[1] In a case where the issue was whether a KIKO currency option contract that Company A entered into with Company B was an unfair practice, the case affirming the judgment below holding that the currency option contract does not constitute an unfair practice

[2] The standard time to determine whether a contract constitutes an unfair juristic act (i.e., the time of an act of law) and whether a contract constitutes an unfair juristic act as a matter of course on the ground that a party to a contract suffers a big loss as a result of rapid changes in external environment and the benefit corresponding thereto may accrue to the other party (negative)

[3] 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 on 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

[4] 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

[5] 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)

[6] In a case where a circumstance that does not form the basis for the formation of a contract is changed later and thereby a party suffers damage by being unable to achieve the intended purpose of the contract at the time of the contract, whether the rescission of the contract on the ground of change of circumstances is recognized (negative in principle), and whether such a legal principle applies to a case where a party asserts the termination of the contract on the ground of change of circumstances in

[7] Details and degree of the duty of customer protection to be borne by a bank when entering into a currency option contract with an enterprise with a purpose of foreign exchange hedging, and the degree of the duty of customer protection to be borne by the bank to an enterprise intending to enter into a currency option contract for investment or speculative purposes, not with a purpose

[8] The 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

[9] In a case where Gap corporation, which entered into a foreign currency option contract with a large number of banks under the exchange risk management team and exchange risk management regulations, experienced the fulfillment of the conditions of Green-out and Green-in, entered into a foreign currency option contract with a bank under the condition that it had already entered into a foreign currency option contract with a bank, but suffered losses due to the rapid increase in exchange rates, and sought damages against Eul bank on the grounds of violation of suitability, etc., the case holding that the court below erred by misapprehending legal principles in holding that Eul bank violated the suitability principle and duty to explain

[1] In a case where the issue is whether a KIKO currency option contract that Company A entered into with Company B is an unfair practice, the case affirming the judgment below holding that the currency option contract does not constitute an unfair practice on the grounds that it is difficult to deem that there is a substantial imbalance in the objective value of the option in light of various circumstances

[2] Whether a certain juristic act constitutes an unfair juristic act shall be determined at the time of the juristic act. Therefore, if the result of a comprehensive consideration of the overall contract terms as at the time of conclusion of a contract is not unfair, it shall be deemed that the contract constitutes an unfair contract as a matter of course on the ground that it is a structure in which a significant loss occurs to one of the parties to the contract and a corresponding large profit may occur to the other party

[3] In a case where one party to a contract prepared a contract in advance according to a certain form and presented it to the other party, if the other party had an opportunity to adjust his/her interests by undergoing individual negotiations with regard to a specific provision, such provision shall be deemed an individual agreement not subject to the Act on the Regulation of Terms and Conditions. In order to determine that there was an individual negotiation, the result of the 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 have changed the contents after sufficiently reviewing and considering the specific provision on the equal status with the party who prepared the specific provision in advance.

[4] In a case where the issue is 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 said currency option contract itself does not fall under the terms and conditions on the ground that, like other OTC derivatives, the structure of the said currency option contract was prepared in advance by standardizing the structure and conditions to be used appropriately as required by customers, and the structure alone does not create any rights and obligations between the parties to the transaction, and is completed only when specific terms and conditions, such as the contract amount, exercise exchange rate, etc. determined by individual negotiations, are attached to the contract.

[5] Generally, a seller of goods or services does not have a duty to inform or disclose to a buyer the elements, such as cost or sales profit, regarding the sales price of the goods or services he/she sells. This does not apply to the case where a bank engages in an over-the-counter derivatives transaction in the structure of cost (zerco) structure, which does not collect any cost or fees from a customer separately. Furthermore, the fact that a bank is seeking a certain profit as the counter-party to the transaction of over-the-counter derivatives due to the nature of a market economy, any person may expect it. Therefore, barring any special circumstance such as where a contractual or statutory obligation to notify price components is acknowledged, a bank cannot be deemed to have a duty to notify the customer of the theoretical value and fees of options included in the structure of the over-the-counter derivatives structure and the price market value generated therefrom, and it cannot be deemed that the failure to notify the fact that it causes a fraudulent act to a customer or causes a mistake that it does not bear any cost or fees in the relevant over-the-counter derivatives transaction.

