[1] The standard time to determine whether a contract constitutes an unfair juristic act (=the time of the act of law) and whether a contract constitutes an unfair juristic act as a matter of course, on the ground that, if the contract is not unfair as of the time of conclusion, a significant loss occurs to one of the parties to the contract as a result of rapid changes in external environment and corresponding

[2] Where the issue was whether a KIKO currency option contract that Company A entered into with Company B, etc. constitutes an unfair act, the case affirming the judgment below holding that the currency option contract does not constitute an unfair act

[3] Whether a hedge transaction may be determined to be structurally inappropriate solely on the ground that it does not avoid risk in the entire section (negative)

[4] In a case where a party to a contract prepared a certain form of contract in advance but gone through an individual negotiation as to a specific clause in the contract, whether the provision is subject to the Act on the Regulation of Terms and Conditions (negative), and the requirements for recognizing the existence of an individual negotiation

[5] In a case where the issue was whether a KIKO currency option contract which Company A entered into with Company B, etc. is subject to the Act on the Regulation of Terms and Conditions, the case holding that the structure of the currency option contract itself does not fall under the terms and conditions

[6] In a case where a bank sells to a customer an over-the-counter derivatives of the so-called cost market structure, whether it is obligated to notify the customer of the theoretical value of options, fees, and the price generated therefrom included in the product structure (negative in principle)

[7] Details and degree of a customer protection obligation to be borne by a bank when entering into a currency option contract with a company with a foreign exchange hedge purpose

[8] Details, scope, and degree of duty of explanation borne by a financial institution in trading over-the-counter derivatives with professional knowledge and analysis ability with general customers

[1] Whether a certain juristic act constitutes an unfair juristic act shall be determined at the time of the juristic act. Therefore, if the result of a comprehensive consideration of the rights and duties relationship according to the overall contract terms as of the time of conclusion of the contract is not unfair, it shall be deemed that the contract constitutes an unfair contract as a matter of course, on the ground that the occurrence of a large loss to one of the parties to the contract and the corresponding interest may accrue to the other party,

[2] In a case where the issue was whether the KIKO currency option contract that Company A entered into with Company B, etc. constitutes an unfair act, the case affirming the judgment below that the above currency option contract does not constitute an unfair act on the grounds that it is difficult to accept on the grounds that the above contract does not constitute an unfair act on the grounds that it is difficult to accept on the grounds that the structure of the KIKO currency option contract is likely to increase the exchange rate, and the loss of the bank is limited and the profit is likely to increase rapidly, while the profit is unfair because it is likely that the market exchange rate increase would not increase in light of the market exchange rate trend at the time of entering into the contract, the majority of domestic and foreign research institutes and financial institutions, etc., and the exchange rate outlook of the foreign exchange rate at the time of entering into the contract.

[3] A hedge transaction is an agreement aimed at reducing the risk of price fluctuation arising from the transaction in kind, which currently holds or is expected to hold, in whole or in part, and includes transactions in which profit or loss arising from the hedge transaction is not limited to the transaction that is opposite to the profit or loss arising from the price fluctuation in kind and the entire section, and is in the opposite direction only to the specific section. Therefore, if the party seeking the hedge transaction has a special prospect or purpose in relation to the price fluctuation in kind in kind, it is possible to choose a hedge transaction that is at risk only within a specific section, taking into account other transaction terms and conditions. Thus, it cannot be readily concluded that the hedge transaction is inappropriate merely because it does not avoid risk in the entire section.

[4] In a case where one of the parties to a contract prepared a contract in advance in a certain form and presented it to the other party, if the other party had an opportunity to adjust his/her interests by undergoing individual negotiations with regard to a specific provision, such provision shall be deemed an individual agreement not subject to the Act on the Regulation of Terms and Conditions. In order to establish that there was an individual negotiation, the result of the negotiation does not necessarily appear in the form of changing the contents of a specific provision, but it is recognized that the other party to the contract could have changed the contents after sufficiently reviewing and considering the relevant provision on an equal footing with the party who prepared the specific provision.

