[1] In a case where the issue was whether a KIKO currency option contract that Company A entered into with Company B was an unfair practice, the case affirming the judgment below holding that the currency option contract does not constitute an unfair practice

[2] The standard time to determine whether a contract constitutes an unfair juristic act (i.e., the time of an act of law) and whether a contract constitutes an unfair juristic act as a matter of course on the ground that a party to a contract suffers a big loss as a result of rapid changes in external environment and the benefit corresponding thereto may accrue to the other party (negative)

[3] 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 on 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

[4] In a case where the issue was whether a KIKO currency option contract that Company A entered into with Company B 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

[5] In a case where a bank sells to a customer the so-called zerdo over-the-counter derivatives, 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)

[6] In a case where a circumstance that does not form the basis for the formation of a contract is changed later and thereby a party suffers damage by being unable to achieve the intended purpose of the contract at the time of the contract, whether the rescission of the contract on the ground of change of circumstances is recognized (negative in principle), and whether such a legal principle applies to a case where a party asserts the termination of the contract on the ground of change of circumstances in

[7] 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)

[8] 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

[9] 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

[10] Where comparative negligence is exceptionally not allowed even though the victim's negligence was committed with respect to the occurrence or expansion of damage caused by tort

[1] In a case where the issue is whether a KIKO currency option contract that Company A entered into with Company B is an unfair practice, the case affirming the judgment below that the KIKO currency option contract does not constitute an unfair practice on the grounds that it cannot be determined whether the KIKO currency option contract is unfair or inappropriate for foreign exchange hedging merely by simply comparing the theoretical value of put options with put options

[2] 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 overall contract terms as at the time of conclusion of the contract is not unfair, it shall be the structure of causing a large loss to one of the parties to the contract after the rapid change in external environment and causing a large benefit corresponding thereto to the other party, that alone shall not be deemed an unfair contract.

[3] 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 in advance.

[4] In a case where the issue is whether a KIKO currency option contract that Company A entered into with Company B 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 fall under the terms and conditions on the ground that, like other OTC derivatives, the structure of the said currency option contract was prepared in advance by standardizing the structure and conditions to be used appropriately as required by customers, and the structure alone does not create any rights and obligations between the parties to the transaction, and is completed only when specific terms and conditions, such as the contract amount, exercise exchange rate, etc. determined by individual negotiations, are attached to the contract.

[5] Generally, a seller of goods or services is not obligated to inform or disclose to a buyer of the elements, such as cost or sales profit, with respect to the sales price of the goods or services he/she sells. This does not apply to the case where a bank engages in an over-the-counter derivatives transaction in the structure of cost (zerco) structure, which does not collect any cost or fees from a customer separately. Furthermore, the fact that a bank is pursuing a certain profit as the counter-party to the transaction of over-the-counter derivatives can be anticipated by anyone on the ground of the nature of a market economy. Therefore, barring special circumstances such as where a contractual or statutory duty to notify the price components is acknowledged, a bank cannot be deemed to have a duty to notify the customer of the theoretical value and fees of options included in the structure of the over-the-counter derivatives structure and the price market value generated therefrom, and the failure to notify it cannot be deemed to have caused a fraudulent act to a customer or to have caused a mistake that it does not bear any cost or fees in the relevant over-the-counter derivatives transaction.

[6] The rescission of a contract on grounds of change in circumstances is recognized as an exception to the principle of contract observance in cases where a significant change in circumstances that was unexpected at the time of contract formation occurred, and such change in circumstances arose for reasons for which the party who acquired the right of rescission is not responsible. If the binding force of the content of the contract is recognized, it shall be recognized as an exception to the principle of contract observance in cases where a significant violation of the principle of good faith occurs. Moreover, the change in circumstances here refers to an objective circumstance which served as the basis of the contract, not a party’s subjective or personal circumstance. Therefore, even if a circumstance not constituting the basis of contract formation subsequently changes and causes damage to a party as a result of a failure to achieve the purpose of the contract intended at the time of contract formation, barring any special circumstance, maintaining its validity as it is cannot be deemed as contrary

[7] 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, the hedge transaction that is at risk risk only within the specific section may be selected by taking into account other transaction terms and conditions. Thus, it cannot be readily concluded that the hedge transaction is inappropriate on the sole ground that it does not avoid risk in the entire section.