[6] The rescission of a contract on grounds of change in circumstances is recognized as an exception to the principle of contract observance in cases where a significant change in circumstances that was unexpected at the time of contract formation occurred, and such change in circumstances arose for reasons for which the party who acquired the right of rescission is not responsible. If the binding force of the content of the contract is recognized, it shall be recognized as an exception to the principle of contract observance in cases where the result significantly goes against the good faith principle. Moreover, the circumstances mentioned in this context refer to an objective circumstance which served as the basis of the contract, not a party’s subjective or personal circumstance. Therefore, even if a circumstance which was not the basis of contract formation subsequently changed, thereby causing damage as a result of one party’s failure to achieve the purpose of the contract intended at the time of contract formation, barring any special circumstance, maintaining its validity as it is cannot

[7] In concluding a contract with an enterprise with a foreign exchange hedging purpose, a bank shall not invite the conclusion of a contract with a kind of product or a currency option contract with such characteristics as the expected foreign currency inflow of the relevant enterprise, its asset status including the size of assets and sale, exchange hedging necessity, transaction purpose, transaction experience, the degree of knowledge or understanding of the relevant contract, and other exchange hedging contract. If a bank, in violation of such duty, actively solicits the relevant enterprise to enter into a contract with a high risk of excessive risk in light of its management situation, it constitutes an illegal act as it goes against the so-called suitability principle, and thus, it constitutes an excessive risk of loss if it comes to a situation different from that of the relevant enterprise by using high financial engineering knowledge, and thus, it is reasonable to deem that a bank is more likely to have an inherent risk in an OTC derivatives contract with a more complicated and high risk than that of a financial institution, and thus, it is more likely that a bank will have an investment risk than that of a financial institution, such as the scope of its business, governance structure, and other investment expertise.

[8] Where a financial institution trades over-the-counter derivatives with general customers with professional knowledge and analysis ability, it is obligated under the good faith to clearly explain the risk factors inherent in the transaction in order for customers to accurately evaluate the structure and risk of the transaction and the potential loss in a manner appropriate for the transaction information. However, in cases where the customer already knows the content of the transaction, it cannot be deemed that the financial institution has an obligation to explain such matters.

[9] In a case where Gap corporation, which entered into a foreign currency option contract with several banks with a view to achieving the conditions of Green Cross-out and Green Cross-out by concluding a multiple currency option contract with a foreign exchange risk management team, had already entered into a foreign currency option contract with Eul bank and sought damages against Eul bank for reasons of violation of the suitability of exchange rate, the case holding that the court below erred in the misapprehension of legal principles and the duty to explain, although Gap bank did not enter into a foreign currency option contract with Eul for the purpose of foreign exchange hedging for the purpose of avoiding exchange risk, in consideration of the size of foreign exchange in kind which will be inflow into the future, and it cannot be deemed that Eul bank violated its duty to explain, regardless of the amount of foreign exchange exchange acquired in kind, in the course of concluding the KIKO currency option contract, and it cannot be deemed that Eul bank violated its duty to explain, even though it did not meet the principle and duty to explain, such as the degree of risk arising from exchange rate increase or loss arising from exchange rate increase, etc.

[1] Article 104 of the Civil Code / [2] Article 104 of the Civil Code / [3] Article 2 subparagraph 1 of the Regulation of Standardized Contracts Act / [4] Articles 2 subparagraph 1 and 4 of the Regulation of Standardized Contracts Act / [5] Articles 109 and 110 of the Civil Code / [6] Articles 2 and 543 of the Civil Code / [7] Articles 2 and 750 of the Civil Code / [8] Articles 2 and 750 of the Civil Code / [9] Articles 2 and 750 of the Civil Code

[2] Supreme Court Decision 200Da30905 Decided December 8, 2000 / [3] Supreme Court Decision 2008Da16950 Decided July 10, 2008 (Gong2008Ha, 1154), Supreme Court Decision 2009Da105383 Decided September 9, 2010 (Gong2010Ha, 1884) / [6] Supreme Court Decision 2004Da31302 Decided March 29, 2007 (Gong2007Sang, 601) Supreme Court Decision 2008Da44368 Decided June 24, 201 (Gong2011Ha, 1451) / [8] Supreme Court Decision 2010Da510195 decided May 21, 2015

Mona Co., Ltd. (LLC, Attorneys Kim Yong-ho et al., Counsel for the defendant-appellant)

Korean Standards Bank (Attorney Kim So-sik et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2011Na11513 decided February 6, 2013

The part of the judgment below regarding the ancillary claim is reversed, and that part of the case is remanded to the Seoul High Court. The plaintiff's appeal as to the main claim is dismissed.

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 each currency option contract of this case

A. As to the assertion regarding unfair conduct under the Civil Act

As to the Plaintiff’s assertion that each of the instant currency options contract constitutes an unfair act and thus null and void, the instant contract constitutes an unfair act, on the grounds that there exists a significant imbalance between the Plaintiff and the Defendant’s value under each of the instant currency options, and that there is a significant difference in the risk (referring to the maximum amount of losses that may be incurred by holding each of its holding assets for a certain period under a certain trust level. hereinafter “VaR”), and that the instant contract constitutes an unfair act, the lower court rejected it on the following grounds.

