[1] The case holding that the causal relationship between the negligence of an external auditor who failed to disclose the large-scale window dressing accounting of the company and the investor's purchase of corporate bills is recognized

[2] The method of calculating the amount of damages sustained by an investor who purchased corporate bills due to a fraudulent audit by an external auditor

[1] Article 750 of the Civil Code, Articles 2, 7-2, and 17(2) of the Act on External Audit of Stock Companies / [2] Articles 393, 750, and 763 of the Civil Code, Article 17(2) of the Act on External Audit of Stock Companies, Articles 15 and 197(2) of the Securities and Exchange Act (repealed by Article 2 subparag. 1 of the Addenda to the Financial Investment Services and Capital Markets Act of August 3, 2007)

[1] Supreme Court Decision 2005Da28082 Decided January 11, 2007 (Gong2007Sang, 270) / [2] Supreme Court Decision 2006Da16758, 16765 Decided October 25, 2007 (Gong2007Ha, 1806)

Daegu Mutual Savings Bank (Law Firm Hannuri, Attorneys Kim Sang-won et al., Counsel for the plaintiff-appellant)

Bill Accounting Corporation (Law Firm Youngjin, Attorneys Kim So-won et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2005Na110815 decided January 25, 2007

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

Examining the reasoning of the lower judgment in light of the record, the lower court was justifiable to have determined that the Defendant breached its duty of care as an auditor by taking account of the evidence adopted in its judgment and finding facts as stated in its reasoning, and by failing to take any particular measures or neglecting to take any other measures against the external audit of the financial statements for the fiscal year of Cululty Es (hereinafter “CoulS”) of CultyNS Co., Ltd. (hereinafter “CoulS”), while conducting external audit of the financial statements for the fiscal year, the Defendant breached its duty of care, such as indicating an adequate opinion in the audit report of this case.

The judgment of the court below is not erroneous in the rules of evidence or examination.

The ground of appeal on this part is without merit.

2. Regarding ground of appeal No. 2

The financial statements of an enterprise and audit report stating the result of an audit by an external auditor on its financial statements are the most objective data revealing the accurate financial status of the enterprise in question through the Korea Stock Exchange, etc., and are publicly announced through the corporation’s credit rating evaluation of corporate bonds and commercial papers issued by the enterprise and the decision on whether to provide loans to the financial institution. As a result, the same case is extremely unusual to provide large-scale loans in accordance with the external accounting contents and the credit rating of corporate bonds and commercial papers based thereon, even though it is aware that the amount of accounting in question violates the accounting standards is serious in comparison with the amount of the equity capital of the relevant enterprise (see Supreme Court Decision 2005Da28082, Jan. 11, 2007).

According to the reasoning of the judgment below, even though the financial status of the Cul harassment is actually 89.99 billion won including the discount of commercial papers, short-term loans, including the discount of commercial papers, were stated as 89.99 billion won, the debts, such as omitting them, were less than 80.85 billion won, and the assets were less than 19.36.2.8 billion won, and the net profits were less than 14.99.9.39 billion won, and the financial statements of this case were divided and processed in a way that the financial statements of this case were additionally appropriated as 14.89.9 billion won, and the financial statements of this case were not properly known at the time of the purchase of the above corporate bills from the financial statements of this case. In light of such formula, it was reasonable to view that the Plaintiff did not know that the above corporate bills were purchased from the financial statements of this case as a result of the audit and inspection of this case.

In the same purport, the lower court was justifiable to have determined that the Plaintiff, who acquired the instant corporate bills in the open market after the audit report of this case was announced publicly, was trusted and traded on the basis of such trust.

The court below did not err in the misapprehension of legal principles as to causation between false audits and the purchase of corporate bills, or in violation of statutes.

This part of the grounds of appeal is without merit.

3. Regarding ground of appeal No. 3

Where an investor who was damaged by an auditor’s fraudulent audit claims compensation for damages due to tort liability under the Civil Act, the acquirer of securities, the investor, must prove all the facts such as the causal relationship between the unlawful act such as false statements by the obligor for compensation and the occurrence of damages (see Supreme Court Decision 2006Da16758, 16765, Oct. 25, 2007). However, barring any special circumstance, the contents of audit report which failed to disclose the window dressing accounting, affect the determination of the value of corporate papers, thereby causing unfair formation of the price, and thereby causing the Plaintiff who purchased corporate papers, shall be deemed to have suffered losses.

On the other hand, Articles 197(2) and 15 of the Securities and Exchange Act cannot be applied to the assessment of damages in the above case, and the damages that the Plaintiff, who purchased the corporate papers, ultimately, after the appraisal of the value of the corporate papers due to the window dressing accounting and improper audit, shall be the amount calculated by deducting the actual value of the corporate papers from the amount equivalent to the purchase price of the corporate papers, i.e., the actual value of the corporate papers, which would have been formed without the window dressing accounting and improper audit (see Supreme Court Decision 79Da1746, Feb. 26, 190).

According to the reasoning of the judgment below, Co., Ltd. was established on Jan. 8, 2002 as the subsidiary company in charge of the World Cup emblem business on Jan. 8, 2002 in order to meet the business depression during the period, and invested or lent approximately KRW 2.5 billion in Co., Ltd. 2002 with a license for the 2002 World Cup emblem business, but its funds were not recovered due to the failure of the World Cup emblem business, and the ability to repay short-term loans amounting to KRW 136 billion as of May 2002 led to the limitation of the repayment capacity of the short-term loans, and the risk of false entry in the financial statements and the audit report of this case, which had been purchased on Aug. 21, 2002, the court below acknowledged the non-performance of the financial statements of this case as well as the non-performance of the financial statements of this case. However, the court below acknowledged the non-performance of the financial statements of this case and the non-performance of the audit report of this case.

In accordance with the above legal principles, it is reasonable for the court below to calculate the amount of damages suffered by the plaintiff on the premise that the contents of the audit report of this case affected the determination of the value of corporate papers and caused the purchase of corporate papers at an unfair price, and it cannot be said that the reason such as the failure of the above World Cup emblem business was not separately considered in calculating the amount of damages.

The court below did not err in the misapprehension of legal principles as to causation or scope of damages.

This part of the grounds of appeal is without merit.

4. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the plaintiff who is the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Cha Han-sung (Presiding Justice)