[8] 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 with a kind of product or a currency option contract with a specific nature, such as the expected foreign currency inflow amount of the company, asset and sale size, asset status including foreign currency hedge, necessity for exchange hedging, transaction purpose, transaction experience, degree of knowledge or understanding of the contract in question, and other exchange hedging contract. If a bank actively recommends a company to enter into a currency option contract with an excessive risk in light of the business situation of the company in question in breach of such a duty, it constitutes an illegal act against the principle of appropriateness and constitutes an illegal act. In particular, if an OTC derivatives contract is developed by using high financial engineering knowledge and any other situation different from the prediction and sale size, it is reasonable to deem that it is more likely to excessively increase losses, and on the other hand, it is more likely to attract a bank to enter into an OTC derivatives contract with a strong trust than any other financial institution specialized in investment in various aspects such as requirements for authorization, scope of business, governance structure, etc.

[9] Where a financial institution trades over-the-counter derivatives with professional knowledge and analysis capacity between general customers, barring cases where customers already know the structure and risk of the relevant over-the-counter derivatives, it is obligated under the good faith principle to clearly explain major transaction information, such as the inherent risk factors and potential losses, in a manner appropriate for the transaction. In such cases, major transaction information to be explained by a financial institution is including the structure and main contents of the relevant over-the-counter derivatives contract, details of profits and losses which may be gained by customers through such transaction, and, in particular, risk factors arising from losses. However, even if a financial institution performs an over-the-counter derivatives transaction with a financial structure or an investment in other financial products, it is difficult to view that the amount of fees, etc. would have an important factor in assessing the risks of such transaction. Thus, it is reasonable to view that a financial institution’s duty to explain information about an over-the-counter derivatives transaction to the extent that it can not be seen as having reached an objective conclusion of the transaction, including the amount of fees and risks generated from such transaction.

[10] If the victim was negligent in causing or expanding damage caused by a tort, it shall be taken into account as a matter of course in determining the scope of the tortfeasor’s damage compensation. If the harmful act is an act of acquisition, such as fraud, embezzlement, or breach of trust, etc., and if the harmful act is recognized as comparative negligence, it shall not be exceptionally allowed comparative negligence only where the perpetrator ultimately holds profits from the tort, thereby causing the result contrary to the principles of equity or

[1] Article 104 of the Civil Code / [2] Article 104 of the Civil Code / [3] Articles 2 subparagraph 1 and 4 of the Regulation of Standardized Contracts Act / [4] Articles 2 subparagraph 1 and 4 of the Regulation of Standardized Contracts Act / [5] Articles 109 and 110 of the Civil Code / [6] Articles 2 and 543 of the Civil Code / [7] Articles 2 and 750 of the Civil Code / [8] Articles 2 and 750 of the Civil Code / [9] Articles 2 and 750 of the Civil Code / [10] Articles 393, 396, and 763 of the Civil Code

[2] Supreme Court Decision 200Da30905 Decided December 8, 200 / [3] Supreme Court Decision 2008Da16950 Decided July 10, 2008 (Gong2008Ha, 1154) Supreme Court Decision 2009Da105383 Decided September 9, 2010 (Gong2010Ha, 1884) / [6] Supreme Court Decision 2004Da31302 Decided March 29, 2007 (Gong2007Da44368 Decided June 24, 201) / [6] Supreme Court Decision 2008Da16019 Decided June 16, 205 (Gong207Da160195 Decided June 24, 2015) / [607Da201619 decided Jul. 16, 2012

Samco Co., Ltd. (Law Firm LLC, Attorneys Kim Yong-ho et al., Counsel for the plaintiff-appellant)

Han Bank Co., Ltd. (Law Firm Sejong, Attorneys Go Chang-py et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2011Na5365 decided December 22, 2011

Of the part against the Plaintiff on the conjunctive claim of the lower judgment, the part on the currency option contract of December 20, 207 is reversed, and that part of the case is remanded to the Seoul High Court. The remainder of the Plaintiff’s appeal and the Defendant’s appeal are dismissed.

