[1] 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

[2] 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

[3] The case affirming the judgment below which rejected the above assertion on the ground that the KIKO currency option contract is not structurally inappropriate for avoiding exchange risk, in case where Gap corporation's deception from Eul bank and concluded a KIKO currency option contract which is inappropriate for avoiding exchange risk, and thus the contract was revoked

[4] 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)

[5] Details and degree of the duty to protect customers to be borne by a bank when entering into a currency option contract with a company with a foreign exchange hedging purpose

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

[1] [1] [5] [6] Supreme Court en banc Decision 2011Da53683, 53690 Decided September 26, 2013 (Gong2013Ha, 1882), Supreme Court en banc Decision 2012Da1146, 1153 Decided September 26, 2013 (Gong2013Ha, 1901), Supreme Court en banc Decision 2012Da13637 Decided September 26, 2013 (Gong2013Ha, 1916), Supreme Court en banc Decision 2013Da26746 Decided September 26, 2013 (Gong1) (Gong2013Ha, 1954) / [1] Supreme Court Decision 2010Da160508, Jul. 10, 2015 (Gong2013Ha, 1954)

BMFF Co., Ltd. (Law Firm Fla, Attorneys Lee Ho-ho et al., Counsel for the defendant-appellant)

Korea Exchange Bank (Attorneys Son Ji-yol et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2011Na8470 decided February 7, 2013

All appeals are dismissed. The costs of appeal are assessed against each appellant.

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 the instant currency option contract

A. As to the assertion on unfair conduct, etc. under the Civil Act

In regard to the Plaintiff’s assertion to the effect that the instant currency option contract constitutes unfair practices, such as where there exists a significant imbalance between the values of each option exchanged through the contract, etc., the lower court determined that, upon recognition of the circumstances as indicated in its reasoning, it was unreasonable on the grounds that the existence of a significant imbalance between the Plaintiff and the Defendant’s respective option values, or that the Defendant’s exhaustion was excessive.

In light of the records, the judgment of the court below is just, and there is no error in the misapprehension of legal principles as to unfair legal acts or incomplete hearing as otherwise alleged in the ground of appeal.

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

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 own interest by undergoing individual negotiations with regard to a specific provision, such provision shall be deemed an individual agreement not subject to the Regulation of Standardized Contracts Act. In order to determine that there was an individual negotiation, 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 in an equal position with the party who prepared the specific provision in advance (see Supreme Court Decision 2008Da16950, Jul. 10, 2008, etc.).

According to the reasoning of the lower judgment and the record, the Plaintiff and the Defendant prepared a monetary option transaction agreement that comprehensively provides for the definition of terms, performance of options transactions, default, settlement at the time of termination, termination of a contract, prohibition of transfer and provision of security, contractual currency, and method of concluding currency option transactions, etc. However, the Plaintiff and the Defendant may be aware of the facts that the Plaintiff and the Defendant have decided through individual negotiations, such as the contract amount, exercise rate, exchange rate, green and green-level exchange rate, and contract period, which are the specific

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 the instant currency option contract, i.e., the structure of the instant currency option contract, i., the melter and Green-out condition, the structure of resort options acquired by the bank, and the difference as fees, and the structure of not receiving the difference is prepared in advance so that the Defendant can use the relevant structure or condition appropriately according to the needs of customers, like other over-the-counter derivatives. Thus, the structure alone does not create any rights and obligations between the parties, and it is concluded only because specific terms and conditions of the contract, such as contract amount, exchange rate, melter and Green-out exchange rate, recreation, contract period, etc., are combined. Thus, the structure itself cannot be deemed as a separate terms and conditions.

