The meaning of “where any material fact is omitted” under Article 9(1) of the former Fair Transactions in Franchise Business Act, and in such cases, whether a franchisor is liable to compensate prospective franchisees for damage under Article 37(3) of the former Fair Transactions in Franchise Business Act and Article 56(1) of the Monopoly Regulation and Fair Trade Act (affirmative)

In full view of the contents of Articles 4, 9(1), and 41(1) of the former Fair Transactions in Franchise Business Act (amended by Act No. 12094, Aug. 13, 2013; hereinafter “Franchising Business Act”), the term “in cases of omitting important matters under Article 9(1) of the Franchising Business Act” means cases where a prospective franchisee fails to notify a prospective franchisee of the fact that he/she may have a significant impact on the decision-making of a prospective franchisee, such as the conclusion and maintenance of a franchise agreement, or that a prospective franchisee would have not entered into a franchise agreement if he/she was notified of certain circumstances, if it is apparent in light of the empirical rule that the prospective franchisee would have not entered into the franchise agreement if he/she was notified of such circumstances, etc. In addition, such an act means a violation of the obligation to provide information or obligation to notify a prospective franchisee under Article 9(1) of the Franchis Business Act, and a franchisor is liable to compensate a prospective franchisee for damages under Article 37(3) of the Franchise Act.

Articles 4, 9(1), 37(3), and 41(1) of the former Fair Transactions in Franchise Business Act (Amended by Act No. 12094, Aug. 13, 2013); Article 56(1) of the Monopoly Regulation and Fair Trade Act

Plaintiff (Counterclaim Defendant) 1 and one other (Law Firm Hyeong, Attorneys Kang-gu et al., Counsel for the plaintiff-appellant)

A. S. Global (Attorneys Kim Jong-sung et al., Counsel for the defendant-appellant)

Defendant 2 and one other (Attorneys Kim Jong-sung et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2013Na80216, 80223 decided November 13, 2014

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 grounds of appeal Nos. 1 and 2

A. Article 9(1) of the former Fair Transactions in Franchise Business Act (amended by Act No. 12094, Aug. 13, 2013; hereinafter “Franchising Business Act”) provides that “any person who provides false or exaggerated information or omits important matters in providing information to prospective franchisees shall not provide such false or exaggerated information.” Article 41(1) of the same Act provides that “any person who provides false or exaggerated information or omits important matters in violation of Article 9(1) shall be punished by imprisonment with prison labor for not more than five years or by a fine not exceeding 150,000 won.” Article 4 of the same Act provides that “Franchising Party shall perform his/her duties in good faith in operating a franchise business.”

In full view of the relevant provisions of the Franchise Business Act, the term "in cases of omitting important matters under Article 9 (1) of the Franchise Business Act" means cases where it is evident in light of the empirical rule that if a prospective franchisee was notified of certain circumstances, he/she would have not entered into a franchise agreement if he/she would have had a significant impact on the decision-making of the prospective franchisee, such as the conclusion and maintenance of the franchise agreement, or where the prospective franchisee would not notify the prospective franchisee of such fact at the stage of consultation

In addition, these acts violate the obligation to provide information or obligation under Article 9(1) of the Franchise Business Act, and the franchisor is liable for damages to prospective franchisees under Article 37(3) of the Franchise Business Act and Article 56(1) of the Monopoly Regulation and Fair Trade Act.

B. The court below acknowledged the circumstances as stated in its holding, and found that the educational institutions for young children established by reporting to a lifelong educational establishment without following the procedure under the Act on the Establishment and Operation of Private Teaching Institutes and Extracurricular Lessons (hereinafter “Private Teaching Institutes Act”) were registered and operated as private teaching institutes after the grace period under the Enforcement Decree of the Private Teaching Institutes Act amended on March 23, 2007, but the defendant (Counterclaim Plaintiff; hereinafter “the defendant”) reported the instant education institute, which is an educational institution for young children, to the lifelong educational institute, and made the Plaintiff (Counterclaim Defendant; hereinafter “the plaintiff”) operate the instant education institute with identification certificate or business registration certificate for non-profit corporations which do not operate a profit-making business, and its operation method violates the current laws and regulations and the guidelines of the Office of Education, and thus, the plaintiffs concluded the franchise agreement in this case where administrative sanctions or criminal punishment may be imposed upon the education institute is believed to be operated lawfully. Accordingly, the court below acknowledged the defendants' liability for damages as stated in its judgment.

C. Examining the records in light of the aforementioned legal principles, the above determination by the court below is just, and contrary to what is alleged in the grounds of appeal, there were no errors in the misapprehension of legal principles regarding the meaning of “the omission of important matters” under Article 9(1) of the Franchise Business Act and “private teaching institutes” under the Private Teaching Institutes Act.

2. Regarding ground of appeal No. 3

Where a victim is negligent in the occurrence or expansion of damage or there is a ground to limit the tortfeasor's liability in a damage compensation case due to a tort, it should be taken into consideration as a matter of course in determining the scope of liability for damages. However, determination of fact-finding or its ratio on comparative negligence or grounds for limitation of liability is within the discretionary authority of a fact-finding court unless it is deemed that it is clearly unreasonable in light of the principle of equity (see Supreme Court Decision 2010Da42532, Oct. 11, 2012

Examining the reasoning of the judgment below in light of the above legal principles and the records, it is justifiable that the court below limit the defendants' liability for damages to 70% on the grounds that the plaintiffs' negligence is recognized to a certain extent in the occurrence or expansion of the plaintiffs' damages on the ground that the court below did not err by misapprehending the legal principles as to the grounds for comparative negligence.

3. Conclusion

Therefore, all appeals are dismissed, 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 on the bench.

Justices Park Poe-young (Presiding Justice)