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

1. As to the Plaintiff’s ground of appeal on the invalidity of each currency option contract of this case

A. As to the assertion regarding unfair conduct under the Civil Act

As to the Plaintiff’s assertion that each of the instant currency options constitutes an unfair practice and thus null and void on the grounds that there exists a significant imbalance between the Plaintiff and the Defendant’s theoretical value of options respectively acquired by the Plaintiff and the Defendant, and that there is an unreasonable excessive margin acquired by the Defendant, and that there is a significant difference between the Plaintiff and the Defendant in risk (referring to the maximum amount of losses that may be incurred by holding an individual redemption or scenario of holding assets for a certain period under a certain trust level; hereinafter “VR”), each of the instant currency options constitutes an unfair practice, the lower court rejected the Plaintiff’s assertion on the following grounds.

① In other words, each currency option contract of this case is a 0-in exchange rate higher than that of the instant currency option contract. Inasmuch as the 0-in exchange rate is higher than that of the instant currency option contract than that of the instant currency option contract, the Plaintiff’s theory of put-in option decreases due to melting terms, i.e., exchange rate higher than that of the instant currency option contract, and the Plaintiff’s use of put-in option, etc. based on setting terms and conditions. In light of the above, the Plaintiff’s theory of put-in option does not reflect the economic benefits that the Plaintiff gains through the instant currency option contract’s 20-in exchange rate, namely, the 0-in exchange rate is not appropriate. Meanwhile, the Plaintiff’s argument that it is unreasonable to determine whether to enter into the instant currency option contract based on the basic terms and conditions, such as the exchange rate, exchange rate, and melting exchange rate, etc. of the instant currency option contract.

In light of the records, the above judgment of the court below is justifiable. In so doing, it did not err by omitting judgment on unfair conduct under the Civil Act or by misapprehending the legal principles on the contents of unfair conduct and criteria for judgment under the Civil Act, as otherwise alleged in the ground of appeal. Meanwhile, since credit risk exposure amount is calculated by multiplying the contract amount by the credit conversion rate, it is not appropriate to determine that the amount of credit risk exposure constitutes the contract amount, among the reasons of the judgment below, it does not affect the conclusion of the court below that rejected the plaintiff's assertion that the contract amount of this case constitutes an unfair practice and thus null and void. In addition, the court below did not err by omitting judgment, since it included the purport of rejecting the plaintiff's assertion that the fee received by the defendant is more unfair than the theoretical value of put option

Meanwhile, whether a certain juristic act constitutes an unfair juristic act shall be determined at the time of the juristic act (see, e.g., Supreme Court Decision 2000Da30905, Dec. 8, 2000). Therefore, if it is not unfair as a result of comprehensive consideration of the overall contents of the contract as at the time of conclusion of the contract, it shall not be deemed that the contract constitutes an unfair contract on the sole basis of the fact that the contract is a structure where a significant loss occurs to one of the parties to the contract due to sudden changes in external environment and the corresponding profit arises to the other party. The decision of the court below to the

B. As to the assertion on the "Act on the Regulation of Terms and Conditions"

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 has 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 deem that an individual negotiation existed, the result of such 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 change the contents thereof after sufficiently reviewing and considering the specific provision on an equal footing with the party who prepared the specific provision (see Supreme Court Decision 2008Da16950, Jul. 10, 2008, etc.).

In ordinary, prior to or at the same time, a basic contract is concluded between the parties pursuant to a monetary option transaction agreement, etc., the general provisions comprehensively stipulated in the monetary option transaction agreement, etc., including the definition of terms, the timing and method of performing the option transaction, default, termination, settlement at the time of termination, termination, prohibition of transfer and security, contractual currency, method of concluding the currency option transaction, etc., are generally likely to fall under the terms and conditions, since there is no possibility of individual negotiation or choice between the parties.

However, according to the reasoning of the lower judgment, the specific terms and conditions of the instant currency option contract, such as the contract amount, exercise rate, melter exchange rate, melter exchange rate, recreation, contract term, etc., which are major contract terms, are not pre-determined by individual negotiations between the Plaintiff and the Defendant.

Furthermore, the structure of each currency option contract of this case, including the terms and conditions of melting and melting, the structure of which is larger than the theoretical value of put options acquired by the company, and the structure of not receiving the difference as commission fees, is merely a standardized structure in which the Defendant, like other over-the-counter derivatives, appropriately changed the structure and conditions of the contract depending on the needs of customers, uses them as a standardized structure, and the structure alone does not create any rights and duties between the parties to the transaction. In addition, insofar as specific contract terms and conditions are completed only due to the occurrence of contract terms and conditions determined by individual negotiations, such as contract amount, exercise exchange rate, green and melting exchange rate, margin, contract term, etc., the structure itself does not constitute a standardized contract itself.