[5] In a case where the issue was whether a KIKO currency option contract which Company A entered into with Company B, etc. is subject to the Act on the Regulation of Terms and Conditions, the case holding that the structure of the said currency option contract itself does not constitute a standardized contract, on the ground that the structure of the said currency option contract was prepared in advance by appropriately changing the structure and conditions of the contract depending on the needs of customers, as in other OTC derivatives, and the structure alone does not create any rights and obligations between the parties, and is completed only when specific contract terms such as contract amount, exchange rate, etc. are combined with the contract terms and conditions

[6] Generally, a seller of goods or services does not have a duty to inform or disclose to a buyer the elements, such as cost or sales profit, regarding the sales price of the goods or services he/she sells, and this does not apply to OTC derivatives transaction in which a bank does not collect any cost or fee separately from a customer. Furthermore, the fact that a bank is seeking a certain profit as the counter-party to an OTC derivatives transaction can be anticipated by anyone due to the nature of a market economy. Thus, barring special circumstances, such as where the obligation to notify the price components pursuant to a contract or statute, etc., a bank cannot be deemed to have a duty to notify the customer of the theoretical value, fees, and the mas market value arising therefrom included in the structure of the OTC derivatives, and thus, it cannot be deemed that the failure to notify the same does not lead to deception to a customer or inducing a mistake that the bank does not bear any cost or fee in the pertinent OTC derivatives transaction.

[7] In concluding a currency option contract with an enterprise with a foreign exchange hedge purpose, a bank shall not invite a company to enter into a currency option contract which is inappropriate for the company in question, after ascertaining its business conditions such as the expected foreign currency inflow of the company, assets and sales size, asset status including foreign exchange hedge, transaction purpose, transaction experience, degree of knowledge or understanding of the contract in question, and other exchange hedge contracts. If a bank actively solicits a currency option contract which is unreasonable for the company in question to enter into such a contract in light of the company’s business conditions in violation of such obligations, it constitutes a tort as it is unlawful in violation of the principle of suitability. In particular, if an OTC derivatives contract is predicted to develop a high level of financial engineering knowledge and situation different from that of the company, it is more likely to excessively extend losses to the company. On the other hand, it is reasonable to deem that it is more likely to attract a company to enter into a currency option contract than any other financial institution specialized in investment in various aspects such as the requirements for authorization, scope of business, supervisory structure, etc., and thus, it is more likely to protect customers.

[8] When a financial institution trades over-the-counter derivatives with specialized knowledge and analysis capacity between general customers, it is obligated under the good faith to clearly explain major transaction information, such as the risks inherent in the transaction so that customers can accurately evaluate the structure and risk of the transaction. In this case, major transaction information to be explained to customers include the structure and main contents of the OTC derivatives contract, the details of profits and losses which customers may gain through the transaction, especially the risks of losses, etc. In addition, it does not necessarily mean that a financial institution has to explain any difference in profits and losses compared with those of other financial instruments. Moreover, even if a financial institution and its customers make an OTC derivatives transaction with a third-the-counter derivatives structure, it is difficult to view that the amount of fees is an important factor in assessing the risks of the transaction. Thus, it is reasonable to view that a financial institution is not obligated to explain the risks of termination of the transaction in question to the extent that it can sufficiently explain the transaction in advance of the transaction with a financial institution without any specific understanding of the risks of termination of the transaction.

[1] Article 104 of the Civil Code / [2] Article 104 of the Civil Code / [3] Article 104 of the Civil Code / [4] Articles 2 subparagraph 1 and 4 of the Regulation of Standardized Contracts Act / [5] Articles 2 subparagraph 1 and 4 of the Regulation of Standardized Contracts Act / [6] Articles 109 and 110 of the Civil Code / [7] Articles 2 and 750 of the Civil Code / [8] Articles 2 and 750 of the Civil Code

[1] Supreme Court Decision 200Da30905 Decided December 8, 2000 / [4] Supreme Court Decision 2008Da16950 Decided July 10, 2008 (Gong2008Ha, 1154), Supreme Court Decision 2009Da105383 Decided September 9, 2010 (Gong2010Ha, 1884) / [8] Supreme Court Decision 2001Da11802 Decided July 11, 2003 (Gong2003Ha, 169) (Gong203Ha, 2010Ha, 2257)

Fisheries Heavy Industries Co., Ltd. (Law Firm KEL, Attorneys Kim Yong-hoon et al., Counsel for the plaintiff-appellant)

Korea Bank (Law Firm Square, Attorneys Go Won-seok et al., Counsel for the defendant-appellant)

Korea C&T Bank (Attorneys Kim Jong-soo et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2010Na34519, 34526 decided May 31, 201

All appeals are dismissed. The costs of appeal are assessed against the Plaintiff.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the invalidity of each currency option contract of this case

