[1] Whether ordinary investors making a stock investment shall be deemed to have traded stocks by reliance on the audit report by an outside auditor of the pertinent company and reliance on such audit report (affirmative)

[2] The amount of damages that can be claimed by a stock investor who traded shares based on the auditor’s insolvent audit based on the liability for tort under the Civil Act (=the amount corresponding to the share price that has been lost due to an insolvent audit) and the method of calculating such damages

[3] Whether finding facts or determining the ratio of limitation of liability in a claim for damages falls under the exclusive authority of the fact-finding court (affirmative in principle)

[4] The case holding that in a case where Gap filed a lawsuit seeking compensation for damages arising from a tort against Jung-accounting who prepared audit report containing false contents without finding facts, such as the president Byung and the window dressing accounting of Eul bank, who invested in Eul bank's window dressing accounting, but actively participated in losses and window dressing accounting, the court held that although it is inappropriate to determine the ratio of liability of the fixed corporation to be the same as Byung who actively participated in the window dressing accounting, etc., it is inappropriate to determine the ratio of liability of the fixed corporation to be limited to 40% in light of the substance and the result of the corporation's negligence, and it cannot be deemed that the ratio of liability of the fixed corporation is less than 40% and it is not clearly unreasonable in light of the principle of equity, the court below determined the ratio of liability of the fixed corporation to 40% as 40% in light of the principle of equity

[1] One of the most important factors in stock transaction. An audit report prepared through an audit by an external auditor on the financial statements of the company in question revealing accurate financial conditions of the company in question, which has an effect on ordinary investors on the formation of stock prices by providing and publicly announcing the audit report indicating the financial status of the company in question to ordinary investors. An ordinary investor making stock investments should be deemed to have traded the company’s stocks on the basis of the belief that the audit report indicating the financial status of the company in question was duly prepared and publicly announced and that the share price was formed on the basis of the share price as a matter of course.

[2] The amount of damages that can be claimed from an auditor who has conducted a stock transaction based on an auditor’s insolvent audit based on the liability for tort under the Civil Act is generally equivalent to the share price that has been lost due to such fraudulent audit. Barring special circumstances, the amount equivalent to such share price is the difference between the share price normally formed immediately before the suspension of the transaction due to a fraudulent audit and the share price normally formed at the time when the suspension of transaction due to a fraudulent audit is rescinded and the transaction is resumed after the resumption of the transaction from the end of the transaction. Such a difference between the sale price and the sale price where the sale price exceeds the normal share price newly formed after the commencement of the transaction.

[3] The fact-finding or determination of the ratio of limitation of liability in a claim for damages belongs to the exclusive authority of the fact-finding court unless it is deemed considerably unreasonable in light of the principle of equity.

[4] In a case where Gap filed a lawsuit seeking compensation for damages from tort against Eul bank's accounting corporation which prepared audit report containing false contents without discovering facts, such as Eul bank's president Byung Byung and window dressing accounting, after having been aware of the fact such as the window dressing accounting of Eul bank, and having been actively involved in losses and window dressing accounting, the court affirmed the judgment below's determination that the ratio of liability of Jung bank's corporation is not appropriate for determining the ratio of liability as 40% as 5% as 40% as 40% as 5% as 40% as 40% as 40% as 40% as 40% as 40% as 5% as 40% as 5% as 40% as 5% as 40% as 40% as 4% as 40% as 40% as unconstitutional in light of the negligence of the corporation's corporation violating the duty of care required by the external auditor and the result thereof.

[1] Article 750 of the Civil Act, Article 7-2 of the Act on External Audit of Stock Companies, Etc. / [2] Articles 393, 750, and 763 of the Civil Act, Article 7-2 of the Act on External Audit of Stock Companies, Etc. / [3] Articles 393, 750, and 763 of the Civil Act, Article 432 of the Civil Procedure Act / [4] Articles 393, 750, and 763 of the Civil Act, Article 432 of the Civil Procedure Act, Article 7-2 of the Act on External Audit of Stock Companies, etc.

