Young Life Insurance Co., Ltd. (Law Firm Sejong, Attorneys Kim Yong-ho, Counsel for defendant-appellant)

Alley Mans Investment Advisory Co., Ltd. (Attorneys Lee Tae-sub et al., Counsel for the defendant-appellant)

February 7, 2014

Seoul Central District Court Decision 2013Gahap14335 Decided June 20, 2013

1. The judgment of the first instance is revoked, and the plaintiff's claim is dismissed.

2. The Plaintiff shall pay to the Defendant the amount calculated by either KRW 519,312,437 as the return of the provisional payment and 6% per annum from July 10, 2013 to January 28, 2014, and 20% per annum from January 29, 2014 to the date of full payment.

3. The plaintiff shall bear the total cost of the lawsuit, including the cost of filing an application for the return of provisional payments.

4. Paragraph 2 can be provisionally executed.

[Claim]

The defendant shall pay to the plaintiff 477,694,152 won with 6% interest per annum from November 17, 2012 to the delivery day of complaint and 20% interest per annum from the next day to the day of full payment.

【Purpose of Appeal and Claim for Return of Provisional Payment】

The same shall apply to the order.

1. Basic facts

(a) Conclusion of a trust deed;

On February 7, 2012, the Defendant, a collective investment business entity, entered into a trust agreement (hereinafter “instant trust agreement”) with the Korean National Bank Co., Ltd., the trustee company, and the Securities Investment Trust Co., Ltd. 1 [stocks] (hereinafter “instant fund”) and began to operate the instant fund. The Plaintiff purchased 61,87,480,67 shares of the instant fund’s beneficiary certificates through a selling company that entered into a consignment contract with the Defendant, such as future deposit and single-use securities, and invested 11 institutional investors (including the Plaintiff, as well as the Plaintiff, Dongyang Lifelong, future deposit, Samsung F&M, Han Bank, Hansung Life Bank, and Hyundai Sea, and bank, etc.). The Plaintiff’s investment amount was approximately 30% of the instant fund’s beneficiary certificates at the time of the instant investment (hereinafter “the instant fund’s beneficiary certificates”).

B. The defendant's announcement of suspending domestic business and the plaintiff's demand for redemption

Around 12:00 on November 13, 2012, the Defendant announced a plan to suspend domestic business after providing support for the transfer of investment assets. On the same day, at around 13:33, the Plaintiff filed a claim for the redemption of all of the instant beneficiary certificates held by the Plaintiff and eight institutional investors including the Plaintiff (hereinafter “instant institutional investors”) among the institutional investors that invested in the instant fund. On November 13, 2012, eight institutional investors including the Plaintiff filed a claim for the redemption of the instant beneficiary certificates, which were in possession of the instant claim for the redemption of the instant investment securities, and on November 13, 2012, the amount of the claim for redemption (hereinafter “instant claim for redemption”) filed prior to the date of 15:00,000, out of the investment assets of the instant fund ( approximately KRW 190 billion).

C. The defendant's postponement and resumption of redemption and payment of redemption money

Around 17:00 on November 13, 2012, the Defendant convened the Collective Investment Property Evaluation Committee (hereinafter “Evaluation Committee”) to convene the instant claim for redemption, and immediately notified investors, including the instant institutional investors, and reported it to the Financial Investment Services and Capital Markets Act (amended by Act No. 11040, Aug. 4, 2011; hereinafter “Capital Markets Act”) and Article 237 of the Enforcement Decree of the said Act (amended by Presidential Decree No. 23924, Jun. 29, 2012; hereinafter “Enforcement Decree of the said Act”), and Article 256 subparag. 2 (c) of the Enforcement Decree of the said Act.

On November 14, 2013, the Defendant disposed of the considerable portion of the shares, which are the investment assets of the instant fund, and determined to apply the standard price publicly announced as of November 16, 2012 to the repurchase claim before November 13, 2012 with respect to the base price of beneficiary certificates to be applied at the time of repurchase, by holding an evaluation committee again after closing the market, and determining the resumption of repurchase, and applying the standard price publicly announced as of November 16, 2012 to the repurchase claim after November 15, 2012 in relation to the base price of beneficiary certificates to be applied at the time of repurchase.