A. As to the ground of appeal on unfair conduct under the Civil Act

(1) Whether a certain juristic act constitutes an unfair juristic act shall be determined at the time of the juristic act (see Supreme Court Decision 2000Da30905, Dec. 8, 2000). Therefore, if the result of comprehensive consideration of the rights and duties relationship according to the overall terms and conditions of the contract as of the time of conclusion of the contract is not unfair, it shall not be deemed that the contract constitutes an unfair contract as a matter of course, on the ground that the occurrence of a large loss to one of the parties to the contract is likely to occur as a result of rapid changes in the external environment,

The lower court determined that, as the instant currency option contract, a currency option contract in which parties to the contract exchange options on a zero scale is structuralized on an equal basis with the expected interest of the company and the bank taking into account the positive distribution of exchange rate fluctuations, and, in light of the market’s exchange rate trend at the time of the instant contract, the probability of exchange rate fluctuations in all sections was not the same as the probability of exchange rate fluctuations in all sections at the time of the instant contract, but the possibility of avoiding the exchange rate between melt-out and Green (Knock-out) exchange rate was very low, and thus, the probability distribution of exchange rate was favorable to the company to enter into the Knock-out currency option contract, and the company was also expected to increase the exchange rate compared to the currency option contract, and thus, the company did not unfairly expect the exchange rate to sell or sell the exchange options through the exchange rate option contract for a prolonged period of time, and thus, the company did not have any conditions to put or sell the exchange options at an exchange rate between the companies.

The allegation in the grounds of appeal on this part is that the structure of a KIKO currency option contract is higher than the exchange rate fluctuations, and the loss of a bank is limited and its profit is increased rapidly. The market exchange rate becomes worse as the time goes through, and the degree of change increases, and thus, it is unfair for a bank to gain enormous profits. However, such assertion is difficult to accept since it is not different from the assertion that a KIKO currency option contract is unfair legal act in light of the market exchange rate trend at the time of entering into each of the instant currency option contract, the majority of domestic and foreign research institutes, financial institutions, etc., and the exchange rate prospects at the time of entering into each of the instant currency option contract, but it is anticipated that the increase in market exchange rate after the rapid increase, and thus, it is difficult to accept this part of the judgment of the court below, contrary to the allegation in the grounds of appeal.

(2) 원심은, 옵션의 시장 가격을 산정하는 데 있어서 어느 하나의 방식이 반드시 옳고 다른 방식은 옳지 아니하다고 단정할 수 없고, 궁극적으로 은행이 어떤 방식으로 옵션의 가치를 산정할 것인지는 이를 산정하여 고객에게 판매하는 은행이 스스로 결정할 문제일 뿐이므로, 알려진 일정한 금융공학방식에 따라 개별 은행이 옵션의 가격을 산정하여 행사환율, 녹아웃 환율 및 녹인 환율을 결정한 다음 고객에게 이를 제안하고, 고객은 개별 은행이 제안하는 여러 통화옵션상품 중에서 자신에게 알맞은 상품을 선택하는 것은 자유시장경쟁체제인 헌법상의 경제질서에도 부합하는 것이라고 전제한 다음, 적법하게 채택한 증거들에 의하여 옵션의 이론가를 산정하는 방법으로는 분석적 방법[대표적으로 블랙-숄즈 방식(Black-Scholes Model), 이를 변형한 가먼-콜하겐 방식(Garman-Kolhagen Model)]과 수치적 방법[대표적으로 이항모형, 유한차분법, 몬테카를로 시뮬레이션(Monte Carlo Simulation)] 등이 있는 사실, 피고들이 사용한 블랙-숄즈 방식으로 계산한 이 사건 각 통화옵션계약의 콜옵션 및 풋옵션 이론가와 제1심 감정인이 몬테카를로 시뮬레이션 방법으로 계산한 콜옵션 및 풋옵션 이론가에는 별다른 차이가 없는 사실 등을 인정한 후에, 위와 같은 사정들을 고려하면 피고들이 옵션의 이론가 산정에 사용한 블랙-숄즈 방식 또는 이를 변형한 가먼-콜하겐 방식이 옵션의 가격을 산정하는 데 부적합하다는 원고의 주장을 받아들일 수 없다고 판단하였다.

In light of the records, the above judgment of the court below is just, and there is no violation of law as otherwise alleged in the ground of appeal.

