2014Da230207 Unjust enrichment

person

A Stock Company

Korea Bank, Inc.

Seoul High Court Decision 2014Na2010371 Decided October 17, 2014

December 10, 2015

The part concerning the currency option contract of March 11, 2008 among the part concerning the claim for damages by the lower court is reversed, and that part of the case is remanded to the Seoul High Court.

The plaintiff's claim for return of unjust enrichment and the appeal on the claim for damages on January 29, 2008 concerning a currency option contract shall be dismissed.

The grounds of appeal are examined.

1. Plaintiff’s ground of appeal

A. On the first ground for appeal

1) Where a bank enters into a currency option contract with an enterprise with a purpose of foreign exchange hedging, it is prohibited from soliciting the relevant enterprise to enter into such a currency option contract. As such, when soliciting transactions of over-the-counter derivatives with a high risk, a bank bears a more heavy duty to protect customers compared to other financial institutions. Thus, where a bank actively solicited a currency option contract causing excessive risk in light of the management situation of the relevant enterprise in violation of such duty and made it enter into such contract, it constitutes a tort. In this context, whether a bank solicits to enter into a currency option contract, including the expected amount of foreign currency inflow, assets and sales of the relevant enterprise, property status including the amount of foreign currency inflow, necessity for foreign currency hedging, transaction purpose, transaction experience, degree of knowledge or understanding of the relevant contract, and whether a foreign currency hedging contract was entered into (see, e.g., Supreme Court en banc Decision 2011Da53683, 53690, Sept. 26, 2013; Supreme Court Decision 2014Da13754

2) According to the reasoning of the lower judgment and the record, ① (i) the Plaintiff’s sales amount was KRW 38.1 billion in 2006, KRW 38.6 billion in 207; net income was KRW 7.1 billion in 2006, KRW 6.6.1 billion in 2007; the export amount was USD 37.86,00 in 206, USD 36.399,00 in 207; the import amount was USD 5.79,550 in 207; ② the Defendant was aware of the Plaintiff’s management status as the principal bank; and (ii) the Plaintiff was anticipated to have concluded the instant currency option contract at KRW 10,000 in 20,000 in 20,000 in 20,000 in 206,000 in 200,0000 in 20,0000 in 20,000.

In light of the above legal principles, considering the Plaintiff’s financial status, transaction experience, and contract conclusion that the lower court correctly acknowledged, the Plaintiff appears to have concluded the first currency option contract of this case on the ground that it is necessary to hedge exchange for US dollars introduced into export according to its own prospects on exchange rate fluctuation in the future, and the contract amount cannot be deemed to cause excessive risk in light of the Plaintiff’s sales and export scale or the estimated amount of premium inflow. Thus, it is difficult to deem that the Defendant soliciting the Plaintiff to enter into the first currency option contract of this case is in breach of the suitability principle to have neglected the duty to protect customers.

3) Although the lower court’s reasoning was somewhat inappropriate, it is justifiable to have determined that the Defendant did not violate the principle of suitability during the process of concluding the instant first currency option contract. In so doing, contrary to what is alleged in the grounds of appeal, there were no errors by misapprehending the legal doctrine on

B. On the second ground for appeal

1) Where a financial institution trades over-the-counter derivatives with general customers, which require specialized knowledge and analysis capabilities, the financial institution is obligated under the good faith principle to clearly explain major transaction information, such as risk factors inherent in the transaction in order for customers to accurately assess the structure and risk of the transaction, and major potential loss. However, where the customer has already been fully aware of the content thereof, the financial institution’s explanation obligation cannot be acknowledged even with regard to such matters (see, e.g., Supreme Court en banc Decision 2013Da26746, Sept. 26, 2013).

2) After compiling the adopted evidence, the lower court acknowledged the facts as indicated in its holding, and determined that the Defendant violated its duty to explain in light of the island, etc. that the Plaintiff concluded several options prior to the conclusion of the instant currency option contract, and experienced losses in the process; provided that the Defendant provided several materials for explanation, etc. during the process of concluding the instant currency option contract, and provided sufficient explanation as to the terms and conditions of the contract, the Plaintiff could have known that the Plaintiff could have suffered losses from the instant currency option contract if the exchange rate increases; and that the instant secondary currency option contract was incurred due to the increase in the rate in the currency option contract concluded with the foreign exchange bank on November 16, 2007 by the Plaintiff, which was concluded with the foreign exchange bank, was difficult to view that the Defendant violated its duty to explain.