On November 15, 2012, the Defendant informed the instant institutional investors and investors of the resumption of redemption and the redemption price. Then, the Defendant applied the above base price to pay KRW 58,159,262,852 to the Plaintiff on November 16, 2012.

D. Details of the instant trust agreement

The main contents of the instant trust agreement concerning redemption of beneficiary certificates are as follows.

Article 5 (Effect of Trust Contract and Term of Trust Contract)

(2) A beneficiary shall be deemed to have accepted the matters prescribed in this trust contract when he/she acquires beneficiary certificates of an investment trust.

Article 26 (Redemption of Beneficiary Certificates)

(1) A beneficiary may claim for redemption of beneficiary certificates at any time.

(2) Where beneficiaries intend to request for redemption of beneficiary certificates, they shall make a claim to the selling company of beneficiary certificates.

(6) A collective investment business entity in receipt of a request for redemption or a request to comply with redemption under this Article shall pay a redemption price to beneficiaries through a distribution company on the fourth business day (four business days when a beneficiary claims redemption after the lapse of 15 cc) from the date when the beneficiary claims redemption (including the party concerned

Article 27 (Redemption Price)

The redemption price of beneficiary certificates shall be the base price of the relevant type of beneficiary certificates publicly announced at the second business day (three business days when a beneficiary claims redemption after the lapse of 15 cc) from the date (including the date at which the beneficiary claims redemption to the selling company.

Article 28 (Deferment of Redemption, etc.)

(1) A collective investment business entity that is liable to accept redemption in accordance with the provisions of Article 26 may postpone the redemption of beneficiary certificates, where it is impossible to pay the redemption price on the date of redemption stipulated in the trust deed due to any of the following grounds, such as cases where it is impossible to dispose of assets

2. Where it is anticipated that equality in dealing with beneficiaries is undermined and where the case falls under any of the following items:

(c) Where it is anticipated that accepting a claim for redemption in a large volume are likely to undermine equality in dealing with beneficiaries;

(2) A collective investment business entity shall, when it resolves on matters concerning redemption or continues to postpone the redemption at the general meeting of beneficiaries, notify beneficiaries and distributors of the matters classified in the following subparagraphs without delay:

2. Where it continues postponement of redemption;

(c) Payment method of redemption price, when the redemption is resumed; and

(d) The redemption price (in such cases, the redemption price shall be determined by the collective investment property appraisal committee) and the timing for payment of redemption money where redemption is resumed;

(3) omitted.

(4) Where all or part of the grounds for postponement of redemption cease to exist, a collective investment business entity shall notify the beneficiaries for whom redemption is postponed of the purport that redemption is redeemed, and shall pay a redemption price, as stipulated in Article 258 of the Enforcement Decree of the Act. In such cases

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1 to 11, the purport of the whole pleadings

2. The parties’ assertion and the reorganization of issues

A. The plaintiff and the defendant's assertion

1) Plaintiff

The Defendant is obligated to pay the redemption price according to the base price publicly announced on November 14, 2012, which is the second business day from the date of the date of the claim for redemption to the instant institutional investors, including the Plaintiff, pursuant to the instant trust agreement. However, the Defendant paid the redemption price to the instant institutional investors, including the Plaintiff, at the base price publicly announced on November 15, 2012, on the ground that the instant claim for redemption fell under a case where there is a possibility of undermining equality among the beneficiaries as a large-scale claim for redemption, and thus, the redemption was postponed and resumed. However, at the time, the Defendant paid the redemption price to the instant institutional investors, including the Plaintiff, by calculating the value of each beneficiary certificate at the base price publicly announced on November 15, 2012. However, for the purpose of raising the redemption price due to the instant claim for redemption, the instant claim for redemption was not an issue of equity, etc., and eventually, the Defendant also paid the redemption price to the Plaintiff, etc. on the date of the original

This is because the decision to postpone redemption of the instant case was unnecessary. The Defendant’s payment of the redemption price of the instant beneficiary certificates to the Plaintiff as the base price publicly announced on November 15, 2012 was at will determined and paid the redemption price of the beneficiary certificates, but there was no difference between the Defendant and the Defendant violated the obligation under the instant trust agreement. Therefore, the Defendant is obliged to pay the difference between the redemption price already paid to the Plaintiff with respect to the instant beneficiary certificates (the amount calculated as the base price publicly announced on November 15, 2012) and the redemption price calculated as the base price publicly announced on November 14, 2012.