(3) A forward exchange contract made between merchants is a contract which promises to deliver a certain amount and a certain kind of foreign exchange at a certain exchange rate within a certain date or time in the future, and in its nature, it is a fixed term sale and purchase as stipulated in Article 68 of the Commercial Act (see Supreme Court Decision 2001Da38593, Apr. 8, 2003). In other words, a foreign exchange bank’s business, is a transaction of foreign exchange at the market rate at the time of exchange. Thus, the nature of a forward exchange contract and exchange is different in that it is a transaction of foreign exchange only at the exchange rate which serves as the basis for the settlement date and the sales price

According to the reasoning of the judgment below, the Plaintiff asserted that the agreed rate of each currency option contract of this case should be calculated on the basis of the theoretical value of put options, which are not the total contract price of put options, not the total contract price, and that if calculated on the basis thereof, the Defendants’ agreed rate would be unfairly high. Accordingly, the lower court rejected the Defendants’ agreed rate based on the following: (a) the basic contract terms of a currency option contract exchange at maturity exchange rate in Korean currency; and (b) the KIKO currency option contract can be deemed as a kind of modified gift exchange, which includes only a simple forward exchange terms and conditions; (c) the exchange or exchange hedging value vary depending on the contract price; (d) the size of the exchange or exchange hedging utility differs from the contract price; (e) the exchange rate of 0% higher than that of put options in the financial market; and (e) the commission to be received by the Export Insurance Corporation is calculated as the subject of the total contract price; and (e) the commission to be received by the Defendants for the purpose of calculating the maximum risk of fluctuation in financial market prices.

In light of the above legal principles and records, the above judgment of the court below is just, and there is no violation of law as otherwise alleged in the ground of appeal.

(4) A hedge transaction is an agreement to reduce, in whole or in part, the risk of price fluctuation arising from the transaction in kind which is currently held or is expected to be held, and includes any transaction in which profit or loss arising from the hedge transaction is not limited to the transaction in the opposite direction to the profit or loss arising from the price fluctuation in kind and the entire section, and includes any transaction in the opposite direction only within a specific section. Therefore, if the party seeking the hedge transaction has a special prospect or objective in relation to the price fluctuation in kind in kind, it is possible to choose the hedge transaction only within a specific section by taking into account other transaction terms and conditions. Thus, it cannot be readily concluded that the hedge transaction is inappropriate for the mere reason that it does not avoid in all sections

The lower court determined as follows: (a) a KIKO currency option contract is designed not to avoid all risks arising from exchange rate fluctuations, but to make it possible to exchange hedging only with a low risk arising from exchange rate fluctuations; (b) in comparison with a monetary forward transaction, the exchange hedging section is limited to a certain exchange rate fluctuation section; (c) however, in comparison with a currency forward transaction, it is possible to increase exchange rate and obtain exchange margin in a specific exchange rate; and (d) a partial exchange hedging product has the advantage of selling foreign currency at an exchange rate higher than the futures exchange rate as at the time of the contract even when the green condition is fulfilled; and (e) it is difficult to expect that the currency forward transaction would completely eliminate the risk arising from exchange rate decline even if the forward exchange rate is lower than the market exchange rate, and thus, the lower court was justifiable in determining that there was no error in the conclusion of each of the instant currency option contracts by taking into account the factors affecting the terms and conditions of the contract, such as the exchange rate, and there were no other factors that the Plaintiff would have at the time of exercising the currency option.

In addition, according to the reasoning of the lower judgment, the lower court determined that: (a) the Plaintiff was able to choose the risk of avoiding the risk of a certain section by itself at the risk management level; (b) it was extremely unfavorable to the Plaintiff on the ground that, in light of the following: (c) the instant contract, the structure of exchange rate for each contract period, A/B frequency (1/2 contract period); (d) the Plaintiff was compensated for expectation profits by taking advantage of the favorable terms and conditions existing only put options during one contract period; and (vi) the instant contract was somewhat unfavorable compared to other contracts, such as the existence of call options during one contract period; (d) an exchange rate of 1 contract period and annual exchange rate of 20 months prior to the instant contract period was considerably higher than that of the instant contract; and (e) it was difficult to view that the instant contract was considerably unfavorable to the Plaintiff on the ground that there was a variety of occasions during which the foreign currency option contract was concluded between USD 2 and KRW 7,000,000 for each contract period.

In light of the records, the above judgment of the court below is just and acceptable, and therefore, we cannot accept the allegation in the grounds of appeal that concluding a KIKO currency option contract with a structure A/B (1/2 contract term) for a long period of not less than one year is unfair as it is not appropriate for exchange hedging.

(5) Of foreign exchange hedge goods, which are underlying assets owned or anticipated to be held by an enterprise, whether to select and hedge goods among various foreign exchange hedge goods, the scope of which is different from the terms and conditions of transaction is merely a matter to be determined by the enterprise in consideration of the overall circumstances, such as exchange rate prospects and business strategies, and it does not necessarily have the principle that the enterprise should make a exchange hedge for all underlying assets.

