[1] Legal status of a distributor under the former Securities Investment Trust Business Act

[2] Whether a selling company’s obligation to repurchase beneficiary certificates under the former Securities Investment Trust Business Act, etc. violates the performance dividend principle and limited liability principle, which are the basic principles of the investment trust (negative)

[3] The case where the obligation to repurchase with the inherent property of a truster or distributor under the former Securities Investment Trust Business Act can be modified or modified

[4] In a case where a selling company receives a claim for redemption of all beneficiary certificates under the former Securities Investment Trust Business Act and maintains the relevant investment trust by repurchase with its own property without demanding a truster company to terminate the trust (negative), whether the investment trust is terminated (negative)

[1] According to the history and its transition process of the former Securities Investment Trust Business Act, a truster company that is not permitted to sell beneficiary certificates must be a sales consignment contract with a selling company. According to the former Securities Investment Trust Business Act (amended by Act No. 5558 of Sep. 16, 1998), a selling company limits its qualification to a securities company holding large-scale assets (Articles 2(5) and 9(1)), and a selling company is scheduled to be a “person who is required to comply with redemption,” separate from a truster company (Article 7(2)). Even in the reality of a securities investment trust, a selling company that sells and resells beneficiary certificates directly contacts with a beneficiary and a truster company, and receives sales remuneration and repurchase fees directly from the trust company or beneficiary, and it is deemed that the truster company and the selling company are independent of the liability under a beneficiary certificate sales contract and the selling company are not merely an agent of a trust company, but also an independent party who performs the sales business of beneficiary certificates, etc.

[2] The former Securities Investment Trust Business Act (amended by Act No. 5558 of Sep. 16, 1998) stipulates that a company shall repurchase a beneficiary certificate in its own property when it imposes not only a trust company of a securities investment trust but also a company may demand a trust company to partially terminate the trust when it imposes a beneficiary certificate, but also a company may not request the company to partially terminate the trust. In case of an ordinary claim for redemption where the company is unable to request the partial termination of the trust, it shall repurchase it with its own property. Such a selling company's obligation to repurchase bears a burden on the selling company as a market developer to revitalize the securities investment trust by taking into account the beneficiary's position in a situation where the company implements a policy to separate the management of investment trust and the sales of beneficiary certificates, taking into account the beneficiary's position in which the company purchases beneficiary certificates from the selling company. In order to promote the securities investment trust, the company's duty to repurchase bears a role as a market developer

[3] Under the former Securities Investment Trust Business Act (amended by Act No. 558 of Sep. 16, 1998), the grounds for modifying or changing the redemption obligation with the inherent property of a truster company or distributor are limited to “where it is impossible to repurchase with the inherent property of a truster company or distributor due to large amount of claims for redemption of beneficiary certificates, such as natural disasters, closure, suspension, closure, or closure of a securities market, or other unavoidable reasons, where the market price of beneficiary certificates cannot be formed or the book treated as being equivalent to the market price cannot be established, or where the market price is considerably different between the market price and the book that is treated as being equivalent to the market price is likely to seriously undermine the principle of performance distribution or the principle of equal treatment of beneficiaries, which is the essence of the securities investment trust.”

[4] Under the former Securities Investment Trust Business Act (amended by Act No. 558 of Sep. 16, 1998), a selling company’s repurchase of the beneficiary certificates is two repurchase methods, namely repurchase with inherent property and repurchase with partial termination of the trust. Repurchase with inherent property takes the status of beneficiary by purchasing and holding beneficiary certificates corresponding to the portion of claim for redemption. Thus, the right to benefit subject to redemption is not extinguished, and the size of trust property is not reduced. In the case of repurchase with partial termination of the trust, the selling company pays a redemption price in cash created by extinguishing part of the right to benefit under the pertinent investment trust contract at the request of the truster company. Accordingly, the right to benefit given on the beneficiary certificates shall be extinguished and the size of the trust property shall be reduced. Accordingly, even if the beneficiary certificates of the relevant investment trust were requested for redemption, if the selling company owns the beneficiary certificates with inherent property without demanding termination of the trust, and maintains the relevant investment trust by resale, etc., it cannot be deemed termination of the trust.

[1] Articles 2(5) (see current Article 26(2)), 7(2) (see current Article 62(2)), and 9(1) (see current Article 4 of the Indirect Investment Asset Management Business Act) of the former Enforcement Decree of the Securities Investment Trust Business Act (amended by Act No. 558, Sep. 16, 1998); Article 7(2) (see current Article 62 of the Indirect Investment Trust Business Act) / [2] Article 9 of the former Enforcement Decree of the Securities Investment Trust Business Act (amended by Act No. 5558, Sep. 16, 1998); Article 23(2) (see current Article 105(7) of the former Enforcement Decree of the Securities Investment Trust Business Act (amended by Presidential Decree No. 15895, Sep. 2, 1998); Article 9(2)5 of the former Enforcement Decree of the Securities Investment Trust Business Act (see current Article 98(2) of the former Enforcement Decree of the Securities Investment Trust Business Act)

New Bank Co., Ltd. (Law Firm Square, Attorneys Lee Jae-in et al., Counsel for the defendant-appellant)

Korea Investment Securities Co., Ltd. (Law Firm Sejong, Attorneys Yellow-sik et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2001Na27175 delivered on February 8, 2002

The judgment below is reversed and the case is remanded to Seoul High Court.