2) Defendant

In response to the instant claim for redemption without the instant deferment of redemption, it is inevitable to dispose of its assets equivalent to 80% of the instant fund at once and thereby create a redemption price. Of the assets of the fund, it is an act likely to cause losses to the remaining value of the fund by bringing about changes in the composition of the fund assets of the fund of this case or decline in the price by means of large disposal in the case of certain items. In addition, in the case of large-scale sale of assets of the fund, which is caused by the instant claim for redemption, there is a concern that the fund would be transferred to the remaining investors who did not claim for the payment of transaction expenses due to the sale of assets. The Defendant issued a deferment of redemption in this case with this concern. The Defendant prepared a redemption price by selling assets to the remaining investors so as not to cause maximum damages, and confirmed that there was such concern, and decided to repurchase, and paid the redemption price to the Plaintiff in accordance with due process, and the Defendant paid the redemption price to the Plaintiff in the instant claim for redemption.

B. Organization of issues

In light of the above purport and the Defendant’s argument, the key issue of the instant case is whether the Defendant properly performed its business as a collective investment business entity under the Capital Markets Act, the Enforcement Decree of the Capital Markets Act, and the instant trust agreement in the process of calculating and paying a redemption price for the instant claim for redemption

3. Determination

A. Details of the relevant statutes

The entries in the attached statutes are as follows.

B. B. Prior to the decision on postponement of redemption of the instant case, circumstances after the postponement, and circumstances surrounding the Defendant’s business

According to the above evidence and the statements in Eul evidence Nos. 12 through 14, before and after the postponement of redemption of the fund of this case, the business process of the defendant with respect to the claim for redemption of this case is as follows.

1) Prior to the Defendant’s announcement of the Defendant’s plans to suspend business in Korea, the Defendant considered the means of borrowing up to 10% of the fund’s assets recognized under Article 83 of the Capital Markets Act, as well as the means of postponement of redemption under Article 237 of the same Act, by means of forecasting the investors’ claim for large-scale redemption and preparing a timely redemption price. However, in the event of large-scale claim for redemption, 10% of the fund’s assets cannot be able to cope with the demand, and as a result, increasing the interest burden on the remaining investors, the Defendant considered the postponement of redemption scheme as scheduled under the Capital Markets Act. On November 12, 2012, the Defendant determined that the Defendant’s share management team can prepare a redemption price without delay in the event of a claim

However, the Defendant issued the instant claim for redemption up to 80% of the total assets of the Fund prior to the closure of the stock market on November 13, 2012, and the same day. The Defendant, as seen in the above basic facts, determined that the value of the instant claim for redemption would be reduced due to market shock, etc., and that the equity problem between the investors and the remaining investors would arise due to the change in the asset composition ratio of the instant fund, and the transaction cost would be transferred to the remaining investors, and that the postponement of redemption was decided on the grounds of Article 237 of the Financial Investment Services and Capital Markets Act, Article 256 subparagraph 2 (c) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act.

2) The fund of this case consists of a stock-type fund with its principal assets. In light of the composition of each class of shares, not only the superior share of Samsung Electronic, SamsungSDI, and Macco, but also small owners, such as CJ presseswa, Space Schex, and Medix, in which the fund of this case holds a significant portion of daily average transactions in the market. At the time of the decision to postpone redemption of this case, among the total 73 shares held by the fund of this case, the number of shares held by the fund of this case exceeds 49% of the daily average trading volume of the stock market was at least 8,20, 19, and 50, among the total shares held by the fund of this case, the number of shares held by the fund of this case was at least 49% (the detailed list of shares held by 49% is the same as the list of the current status of shares held).