As the grounds of appeal, the Plaintiff asserts that, unlike expected in cases where a KIKO currency option contract is concluded with respect to all foreign currency goods held or expected to be held by a company in order to avoid risk due to a decline in foreign exchange rates, if the foreign exchange rate is rapidly higher than a green melting exchange rate, the underlying assets are insufficient due to a lack of assets, and thus, a large amount of losses is incurred. On the contrary, when a KIKO currency contract is concluded only half of foreign exchange goods in preparation for a decrease in exchange rates, half of the underlying assets are exposed to exchange risks at the time of a decline in exchange rates, and thus, the KIKO currency contract is not suitable for exchange hedging.

However, according to the legal principles as seen earlier, even if there is a difficulty in hedging on all underlying assets through a KIKO currency option contract with a condition attached, as alleged by the Plaintiff, such circumstance alone cannot be deemed as not a KIKO currency option contract. This part of the grounds of appeal cannot be accepted.

(6) The purpose of foreign exchange hedge transactions is not to maximize profits, but to eliminate risks arising from the price fluctuation in foreign exchange goods, which are underlying assets, by fixing the exchange rate applicable at the present time, regardless of future exchange rate fluctuations. Therefore, if a customer who holds or is expected to hold in the future foreign exchange goods equivalent to the exchange option contract price of the KIKO currency option goods, enters into a KIKO currency option contract for the purpose of foreign exchange hedging in the said foreign exchange goods, then the relevant currency option contract itself cannot be said to incur losses to the customer due to the increase in exchange rates due to the occurrence of exchange margin in the foreign exchange goods, even if the said increase in exchange rate occurs in the foreign exchange goods. Rather, this is consistent with the purpose of foreign exchange hedging to be achieved by the customer immediately through the said currency option contract.

In the same purport, the lower court is justifiable to have determined that a company’s holding of a sufficient foreign currency underlying asset above the call option contract amount or acquiring a foreign currency underlying asset in the future as anticipated at the time of the contract cannot be deemed to have incurred any loss even in the section above the previous exchange rate. Accordingly, this part of the grounds of appeal disputing that, in designing the KIKO currency option product, the bank should have established a green-level exchange rate not only at the bottom of the exchange rate as a safety device but also at the top of the upper part, on the premise that a company should have caused a theoretical and intangible loss if the exchange rate in the KIKO currency option contract increases above the green rate of exchange.

In addition, the lower court determined that the Plaintiff’s assertion on the so-called ballast (VaR hereinafter “VR”) at risk (VaR), which is “the maximum amount of loss that may arise from holding assets, i.e., specific assets (foreign exchange, bonds, stocks, etc.) for a certain period under a certain trust level,” used by enterprises or banks as reference data for risk management at the risk management level, cannot be deemed reasonable to use the VaR, which is computed on the premise that the foreign currency amount to be inflowd on the settlement date for the purpose of verifying the degree of risk exposure or maximum expected loss amount pursuant to the currency option contract, is not reasonable, and since the Plaintiff’s VaR also did not take into account exchange margin in kind from foreign exchange, it cannot be said that there is a significant difference between the Plaintiff’s VaR and Defendant bank’s VaR.

In light of the records, the above judgment of the court below is acceptable, and there is no violation of law as otherwise alleged in the ground of appeal.

(7) As seen earlier, inasmuch as the Plaintiff’s argument in the grounds of appeal cannot be accepted, we cannot accept the allegation in the grounds of appeal that the lower court erred by misapprehending the legal doctrine on Article 104 of the Civil Act, or by failing to exhaust all necessary deliberations, in so far as it did not constitute an unfair act under Article 104 of the Civil Act.

B. As to the ground of appeal on violation of the Regulation of Standardized Contracts Act

(1) In a case where one of the parties to a contract prepared a contract in advance in a certain form and presented it to the other party, if the other party had an opportunity to adjust his/her interests by undergoing individual negotiations with regard to a specific provision, such provision shall be deemed an individual agreement not subject to the Act on the Regulation of Terms and Conditions, so long as the other party has an opportunity to adjust his/her interests. In order to determine that individual negotiations existed, the result of such negotiations does not necessarily have to appear in the form of changing the contents of a specific provision, but it shall be acknowledged that the other party to the contract has a possibility of changing the contents after sufficiently reviewing and considering the specific provision on an equal footing with the party who prepared the specific provision in advance (see Supreme Court Decision 2008Da16950, Jul. 10, 2008).