즉 ① 이 사건 각 통화옵션계약에 따른 시장위험 및 신용위험은 피고가 이 사건 각 통화옵션계약으로 수취하게 될 위험자본(risk capital)의 객관적 크기에 상응하여 커지기 마련인 점, 환전이나 환변동보험 등 통화거래나 대출 등 신용거래의 경우 수수료, 보험료, 이자는 모두 계약금액 대비 일정한 요율로 결정되는 점 등을 종합하여 보면, 피고가 취득하는 마진이 부당하게 과다한지 여부를 판단하기 위해서는 계약금액에 대비한 마진의 비율을 따져 판단함이 상당하다. 그런데 그 마진율 판단의 전제가 되는 옵션의 이론가를 산정하는 방식으로 감정인 소외 1이 사용한 블랙-숄즈 모형이나 그 대안으로 감정인 소외 2가 사용한 헤스턴 모형은 그중 어느 것이 더 적절하다거나 부적절하다고 판단할 근거가 없고 피고가 적용한 옵션의 이론가가 잘못 산정되었다고 볼 만한 자료도 없다. 또 이 사건 각 통화옵션계약의 계약금액에 대비하여 피고가 이 사건 각 통화옵션계약에 적용한 이론가의 차이, 즉 피고가 수취한 마진의 비율은 ‘0.21%에서 0.70%’[콜옵션(call option) 계약금액 기준] 또는 ‘0.25%에서 0.85%’[풋옵션(put option) 계약금액 기준]에 지나지 않고, 감정인 소외 2의 감정결과에 따른 이론가 차액으로 비교해 보아도 ‘0.37%에서 1.23%’(콜옵션 계약금액 기준) 또는 ‘0.44%에서 1.48%’(풋옵션 계약금액 기준)에 지나지 아니하여 다른 금융상품 거래 시 적용되는 수수료율 등(펀드판매 수수료는 0.8~1.9%, 현물환전 수수료는 1% 이상)과 비교하여 볼 때 부당하게 과다하다고 할 수도 없다. 이러한 사정에 비추어 보면 각 옵션의 객관적 가치에 현저한 불균형이 존재한다고 보기 어렵다. ② 한편 VaR은 개별 상품 또는 계약별 위험보다는 해당 상품 또는 계약이 포함된 포트폴리오에 대한 위험을 추정할 때 그 유용성이 크고, 실제로 그 활용도 포트폴리오 관점에서 이루어지는 것이 일반적이며, 그렇지 않을 경우 비논리적 결과가 도출될 수 있다. 또 외환포지션에 대한 환위험을 관리하여야 하는 기업으로서도 VaR 측정을 이용하여 환위험 관리를 할 수 있으나, 이때에도 현재 보유하고 있는 현금포지션, 현물환 거래에 의한 외환자산(외환매입액)과 외환부채(외환매도액)의 차액인 현물환 포지션, 선물환거래에 따른 외화표시 자산과 외화표시 부채의 차액인 선물환 포지션 등을 전부 종합하여 모든 거래의 차액을 산출한 종합포지션을 기준으로 VaR을 활용하는 것이 합리적이다. 특히 원고는 수출대금으로 유입될 외화의 환율 변동 리스크를 관리하기 위하여 이 사건 각 통화옵션계약을 체결한 것이라고 주장하므로, 이 사건 각 통화옵션계약의 체결에 따른 위험 노출 정도 또는 최대 예상손실액을 확인할 목적으로 이 사건 각 통화옵션계약 자체로 인한 VaR로서 결제일에 유입될 외화가 0임을 전제로 산정된 VaR을 이용한다는 것은 합리적이라고 할 수도 없다. 이와 같은 여러 사정에 비추어 원고가 주장하는 바와 같이 원고와 피고 사이의 VaR에 현저한 차이가 있다는 것이 이 사건 각 통화옵션계약의 불공정성을 판단하는 근거가 될 수는 없으므로, 이 사건 각 통화옵션계약에 따른 콜옵션과 풋옵션의 가치 사이에 현저한 불균형이 있다는 원고의 주장은 받아들일 수 없다는 것이다.

In light of the 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 omission of judgment or criteria for determining unfair conduct under the Civil Act.

Meanwhile, whether a certain juristic act constitutes an unfair juristic act shall be determined at the time of the juristic act (see Supreme Court Decision 2000Da30905, Dec. 8, 2000). Therefore, if the result is not unfair as a result of comprehensive consideration of the overall contents of the contract as at the time of conclusion of the contract, it shall not be deemed that the contract constitutes an unfair contract as a matter of course on the ground that it is a structure where a significant loss occurs to one of the parties to the contract due to a sudden change in external environment and the other party may have a large profit corresponding thereto. The judgment below is just, and there is no illegality as

B. As to the assertion on 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 and concluded a contract in accordance therewith, 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 Act on the Regulation of Terms and Conditions. In such a case, to deem that there was an individual negotiation, the result of the negotiation does not necessarily have to be in the form of changing the contents of a specific provision, and it is recognized that the other party to the contract could have changed the contents thereof after sufficiently reviewing and considering the relevant provision on an equal footing with the party who prepared the specific provision (see Supreme Court Decision 2008Da16950, Jul. 10, 2008).