[1] Supreme Court Decision 96Da41991 Decided September 12, 1997 (Gong1997Ha, 3078) / [2] Supreme Court Decision 97Da32215 Decided April 24, 1998 (Gong1998Sang, 146) / [3] Supreme Court Decision 2006Da19603 Decided November 30, 2007 (Gong2007Ha, 2043), Supreme Court Decision 2016Da26606, 26613 Decided November 29, 2018 (Gong2019Sang, 133)

Plaintiff

New Accounting Corporation (Law Firm LLC, Attorneys Yoon Hong-san et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2013Na52358 decided January 16, 2014

The appeal is dismissed. The costs of appeal are assessed against the defendant.

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

1. Whether an accounting firm violated the scope of external audit and duty of care (ground of appeal Nos. 1 and 2)

The lower court determined that the Defendant violated the duty of care required for the auditor by preparing an audit report containing false contents, without determining whether the small loan claims of the Japanese Savings Bank (hereinafter “ Japanese Savings Bank”) were in existence in an appropriate manner and without finding out the fact of window dressing accounting of the Japanese Savings Bank.

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine regarding the accounting firm’s scope of external audit and degree of duty of care, thereby failing to exhaust all necessary deliberations regarding the Defendant’s breach of duty

2. Difference between the accounting firm’s breach of its duty of care and the investor’s loss due to the investor’s stock acquisition (ground of appeal No.

In stock transaction, the company’s financial status is one of the most important factors for the formation of a stock price. An audit report prepared after the audit by an external auditor of the company’s financial statements revealing the accurate financial status of the company in question, which has an effect on the formation of the stock price by providing and publicly announcing to ordinary investors. An ordinary investor making stock investments shall be deemed to have traded the company’s stocks on the ground that the audit report indicating the financial status of the company in question was duly prepared and publicly announced, and that the stock price was formed on the basis of the pertinent company’s shares (see Supreme Court Decision 96Da41991, Sept. 12, 1997, etc.).

The amount of damages that can be claimed as the basis for tort liability under the Civil Act against an auditor who conducted a fraudulent audit based on an auditor’s insolvent audit is the amount corresponding to the share price that has been lost due to such fraudulent audit. Barring special circumstances, the amount corresponding to such share price is the difference between the share price normally formed immediately before the suspension of the transaction due to the fraudulent audit and the share price normally formed at the time when the suspension of the transaction due to the fraudulent audit was rescinded and the transaction was continued after the resumption of the transaction from the end of the transaction. Such a difference between the sale price and the sale price where the sale price exceeds the normal share price newly formed after the occurrence of the transaction (see Supreme Court Decision 97Da3215, Apr. 24, 1998, etc.).

The lower court deemed that there exists a causal link between the Defendant’s act in violation of the duty of care required to the auditor regarding the preparation of the audit report of this case and the Plaintiff’s acquisition of stocks of this case, and calculated the damages incurred by the Plaintiff from the transaction of this case. Such determination is justifiable in accordance with the legal doctrine as seen earlier. In so doing, it did not err by misapprehending

3. Scope of fact-finding discretion as to limitation of liability ratio (ground of appeal No. 4)

A. The lower court limited the Defendant’s liability to 40% of the amount of damages suffered by the Plaintiff, an external auditor of the Japanese Savings Bank, by taking account of the circumstances, etc. that it is difficult to eliminate the possibility that various factors such as the business performance or external market situation of the Japanese Savings Bank, such as the management performance of the Japanese Savings Bank, have influenced the stock price decline. This is the same as the ratio of the Defendant’s joint Defendant 1 and Nonparty 2 (hereinafter “Nonindicted 1, etc.”) who actively participated in the act of division by intentionally understating the bad debt allowances and in disclosing the false business report, etc. based thereon.