In the same purport, the court below is just in holding that the structure of the instant currency option contract cannot be a standardized contract, and there is no error in the misapprehension of legal principles or incomplete deliberation as to the Regulation of Standardized Contracts Act, as otherwise alleged in the ground of appeal. In addition, as long as the structure of the instant currency option contract cannot be seen as a standardized contract, the remaining grounds of appeal on the premise that the structure is a standardized contract

C. As to the assertion regarding violation of good faith, good morals, and other social order

The Defendant’s violation of the suitability principle and duty to explain at the time of entering into the instant currency option contract is examined below, but the instant currency option contract cannot be deemed null and void solely for such reasons. This part of the grounds of appeal cannot be accepted.

In addition, there is no record that the Defendant, by itself, concluded the instant currency option contract for speculative purposes, or recommended the conclusion of the contract in the absence of losses to the Plaintiff, and the instant currency option contract cannot be deemed as a product inappropriate for avoiding exchange risk, as examined below. As such, the allegation in the grounds of appeal that the instant currency option contract is invalid contrary to good customs and other social order cannot be accepted.

2. As to the Plaintiff’s ground of appeal on whether the instant currency option contract was revoked

A. As to the assertion of deception on the suitability of foreign exchange hedging

The purpose of foreign currency hedge transactions is not to maximize profits, but to eliminate the risks associated with the price fluctuation in goods, an underlying asset, by fixing the exchange rate to be applied at the present time at a certain exchange rate regardless of future exchange rate fluctuations. Therefore, if a customer who holds or is expected to hold in the future a foreign currency option contract equivalent to the call contract price of the KIKO currency option product as an underlying asset for the purpose of seeking exchange in the said foreign exchange goods, if the foreign currency option contract was entered into for the purpose of seeking exchange in the said foreign exchange goods, then the contract itself cannot be said to have suffered losses due to the increase in exchange rates because there occurs a large amount of exchange gains in the said foreign exchange goods. Rather, this is consistent with the purpose of exchange hedge to be achieved by the customer immediately through the said currency option contract (see, e.g., Supreme Court en banc Decision 2011Da53683, 53690, Sept. 26, 2013).

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, it is justifiable for the court below to have determined that the contract of this case cannot be concluded by deceiving the plaintiff in this respect since the contract of this case cannot be deemed to be inappropriate for avoiding exchange risk structurally. Contrary to the allegations in the grounds of appeal, there were no errors in the misapprehension of legal principles as to the establishment and object of deception as to the suitability of exchange hedging of this case, incomplete deliberation, and violation of the

B. As to the assertion of deception regarding fees, etc.

Generally, a seller of goods or services does not have a duty 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 a transaction of over-the-counter derivatives in the structure of calc structure, which is the so-called calc structure where a bank does not collect expenses or fees from a customer separately. Furthermore, a bank is expected to pursue certain profits from a transaction of over-the-counter derivatives 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 statute, it cannot be deemed that a bank has a duty to notify a customer of the theoretical value, fees, and the price market value of the options included in the structure of the over-the-counter derivatives, which is calculate, and it cannot be deemed that the failure to give such notice causes a mistake to a customer, or that the bank does not incur any expenses or fees from the transaction of over-the-counter derivatives (see Supreme Court en banc Decision 2011Da53683690,

The court below rejected the Plaintiff’s assertion that the Defendant’s theory of the option acquired by the Plaintiff is considerably low compared to the theoretical value of the option that the Plaintiff acquired pursuant to the instant currency option contract, and that the Plaintiff could not additionally bear other expenses because it was designed to equal the value of the option in return for the payment of fees or margin, and thus, the Plaintiff’s assertion that the instant currency option contract was revoked on this ground. The purport of the Defendant’s assertion that the instant currency option contract was revoked is that the Plaintiff did not actually pay the expenses when concluding the instant contract by equally adjusting the price of the call option exchanged through the instant currency option contract and the large customer price of put-in option. As such, the Defendant’s conclusion that the instant currency option contract was concluded by the company pursuing profit-making by the Defendant, and that the Plaintiff would have recovered the expenses and retain certain profits, cannot be said to have been easily known as the exporter, and that the Defendant’s fee was excessive. Thus, the Defendant could not be said to have concluded the instant

