[1] Whether an asset management company of investment trust should reasonably investigate matters concerning the profit structure and risk factors of investment trust, including the authenticity of information about the management assets provided by a third party, and provide correct information to the selling company and investors (affirmative), and whether the company bears the duty of protecting investors to clearly inform the selling company and investors of such circumstances where information is unclear or insufficient even after a reasonable investigation is conducted (affirmative)

[2] Whether a selling company of an investment trust owes an obligation to independently verify whether the content of the investment prospectus, operation proposal, etc. provided by an asset management company is true and inform investors thereof (negative in principle), and whether the selling company bears the duty to protect investors by rationally investigating the profit structure and risk factors of the investment trust and providing correct information to investors (affirmative)

[3] The content of the duty of care and the duty of care to be borne by an asset management company in managing the indirect investment property, and whether the investor is liable to compensate for damages in the event of an investor’s breach of the duty of care and duty of care (affirmative)

[1] According to Articles 4(2) and 56(1) and (4) of the former Indirect Investment Asset Management Business Act (repealed by Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635 of Aug. 3, 2007), an asset management company is required to create an investment trust and manage the investment trust property in a position to produce and distribute information on the investment trust first, and investors also believe that the investment information provided by the asset management company is correct by reliance on the expertise and experience of the asset management company and make investment decisions depending on their belief that the investment information provided by the asset management company is correct. Therefore, the asset management company is not limited to providing information on the management assets provided by a third party related to the assets subject to the management of the investment trust property, including the authenticity of the information, and provides the distribution company and investors with correct information after reasonably investigating the profit structure and risk factors of the investment trust, and if it is unclear or insufficient to know the profit structure and risk factors of the investment trust even after reasonable investigation, it bears the duty to protect investors.

[2] Unless special circumstances exist, a distribution company shall clearly understand the contents of the investment prospectus, management proposal, etc. provided by an asset management company, and explain them to investors in an accurate and balanced manner. It shall not be deemed that an investor has an obligation to independently verify whether the contents are true and notify them to investors. However, in special circumstances where it is deemed that a distribution company actually led to the creation of an investment trust by substantially determining the major contents of the investment trust’s profit structure or risk factors related to the investment trust property, the distribution company also bears the duty to protect investors by reasonably investigating the profit structure and risk factors of the investment trust

[3] Article 19(1) of the former Indirect Investment Asset Management Business Act (repealed by Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635 of Aug. 3, 2007) provides that "if an asset management company commits an act in violation of Acts and subordinate statutes, the terms and conditions of an investment trust, the articles of incorporation of an investment company, and the investment prospectus under Article 56, or causes damage to indirect investors by neglecting its business, the company shall be liable to compensate for such damage." Article 86(1) provides that "An asset management company of an investment trust and an investment company shall manage the indirect investment property with the care of a good manager and shall protect the interests of indirect investors." Thus, the asset management company has a duty to pay as a good manager with caution in believing that it conforms to the interests of indirect investors based on the collected information to the extent possible in managing the indirect investment property. If the asset management company causes damage to investors in violation of this, it shall be liable for damages to investors

[1] Articles 4(2) and 56(1) and (4) of the former Indirect Investment Asset Management Business Act (repealed by Article 2 of the Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635 of Aug. 3, 2007) / [2] Article 56(2) of the former Indirect Investment Asset Management Business Act (repealed by Article 2 of Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635 of Aug. 3, 2007) / [3] Articles 19(1) and 86(1) of the former Indirect Investment Asset Management Business Act (repealed by Article 2 of Addenda to the Financial Investment Services and Capital Markets Act, Act No. 8635 of Aug. 3, 2007)

[3] Supreme Court Decision 2001Da11802 Decided July 11, 2003 (Gong2003Ha, 1699) Supreme Court Decision 2011Da96130 Decided November 28, 2013 (Gong2014Sang, 26)

KRB Life Insurance Co., Ltd. and two others (Bae, Kim & Lee LLC, Attorneys Gangnam-gu et al., Counsel for the plaintiff-appellant)

Busan Asset Management Co., Ltd. and one other (Law Firm Gyeongpyeong et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2013Na29235 decided January 10, 2014

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

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

1. Of the grounds of appeal No. 1, as to the Defendants’ violation of the duty to protect investors on the grounds of erroneous investment information

A. According to Articles 4(2), 56(1), and 56(4) of the former Indirect Investment Asset Management Business Act (repealed by Article 2 of the Addenda of the Financial Investment Services and Capital Markets Act, enacted by Act No. 8635, Aug. 3, 2007; hereinafter “former Indirect Investment Act”), an asset management company is a person who creates and manages an investment trust and is in a position to produce and distribute information about investment trust in the first place. An investor is also believed to have correct investment information provided by an asset management company by relianceing on the expertise and experience of the asset management company and reliance on the investment information provided by a third party related to the assets subject to the management of the investment trust property. Accordingly, the asset management company is not limited to providing the company or investor with information on the operating assets provided by a third party related to the assets subject to the management of the investment trust property, and provides the correct information after reasonably investigating the information about the profit structure and risk factors of the investment trust, and if it is not clear or insufficient to inform the distribution company or investor of such risk factors.