In the same purport, the lower court is justifiable to have determined that only the part concerning the structure of the contract of the instant currency option contract constitutes a standardized contract, and there is no error in the misapprehension of legal principles as to the nature of the standardized contract of the KIKO currency option contract, as otherwise alleged in the ground of appeal. In addition, insofar as the structure of the instant currency option contract cannot be deemed a standardized contract, the remaining grounds of appeal on the premise that it

2. As to the Plaintiff’s ground of appeal on the assertion such as deception and mistake

A. As to the assertion of deception, mistake, etc. regarding the value of options, fees, etc.

Generally, a seller of goods or services does not have a duty to inform or disclose to a buyer of the components, such as its cost or sales profit, with respect to the sales price of the goods or services he/she sells. This does not apply to the case where a bank trades over-the-counter derivatives in the structure of calc structure in which it does not collect any cost or fees separately from a customer. Moreover, the fact that a bank seeks certain profits as a counterparty to an over-the-counter derivatives transaction is reasonable in view of the characteristics of a market economy, and thus, any person may anticipate such fact. Therefore, barring special circumstances, such as where the duty of disclosure of price components is recognized under a contract or a statute, a bank cannot be said to have a duty to notify a customer of the theoretical value of options, fees, and the price market value generated therefrom included in the structure of calca-counter derivatives, and it cannot be said that it did not give such notice to a customer a deceptive act, or that it did not cause a mistake that a

The lower court rejected the Plaintiff’s assertion that the Plaintiff cancelled each currency option contract of this case on the grounds that there was deception or mistake regarding the value and commission of options in concluding the instant currency option contract, etc. In other words, the “catch” does not mean that the theory of options acquired by banks and companies is identical, but it means that a contracting party pays for options in exchange for options, so a separate realistic premium is not received. The Defendant may sufficiently anticipate that the Plaintiff would recover the cost of the contract and hold certain profits. Furthermore, the purport of Article 65 subparag. 6 (e) of the former Rule on the Performance of Banking Business Supervision (amended by November 17, 2010) is that it is difficult to view that the Plaintiff did not receive any difference in the value of the instant currency option contract in light of the theoretical difference between the Plaintiff and the Plaintiff’s respective terms and conditions of the contract, and thus, it is difficult to view that the Plaintiff did not receive any difference in the exchange rate or commission of options in the instant currency option contract. Furthermore, it is difficult to view that the Plaintiff did not receive any difference in the terms and conditions of the contract of this case.

In light of the above legal principles and records, the above judgment of the court below is justifiable. In so doing, it did not err by misapprehending the legal principles as to the establishment of deception and mistake as otherwise alleged in the ground of appeal.

B. As to the assertion of fraud, error, etc. relating to the foreign exchange hedge failure

The purpose of exchange hedge transactions using over-the-counter derivatives is not to maximize profits, but to eliminate risks associated with the price fluctuation in foreign exchange goods, an underlying asset, by fixing the exchange rate to be applied at the present time at a certain rate of exchange regardless of future exchange rate fluctuations. In the case of KIKO currency option products, if a customer who holds or is expected to hold in the future foreign exchange goods equivalent to the call option contract amount, entered into a contract for the purpose of exchange hedging in the said foreign exchange goods, then the relevant contract itself is deemed to have no change in overall profits regardless of the degree of exchange rate increase, as the foreign exchange profit occurs in the said foreign exchange goods. This is the original purpose of exchange hedging to be formed through the currency option contract.

In light of this point, a currency option contract may be disadvantageous to a customer when there is a difference in the theoretical value of options granted between a customer and a bank, or when exchange rate increases, it cannot be said that the conclusion of such a currency option contract would rather be exposed to a larger exchange risk than before the contract is concluded.