(2) According to the reasoning of the lower judgment and the record, the Plaintiff and the Defendants concluded a basic contract pursuant to a currency option transaction agreement or foreign exchange transaction agreement, which comprehensively provides for the definition of terms, performance of options transaction, default, termination of a contract, settlement at the time of termination, settlement, transfer and provision of security, prohibition of agreed currency transaction, method of concluding currency option transaction, etc. prior to the conclusion of the instant currency option contract. However, the Plaintiff and the Defendants determined the contract amount, exercise exchange rate, green or recorded exchange rate, recreation, contract term, etc., which are the specific contract terms of each of the instant currency option contract, pursuant to individual negotiations, were determined by the Plaintiff and the Defendants as well as the individual values of each of the conditions, and whether each of the conditions is subject to each of the terms, and whether

In light of the above circumstances, the general provisions comprehensively stipulated in the monetary option transaction agreement, etc., which are generally defined in advance as a whole, are not likely to correspond to the terms and conditions, since there is no room for individual negotiations or choice between the parties. However, the structure of each contract of this case, i.e., the structure of the contract of this case, namely, the terms and conditions of melter and melter, the structure of mileage, and the theory of put options acquired by banks, are larger than the theoretical value of put options acquired by companies, and the difference is collected as fees, and the structure of which is not separately received as fees, etc. are prepared in advance by arranging the Defendants to appropriately change their structure and conditions according to the needs of customers, as in other over-the-counter derivatives. Thus, the structure alone does not cause any rights and obligations between the parties, and it is concluded only by the specific terms and conditions of the contract, such as contract amount, exercise rate, exchange rate at melter and melter out, loan, contract period, etc.,

In the same purport, the court below is just in holding that the structure of each currency option contract of this case cannot be a standardized contract, and there is no error in the misapprehension of legal principles as to the regulation of standardized contract, as otherwise alleged in the ground of appeal. In addition, as long as the structure of each currency option contract of this case cannot be seen as a standardized contract, the remaining grounds of appeal on the premise that the structure

C. As to the ground of appeal on the violation of the Model Practice of Derivatives

The best practice of derivatives business (hereinafter “the best practice”) aims to recommend matters to be considered in handling derivatives by financial companies in handling derivatives transactions. Thus, even if an existing transaction of derivatives is contrary to the best practice prohibiting the act of reflecting profits and losses incurred in the existing transaction in the price of new derivatives upon the modification, revocation, or termination of the transaction of derivatives, it cannot be deemed that the private law itself is denied.

In the same purport, the court below is just in holding that the contract of this case cannot be deemed null and void, and there is no violation of law as otherwise alleged in the ground of appeal.

2. As to the existence of deception or mistake on the conclusion of each currency option contract of this case

A. As to the grounds of appeal relating to the value of options, fees, or co-ordination

Generally, a seller of goods or services does not have any obligation to inform or disclose components, such as costs or sales profits, to a buyer with respect to the sales price of the goods or services he/she sells, and this does not apply to the so-called OTC derivatives transaction in which a bank does not collect any costs or fees from a customer. Furthermore, the fact that a bank is seeking certain profits from a transaction of OTC derivatives can be expected by anyone due to the nature of a market economy. Thus, barring special circumstances such as where the obligation to notify price components is recognized under a contract or a statute, etc., a bank cannot be deemed to have a duty to notify a customer of the theoretical value of options included in the structure of OTC derivatives, which is Cost in the structure of OTC derivatives, and thus, the bank cannot be deemed to have caused a mistake that it causes deception to a customer or that the bank does not incur any costs or fees from the transaction of OTC derivatives.

The lower court determined that it is difficult to recognize that, insofar as the Defendants are companies pursuing profit-making purposes, it is reasonable to gain certain profits through the sale of each currency option product of this case, and that the Plaintiff is sufficiently expected, and it is difficult to view that the Defendants did not impose any expenses or profits when concluding the contract of this case, and thus, it is difficult to recognize that the Defendants did not need to pay separate fees when entering into the contract of this case, or that, even if the Defendants did not explicitly state that the Defendants’ profits are included in the structure of the contract of this case, the Plaintiff did not incur any error that the Plaintiff would not incur any expenses for the conclusion of the contract of this case. Furthermore, the lower court determined that the financial institution provided “information on the level of customer transaction prices, other than the trader,” under Article 65 subparag. 6 (e) of the former Enforcement Rule of the Banking Business Supervision (amended by November 17, 2010), and the purport of the above provision that the Plaintiff did not have any obligation to disclose the cost cannot be understood to the effect that it does not need to disclose the amount of fees received at the time of sale

In light of the above legal principles and records, the above judgment of the court below is acceptable, and there is no violation of law as otherwise alleged in the ground of appeal.