Even if the Defendant, an external auditor of the Japanese Savings Bank, is liable for negligence without disclosing the window dressing accounting due to inadequate accounting audit on the financial statements, there is a difference between the grounds and nature of the occurrence, and the probability that the crime of embezzlement, non-performing loan, and non-performing loan, etc., committed continuously after the Defendant’s accounting audit, has contributed to the expansion of the Plaintiff’s loss. However, if the Defendant is liable for partial loss, this would result in a violation of the ideology of the damage compensation system, which is fair and reasonable distribution, even in consideration of the aspect that the victim is strongly protected. Therefore, it is inappropriate for the lower court to determine the Defendant’s liability ratio like Non-Party 1 (see, e.g., Supreme Court Decisions 2014Da221517, Sept. 28, 2016; 2013Da8172, Sept. 30, 2016).

B. However, the fact-finding or determination of the ratio of limitation of liability in a claim for damages falls under the exclusive authority of the fact-finding court unless it is deemed that it is considerably unreasonable in light of the principle of equity (see, e.g., Supreme Court Decisions 2006Da19603, Nov. 30, 2007; 2016Da266606, Nov. 29, 2018).

In light of the reasoning of the lower judgment and the following circumstances revealed in the record, the lower court’s conclusion that limits the Defendant’s liability to 40% cannot be deemed as significantly unreasonable in light of the principle of equity, even if considering the circumstances described in the foregoing A(a).

(1) Of the judgment below, the part on the responsibility of Nonparty 1, etc. became final and conclusive, and the ratio of liability of Nonparty 1, etc. was limited to 40%. However, the determination of the ratio of liability of Nonparty 1, etc. is merely due to the Plaintiff’s failure to file a final appeal against this part of the judgment below, and does not mean that the ratio of liability is adequate. Therefore, even if the lower court erred by determining the Defendant’s ratio of liability as Nonparty 1, etc., if it itself within the scope of discretion, such error did not affect the conclusion of the judgment

(2) The Financial Supervisory Service already instructed an accounting firm to “matters of attention when auditing a small loan by a mutual savings bank, etc.” and urged the accounting firm to pay more attention to small loans when auditing a mutual savings bank. Although the Defendant was aware that a mutual savings bank is likely to cause errors or omissions in the accounting of the small loan, the Defendant adopted a sample audit method that is not valid and unreasonable to confirm the existence of the small loan claims, and such auditor’s permission was one of the meters where the Japanese Savings Bank could continuously block the use of the fraudulent loan claims. Although the Defendant’s tort was due to the Defendant’s negligence, it is difficult to view that the Defendant’s liability ratio contributed to the occurrence and expansion of damages is significantly high, in light of the Defendant’s fault and its consequences, which violated the duty of care required by the external auditor.

(3) Even if the Defendant’s liability ratio is 40%, the amount of damages that the Defendant is liable for is limited to 11,504,000 won, and the Defendant’s liability amount was lower than the portion that the Plaintiff is liable for on its own.

(4) The lower court’s judgment in the above Supreme Court case 2013Da85172 and 2014Da221517 is identical to the lower judgment in that it limited the Defendant’s liability to Nonparty 1, etc. at the same ratio, but the Plaintiff’s damages or the liability ratio recognized by the lower court differs, and thus, it is not necessary to determine the instant case identical to the foregoing case

C. The court below's decision is erroneous to limit the defendant's responsibility to the same ratio as that of the non-party 1, etc., but it is within the scope acceptable to limit the defendant's liability to 40% of the amount of damages suffered by the plaintiff, which did not limit it to a lower rate than 40%, and it cannot be deemed that it is remarkably unreasonable in light

Ultimately, the lower court did not err by misapprehending the legal doctrine on limitation of liability, contrary to what is alleged in the grounds of appeal.

4. Conclusion

The Defendant’s appeal is dismissed as it is without merit, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Dong-won (Presiding Justice)