In a case where a quasi-investment advisory business entity becomes liable for tort liability under the Civil Act against a quasi-investment advisory business entity by providing a customer with false information or any other information without reasonable and objective grounds, as if it were a reliable information that may affect the customer’s judgment on investment in financial investment instruments, and the customer suffers losses from believing and trading that such information is true (affirmative)

When a quasi-investment advisory business entity provides customers with information on investment in financial investment instruments or on the value of financial investment instruments, it provides them with false information or information without any reasonable and objective basis concerning important matters that may affect the customer's judgment on investment, as if it were a reliable information based on objective grounds. If the customer believed the above information to be true and sustained losses from trading in financial investment instruments, the customer may be liable for tort liability under the Civil Act against the quasi-investment advisory business entity. This legal doctrine likewise applies to a person who directly performs the business of the quasi-investment advisory business after having a legal relationship, such as employment, etc., and accordingly, is

Article 750 of the Civil Act, Article 101 of the Financial Investment Services and Capital Markets Act

Plaintiff (Law Firm LLC, Attorneys Kim Jong-soo et al., Counsel for the plaintiff-appellant)

Pteve Co., Ltd. and one other (Law Firm LLC et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2012Na56971 decided January 31, 2013

The judgment below is reversed and the case is remanded to Seoul High Court.

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

1. Regarding ground of appeal No. 1

The Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) provides for a financial investment business entity’s duty of good faith and good faith to protect investors (Article 37), the obligation of preference to investors’ interests (Article 46), the suitability principle (Article 47), the obligation to explain (Article 47), and prohibition of unfair solicitation (Article 49). Here, a financial investment business entity refers to “a person who obtains authorization from, or registers with, the Financial Services Commission for, a financial investment business under each subparagraph of Article 6(1) of the Capital Markets Act, such as investment advisory business, and engages in such business with the Financial Services Commission” (Article 8(1)). Accordingly, the said provision on the duty to protect investors under the Capital Markets Act for a financial investment business entity is not applicable to a quasi-investment advisory business entity that gives investment advice to many and unspecified persons through publications, publications, communications, broadcasting, etc. (Article 101) or an investment advisory business entity that conducts investment advisory business without registration (see Supreme Court Decision 2012Da46464, May 16, 2014).

In the same purport, the lower court did not err by misapprehending the legal doctrine on the duty to protect investors under the Financial Investment Services and Capital Markets Act, contrary to what is alleged in the grounds of appeal, that, as a quasi-investment advisory business under the said Act, Defendant SBB Co., Ltd. (hereinafter “Defendant Company”) and Defendant 2, who is affiliated with the Defendant Company, did not apply to the Internet securities broadcast service.

2. As to the grounds of appeal Nos. 2 and 3

A. When a quasi-investment advisory business entity provides customers with information about the judgment on investment in financial investment instruments or the value of financial investment instruments, it provided them with false information or information without any reasonable and objective grounds, as if it were a reliable information on important matters that may affect the customer’s judgment on investment. If the customer believed the above information to be true and sustained losses from trading the financial investment instruments, the customer may be liable for tort liability under the Civil Act against the quasi-investment advisory business entity. This legal doctrine likewise applies to a person who directly performs the business of the quasi-investment advisory business after having a legal relationship with the quasi-investment advisory business entity, such as employment, etc.

B. The reasoning of the lower judgment and the evidence duly admitted by the lower court reveal the following.

(1) On January 18, 201, the Plaintiff joined several Internet securities broadcasts provided by the Defendant Company as a member of the Internet securities broadcasting company, and paid KRW 770,00 per month a membership fee, and provided Defendant 2 with information on investment related to stocks, such as analyzing and recommending the items of stocks through the securities broadcasting that Defendant Company proceeds and mobile phone text messages, etc.