Unless there exist special circumstances, every distribution company shall clearly understand the contents of the investment prospectus, operational proposal, etc. provided by an asset management company, and explain them to investors in a correct and balanced way so that investors can understand them, and it cannot be said that it has an obligation to independently verify whether its contents are true and notify investors thereof. However, in special circumstances where it is deemed that a distribution company actually led to the creation of an investment trust by substantially determining the major contents relating to the profit structure or risk factors of the investment trust property, the distribution company also bears the duty to protect investors by reasonably investigating the profit structure and risk factors of the investment trust

B. According to the reasoning of the judgment below, the court below rejected the Defendants’ assertion that it was difficult to conclude the instant charter contract with Nonparty 2 on August 10, 2006 on the following grounds: (i) the e-mail tank Ⅱpe, the Center tank Ⅲpe, and the Center’s share account for at least 80%; (ii) the instant proposal or revised proposal does not clearly state the IMO Type of the instant vessel; and (iii) it is difficult to conclude the instant charter contract with Nonparty 2 on the basis of its analysis of the data on charterage II and IMO II/IIIpe, and Cype’s vessel price outlook; and (iv) it is difficult to view that the Defendants did not know that there was any possibility that it was possible for the Defendants to enter into the instant revised charter contract with Nonparty 2 to enter into the instant case’s e-mail charter contract with Nonparty 2 to have any other content of the instant revised charter contract, and thus, it is still difficult to view that the Defendants did not have any other content of the instant revised charter contract with Nonparty 2 to the Plaintiffs.

C. Examining the reasoning of the lower judgment in light of the aforementioned legal principles and the record, the lower court is justifiable in rejecting the Plaintiffs’ assertion that the Defendants violated the duty to protect investors by providing false information on the possibility of concluding the instant charter contract with the IMF Type and boomer, the prospect for acquiring charterage, and the sales price of the instant vessel or its decline risk.

D. However, it is difficult to accept the part that the Defendants did not confirm the contents of the time charter in this case and found it negligent in providing the Plaintiffs with wrong information for the following reasons.

(1) The reasoning of the lower judgment reveals the following facts.

(A) On April 2006, Nonparty 3, the representative director of Braziln, purchased a ship through consultation with Nonparty 1, who is an employee of Defendant Sk Securities Co., Ltd. (hereinafter “Defendant Sk Securities”), but concluded a time charter with a shipping company with a view to raising funds for vessel purchase by taking the vessel’s value as collateral.

(B) On June 2006, Brazil entered into a sales contract with respect to the instant vessel, which is the medium-sized shipping carrier, and requested Nonparty 1 to create a fund for the Hanjin Shipping and the charter period of two years. However, Nonparty 1 was unable to attract investment because the charter period was shorter than the two-year time charter period. Accordingly, as to the Hanjin Shipping and the instant vessel on July 4, 2006, the charter period shall be two years first, but the contract shall be renewed four times in total each year thereafter. The charterage concluded the instant time charter contract with the content that the first two years amount to USD 10,500 per day (hereinafter omitted) and the subsequent two years amount to USD 11,00 per day if the contract is renewed.

(C) On July 2006, Defendant Busan Asset Management Co., Ltd. (hereinafter “Defendant Asan Asset Management”) received and decided to participate in an asset management company after examining the investment plan to the effect that it would provide investment funds from Defendant BK securities with the purchase fund of the instant vessel and then create a ship fund with the redemption fund for charterage claims, etc.

(D) Meanwhile, around July 20, 2006, Nonparty 3 requested Nonparty 4, an employee of Hanjin Shipping, to re-chartered the instant vessel to the gallongal gallonian jumagian. Accordingly, on July 25, 2006, Hanjin Shipping concluded a sub-chartering contract with the vessel of this case at 11,000 dollars per day, wherein the charter period may be extended to 6 months, and charterage may be extended to 6 months, and charterage was 11,000 dollars per day, reflecting the above contract’s contents, the charter period of the instant time charter contract was first 6 months and changed to 6 months thereafter.