In ordinary, prior to or at the same time, a basic contract is concluded between the parties pursuant to the monetary option transaction agreement, etc., the general provisions comprehensively stipulated in the monetary option transaction agreement, etc., including the definition of terms, the timing and method of performing the option transaction, default, termination, settlement at the time of termination, termination, prohibition of transfer and security, contractual currency, method of concluding the currency option transaction, etc., are generally likely to constitute a standardized contract, since there is no possibility of individual negotiation or choice between the parties.

However, according to the reasoning of the judgment below, the specific terms and conditions of the instant currency option contract, such as the contract amount, exercise rate, green-in exchange rate, green-out exchange rate, recreation, contract term, etc., which are major contract terms, are not the contents of the instant currency option contract, which are determined in advance as to whether they are determined by individual negotiations between the Plaintiff and the Defendant.

Furthermore, the structure of each currency option contract of this case, including the terms and conditions of melting and melting, the structure of which is larger than the theoretical value of put options acquired by the company, and the structure of not receiving the difference as commission fees, is provided in advance with a standardized structure in order for the Defendant to appropriately change and use the structure and conditions according to the needs of customers, and the structure alone does not create any rights and duties between the parties to the transaction. It is difficult to view that only the structure itself constitutes a standardized contract as long as specific contract terms and conditions are completed only due to the occurrence of the contract terms and conditions determined by individual negotiations, such as contract amount, event exchange rate, green and melting exchange rate, recreation, contract term, etc.

In the same purport, the lower court is justifiable to have determined that only the part concerning the structure of the contract of the instant currency option contract constitutes a standardized contract. In so doing, it did not err by misapprehending the legal doctrine on the nature of the standardized contract of the KIKO currency option contract. 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 it is a standardized contract cannot be accepted

2. As to the Plaintiff’s ground of appeal on the assertion such as deception and mistake

A. As to the assertion of deception, mistake, etc. regarding the value of options, fees, etc.

(1) Generally, a seller of goods or services is not obligated to inform or disclose to a buyer of the elements, such as cost or sales profit, with respect to the sales price of the goods or services he/she sells. This does not apply to the case where a bank engages in an over-the-counter derivatives transaction in the structure of cost (zerco) structure, which is not separately from a customer. Furthermore, the fact that a bank is seeking a certain profit as the counterparty of an over-the-counter derivatives transaction due to the nature of a market economy, any person may expect it. Therefore, barring any special circumstance, such as where a contractual or statutory obligation to notify price components is recognized, a bank cannot be deemed to have a duty to notify the customer of the theoretical value, fees, and the mas market value arising therefrom included in the over-the-counter derivatives structure of the Corst market. The mere fact that a bank did not notify is a deceptive act to a customer or causes a mistake that the customer does not bear any cost or fee in the relevant over-the-counter derivatives transaction.

(2) The lower court rejected all of the following grounds as to the Plaintiff’s assertion that the instant currency option contract was cancelled on the grounds that there was deception or mistake on the value and commission of options in concluding the instant currency option contract, and the meaning of the Coina, etc.

In other words, it is reasonable to view that the Plaintiff, as a matter of course, was aware that the Plaintiff did not incur any cost or would not enjoy any benefit from the Defendant’s conclusion of the instant currency option contract. Moreover, it cannot be deemed that the Defendant is obligated to present to the Plaintiff the conclusion of each of the instant currency option contract, the degree of profit, structure, and ground for the Plaintiff. Article 65 Subparag. 6(e) of the former Rules on the Performance of Banking Business Supervision (amended by November 17, 2010) merely provides that “The Plaintiff shall provide each of the prices information (referring to the information at a level of customer transaction price, not a financial institution’s trading source) for each of the inherent individual transactions.” Furthermore, it cannot be deemed that the theory of each option of the instant currency option contract was unfairly calculated, or that the Defendant’s acquisition was excessive. Moreover, in concluding each of the instant currency option contract, the Plaintiff’s assertion that the Plaintiff did not have to pay a separate fee in the form of payment of a fee, etc. in reality, as well as that it did not require any difference in the Plaintiff’s theoretical or value of the instant currency option.

(3) In light of the above legal principles and records, the above judgment of the court below is justifiable. Contrary to the plaintiff's grounds of appeal, there were no errors in the misapprehension of legal principles as to the establishment of deception and mistake.