In light of the above legal principles and records, the above judgment of the court below is justifiable. Contrary to the allegations in the grounds of appeal, there are no errors in the misapprehension of legal principles as to the nature and object of deception as to fees, etc., incomplete hearing, or violation of

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

The Plaintiff asserted that the Plaintiff had deceiving the possibility of exchange rate fluctuations, such as concluding that the Plaintiff was a stable decline in exchange rates and would not rise above a certain level, and the lower court did not explicitly determine this point. However, in light of the records, although the Defendant explained that at the time of entering into the instant currency option contract, it cannot be deemed that there was deception on the possibility of exchange rate fluctuations, etc., in light of the situation of exchange rate prospects at the time of entering into the said currency option contract, the Plaintiff’s assertion in this part is clearly dismissed. Therefore, it cannot be deemed that the lower court’s failure to explicitly determine the above assertion was affected by the conclusion of the judgment. The allegation in the grounds of appeal on this part is unacceptable.

3. As to the Plaintiff’s ground of appeal regarding the notification of the exercise of call options

In a case where there is a difference between the parties regarding the interpretation of a contract, and the interpretation of the intention of the parties expressed in the disposition document is at issue, such interpretation shall be reasonably interpreted in accordance with logical and empirical rules by comprehensively taking into account the contents of the text of the contract, the motive and background leading up to such an agreement, the purpose to be achieved by the agreement, the parties’ genuine intent, etc. (see Supreme Court Decision 96Da1320, Apr. 9, 19

For the reasons indicated in its holding, the lower court determined that the exercise of options is not necessary, regardless of whether a party’s rights and obligations pursuant to the instant currency option contract are notified of the exercise of options, finally arising at the market exchange rate and at the maturity rate until maturity.

In light of the above legal principles and records, the above judgment of the court below is just and acceptable, and there is no error of law such as misunderstanding of legal principles, lack of reasons, and incomplete hearing concerning the legal effect of non-compliance with the notice of exercise of options, as otherwise alleged in the ground of appeal.

4. As to the Plaintiff’s ground of appeal on the violation of the duty of ex post customer protection

The court below rejected the plaintiff's assertion that the defendant neglected the duty of ex post facto customer protection, which should seriously encourage appropriate measures to prevent loss of customers if the risk under contract occurred due to reality, on the ground that the defendant was found to have implemented additional loans to the plaintiff and cancelled the first collateral security, and there is no evidence to prove that the defendant violated the duty of ex post customer protection.

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.

5. As to the defendant's grounds of appeal on whether the suitability principle and duty to explain have been violated

A. As to the argument on the suitability principle

(1) Upon entering into a contract with an enterprise with a purpose of foreign exchange hedging, a bank shall not invite a company to enter into a contract which is inappropriate for the company in question, after ascertaining its management conditions, such as the expected foreign currency inflow amount of the company, asset and sale size, asset status including the size of assets and sale, foreign exchange hedging, transaction purpose, transaction experience, knowledge or understanding degree of the contract in question, and other foreign exchange hedging contract. If a bank, in violation of such duty, actively solicits a contract to enter into a contract which causes an excessive risk in light of the management situation of the company in question, such solicitation is illegal in violation of the principle of suitability, and thus constitutes a tort. In particular, where a situation different from a situation is predicted by using high financial and engineering knowledge, it is likely to excessively extend losses if it takes place, and on the other hand, it is reasonable to see that it has more credibility than those of financial institutions specialized in investment in various aspects such as requirements for authorization, scope of business, supervisory structure, etc., and thus, it is more likely that it has a strong risk of protecting customers’ decision-making.