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

1. Regarding ground of appeal No. 1

According to the former Securities Investment Trust Business Act and its Enforcement Decree (amended by Act No. 6987, Oct. 4, 2003; hereinafter “Act”) and the fact-finding process and records as follows, the management company’s business as an operator of a securities investment trust includes both the establishment and termination of investment trust, the offering and sale of trust property, and the sale of beneficiary certificates such as the sale and repurchase of beneficiary certificates. However, the management company’s business as a plan for reorganization of the securities industry conducted on August 11, 1995 is transferred to an investment trust and beneficiary certificates for sale. Accordingly, the management company’s business as a management company’s business under the former Securities and Exchange Act (amended by Act No. 1985, Apr. 1, 199; hereinafter “the former Act”) is not a trust company’s duty to directly sell and operate beneficiary certificates to the Defendant, and the existing three trust companies also have the right to request the trust company’s investment trust company’s management and operation of beneficiary certificates under the former Securities and Exchange Act (amended by Act No. 1965).

The decision of the court below to the same purport is correct, and there is no error in the misapprehension of legal principles as to the legal status of the selling company.

2. Regarding ground of appeal No. 2

The former Act imposes not only a truster company of a securities investment trust but also a selling company of beneficiary certificates (Article 7(1) through (4)), and a truster company permitted to sell beneficiary certificates can repurchase beneficiary certificates with its own property (Article 30(1)), and a truster company shall be able to terminate part of the trust under the conditions as prescribed by the Presidential Decree (Article 23(2)). The former Act provides the two grounds for redemption methods, i.e., redemption with inherent property and partial termination of the trust (Article 23(2)). Where part of the beneficiary certificates issued by the truster company are not sold, where the truster company or selling company does not sell the beneficiary certificates issued by the trust company with its own property, it allows a truster company or selling company to claim redemption with its own property only when it is impossible to repurchase them with its own property due to a large amount of claims for redemption of beneficiary certificates, and does not provide for beneficiaries' claims for redemption with some grounds for termination of trust assets [Article 58(1)5 of the former Enforcement Decree of the Securities Investment Trust Business Act (amended by Presidential Decree No. 15895 of the former Enforcement Decree of the Trust Business Act).

Meanwhile, Articles 2(8), 16(1) and (2), and 25 of the terms and conditions of this case, which were enacted at the time of the enforcement of the former Act (hereinafter “the Commission”) and Articles 2(1) and (2), and 23 of the former Terms and Conditions of the Securities Investment Trust Act (hereinafter “instant Samsung Short-term Bonds Investment Trust.” Although the terms and conditions stipulate “trustee or agent” as “contincing company or dealer” as “contributing company or dealer” as “contributing company or dealer” as “contributing company” for convenience, there is no dispute between the parties, and instead of “contributing company” as “contributing company” as “contributing company” and “contributing company” as “contributing beneficiary certificates at the request of beneficiaries,” the truster company or dealer of beneficiary certificates are defined as purchasing beneficiary certificates at the request of beneficiaries, and the truster company or dealer of beneficiary certificates are not entitled to make a request for redemption from the selling company of beneficiary certificates within one day of redemption.

In the same purport, the court below is just in rejecting the defendant's assertion that the selling company takes charge of the role of paying the redemption price created by the partial termination of the investment trust from the truster company, and that it does not bear the direct payment obligation of the redemption price based on its proprietary property, and there is no error of law in the misapprehension of legal principles as to the company's obligations

3. As to the third ground for appeal

Article 7(4) of the former Act provides that "any person who is obliged to comply with the provisions of paragraphs (1) through (3) of this Article shall repurchase at the latest within 15 days from the date of receiving a request for repurchase: Provided, That where there is a natural disaster, natural disaster, closing, suspension, closure of the securities market, or any other unavoidable reason, the repurchase may be postponed upon approval by the Financial Supervisory Commission until such cause ceases to exist." Thus, the postponement of redemption is acknowledged in extenuating circumstances. Where a large amount of claims for redemption of beneficiary certificates has occurred and it cannot be repurchased with the company or selling company's proprietary property due to a large amount of claims for redemption of beneficiary certificates under Article 23(2) of the former Enforcement Decree and Article 12 of the former Enforcement Decree, the Act provides that the truster company or selling company's inherent property shall comply with redemption by partial termination of the trust, thereby allowing changes in the market price of the trust company or selling company's inherent property by prescribing that the market price of the trust company or selling company's inherent property shall be able to be changed due to a serious gap between the trust or selling company's market price.