B. As to the assertion of fraud, error, etc. relating to the foreign exchange hedge failure

The purpose of the exchange hedge transaction using over-the-counter derivatives is not to maximize profits, but to eliminate risks associated with the fluctuation in the price of foreign exchange goods, an underlying asset, by fixing the exchange rate to be applied in the future at a certain rate of exchange, regardless of future exchange rate fluctuations. In the case of a KIKO currency option product, if a customer who holds or is expected to hold in the future a foreign exchange in kind equivalent to the exchange contract price, enters into a contract for the purpose of foreign exchange hedging in the said foreign exchange goods, then the relevant contract itself would incur losses if the exchange rate increases, but even if the exchange rate increases due to the occurrence of exchange gains in the said foreign exchange goods, the overall profits and losses will be nonexistent, and thereby, the original purpose of the contract is to hedge exchange by concluding the currency option contract.

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, even if a foreign exchange rate drop below the foreign exchange rate, the risk cannot be avoided, or if the foreign exchange rate drops below the foreign exchange rate, the risk is increased to the Plaintiff, the Plaintiff is sufficiently aware of the existence of the risk, and the possibility of occurrence is low, and thus, the Defendant cannot be deemed to have entered into the instant currency option contract that is not suitable for avoiding exchange risk by deceiving the Plaintiff, and the Plaintiff cannot be deemed to have caused mistake in the possibility of avoiding exchange risk. In so doing, contrary to the Plaintiff’s grounds of appeal, there were no errors in the misapprehension of legal principles as to the existence of deception or mistake in relation to whether each of the instant currency options contract conforms to the purpose of avoiding exchange hedge. The Plaintiff’s ground of appeal on this part is without merit.

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

Although the court below did not recognize that the defendant deceivings the plaintiff or caused mistake as to the possibility of exchange rate fluctuations, the plaintiff's ground of appeal is not a legitimate ground of appeal, as it erred in the selection of evidence and fact-finding, which are the exclusive authority of the fact-finding court. The plaintiff's ground of appeal on this part cannot be accepted.

3. As to the Plaintiff’s ground of appeal on the termination of a contract on grounds of change in circumstances

A. The termination of a contract on the grounds of change in circumstances is recognized as an exception to the principle of contract observance in cases where a significant change in circumstances occurs that could not have been predicted by the parties at the time of the formation of the contract, and such change in circumstances arose for reasons for which the party who acquired the right to cancel is not responsible. If the binding force of the content of the contract is recognized, the circumstance here refers to an objective circumstance which serves as the basis of the contract, and does not mean the subjective or personal circumstance of one party. Therefore, even if a circumstance which is not the basis of contract formation subsequently changes, which results in damage by a party being unable to achieve the intended purpose of the contract at the time of the formation of the contract, barring any special circumstance, maintaining the validity of the contract as it is does not contravene the principle of good faith (see, e.g., Supreme Court Decision 2004Da31302, Mar. 29, 2007). This legal doctrine equally applies to cases where

B. According to the records, the Plaintiff asserted that the instant currency option contract is a continuous contract, and the common outlook for exchange rate fluctuations was a subjective act basis for the parties to the contract, but a sudden increase in the inherent fluctuation in exchange rate after the formation of the contract, and as long as the change in objective circumstances was caused by reasons not attributable to the parties, the instant currency option contract may not be predicted by the parties, as it was lost as the basis for the act was lost. Accordingly, the lower court rejected its assertion on the following grounds.

① In other words, considering the structure and content of each currency option contract of this case where both rights and obligations are determined on the basis of exchange rate fluctuation, the Plaintiff’s exchange rate fluctuation is already premised on each currency option contract of this case, and the Plaintiff and the Defendant cannot be deemed as the basis for the contract that they would have maintained exchange rate within a certain scope. ② The possibility of inherent fluctuation itself and the possibility of fluctuation in the currency option contract of this case is already premised on the design of each currency option contract of this case, i.e., the Plaintiff cannot be deemed as the premise that, even if it was used in the official manner for calculating the option price of the contract and the future currency option price, it is difficult to view that the Plaintiff’s act would have been contrary to the principle of trust and good faith to avoid exchange rate fluctuation, and thus, it is difficult to view that the Plaintiff’s act would have lost its inherent exchange rate increase beyond the expected exchange rate, regardless of its expected exchange rate fluctuation in the future exchange rate.

The above decision of the court below is just in accordance with the legal principles as seen earlier, and there is no error of law by misapprehending the legal principles as to the requirements for termination on the ground of change of circumstances, etc. The plaintiff's ground of appeal on this point is without merit.

4. 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 party expressed in the disposition document becomes an 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 objective 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 instant currency option contract does not need to exercise options, and that the parties’ rights and obligations are conclusive depending on the market exchange rate and maturity exchange rate until maturity, regardless of whether the parties’ rights and obligations are notified of the exercise

In light of the above legal principles and records, the above judgment of the court below is just and acceptable, and there are no errors in the misapprehension of legal principles as to the probative value of disposition documents, the parties' interpretation method as indicated in the disposition documents, the exercise requirement of options or the requirements for the validity of the terms and conditions, or incomplete deliberation, as otherwise alleged in the ground of appeal. The plaintiff's ground

5. As to the Defendant’s grounds of appeal on the suitability principle and duty to explain

A. The lower court first acknowledged the following circumstances in determining the Plaintiff’s assertion that the Defendant violated the suitability principle and duty to explain in concluding the instant currency option contract.

