The duty to explain when a bank provides foreign currency loans in the form of fluctuations in interest rates / Whether the interest rate on loans is calculated by adding a fixed rate to the standard interest rate publicly announced periodically by international financial markets or domestic commercial banks, and thus the interest rate on loans vary depending on the fluctuation in the standard interest rate widely used in Korea and abroad (negative)

According to Articles 52 and 52-3(2) of the Banking Act, banks must protect the rights and interests of bank users when engaging in loan business. Therefore, in cases of foreign currency loans with floating interest rates, banks must explain the terms and conditions of transaction of loan products, such as the scope and calculation method of interest rates, and the timing of payment and imposition of interest, for the rational decision-making of bank users. However, in cases where loan interest rates vary depending on the fluctuation in the standard interest rate as the method of adding the fixed interest rate to the standard interest rate publicly announced periodically by international financial markets or domestic commercial banks, the bank should explain the meaning of the floating interest rate and the type of the base interest rate, but it is not necessary to explain the elements and details of determining the base interest rate.

Articles 52 and 52-3(2) of the Banking Act, Article 750 of the Civil Act

Seoul High Court Decision 2001Na14488 delivered on August 2, 201

Plaintiff 3 and four others (Attorneys Kim Yong-sung et al., Counsel for the plaintiff-appellant)

Plaintiff 6 and seven others (Attorneys Kim Yong-sung et al., Counsel for the plaintiff-appellant)

Han Bank Co., Ltd. (Law Firm Chungcheong, Attorneys Choi Byung-mun et al., Counsel for the defendant-appellant)

National Bank and three others (Law Firm Democratic et al., Counsel for the defendant-appellant)

New Bank Co., Ltd. and one other (Law Firm Democratic, Attorneys Yoon Jae-sik et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2011Na76114, 83082 decided April 4, 2013

The part of the judgment of the court below against Defendant Hana Bank (Defendant 2), Korean National Bank, Korea Bank, Hana Bank (Defendant 5), and Industrial Bank of Korea is reversed, and that part of the case is remanded to the Seoul High Court. The appeal by Plaintiffs Matdo, Plaintiffs 2, 6, 8, 9, 10, 11, 12, 12, 14, 15, 15, and Effective C&P is dismissed, respectively. The costs of appeal between Plaintiffs Matdo, 2, 12, and 15, and the Defendant New Bank (Defendant 2), Hansung Bank, Hannam Bank, which is the litigation taking over the merged Bank, are assessed against the said Plaintiffs.

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

1. As to the grounds of appeal by Plaintiffs Matdo Co., Ltd., 2, 6, 8, 9, 10, 11, 12, Hyundai Development Corporation, 14, 15, and EffPPPP

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court is justifiable to have rejected the Plaintiffs’ assertion, on the grounds as indicated in its reasoning, that Defendant New Bank Co., Ltd (hereinafter the Defendants and Plaintiff Matdo Co., Ltd., Hyundai Development Corporation, and Effective C&P’s name omitted), Han Bank, National Bank, Korea Bank, Korea Exchange Bank, Korea Exchange Bank (hereinafter “Korea Exchange Bank”) and the Industrial Bank of Korea’s increased loan interest rate should be returned as unjust enrichment. In so doing, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on unjust enrichment, etc., contrary to what is alleged in the grounds of appeal.

2. As to the grounds of appeal by Defendant Han Bank, Korean National Bank, Korean Exchange Bank, and Industrial Bank of Korea

A. According to Articles 52 and 52-3(2) of the Banking Act, a bank must protect the rights and interests of bank users when conducting loan business. Therefore, in cases of foreign currency loans in accordance with the fluctuation rate method, a bank must explain the terms and conditions of transaction for loan products, such as the scope and calculation method of interest rates, and the timing of payment and imposition of interest in order to make reasonable decisions by bank users. However, in cases where the relevant loan interest rate changes depending on the fluctuation in the standard interest rate, as the method of adding a fixed rate to the standard interest rate publicly announced periodically by international financial markets or domestic commercial banks, the relevant loan interest rate is to add a fixed rate to the standard interest rate publicly announced periodically by international commercial banks or domestic commercial banks, the bank must explain the meaning of the fluctuation rate and the type of the standard interest rate, but not to specifically explain the elements and contents determining the relevant standard interest rate

B. Based on its stated reasoning, the lower court: (a) premised on the Defendants’ duty to protect customers by clearly explaining the elements, contents, and risks associated with the loan interest rate so that customers, who are non-financial experts, can properly evaluate risks and make a reasonable judgment and decision-making, at their own responsibility; and (b) on the ground that the Defendants infringed the Plaintiffs’ right to choose a loan product on the ground that the Defendants violated the Plaintiffs’ right to choose a loan product by failing to explain the variable factors in making the loan of this case; and (c) on the ground that the Defendants violated the Plaintiffs’ duty to explain.

