Whether the Korea Highway Corporation’s intra-company labor welfare fund constitutes “funds established by law” as professional investors under the Financial Investment Services and Capital Markets Act and the Enforcement Decree thereof (negative)

Article 9(5) of the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) defines an investor capable of reducing risks arising from investment as a professional investor in light of whether the investor meets expertise in financial investment instruments and the scale of the owner’s assets. Accordingly, Article 10 of the Enforcement Decree of the Financial Investment Services and Capital Markets Act (hereinafter “Enforcement Decree of the Financial Investment Services and Capital Markets Act”) provides for the scope of professional investors. Accordingly, whether an investor is a professional investor as prescribed by the Financial Investment Services and Capital Markets Act or the Enforcement Decree thereof is objectively determined depending on whether an investor is a professional investor as prescribed by the Financial Investment Services and Capital Markets Act.

The Financial Investment Services and Capital Markets Act does not apply most of the regulations on business activities to professional investors, including the suitability principle, adequacy principle, and duty to explain, by distinguishing professional investors from general investors. This is to enhance the efficiency of regulations by concentrating limited regulatory resources to general investors in need of protection, considering the difference between the necessary knowledge, experience, and ability when concluding a financial investment contract between professional investors and general investors.

In light of the purport of distinguishing professional investors from ordinary investors and the legislative purpose, criteria for distinguishing them, etc., the scope of professional investors should be limited to cases where it is clearly recognized in accordance with the Capital Markets Act and the Enforcement Decree thereof. In other words, solely on the ground that the fund is based on the establishment of a law, it cannot be readily concluded that the fund constitutes “fund established under the law” as professional investors under Article 10(3)12 of the Enforcement Decree of the Capital Markets Act, and in particular, it is more the case where the establishment of the fund is voluntary. Accordingly, it is difficult to view the Korea Highway Corporation, a corporation, which is established with the approval of the Minister of Employment and Labor for the stabilization of livelihood and the promotion of welfare of workers of the Korea Highway pursuant to Articles 50 and 52 of the Framework Act on Labor Welfare, as a matter of Articles 10(3)12

Articles 50 and 52 of the Framework Act on Labor Welfare, Article 9(5) of the Financial Investment Services and Capital Markets Act, Article 10 of the Enforcement Decree of the Financial Investment Services and Capital Markets Act

Supreme Court Decision 2016Da224626 Decided July 11, 2019 (Gong2019Ha, 1544)

Korea Highway Corporation (Law Firm Chungcheong, Attorneys Kim Si-ju et al., Counsel for the plaintiff-appellant)

Jinjin Asset Management Co., Ltd and one other (Law Firm, Kim & Lee LLC et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2017Na2016561 decided January 19, 2018

All appeals are dismissed. The costs of appeal by the Plaintiff are assessed against the Plaintiff, and the costs of appeal by the Defendants are assessed against the Defendants.

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

1. Plaintiff’s ground of appeal

For the reasons indicated in its holding, the lower court rejected the Plaintiff’s primary assertion on the ground that it is difficult to recognize the fact that Defendant Jinjin Asset Management Co., Ltd. (hereinafter “Defendant Jinjin Asset Management”), an asset management company, and a company selling future Este Securities Co., Ltd. (the future Estes Co., Ltd., a lawsuit taking over the lawsuit of Defendant Ustes Co., Ltd., a future Estes Co., Ltd., was merged and taken over the lawsuit of this case on December 30, 2016, but its trade name was changed to the future Es Co., Ltd., Ltd. on March 24, 2021; hereinafter “Defendant’s future Es Co., Ltd.,” collectively referred to as “Defendant’s future Es Co., Ltd.”), was of deception or deception at the time of creating each of the funds of this

Examining the reasoning of the lower judgment in light of the relevant legal doctrine and the record, the lower court did not err in its judgment by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on deception and comparative negligence by omission, without exhaust all necessary deliberations