B. As to the ground of appeal on the suitability of foreign exchange hedging

According to the reasoning of the judgment below, with respect to the Plaintiff’s assertion that the instant currency option contract is inappropriate for foreign exchange hedging but, as if the Defendants were suitable for foreign exchange hedging, the lower court rejected the Defendants’ assertion that the instant currency option contract did not constitute a financial product suitable for foreign exchange hedging, and that the Plaintiff concluded each of the instant currency options with a view to preparing for exchange loss due to foreign exchange rate decline or exercising put option at a higher exchange rate than market exchange rate under the expectation and forecast that exchange rate will change the basic structure of the instant currency option from its employees, and that the Plaintiff would not be deemed to have fulfilled the terms and conditions of exchange hedging or otherwise, on the ground that there was no evidence to prove that there was no risk of exchange hedging or melting the terms and conditions of the instant currency option, which would have been unfavorable to other terms and conditions of the instant currency option to increase exchange rate.

As seen earlier, each currency option contract of this case cannot be deemed to be a financial product inappropriate for exchange hedging in terms of its structure. In light of these points and records, the above judgment of the court below is just, and there is no violation of law as otherwise alleged in the ground of appeal.

C. As to other grounds of appeal

As the grounds of appeal, the Plaintiff asserted that, in the latter part of 2007, when there was a concern about global liquidity crisis, the Defendants had predicted the possibility of exchange rate fluctuations, but did not notify the Plaintiff of the risk of exchange rate increase based only on the hidden and several prospects of foreign financial companies, and did not notify the Plaintiff of the risk of exchange rate increase. (B) The Defendants did not fully mention the details of specific damage that the Plaintiff may incur, in the case of the largest KIKO, did not fully understand the possibility of exchange rate decline. (c) The Defendants argued that these attitudes of the Defendants constitute deception by omission. However, in relation to the claim for return of unjust enrichment based on the cancellation of unjust enrichment, the Defendants were first raised in the final appeal and cannot be a legitimate ground of appeal.

3. As to the violation of the suitability principle

A. In concluding a currency option contract with an enterprise with the purpose of foreign exchange hedge, a bank shall not invite the relevant enterprise to enter into a currency option contract which is inappropriate in light of its management condition, after ascertaining in advance the company’s expected foreign currency input amount, asset and sale size, property status including foreign currency hedge, transaction purpose, transaction experience, knowledge or understanding of the relevant contract, degree of knowledge or understanding of the relevant contract, and other exchange hedge contracts. If a bank actively solicits a currency option contract causing excessive risk in light of the company’s management condition in violation of such duty, it constitutes a tort as it violates the principle of suitability, and thus, constitutes a tort.

In particular, OTC derivatives are likely to excessively expand losses if circumstances differ from predictions that have been developed using highly advanced financial engineering knowledge. On the other hand, banks are more reliable than financial institutions specialized in investment in various aspects, such as requirements for authorization, scope of business, governance structure and supervisory system, and thus soliciting of banks may have a strong impact on corporate decision-making. Therefore, it is reasonable to view that banks are obliged to pay more heavy customer protection than other financial institutions when soliciting transactions of OTC derivatives with high risk as above.

B. The reasoning of the lower judgment and the evidence duly admitted by the lower court reveal that ① the instant currency option contract, compared to the currency forward transaction that the Plaintiff had experienced several times, limited exchange hedge effect at a certain price when the Plaintiff fell below a certain exchange rate, and there is only a difference at a higher exchange rate instead of adding recreation conditions. The Plaintiff had experience in selling five times in accordance with the fulfillment of recreation conditions of the instant currency option contract before entering into the instant and the instant currency option contract: the Plaintiff had been aware of the Plaintiff’s obligation to sell five times in the event of the fulfillment of recreation conditions of the instant currency option contract; Presidential Decree No. 20680, May 27, 2008.