The decision of the court below to the same purport is correct, and there is no error in the misapprehension of legal principles as to the scope of recognition of grounds for correction of redemption obligation.

4. As to the fourth ground for appeal

Article 7(4) of the former Act and the former Enforcement Decree provide for the postponement of redemption and partial termination of trust under Article 23(2) of the former Act, Article 12 of the former Enforcement Decree, and Article 16(3) and Article 25(1) of the former Act and Articles 16(3) and 23(1) of the instant Samsung Investment Trust Terms and Conditions. In full view of the provisions of the former Acts and subordinate statutes and the terms and conditions of this case, the truster or distributor shall repurchase within 15 days from the date of receiving a claim for redemption, but if there is any natural disaster, securities market, closing, suspending, closing, or closing, or any other inevitable cause, the redemption may be postponed until the cause is resolved upon approval by the Financial Supervisory Commission, and the defendant, who is the selling company, may be exempted from the obligation of redemption by requesting the truster company only if the selling company becomes a large amount of beneficiary certificates and becomes unable to repurchase its proprietary property.

Examining the reasoning of the lower judgment in light of the aforementioned legal principles and records, the lower court is justifiable to have determined that there were two methods such as postponement of redemption and partial termination of trust in exceptional circumstances where the selling company is unable to perform the redemption obligation under the former Act and the above standardized terms and conditions. However, it is inappropriate for the lower court to have expressed that postponement of redemption under the proviso to Article 7(4) of the former Act is permitted in cases where the partial termination of the trust itself is extremely exceptional circumstances where it is difficult to maintain and operate the investment trust itself in a normal condition. However, the purport is not to maintain the procedural priority of postponement of redemption and the termination of the trust, and even if it is deemed that the lower court determined the procedural priority of postponement of redemption and the termination of the trust, the lower court rejected the Defendant’s assertion that the Defendant’s reimbursement obligation was postponed on the ground that the Defendant did not partly terminate the trust, and the lower court did not err by misapprehending the judgment, as seen below, on the ground that it did not affect the conclusion of the judgment.

5. Ground of appeal No. 5

Considering the scale of the instant investment trust as shown in the reasoning of the judgment and records, the contents and scale of the instant non-performing loans incorporated into the instant Samsung Investment Trust, the background and process of partial payment of the redemption price, the intent of the parties concerned, and equity with the general beneficiary, etc., the court below is just in holding that the lower court cannot be deemed to have caused any abnormal exception to revise or change the Defendant’s obligation to repurchase due to the Defendant’s inherent property at the time of the Plaintiff’s claim for redemption, and there is no error

As long as the above judgment of the court below is justified, the court below's explanation on the family and additional judgment does not affect the conclusion of the judgment. Thus, the remaining grounds of appeal that the court below erred in misunderstanding of facts and misunderstanding of legal principles as to the method of deferment of redemption among the family and additional judgments made by the court below cannot be accepted without further review.

6. Regarding ground of appeal No. 6

As seen earlier, two methods of redemption are provided for in the former Act, such as redemption by inherent property and redemption by partial termination of the trust. Since redemption by inherent property takes the status of beneficiary by purchasing and holding beneficiary certificates corresponding to the claim amount, the beneficial rights subject to redemption are not extinguished and the size of trust property is not reduced. However, in the case of redemption due to partial termination of the trust, the selling company pays the redemption money in cash created by extinguishing part of the beneficial rights under the relevant investment trust contract at the request of the truster company. As such, the beneficial rights given to the beneficiary certificates redeemed are extinguished and the size of trust property is reduced to the degree of redemption. Therefore, even if redemption is requested for all of the beneficiary certificates of the relevant investment trust, if the selling company owns the beneficiary certificates with the inherent property without demanding the truster company to terminate the trust, and maintains the relevant investment trust by resale, it shall not be deemed termination of the trust.

The judgment of the court below to the same purport is just, and there is no error in the misapprehension of legal principles as to the claim for redemption of all beneficiary certificates.

7. Ex officio determination on damages for delay

On the other hand, the court below ordered the plaintiff to pay damages for delay on the part of the compensation amount payable to the plaintiff on April 24, 2003, on the premise that the interest rate under Article 3 (1) of the Act on Special Cases Concerning the Promotion, etc. of Legal Proceedings before the Amendment (amended by Act No. 6868 of May 10, 2003) is applied. The part of the "interest rate prescribed by Presidential Decree" in the main sentence of Article 3 (1) of the Act prior to the amendment is null and void due to the Constitutional Court's decision of unconstitutionality on April 24, 2003, the part of the judgment below ordering the payment of the above compensation amount and the damages for delay can no longer be maintained.

8. Conclusion

Therefore, the judgment of the court below is reversed, and the above damages for delay and its appropriation are remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Ill-sook (Presiding Justice)