(1) Each currency option contract of this case is a new form of contract developed by high-tech financial engineering utilizing various information and expertise, such as transaction principles in foreign exchange markets, prospect of exchange rate fluctuations, appraisal of options value, etc., and can be used as financial products for investment or speculation as well as exchange risk management. In the event that a risk of loss is not secured on the date of settlement, the occurrence of forecast and other circumstances is likely to be unlimitedly expanded.

(2) In 2006, US$ 2480,000 was the highest monthly sales, US$ 860,000, and US$ 1950,000 in 207, the highest monthly sales, US$ 770,000 in 200, and the change in 3 times or to the extent is severe, so the observation period is all one-month and there was a considerable risk to enter into a contract for currency substitution for a long time.

(3) Furthermore, even though the annual average sales amount of USD 1.6 million in 2007 was limited to USD 1,600,000, among each of the instant currency option contracts, at the time of entering into the contract on August 1, 2007, the Plaintiff had already been in the state of over KRW 1.6 times or more by entering into the currency option contract with several financial institutions including the Defendant at the time of entering into the contract on August 1, 2007. At the time of entering into the contract on August 1, 2007, the Plaintiff was in the state of at least 2.7 million, only that was the call option contract amount of the remaining currency option contract entered into with the Defendant

(4) The Defendant is a principal bank that has been engaged in a transaction for more than 20 years with the Plaintiff, and has experience in concluding a currency option contract over several times, and thus, it appears that the Plaintiff was aware of the Plaintiff’s export amount, export volume, etc., and that the Plaintiff could have known the fact of concluding a currency option contract with other banks through half-yearly and quarterly reports, etc. submitted and published by the Plaintiff. However, it is difficult to understand that, in concluding a currency option contract, the Defendant’s financial statements only as of the end of the year to ascertain whether the Plaintiff and other financial institutions should have been aware of the fact of concluding the currency option contract, but did not review all the quarterly and half-yearly reports that the Defendant could easily access through the Internet, etc., and in itself,

(5) Each currency option contract of this case is designed on a total of 6 occasions in the structure of two times. The actual export performance or foreign currency inflows are likely to occur if the exchange rate fluctuations occur, and the risk of the Plaintiff to see the above losses is increased, particularly if there is no goods (in the form of export). Thus, it is necessary for the Defendant to pay due attention to entering into the contract, such as: (a) the above risk is more actively, and careful examination is required; (b) only six call options contract amount of each of the instant currency option contract of this case was 320,000,000 dollars average monthly USD 1.6 million; and (c) the Plaintiff’s average contract amount was entered into on August 1, 2007 and August 10, 2007; and (d) the Plaintiff’s contract amount was 300,000,0000 dollars at the time of entering into the contract.

(6) From January 3, 2008, the Defendant recommended the Plaintiff to adjust the contract price to a lower level by taking into account the existing contract price, or adjusted the time when the contract takes effect by taking into account the maturity and settlement amount of the existing contract. However, in the above circumstances, concluding a contract with a pre-determined exchange rate that takes effect after the lapse of 4 and 5 months cannot be deemed appropriate in terms of exchange risk management.

B. In full view of the aforementioned various circumstances, the lower court determined that the Defendant violated the suitability principle and the duty to explain by soliciting the instant currency option contract, which appears inappropriate in light of the Plaintiff’s volume of inflow inflows or its form, while emphasizing that the Defendant did not have any cost and duty to pay for the decline in exchange rates at the time of the instant currency option contract, and instead did not explain the risk caused by the rapid increase in exchange rates or the degree of losses incurred therefrom. However, the lower court’s aforementioned determination is difficult to accept in the following point.

C. First, we examine whether the defendant violated the suitability principle.

(1) In concluding a contract with an enterprise with a purpose of foreign exchange hedging, a bank shall not invite a company to enter into a contract with a kind of product or a currency option contract with such characteristics, including the expected foreign currency input amount, assets and sales size of the company, the asset status of the foreign exchange hedging, whether it is necessary for exchange hedging, transaction purpose, transaction experience, degree of knowledge or understanding of the contract in question, and other exchange hedging contract. In light of the above, if the bank actively solicited the contract to enter into a contract which causes an excessive risk in light of the company’s management situation in breach of such a duty, it shall be deemed that such solicitation constitutes a tort as it violates the principle of suitability and is in violation of the duty to protect customers.