(2) From February 201 to March 201, Defendant 2: (a) actively recommended the purchase of shares by Alt Electronic Co., Ltd. (hereinafter “ Alt Electronic”), a corporation listed on KOSDAQ, to purchase shares; (b) “Et Electronic Co., Ltd. enters into a large-scale contract with Samsung Electronic Co., Ltd. (hereinafter “ Alt Electronic Co., Ltd.”); (c) “Et Electronic Co., Ltd.”; (d) it cannot be said that Et Electronic Co., Ltd. has made a aggressive investment due to security issues; (e) it is difficult to say that there is a large-scale defense for Alt Electronic Co., Ltd., and related negotiations are in progress due to security issues; and (e) even though Alt Electronic Co., Ltd.’s acquisition and merger contracts have been remarkably delayed, the large number of force of the Securities Co., Ltd., Ltd., a corporation with funds of KRW 8 million, and continuously purchased shares, and (e) it can be said that Et Electronic Co., Ltd. 100 billion won will be known.

(3) However, there were false facts that all of the so-called “large Contracts between Alth and Samsung Electronic”, “Merger and Acquisition of Alth Electronics,” and “The so-called “Nth Eth-Electronics” were false, and the audit report of Alth Electronics was not submitted by the submission deadline. Ultimately, Alth Electronic filed an application for rehabilitation with the Suwon District Court on March 23, 201, and on the same day, transaction was suspended in the KOSDAQ market.

(4) From February 11, 2011 to March 23, 2011, the Plaintiff gradually purchased Alti Electronic Stocks upon Defendant 2’s active recommendation and gradually increased their holding quantity. After Alti Electronic filed a rehabilitation application and was suspended from trading, the Plaintiff ultimately suffered damage to the price of Alti Electronic Stocks held by delisting in the KOSDAQ market on April 22, 201.

(5) Meanwhile, Defendant 2 stated that the said information was transferred from the person who was the Nonparty, who was in the investigative agency, to engage in a stock-related work.

C. We examine the above facts in light of the legal principles as seen earlier.

(1) The acquisition and merger of 100 billion Won with Samsung Electronic Co., Ltd. are important information that may affect Alti Electronic Co., Ltd. and the submission of audit report is also an important investment information that determines delisting. As to such material information that may affect customer's investment decision in the course of conducting the Defendant Company's securities broadcasting, Defendant 2 is liable to compensate the Plaintiff for damages caused by the provision of non-founded information in accordance with Article 750 of the Civil Act, inasmuch as there is no reasonable and objective grounds for the transfer of such material information to the Nonparty, who is the Nonparty who would engage in the work related to the shares, in the absence of any reasonable and objective grounds, such as the conclusion and publication of a memorandum of understanding or the preparation and confirmation of an audit report, and actively recommended or recommended the purchase and holding of Alti Electronic Co., Ltd. as if it were a clear information having objective grounds. The Plaintiff purchased and damaged Alti Co., Ltd.’s purchase that the said information provided by Defendant 2 was true information, and thus, Defendant 2 directly engaged in a quasi-investment advisory business of the Defendant Company.

(2) In addition, as long as Defendant 2 utilized Defendant 2 as part of its own business organization, it must command and supervise Defendant 2 as corresponding to expanding its business territory. Defendant 2’s act of providing information on Alti stocks by the above method is naturally within the scope of execution of Defendant Company’s business in an objective manner. Thus, barring any special circumstance, Defendant Company is liable to compensate for damages suffered by the Plaintiff pursuant to Article 756 of the Civil Act.

(3) Nevertheless, the lower court rejected the Plaintiff’s claim for damages against the Defendants solely on the grounds that the Defendants did not have an investment advisory business entity similar to, or equivalent to, an investment advisory business entity under the Capital Markets Act. In so doing, the lower court erred by misapprehending the legal doctrine on the duties of a quasi-investment advisory business entity, thereby adversely affecting

3. Regarding ground of appeal No. 4

Unless it is the sole evidence of the facts alleged by the parties, the part of the evidence is at the discretion of the court that can be freely decided (see, e.g., Supreme Court Decisions 90Da19121, Jul. 26, 191; 2004Da60447, Nov. 23, 2006). Thus, the court below’s measure that did not adopt documentary evidence investigation as stipulated in Article 112 of the Rules of Civil Procedure concerning the investigation records did not err by misapprehending the legal principles concerning the rules of evidence.

4. Conclusion

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kwon Soon-il (Presiding Justice)