Therefore, the lower court is justifiable to have determined that the instant currency option contract is inappropriate for avoiding exchange risk by simply comparing the theoretical value of put option and put option, and that the instant currency option contract is a partial exchange risk avoidance product, and thus, it is difficult to view it as a derivatives unsuitable for avoiding exchange risk in essence without considering the structure of individual companies’ various trade objectives, exchange rate outlook at the time of conclusion, degree of risk preference, property status, etc., and thus, it cannot be deemed that it is inappropriate for avoiding exchange risk. In so doing, the lower court did not err by misapprehending the legal principles on deception or mistake in relation to the suitability of avoiding exchange risk, contrary to what is alleged in the Plaintiff’s grounds of appeal. The Plaintiff’s ground of appeal on this part is without merit.

C. As to the assertion of fraud, error, etc. on the possibility of exchange rate fluctuations, etc.

The Plaintiff asserted that the lower court did not recognize that the Defendant had deceiving or caused mistake as to the possibility of exchange rate fluctuations. However, this is not a legitimate ground of appeal, as it did not err in the selection of evidence and fact-finding, which are all the matters of the lower court’s exclusive authority. Ultimately, the Plaintiff’s allegation in this part of the grounds of appeal cannot be accepted.

3. As to the Plaintiff’s ground of appeal on the termination of a contract on grounds of change in circumstances

A. The termination of a contract on the grounds of change in circumstances is recognized as an exception to the principle of contract observance in cases where a significant change in circumstances occurs that could not have been predicted by the parties at the time of the formation of the contract, and such change in circumstances arose for reasons for which the party who acquired the right to cancel is not responsible. If the binding force of the content of the contract is recognized, the change in circumstances here refers to an objective circumstance which served as the basis of the contract, and does not mean the subjective or personal circumstance of either party. Therefore, even if a circumstance which is not the basis of contract formation subsequently changes, which results in damage by a party being unable to achieve the purpose of the contract intended at the time of the formation of the contract, barring special circumstances, maintaining the validity of the contract as it is cannot be deemed as contrary to the principle of good faith (see, e.g., Supreme Court Decision 2004Da31302, Mar. 29, 2007). Such a legal doctrine likewise applies

B. According to the records, the Plaintiff, a continuous contract, sharply increased the inherent change in foreign exchange rate after the conclusion of the instant currency option contract. The change in objective circumstances, which form the basis of the instant currency option contract, was not foreseeable by the parties, but was caused by a cause not attributable to the parties, and the change in foreign exchange rate in a stable manner within a certain period during the contract period, constitutes a common concept. As such, the rapid increase in foreign exchange rate is an essential error that seriously goes against the parties’ fundamental concept (mainal act). Thus, the Plaintiff asserted to the effect that the Plaintiff may terminate the instant currency option contract in accordance with the good faith principle. Accordingly, the lower court rejected its assertion on the following grounds.

① The possibility of exchange rate fluctuation is the content or content of the instant currency option contract. The Plaintiff and the Defendant do not seem to have taken over the risks when the exchange rate changes in direction and width different from each other, and cannot be deemed to have been the basis of the contract. ② The possibility of exchange rate per se in reality was already premised in the design process of each instant currency option contract, as well as the possibility of exchange rate fluctuations. ③ Even if the value given at the time of the instant contract was used for technical reasons in the design of the option product, it is difficult to view that it is naturally premised on the change in its inherent nature or only within a certain scope, even if it was used for calculating the option price at the time of the instant contract and the future contract period. ④ Even if the inherent change in the currency option increases far beyond the general expectation after the contract, it is difficult to view that the Plaintiff completely excluded the possibility of the instant currency option contract from the extent of its inherent change or maintaining the binding structure of the instant currency option contract, apart from the fact that each of the instant currency option contract was concluded after the conclusion of the instant currency option contract.

The above decision of the court below is just in accordance with the above legal principles, and there is no error in the misapprehension of legal principles as to the requirements for termination on the ground of change of circumstances, etc., as otherwise alleged in the ground of appeal by the plaintiff. The plaintiff's ground of appeal on

4. Plaintiff’s ground of appeal on the suitability principle

A. As to the assertion of violation of the suitability principle in relation to foreign exchange hedge failure

A hedge transaction is for the purpose of reducing, in whole or in part, the risk of price fluctuation arising from the spot transaction that 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 from the price fluctuation in the spot and from the entire section, and is in the opposite direction only to the specific section. Therefore, if a party who intends to make the hedge transaction has a special prospect or objective in relation to the price fluctuation in the spot transaction in the spot, it is possible to choose the hedge transaction that is at risk only within the specific section by taking into account other transaction terms and conditions. Therefore, it cannot be readily concluded that the hedge transaction is inappropriate solely on the ground that it does not avoid risk in the entire section. Moreover, if a party owns or is expected to hold a currency option contract for the purpose of foreign exchange hedging for the said spot transaction, regardless of the degree of increase in exchange rates, the overall profit or loss does not change as seen earlier.