In light of the above legal principles and records, the above determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors by misapprehending the legal principles on the duty of explanation or by failing to exhaust all necessary deliberations

C. On the third ground for appeal

The lower court determined that the statute of limitations had already expired on October 9, 2009, which was the period of observation that the Plaintiff’s damage under the call option contract of this case became final and conclusive each time when the maturity period of each of the observation periods has occurred.

However, if the Defendant’s liability for damages is recognized due to the Defendant’s violation of the duty to protect customers, the Plaintiff’s damages therefrom are transaction losses, which are the remainder after deducting profits from the total loss incurred during the contract period, and the Plaintiff is deemed to have recognized the occurrence of damages only when the transaction losses have been determined after the maturity of the second currency option contract in this case. Therefore, the lower court erred by misapprehending the legal doctrine on the starting point of the short-term extinctive prescription period, thereby adversely affecting the conclusion of the judgment. The Plaintiff’s ground of appeal pointing this out is with merit.

D. Meanwhile, the Plaintiff filed an appeal against the part of the lower judgment against the Plaintiff, including the part on the claim for restitution of unjust enrichment, but the above part of the claim did not contain legitimate grounds of appeal in the petition of appeal or the appellate brief

2. As to the Defendant’s grounds of appeal

A. According to the reasoning of the lower judgment, the lower court determined that the Defendant, a financial institution, was in violation of the principle of suitability by soliciting the Plaintiff to enter into the instant secondary currency option contract for the same period, on the grounds that the sum of the contract price of the instant secondary currency option contract (from April 13, 2009 to March 11, 2010) and the contract price of the instant secondary currency option contract, on December 18, 2007, with foreign exchange banks, exceeds the Plaintiff’s actual foreign currency inflow amount. The Defendant, knowing that the Plaintiff entered into the instant secondary currency option contract in order to only compensate for losses incurred in the transfer contract, knew that the contract price was excessive to the Plaintiff. Even if the Defendant actively demanded the Plaintiff to enter into the currency option contract, even if the Defendant, who was a financial institution, was obligated to directly verify the details of the other currency option contract concluded by the Plaintiff and to determine appropriate contract price, was negligent in doing so.

B. However, it is difficult to accept the above determination by the lower court for the following reasons. (1) According to the reasoning of the lower judgment and the record, the Plaintiff’s employee B asked the Defendant of goods that may incur losses due to the Plaintiff’s exchange rate increase in March 2008 in the currency option contract concluded with the foreign exchange bank on November 16, 2007. Accordingly, the Defendant’s employee C requested the Plaintiff to design the currency option contract with the foreign exchange bank to obtain profits equivalent to the loss that may arise due to exchange rate fluctuation in the above contract from March 10, 208 (from March 10, 2008 to November, 2008) so that the Plaintiff may incur losses due to the Plaintiff’s increase in exchange rate. Therefore, it is sufficient to explain that the contract would have been concluded with the Plaintiff’s 10-year currency option contract to have been concluded with the 30-year currency option contract prior to the conclusion of the contract with the Plaintiff’s 10-year currency option contract.

2) Examining these facts in light of the legal principles as seen earlier, the instant secondary currency option contract constitutes a pre-transaction with a foreign exchange bank on November 16, 2007 where the loss incurred by the Plaintiff was incurred, but the Defendant notified the risk of such transaction, and the Plaintiff appears to have been sufficiently aware of the structure and risk of the said contract through previous transaction experience and the Defendant’s explanation, but it is difficult to readily conclude that the Defendant violated the suitability principle, even if the Plaintiff was deemed to have incurred loss in the CP, on the ground that the contract was actively demanded by the Defendant to enter into even though the risk was sufficient for the CP period to which the Defendant sent a warning.

3) Nevertheless, solely based on its stated reasoning, the lower court determined that the Defendant violated the suitability principle in the process of concluding the instant secondary currency option contract. In so determining, the lower court erred by misapprehending the legal doctrine on the suitability principle, thereby adversely affecting the conclusion of the judgment. The Defendant’s

3. Conclusion

Therefore, the part concerning the currency option contract of March 11, 2008 among the part concerning the claim for damages of the judgment of the court below without examining the remaining grounds of appeal by the plaintiff is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. The plaintiff's claim for return of unjust enrichment and the appeal within the non-performance of the currency option contract of January 29, 2008 is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Dong-won

Justices Lee In-bok

The Chief Justice Park Jae-young

Justices Kim Gin-young