In particular, over-the-counter derivatives are likely to excessively increase losses if predicted and different situations arise by using highly advanced financial engineering knowledge. On the other hand, banks are more reliable than financial institutions specialized in investment in various aspects, such as requirements for authorization, scope of business, governance and supervisory system, and thus soliciting of banks may have a strong impact on corporate decision-making. Therefore, it is reasonable to view that banks are more obligated to protect customers than other financial institutions when soliciting transactions of over-the-counter derivatives with a high risk as above.

However, a customer who deals with a financial institution, such as a bank, and a customer who deals with a financial product at his/her own responsibility based on his/her own judgment on the risks that may be expected through the transaction, and ultimately determine whether to engage in the transaction, and the details of the transaction. The principle of self-responsibility does not change fundamentally on the ground that the transaction is complicated and highly dangerous, such as over-the-counter derivatives transaction. Therefore, in cases where an enterprise intends to enter into a currency option contract for investment or speculative purposes, such as seeking exchange gains by using exchange rate, not exchange hedging, rather than exchange hedging, if the financial institution sufficiently notifies the customer of the risks inherent in the contract, it cannot be readily concluded that it violates the suitability principle and did not fulfill its duty to protect the customer, just because it did not interfere with or refuse the conclusion of the contract for such purposes, unless it

(2) Review of the reasoning of the lower judgment and the evidence adopted up to the lower court reveals the following facts.

① The Plaintiff’s total assets as of the end of 2007 amounting to approximately KRW 132.8 billion, and sales amounting to approximately KRW 191.9 billion. The average sales amount of USD 1.6 million in 2007, which was at the time of entering into each of the instant currency option contracts, is about USD 1.6 million.

② After having experienced considerable exchange loss at the time of the so-called IMF foreign exchange crisis around 1998, the Plaintiff established exchange risk management rules from around 2001, and operated the exchange risk management team separately, and some of the employees received exchange risk-related training.

③ Around February 2006, the Defendant visited the Plaintiff and provided an overall explanation on the currency option contract. On May 8, 2006, the Plaintiff presented a trade proposal on various kinds of currency option products on several occasions over four months prior to the conclusion of the first currency option contract with the Plaintiff, and explained on the structure of each product through telephone, e-mail, etc. Furthermore, the Plaintiff already entered into a 12 currency option contract with the Defendant, Korea Bank, and HSBC Bank, etc. during the period of one year and three months prior to the conclusion of the instant currency option contract. In addition, on August 1, 2007, the Plaintiff had experience in the lapse of the contract due to the fulfillment of the green-out condition. In addition, on August 1, 2007, the first contract concluded and the six options currency option contracts of this case, which were concluded earlier, sold the amount equivalent to lebage amount as the conditions were fulfilled. Moreover, the Defendant examples the specific loss amount and profit amount of each currency option contract at the time of the conclusion of the instant currency option contract.

④ At the time, Nonparty 3, an employee of Nonparty 3, took charge of concluding and negotiating a currency option contract with the Defendant. Nonparty 3, based on the understanding of the structure and content of various currency options products proposed by the Defendant, presented the major terms and conditions of the contract, such as the contract amount, melter, and melter, and melting the trend of exchange rate fluctuations.

⑤ At the time when the Plaintiff entered into a contract on August 1, 2007, which was the most earlier of the instant currency option contract, the contract amount of the call option contract was 2.7 million dollars per month. Nevertheless, the Plaintiff entered into an additional contract with the Defendant from August 2007 to January 2008, as well as 8.1 million dollars per month based on the contract amount of the call option contract with other four banks for the same period. As a result, the contract amount of the call option to be settled as of the end of 2007 was 9.5 million dollars per month. Moreover, after November 13, 2007, the Plaintiff entered into a contract with the Defendant or other banks for USD 2,708,000 per month was ever more than the exchange rate of USD A, and the contract amount of the other bank currency option contract was 2,000,000 dollars per month and 2,000 dollars per month 1,200,717.

(6) The Defendant provided most of domestic and foreign financial institutions with the forecast data about the decline in exchange rates, and the Plaintiff voluntarily predicted “U.S. dollars in 2008” in the business plan in 2008.

(3) We examine the above facts in light of the legal principles as seen earlier.

In light of the following circumstances: (a) the Plaintiff had a provision relating to exchange risk management team and had employees undergo exchange risk training; (b) the Plaintiff already concluded 12 currency option contracts before entering into the instant currency option contract; (c) had experienced actual loss due to the fulfillment of the melting condition on August 1, 2007; and (d) Nonparty 3, the Plaintiff’s employees, at the time of entering into the instant currency option contract, had been aware of the structure and risk of each of the instant currency options; and (c) at the time of the rise of exchange rate; and (d) the Plaintiff had sufficiently understood that actual loss would be increased due to the increase of exchange rate in 60 times, including USD 270,000,000 at the time of entering into the instant currency option contract, on August 1, 207, the Plaintiff entered into the instant currency option contract with the Defendant on an average of 60,500,000 dollars during the period of 60,000,000 won including USD 2,00.