(2) According to the reasoning of the lower judgment, the lower court: (a) was established on March 8, 200 on the part of Nonparty 1’s 70 billion won currency option contract; (b) concluded 70 billion won currency option contract with Nonparty 2; (c) concluded 70 billion won on the part of Nonparty 1’s husband; and (d) concluded 70 billion won currency option contract with Nonparty 2; and (e) concluded 20 billion won on the part of Nonparty 1’s husband; and (e) concluded 70 billion won currency option contract with Nonparty 2; and (e) concluded 70 billion won on the part of Nonparty 1’s Plaintiff’s Plaintiff’s Plaintiff’s 70 billion won currency option contract with Nonparty 2; and (e) concluded 7 billion won on the part of Nonparty 2’s 200 million won currency option contract with Nonparty 1’s 70 billion won currency option contract with Nonparty 30 billion won on the part of Nonparty 2’s 2006.

In addition, the lower court determined that the Plaintiff violated the suitability principle by soliciting the conclusion of the instant currency option contract, even though the number of exports was rapidly increased between the 10-70% prior to the conclusion of the instant currency option contract as a small export company and the sales was dependent on the non-party company, and the considerable amount of the export price was re-paid as the purchase price or the material cost of the Chinese local company in light of its business type. However, the Defendant, as a principal transaction bank for a considerable period of time, was able to easily grasp the Plaintiff’s business type or actual necessary exchange amount, and even though the Plaintiff stated that the additional contract was inappropriate for concluding with the non

In light of the above legal principles and the above facts, the above judgment of the court below is just, and there are no errors in the misapprehension of legal principles as to the suitability principle or the violation of the rules of evidence as otherwise alleged in the ground of appeal

B. As to the assertion on the duty to explain

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 risk factors inherent in the transaction in order for customers to accurately assess the structure and risk of the transaction in question, unless the customer is already aware of such risk. In such cases, major transaction information to be explained to a customer is included in 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 in particular, risk factors of loss occurrence (see Supreme Court en banc Decision 2011Da53683, 53690, etc.).

In addition, financial institutions should explain to the extent that customers can fully understand major information on the transaction, by comprehensively taking into account the characteristics and risk level of financial products, transaction purpose of customers, investment experience and ability, etc. In particular, the relevant financial products are developed by highly advanced financial engineering knowledge, and the result of profit and loss depending on the difficult change factors such as exchange rate. Moreover, in cases where the objective situation seems 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 inflows of customers who are parties to an individual transaction, financial institutions are obliged to specifically and in detail explain the risk of over-the-counter derivatives transaction so that customers can clearly understand the risk of one story (see Supreme Court en banc Decision 2012Da146, 1153, Sept. 26, 2013, etc.).

In light of the above legal principles and the records, the defendant can be found to have not provided specific and detailed explanation as to the risk that may be caused to the plaintiff by concluding the contract of this case in light of the plaintiff's business situation. Thus, the defendant did not fulfill his duty to explain in relation to the conclusion of the contract of this case.

The reasoning of the court below is partially inappropriate, but the conclusion of the court below that recognized the defendant's violation of the duty to explain is just, and there is no error of law such as misunderstanding of legal principles or inconsistent reasoning as otherwise alleged in the ground of appeal.

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

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 tortfeasor ultimately holds profits from the tort and thereby causes the 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 the 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 damages. The ground of appeal is with different view, and the plaintiff's mistake is caused by the defendant's violation of the duty to protect the defendant's customer, so the amount of damages should not be mitigated on the ground of the plaintiff's negligence, but it cannot be accepted in light of the above legal principles. Therefore, the judgment of the court below is not erroneous in the misapprehension of legal principles

B. Where the victim was negligent in causing or expanding damage in a tort compensation case, it must 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 is within the discretionary authority of a fact-finding court unless it is deemed considerably 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 30% of total damages in consideration of various circumstances as stated in its reasoning. The court below's fact-finding or its determination on the grounds for offsetting negligence is within the acceptable scope, and it is not considerably unreasonable in light of the principle of equity. The judgment of the court below is not erroneous in the misapprehension of legal principles as to comparative negligence, incomplete reasoning, omission of judgment, etc., as otherwise

7. Conclusion

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

Justices Kim Shin (Presiding Justice)