3) On November 14, 2012, after the decision to postpone redemption, the Defendant began to dispose of the shares of the instant fund as much as possible at the same rate, as a result, success in the sale of approximately 85% of the total shares in the instant fund possession on the same day without harming the composition ratio by the category of shares owned by the instant fund, and again made a decision to resume redemption by holding the Evaluation Committee, and notified the instant institutional investors of the decision to resume redemption at the Evaluation Committee, and that the settlement of the redemption price by the instant claim for redemption was set at the base price publicly announced on November 15, 2012.

C. Determination

For the following reasons, the decision on deferment of redemption of this case is legitimate in compliance with the requirements stipulated in the Capital Markets Act and the trust agreement of this case, and the defendant's business affairs responding to the claim for redemption of this case also seems to have fulfilled his duty of care as a good manager as a collective investment business entity that manages the fund of this case in light of the relevant laws and regulations and the terms of the trust agreement of this case.

1) The purport of the Capital Markets Act to recognize the deferment of redemption of beneficiary certificates lies in realizing the principle of performance dividend and the principle of equality of beneficiaries. If Article 256 subparag. 1 of the Enforcement Decree of the Capital Markets Act is calculated in cases where the disposal of collective investment property is impossible, it is interpreted that the postponement of redemption is recognized in cases where the principle of equality of beneficiaries is likely to be infringed upon even if the disposal of collective investment property is possible, that is, where the disposal of collective investment property is likely to undermine the equity among investors. In ordinary cases, if the redemption price is prepared in accordance with the ordinary redemption procedure even when a large-scale claim for redemption difficult to occur is made, it is inevitable to preferentially sell a large portion of the good assets within the trust property to pay the redemption price to the prior redemption requester. In such cases, it is deemed that the composition of trust property mainly from assets or assets difficult to be sold, consisting of assets, the value of which is less than the value of assessment, and thus, it

2) In the instant claim for redemption, from November 13, 2013 to 15:00 on the same day, the Defendant’s plan to suspend the business in Korea was announced, eight institutional investors, among the 11 institutional investors, who are beneficiaries of the instant fund, participated in the redemption of approximately KRW 150 billion out of the total assets of the instant fund. As such, it is clear that the “case where it becomes possible to accept a claim for large amount of redemption” under Article 256 subparag. 2(c) of the Enforcement Decree of the Financial Investment Services and Capital Markets Act is clearly stated, and as seen earlier, in light of the asset composition ratio of the instant fund, and the trading size in the stock market of individual assets, where the disposal of assets following such large amount of claim for redemption is forcibly strong, the high-quality ratio of the assets of the instant fund would have been significantly decreased, and this would have been likely to have been affected by equity among beneficiaries.

The Plaintiff asserts to the effect that, in light of the size of the domestic stock market at the time, the issue of stocks forming the assets of the instant fund, the actual stock market at the time of disposal of stocks, and the situation of the post-sale market, etc., the stock market was deemed to have been capable of sufficiently extinguishing the disposal of stocks equivalent to the instant claim for redemption. In full view of the above evidence or the facts acknowledged as above, the Plaintiff’s assertion that the redemption decision of the instant case was inappropriate or practically unnecessary. In light of the above evidence, the proportion of KRW 150 billion, an average transaction amount of KRW 6.9 billion in the domestic stock market on November 14, 2012, to the amount of the instant claim for redemption as the average transaction amount of KRW 6.9 billion in the domestic stock market was not so large, and at the time, the domestic stock market situation at the time was not bad, and a large number of the 73 stocks owned by the instant fund was assessed as the superior stock market, and there was no particular difficulty in these disposal.