In the same purport, the court below's rejection of the plaintiff's assertion that the currency option contract of December 20, 2007 itself is inappropriate for exchange hedging, and there is no violation of law as otherwise alleged in the ground of appeal.

B. As to the assertion of violation of the suitability principle taking into account specific and individual circumstances

(1) The lower court rejected the Plaintiff’s assertion that the Defendant violated the suitability principle in concluding a contract on December 20, 2007.

(A) citing the reasoning of the judgment of the court of first instance, the lower court determined that the Plaintiff’s assertion that the Plaintiff violated the suitability principle at the time of concluding the currency option contract as of December 20, 2007, on the grounds that the currency option contract as of December 20, 2007, was an appropriate foreign exchange hedge product, which was concluded under the prospect of exchange rate decline at the time when the exchange hedge was necessary, and that the Defendant explained the structure and content to the Plaintiff, and that the contract amount was also determined within the appropriate scope compared to the export price.

(B) In addition, the lower court determined on December 20, 207 whether the instant currency option contract was in violation of the principle of suitability due to OBH, based on whether it was reasonably predicted at the time of the contract as of December 20, 207 as of the reasonable scale. It does not seem that the Plaintiff could have anticipated that the export performance, etc. in 2008 was different from that in 2007. Thus, even in the Plaintiff’s assertion, the lower court determined that, based on the Plaintiff’s 4,767,065 US dollars (4,772,631 US$), which was the net input amount in 207 when it was concluded on December 20, 207, the difference between the Plaintiff and the Defendant’s 2000 US$32,935,000,0000, which was the contract price of the currency option contract at the time of 205 US275,57,207.

(2) However, we cannot accept the above judgment of the court below in the following point.

(A) In concluding a contract with an enterprise having the purpose of foreign exchange hedging, a bank shall not, in advance, grasp the management conditions of the relevant enterprise, such as the expected foreign currency inflow amount, assets and sale size, transaction purpose, transaction experience, degree of knowledge or understanding on the relevant contract, and other exchange hedging contracts, and shall not invite the relevant enterprise to enter into a contract of a kind deemed inappropriate or a contract of a kind having such characteristics. If a bank actively solicits a contract to enter into a contract which causes an excessive risk in light of the management conditions of the relevant enterprise in breach of such obligations, it constitutes a tort as it violates the so-called suitability principle and is in violation of the duty to protect customers.

In particular, OTC derivatives are likely to excessively expand losses in cases where it is predicted that the OTC derivatives are 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 the soliciting of banks may have a strong impact on corporate decision-making. Therefore, it is reasonable to view that banks are more obligated to protect customers than other financial institutions when soliciting transactions of OTC derivatives with a high risk as above.

(B) According to the reasoning of the judgment below, the Plaintiff is obligated to sell twice the amount of put option contract to the Defendant when the market price at maturity rise above the melting exchange rate. Therefore, in the event that the Plaintiff does not hold foreign exchange in kind on the basis of the contract price at the exchange rate above the melting exchange rate, the Plaintiff is obligated to sell double times the amount of sales through additional expenses for purchasing foreign exchange goods. As such, the above contract is likely to incur actual loss. However, according to the Plaintiff’s export performance based on the 2007 export performance, even if it was based on the Plaintiff’s 4,80,000 US dollars contract amount based on the 207 export performance, it is difficult to view the Plaintiff’s 7,070,000 US dollars contract amount in light of the Plaintiff’s major records on the sales performance of the 2070,000 US currency option contract, and each of the above 277,070,000 US dollars contract amount was presented to the Plaintiff.

Therefore, the lower court determined that the Defendant did not comply with the suitability principle solely on the grounds that the difference between the previous export performance and the call option contract, including the previous sales performance in 2007 and the two recommendations, the difference between the call option contract amount and the call option contract amount in 2007, on the ground that the Plaintiff’s previous export performance, the expected foreign currency inflow amount, other property status, and the conclusion of other foreign exchange hedging contracts, etc. were revealed.