In light of the legal principles as seen earlier, considering the Plaintiff’s financial status, transaction experience, and the Plaintiff’s understanding of the specific terms and conditions of transaction as appropriate, the Plaintiff appears to have concluded each of the instant currency options for the purpose of exchange hedge transactions in which the exchange rate higher than the market exchange rate is guaranteed, considering the characteristics of the instant currency option contract, which is a partial exchange hedge product, under the status of similar transaction experience, and the forecast for the future exchange rate of domestic and foreign institutions at the time, etc., and it cannot be deemed that the instant currency option contract causes excessive risk in light of the Plaintiff’s sales size or exchange hedge transaction experience, etc., and thus, even if the Defendants are obligated to strictly protect customers in connection with OTC derivatives transaction, it is difficult to deem that the Defendants recommended the Plaintiff to protect customers in violation of the suitability principle.

Therefore, the court below is just in holding that the Defendants cannot be deemed to violate the principle of suitability by actively soliciting transactions involving excessive risk to the Plaintiff. Contrary to the allegations in the grounds of appeal, the court below did not err by exceeding the bounds of the principle of free evaluation of evidence or by misapprehending the legal principles

4. As to the violation of the duty to explain

A. When a financial institution trades over-the-counter derivatives with specialized knowledge and analysis capacity between general customers, it is obligated under the good faith principle to clearly explain major transaction information, such as risks inherent in the transaction so that customers can accurately evaluate the structure and risk of the transaction in question, unless the customer is already aware of such risks, and major factors affecting potential losses (see Supreme Court Decision 2010Da55699, Nov. 11, 2010). In this case, major information on transactions to be explained to a customer by a financial institution shall include both the structure and main contents of the contract of over-the-counter derivatives, the details of profits and losses that the customer can gain through the transaction, and the risk factors of loss.

However, it is not necessary to explain any difference in profit and loss compared with the case of investment in the detailed financial engineering structure of the over-the-counter derivatives or other financial instruments. Moreover, even if a financial institution and its customer engage in the over-the-counter derivatives transaction in the counter-counter derivatives structure, the amount of fees, etc. shall not be considered an important factor for assessing the risk of the transaction. Thus, it is reasonable to view that there is no obligation to explain even the fees included in the product structure and the math market value arising therefrom, unless the fees are significantly higher than the market practice.

In addition, the transaction of over-the-counter derivatives shall not be arbitrarily terminated in the middle of a general contract, as a matter of principle, even if the transaction of over-the-counter derivatives can be terminated in the middle of a contract, a financial institution and a customer may agree with the settlement money even if the transaction can be terminated in the middle of a contract. Thus, barring any special circumstance, it cannot be said that a financial institution has an obligation to explain the outlined

Meanwhile, a financial institution must explain to the extent that it can sufficiently understand important transaction information as seen earlier by taking into account the characteristics and risk level of financial products, customer’s transaction purpose, investment experience and ability, etc. so that customers can accurately evaluate the structure and risk of the relevant derivatives transaction (see Supreme Court Decision 2001Da11802, Jul. 11, 2003, etc.).

B. According to the reasoning of the lower judgment and the evidence duly admitted by the lower court, the Nonparty, a person in charge of the Plaintiff’s financial affairs, had been experienced several times in trading for the purpose of exchange hedging at the time of entering into the instant currency option contract. ① The instant contract is limited to a certain amount of exchange hedging effect when compared to the currency forward transaction with the Nonparty’s experience in trading at a certain exchange rate, and it seems that the Nonparty did not have any difficulty in understanding the structure and risk of the transaction. The Plaintiff’s experience in fulfilling the Plaintiff’s duty to sell two times due to the fulfillment of the recreation conditions through another currency option contract before entering into the instant contract, and the Nonparty’s staff member was unable to understand the Plaintiff’s specific transaction terms and conditions, such as the Plaintiff’s explanation of the risk or risk of loss, and it is reasonable to understand the Plaintiff’s specific transaction terms and conditions as to the instant currency option contract or the Plaintiff’s specific transaction terms and conditions, as seen earlier, based on the following legal principles.

In addition, as long as the Defendants did not explain the commission included in the structure of each currency option contract of this case and the maus market value arising therefrom, it cannot be deemed as a violation of the duty to explain, even if they did not explain about the method of calculating the liquidation amount, etc. of the early termination of each currency option contract of this case, the judgment of the court below that the commission rate based on the contract amount of each currency option of this case cannot be deemed as significantly high compared to other financial transactions is acceptable.

Although the reasoning of the court below is partially insufficient, the court below's conclusion that did not recognize the defendants' liability due to violation of the duty to explain is just, and there is no error in the misapprehension of legal principles as otherwise alleged in the ground of appeal. The remaining grounds of appeal in this part are concerned with the selection of evidence and fact-finding, which are the exclusive authority of the fact-finding court, and it

5. Conclusion

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

Justices Yang Chang-soo (Presiding Justice)