C. The above judgment of the court below is hard to accept.

1) As to Defendant Han Bank’s loans to Plaintiffs 3, 4, 5, and 6, Plaintiff Hyundai Development Corporation, and Plaintiff 14

According to the reasoning of the lower judgment and the evidence duly examined by the lower court, the interest rate applied to each of the above UN loan consists of “Libor interest + fixed rate additional interest rate.” The interest rate is a representative short-term interest rate applicable to the international financial market between banks. As such, banks are not required to provide additional explanation on the change interest rate in addition to notifying the fact that the interest rate is the change rate that is linked to the interest rate on loan interest. It is recognized that the Plaintiffs were linked to the interest rate on loan interest (Seoul Central District Court Decision 2009Gahap27488 case, June 17, 2009, and Seoul Central District Court Decision 2009Da12369, Dec. 236, 2009). Moreover, it is difficult to view that the Defendants did not explain the changes in the interest rate on loan interest to the Plaintiffs in the pertinent preparatory document as well as to the pertinent interest rate on loan interest rate.

2) As to the part of the initial loan agreement with the Plaintiff 7 of the Defendant National Bank, the part of the Defendant Korean Bank’s loan against Plaintiff 8, and F&C, the part of the loan against Plaintiff 9, 17, and 10 of the Korea Foreign Exchange Bank, and the part of the loan against Plaintiff 11 of the Industrial Bank of Korea

According to the reasoning of the lower judgment and the evidence duly examined by the lower court, the interest rate applied to the initial loan agreement between the Defendant National Bank and the Plaintiff 7 is ① MOR (referring to the internal base rate of the relevant bank at the rate of one month) + 0% (hereinafter the same shall apply), and the interest rate applied to the contract between the Defendant Bank and the Plaintiff 8 is 3 months’ base interest rate + 0%, and the interest rate applied to each contract between the Defendant Korea Exchange Bank and the Plaintiff 9, 17, and 10 is ＋ 0%. The interest rate applied to the contract between the Defendant National Bank and the Plaintiff 11 is 3 months + 10%. As such, it is difficult to view the Defendants’ specific interest rate applied to the contract between the Defendant National Bank and the Plaintiff F&C as 13 months’ interest rate in terms of such factors as “the fluctuation rate in foreign currency loan + 1%,” and the Defendants’ specific interest rate applied to the contract between the Plaintiff and F&C as 1% interest rate per month plus 3 months interest rate.

3) Nevertheless, solely on the grounds stated in its reasoning, the lower court determined that the Defendants violated the duty to explain during the process of concluding the Universal Loan Agreement. In so doing, the lower court erred by misapprehending the legal doctrine on the duty to explain, etc., which affected the conclusion of the judgment. The Defendants’ ground of appeal pointing this out

3. Conclusion

The part of the judgment of the court below against the above Defendants is reversed without further proceeding to decide on the remaining grounds of appeal by Defendant Hana Bank, National Bank, Korea Bank, Korea Exchange Bank, and Industrial Bank of Korea. This part of the case is remanded to the court below for further proceedings consistent with this Opinion. The appeals by Plaintiffs Matdo, 2, 6, 8, 9, 10, 11, 12, 12, 14, 15, 15, and Fatho C&P are dismissed, respectively. The costs of appeal between Plaintiffs Matdo, 2, 12, and 15, and the Defendant New Bank, Hansung Bank (Defendant 2), Hansung Bank, Korea Exchange Bank, Korea Exchange Bank, and Korea Bank (Defendant 2), which are parties to the lawsuit of the merged Bank, are assessed against the losing parties. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee In-bok (Presiding Justice)