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 Plaintiff’s ground of appeal assigning this error is with merit.

5. Plaintiff’s ground of appeal on the duty to explain

A. In cases where a financial institution trades over-the-counter derivatives with specialized knowledge and analysis capacity between general customers, barring where customers already know the structure and risk of the relevant over-the-counter derivatives, it is obligated under the good faith principle to clearly explain major transaction information, such as risk factors inherent in the transaction in order to accurately assess the relevant risk and potential loss (see, e.g., Supreme Court Decision 2010Da55699, Nov. 11, 2010). In such cases, major transaction information that a financial institution must explain to a customer includes both the structure and main contents of the relevant over-the-counter derivatives contract, the details of profits and losses that the customer may gain through the transaction, and the risk factors of loss.

However, it is not necessary to explain any difference in profit and loss in comparison with the case of investment in the detailed financial engineering structure of the pertinent over-the-counter derivatives or other financial instruments. Also, even in the case of an over-the-counter derivatives transaction with a co-market structure, the amount of fees, etc. shall not be deemed an important factor for assessing the risk of the transaction. Thus, insofar as fees are not significantly excessive compared to the market practice, it is reasonable to deem that there is no obligation to explain the fees included in the product structure and the masp market value arising therefrom. Furthermore, it is reasonable to deem that the over-the-counter derivatives transaction cannot be arbitrarily terminated in the middle of the general contract, as well as the general contract, and even if it can be terminated in the middle, it is possible to agree with the financial institution including the liquidation money even if it can be terminated in the middle, barring any special circumstance, it cannot be said that the financial institution is obligated to explain even about the general scale and method of calculating the liquidation money.

Meanwhile, a financial institution must explain to the extent that it can sufficiently understand the principal information necessary for customers to accurately assess the structure and risk of the transaction of the relevant derivatives by comprehensively taking into account the characteristics and risk level of financial products, the purpose of transaction, investment experience and ability of customers (see, e.g., Supreme Court Decision 2001Da11802, Jul. 11, 2003). In particular, it is highly dangerous that the pertinent financial product is developed with highly high level of financial engineering knowledge, and the outcome of profit and loss varies considerably depending on the difficult changes in the future, such as exchange rate. Furthermore, in cases where the objective situation appears to have reached the degree of pursuing exchange margin according to exchange rate rather than exchange hedging purpose in light of the expected foreign currency inflow of individual parties to the transaction, financial institution must explain the risk of the transaction of over-the-counter derivatives in a specific and detailed manner so that customers can clearly recognize the risk of the transaction of over-the-counter derivatives and shall be liable to compensate for damages arising therefrom if it fails

B. According to the records, the Plaintiff asserted that the Plaintiff violated the duty to explain by failing to inform the Plaintiff of the fact that the Plaintiff may incur unlimited loss due to the structure of the instant currency option contract and that the damage would be expanded due to the fulfillment of the conditions when the contract is prolonged, by failing to provide specific and sufficient explanation on the risk of melting the contract, by issuing a call option, and by failing to notify the Plaintiff of the fact that a lump sum settlement is required at early settlement. Accordingly, the lower court acknowledged that at the time of each of the instant currency option contract, the Plaintiff could avoid exchange risk only within a certain range of exchange rate higher than the melting exchange rate, in particular, when the maturity exchange rate comes to increase above the melting exchange rate, and that the Plaintiff did not explain the structure and content of the put option contract as to the currency option contract as of December 20, 2007, and did not explain the risk of the Plaintiff’s failure to explain to the Plaintiff within the extent of the Plaintiff’s export price.

First of all, we examine the currency option contract on January 23, 2008. In light of the legal principles on major transaction information to be explained by the financial institution and the defendant's explanation and degree at the time of conclusion of the contract, including matters acknowledged by the defendant as explained by the court below, we affirm the judgment of the court below that did not recognize the plaintiff's violation of the duty of explanation as to the remaining matters alleged in the ground for appeal. There are no errors in the misapprehension of legal principles as to the duty of explanation as otherwise alleged in the ground for appeal.