2. As to the ground of appeal on Defendant Jinjin Asset Management

For the reasons indicated in its reasoning, the lower court determined that Defendant Jinjin Asset Management was an investment recommendation for the Plaintiff, and that Defendant Jinjin Asset Management was liable to compensate the Plaintiff for part of the investment principal due to the Plaintiff’s investment recommendation in violation of the duty to protect investors, and thus, Defendant Jinjin Asset Management was jointly and severally liable with Defendant Jinjin Asset Management. However, the liability for Defendant Jinjin Asset Management was limited to

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court did not err in its judgment by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on investment recommendation, suitability principle, duty to explain, duty to prohibit unfair solicitation and the calculation of damages, comparative negligence and liability limitation, inconsistent reasoning, and lack of reasoning, etc. under the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”).

3. As to the ground of appeal by Defendant Future Deposit Securities

A. Whether the Plaintiff constitutes “a fund established under the Act” as a professional investor under the Capital Markets Act and its Enforcement Decree

1) Article 9(5) of the Financial Investment Services and Capital Markets Act defines the scope of professional investors as investors who are capable of meeting expertise in financial investment instruments, and who are prescribed by Presidential Decree, such as the State and the Bank of Korea, stock-listed corporations, financial institutions prescribed by Presidential Decree, and other financial institutions. Accordingly, Article 10 of the Enforcement Decree of the Financial Investment Services and Capital Markets Act prescribes the scope of professional investors. Accordingly, whether an investor is a professional investor prescribed by the Financial Investment Services and Capital Markets Act is objectively determined depending on whether an investor is a professional investor prescribed by the said Act

The Financial Investment Services and Capital Markets Act does not apply most of the regulations on business activities to professional investors, including the suitability principle, appropriateness principle, and duty to explain, by distinguishing professional investors from general investors. This purpose is to enhance the efficiency of regulations by concentrating limited regulatory resources to general investors in need of protection, taking into account the difference between the necessary knowledge, experience, and ability when concluding a financial investment contract between professional investors and general investors (see Supreme Court Decision 2016Da224626, Jul. 11, 2019).

2) Examining the purport of distinguishing professional investors from ordinary investors and the legislative purpose, criteria for distinguishing them, etc., the scope of professional investors ought to be limited to cases where it is clearly recognized in accordance with the Capital Markets Act and the Enforcement Decree thereof. In other words, solely on the ground that the fund is based on the establishment of a law, it cannot be readily concluded that it constitutes a “fund established under the law” as a professional investor under Article 10(3)12 of the Enforcement Decree of the Capital Markets Act, and in particular, the establishment of the fund is more voluntary cases. Accordingly, pursuant to Articles 50 and 52 of the Framework Act on Labor Welfare, the Plaintiff, a corporation established with the approval of the Minister of Employment and Labor for the purpose of stabilizing the employees of the Korea Highway with the approval of the Minister of Employment and Labor, cannot be deemed to constitute a “fund established under the law” as a professional investor under Article

3) Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine, the lower court’s conclusion that part of the reasoning of the lower judgment was partially inappropriate, but the Plaintiff did not constitute a professional investor is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending

B. As to the remaining grounds of appeal

The lower court determined that the Defendant’s future deposit securities, in violation of the duty to protect investors, resulted in the Plaintiff’s failure to recover part of the investment principal by recommending investment in violation of the duty to protect investors, thereby jointly and severally liable with the Defendant U.S. Asset Management. However, the liability of Defendant U.S. deposit securities was limited to 70% equivalent to Defendant U.S.

Examining the reasoning of the lower judgment in light of the relevant legal doctrine and the record, the lower court did not err in its judgment by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on suitability principles, duty to explain, duty to prohibit unfair solicitation, duty to comparative negligence and liability limitation under the Capital Markets Act.

4. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal by the Plaintiff are assessed against the Defendants. The costs of appeal by the Defendants are assessed against the Defendants. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Dong-gu (Presiding Justice)