Comprehensively taking account of these circumstances, the Plaintiff concluded 15 options such as the instant currency option contract of high risk structure in a short period exceeding the amount of exchange inflows to acquire exchange marginal profits arising therefrom, which would have been anticipated to decline in the exchange rate in the future. In so doing, the Plaintiff may be deemed to have concluded the instant currency option contract for the purpose of exchange hedge to avoid exchange risk, not for the purpose of exchange hedge to acquire exchange marginal profits arising from exchange rate fluctuations through the currency option contract, regardless of the amount of exchange acquired in kind, rather than for the purpose of exchange hedge to avoid exchange risk, with the intent to acquire exchange marginal profits arising from exchange rate fluctuations. In addition, the Plaintiff appears to have sufficiently recognized the risk that such excessive exchange hedges would have been caused by previous transaction experience and the Defendant’s explanation.

Therefore, the Defendant’s conclusion of the instant currency option contract with the Plaintiff and the customer seeking to enter into the contract for exchange hedging cannot be deemed to fall under the case where the Plaintiff actively solicited OTC derivatives transactions that do not comply with the purpose of the contract, excluding excessive risks inherent therein. In addition, under the foregoing circumstances, it cannot be deemed that the Plaintiff violated the suitability principle and did not perform its duty to protect customers, on the ground that the Defendant did not interfere with or refuse the conclusion of the instant currency option contract, which was voluntarily selected and decided by the Plaintiff. This is likewise true given that the Defendant is a commercial bank

Ultimately, the court below erred in the misapprehension of legal principles as to the suitability principle by soliciting the conclusion of the instant currency option contract, which is inappropriate in light of the Plaintiff’s volume of inflows into US dollars or its form, on the premise that the Plaintiff entered into the instant currency option contract for the purpose of managing exchange risk. The Defendant’s ground of appeal pointing this out is with merit.

D. Next, we examine whether the Defendant violated the duty to explain.

(1) In a case where a financial institution trades over-the-counter derivatives with general customers with professional knowledge and analysis capabilities, it is obligated under the good faith to clearly explain the risks inherent in the transaction in order for customers to accurately evaluate the structure and risk of the transaction, and major transaction information, such as major persons having influence on potential losses. However, in a case where the customer already knows the contents of the transaction, it cannot be deemed that the financial institution has an obligation to explain even about such matters (see Supreme Court Decision 2010Da55699, Nov. 11, 2010).

(2) Although the lower court pointed out that the Defendant did not explain the risk due to the rapid increase in foreign exchange rates or the degree of loss incurred therefrom, it is reasonable to view the above contents as being sufficiently known if the Plaintiff understood the basic structure and risks of each currency option contract of this case, even if the Defendant did not explain the above details to the Plaintiff, based on the following: (a) the Plaintiff’s explanation on the Plaintiff at the time of entering into each contract, including the instant currency option contract; (b) multiple currency options contract; (c) the Plaintiff’s experience in entering into and melting the currency option contract of this case; and (d) the degree of the Plaintiff’s employee’s participation in the conclusion of each currency option contract of this case and the establishment of transaction terms and conditions. Therefore, even if the Defendant did not explain the above details

In addition, in the process of concluding the instant currency option contract, there is no circumstance to deem that the Defendant failed to explain the risk due to rapid increase in foreign exchange rates, the degree of loss incurred therefrom, etc., as indicated in its holding, even in light of the content of the lower judgment. Rather, according to the reasoning of the lower judgment, it is sufficient to deem that the Defendant, around February 2006, issued a general explanation on the currency option contract that may increase the exchange rate of exercise by visiting the Plaintiff and explaining the Plaintiff on several occasions on May 8, 2006, and explained the structure of each product through telephone, e-mail, etc., for about four months until the date when the Plaintiff entered into the instant currency option contract, and explained the specific amount of loss due to exchange rate fluctuations and the amount of loss incurred therefrom. Thus, it is sufficient to deem that the Plaintiff explained the risk due to rapid increase in foreign exchange rates or the degree of loss incurred therefrom, etc.

Ultimately, the lower court erred by misapprehending the legal doctrine on the duty to explain, while emphasizing only the prospect that the exchange rate will decline at the time of entering into each currency option contract of this case and the fact that the Defendant did not actually bear the expenses such as the commission to be paid to the party in question. The lower court erred by misapprehending the legal doctrine on the duty to explain. The Defendant’s ground of appeal assigning this error is with merit

6. Conclusion

Therefore, without examining the remaining grounds of appeal by the defendant as to comparative negligence set-off, etc., the part concerning the conjunctive claim among the judgment below is reversed, and that part of the case is remanded to the court below for further proceedings consistent with this Opinion. The appeal as to the plaintiff's primary claim is dismissed. It is so decided as per Disposition by the assent of all participating Justices.

Justices Yang Chang-tae (Presiding Justice)