Next, we examine the currency option contract on December 20, 207. The judgment of the court below that did not recognize the violation of the duty to explain on the currency option contract on December 20, 2007, like in the currency option contract on January 23, 2008. There is no error in the misapprehension of legal principles as to the duty to explain, as otherwise alleged in the ground of appeal. However, at the time of concluding the currency option contract on December 20, 2007, the contents explained to the Plaintiff are the same as in the currency option contract on January 23, 2008, where the court below acknowledged the violation of the duty to explain on danger. In so doing, as seen earlier, it is necessary to determine the possibility that the currency option contract would cause harm to the Plaintiff. Accordingly, the court below erred in the misapprehension of legal principles as to the Plaintiff’s duty to explain on the risks arising from the currency option transaction, and thus, did not err in the misapprehension of legal principles as to the Plaintiff’s duty to explain.

6. As to the Plaintiff’s ground of appeal on comparative negligence offsetting

A. If the victim was negligent with regard to the occurrence or expansion of damage caused by a tort, it shall be taken into account as a matter of course in determining the scope of the tortfeasor’s compensation. If the harmful act is an act of acquisition, such as fraud, embezzlement, or breach of trust, and if the harmful act is recognized as offsetting negligence, it shall not be exceptionally allowed to offset negligence only in cases where the perpetrator ultimately holds profits arising from the tort and thereby causes a result contrary to the principles of equity or good faith (see Supreme Court Decision 2006Da16758, 16755, Oct. 25, 2007, etc.).

However, since the defendant's violation of the principle of suitability and duty to explain against the plaintiff cannot be seen as an act of acquisition, it is reasonable to consider the plaintiff's negligence in determining the scope of the defendant's damage compensation. The plaintiff's ground of appeal is based on a different opinion, and the plaintiff's mistake is caused by the defendant's violation of duty to protect the defendant's customer, so the amount of compensation should not be mitigated for the plaintiff's negligence. However, it cannot be accepted in light of the above legal principles. Accordingly, there is no error of law

B. Where the victim was negligent in causing or expanding damage in a tort compensation case, it should be taken into account as a matter of course in determining the scope of liability for damages. However, fact-finding or determining the ratio of comparative negligence shall be deemed to fall under the exclusive authority of a fact-finding court unless it is deemed significantly unreasonable in light of the principle of equity (see Supreme Court Decision 2002Da43165, Nov. 26, 2002, etc.).

According to the reasoning of the judgment below, the court below set the defendant's liability ratio as 35% of total damages in consideration of various circumstances as stated in its reasoning. The court below's fact-finding or its ratio judgment as to the grounds for comparative negligence is within the acceptable scope, and it is not considerably unreasonable in light of the principle of equity. Thus, there is no error of law such as misunderstanding of legal principles as to comparative negligence, lack of reasons, or failure of reasoning as

7. As to the Defendant’s ground of appeal

For the following reasons, the lower court determined that the Defendant violated the suitability principle while concluding a currency option contract on January 23, 2008.

In other words, the Plaintiff’s active solicitation of the currency option contract on January 23, 2008 is confirmed not to have actively decided by the Plaintiff, but to have determined the contract amount. Meanwhile, the Plaintiff’s export performance in 2007 included USD 5,95,510 or UN currency export price, excluding USD 4,772,631. The instant currency option contract is for avoiding the exchange risk of USD 207, and it is not for avoiding the exchange risk of the total foreign currency including the United Nations. Thus, the Plaintiff’s export export price of USD 207 should not be considered as the basis for the Plaintiff’s recommendation of the contract amount of USD 40,000,000 from March 5, 2007 to KRW 40,000,000,000,000,0000,000,000,0000,000 more than 7,000,000.

Examining the records in light of the above suitability principles, the above judgment of the court below is just, and there is no error of law by misapprehending the legal principles as to the suitability principles, as otherwise alleged in the ground of appeal.

In addition, the remaining grounds of appeal are purporting to dispute the judgment of the court below which acknowledged that the defendant actively recommended the currency option contract on January 23, 2008, which is the exclusive authority of the fact-finding court, and it is not a legitimate ground of appeal.

Therefore, the defendant's argument in the grounds of appeal cannot be accepted.

8. Conclusion

Therefore, among the part against the plaintiff as to the conjunctive claim of the court below, the part concerning the currency option contract of December 20, 2007 is reversed, and this part of the case is remanded to the court below for a new trial and determination. The remaining appeals by the plaintiff and the defendant are all dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yang Chang-soo (Presiding Justice)