partial judgment.

Note 2) The above amount is the amount of KRW 18,242,179 claimed by the deceased Plaintiff 5, who was the first instance court, and the amount less than the original amount after calculated on the basis of each 1/2, which is the inheritance ratio of the plaintiffs who succeeded to the lawsuit.

3) Plaintiff 5’s attorney at the first instance trial is granted special authorization regarding filing an appeal.

4) On February 12, 2015, a partial judgment that was rendered separately on February 12, 2015 added “the judgment on the additional argument by the plaintiffs other than the deceased plaintiff 5” to the “the judgment on the additional argument by the court below.” However, in this case, although the plaintiffs were the plaintiffs, they did not appoint the attorney at the court below, and only the petition of appeal submitted by the plaintiff attorney at the court of first instance was presented by the plaintiff at the court below due to the absence at the court court date. Accordingly, in this judgment, the plaintiffs cannot be deemed to have raised any additional argument at the court below,

Note 5) As cited in the first instance judgment as cited in the foregoing Paragraph 1, the Financial Investment Services and Capital Markets Act shall be reduced to “Capital Markets Act”.

Note6) The term “risk” means that the total amount of money, etc. paid or payable to acquire that right (excluding any amount prescribed by Presidential Decree, such as sales commissions) exceeds the total amount of money, etc. collected or recoverable from that right (including any amount prescribed by Presidential Decree, such as termination fees) (main sentence of Article 3(1) of the Capital Markets Act).

(2) An amount calculated by subtracting the total amount of money, etc. collected or recoverable by an ordinary investor (including any amount prescribed by Presidential Decree) from the total amount of money, etc. paid or payable by the ordinary investor, through the disposal of the financial investment instruments or any other means, shall be presumed the amount of damages under paragraph (1).

8) Article 47(1) of the Financial Investment Services and Capital Markets Act provides that “Financial investment business entities shall obtain verification by at least one of the methods prescribed by Presidential Decree, such as signature, signature, and seal, recording, and other methods that ordinary investors have understood the content explained under paragraph (1).” However, there is no evidence to deem that the Defendant obtained such verification by such means.

9) There is no dispute between the parties regarding the closing price on the day of the stock market at the market price on the above base date.

10) There is no dispute between the parties regarding the closing price on the day of the stock market at the market price on the above base date.

11) In the first instance trial, there was no sufficient deliberation on the Plaintiffs’ investment experience, etc. necessary for calculating the recovery amount of damages and the ratio of limitation on liability of the Plaintiffs necessary to determine the amount of damages. Therefore, regarding the scope of performance obligation, the Defendant appears to be reasonable to dispute over the Plaintiffs whose amount of appropriation in the first instance trial (11,719,126 won = 5,859,563 won x 2) increase in the amount of compensation in the first instance trial (10,945,307 won) by the date of this judgment.