However, as seen earlier, the issue of equity among the beneficiaries of large-scale claims for redemption does not necessarily arise when it is impossible to dispose of their invested assets. The issue of equity among investors is not whether to sell beneficiary certificates claimed in the amount of KRW 150 billion, but whether to sell remaining funds without impairing the value of the remaining funds. Therefore, such circumstance alone does not necessarily lead to cases where the decision of postponement of redemption in this case does not constitute “the case where accepting large-scale claims for redemption is likely to undermine the formation of investors” as stipulated in the Capital Markets Act, the Enforcement Decree of the Capital Markets Act, or the trust contract of this case. As a result, even if the supply and demand in the domestic stock market was smooth at the time and the Defendant could sell 85% of the assets of the Fund in this case on November 14, 2012, it is merely an ex post facto circumstance, and thus, it is not appropriate to deem the decision of postponement of redemption in this case to be inappropriate. The Plaintiff’s assertion in this part is not acceptable.

3) According to Article 237 of the Capital Markets Act, Articles 257 and 258 of the Enforcement Decree of the Capital Markets Act, a collective investment business entity following the postponement of redemption shall hold a general meeting within six weeks. However, if the grounds for postponement of redemption cease to exist before the general meeting for postponement of redemption, it may be redeemed without holding the general meeting for postponement of redemption. In such a case, according to Article 28(4) of the Trust Contract Act, the Evaluation Committee determines redemption price. As seen earlier, the Defendant was successful in selling 85% of the assets owned by the instant fund without making a large change in the asset composition ratio of the instant fund on November 14, 2012, and the issue of equity among investors was resolved, and the Evaluation Committee notified the instant institutional investors of the decision to resume the redemption and the price of the instant claim was determined by the Evaluation Committee. Accordingly, the Defendant’s process of business is determined to have been implemented in a way consistent with the relevant provisions of the Capital Markets Act and the Enforcement Decree of the Capital Markets Act, the trust Contract and the redemption price decision procedure.

4) As the Plaintiff’s assertion, deeming that the decision on postponement of redemption of the instant case was unnecessary, and when calculating the redemption price due to the instant claim for redemption as the base price for public notice on November 14, 2012, the profits that the instant institutional investors, including the Plaintiff, can additionally obtain, including the Plaintiff, are the amount increased by 0.82% of the redemption price set by the Defendant. However, in calculating the redemption price without the decision on postponement of redemption for the instant claim, the remaining investors would incur losses equivalent to 3.82% of the assets held by the Defendant. Considering such circumstances, the decision on postponement of redemption of the instant case cannot be deemed unnecessary.

5) There is no benefit gained by the Defendant from the decision on postponement of redemption of the instant case. Thus, it cannot be deemed that the Defendant made the decision on postponement of redemption of the instant case to pursue its own interest.

4. Determination as to an application for the return of provisional payments

According to the above recognition, the judgment of the court of first instance, which is the receipt of the plaintiff's request, is unfair, and therefore, the sentence of provisional execution of the court of first instance shall be revoked at the trial, and thus, it shall also be invalidated by the declaration of this judgment. If it is already received by the declaration of provisional execution, it is not a legal ground, and it shall be returned as unjust enrichment (see Supreme Court Decision 2011Da25145, Aug. 25, 201)

Based on the declaration of provisional execution of the judgment of the court of first instance on July 10, 2013, the Plaintiff received the principal amount of KRW 477,694,152 and delay damages of KRW 519,312,437,00 (=477,694,152 + 41,618,285 won) from the Defendant as the award amount of the judgment of the court of first instance on July 10, 2013. Thus, there is no dispute between the parties, and the Plaintiff is obligated to pay damages for delay calculated at a rate of 519,312,437 won (=47,694,694,152 + 41,618,285 won) to the Defendant from July 10, 2013, on which the application for the return of provisional payment was served to the Plaintiff from the date of receiving the provisional payment, to January 28, 2014; and

5. Conclusion

Therefore, the plaintiff's claim of this case shall be dismissed as it is without merit, and the judgment of the court of first instance shall be revoked as it is unfair to conclude otherwise, and the plaintiff's claim shall be dismissed, and the defendant's claim for the return of provisional payment of this case shall be accepted as reasonable.

[Attachment]

Judges Kim Jae-sik (Presiding Justice)