(E) Nevertheless, the Brazil or Hanjin Shipping did not notify the Defendants of the changed contents of the second time charter in the course of establishing the instant fund. Nonparty 3 prepared a false additional agreement on the instant time charter, and actively concealed the contents of the second time charter by submitting it to the Defendants.

(F) Around August 2006, Defendant M&C prepared the instant proposal by analyzing the revenues and risks of the instant fund on the premise that the charter period first two years became final and conclusive, and subsequent to the maturity of the instant fund, the instant proposal was renewed every one year until the maturity of the instant fund. Defendant M&C received the instant proposal from the asset management company from Defendant M&C, as it is, or partly revised and supplemented, and solicited the investment to be made by issuing the instant proposal to the Plaintiffs.

(G) On August 28, 2006, Defendant M&C entered into the instant trust agreement with the Industrial Bank of Korea. On the same day, Plaintiff M&C Co., Ltd. invested KRW 7 billion in the instant fund, Plaintiff E&C Co., Ltd., and Plaintiff E&C Co., Ltd., and Plaintiff D&C Pension Management Agency, respectively.

(h) The Fund: (1) The Fund, an asset management company, entered into a trust contract with the Industrial Bank of Korea, and created the Fund; (4) the Fund, the selling company, paid 13 billion won to the Industrial Bank of Korea as the investment amount offered by selling the beneficiary certificates of the Fund; and (2) The Fund, after entering into a time charter contract with the Korea Shipping with respect to the instant vessel, shall acquire the first-class beneficial interest right with the face value of KRW 13 billion in charterage and interest rate of KRW 8.95 billion in trust with the National Agricultural Cooperative Federation; and (3) the Industrial Bank of Korea pays KRW 13 billion in charterage and takes over the above beneficial interest with the payment to the Korea Shipping Association of KRW 13 billion in exchange for the instant vessel; and (4) The Fund shall, with respect to the instant vessel’s sales price, pay the remainder of the principal and interest accrued each year to the Plaintiffs, which are investors of the Fund based on the foregoing beneficial interest (5 years).

(i) The instant vessel was operated by Brazil, etc. on July 27, 2011, and was sold on consignment import and sale price of the instant vessel. The Defendant M&C repaid KRW 4,834,621,404 to Plaintiff M&C Co., Ltd., and KRW 2,747,679,174 to Plaintiff E&C Co., Ltd., and KRW 1,379,83,272 to Plaintiff M&C pension management body, respectively.

(2) We examine these facts in light of the legal principles as seen earlier.

(A) The fund of this case is a structure that redeems the investment from the source of charterage revenues, etc. derived from time charter contracts concluded with Jindo with regard to the instant vessel. As such, the content of the charter contract is an important matter that affects the plaintiffs' investment judgment in relation to whether the parties to the charter contract and the charter period, etc. can receive charterage in a stable manner. Furthermore, Defendant Minsan Asset Management was not well aware of the developments leading up to the conclusion of the contract by participating in the creation of the instant fund after the time charter contract of this case was concluded. Since the instant fund was established after a considerable period of time after the conclusion of the time charter contract of this case, there was room for modifying the contents of the contract.

Therefore, Defendant Busan Asset Management: (a) did not merely merely trust the content of the instant time charter contract prepared by Breman, but independently confirmed the terms of the instant time charter contract, including the charter period, and prepared a management proposal containing the correct information about it and provided it to the Plaintiffs, the investors, and the Plaintiff. Nevertheless, Defendant Busan Asset Management did not conduct such investigation; (b) provided information different from the facts to the Plaintiffs on the ground that it was unaware of the change in the charter period due to the conclusion of the second time charter; and (c) as a result, it did not know of the change in the charter period due to the conclusion of the second time charter contract, Defendant Busan Asset Management was negligent in performing the duty to protect investors; and (d) this does not change on the ground that Defendant Busan Asset Management was actually led to the establishment of the

(B) After having agreed to create funds to raise funds for the purchase of vessels of this case, Defendant U.S., including the charter period, established the structure of the fund of this case including the fund and recommended the participation of the asset management company in the operation of the asset management company. Thus, even if the company was in the position of the selling company, it was necessary to investigate the contents of time charter contracts entered into between Jinininin and Jin Shipping and provide correct information to the Plaintiffs. Nevertheless, Defendant U.S. securities did not directly investigate the contents of the charter contracts submitted by Jininin, and did not directly investigate them, thereby violating the duty to protect investors by providing the Plaintiffs with false information on the other party to the charter contracts and the charter period, which are important matters.

(C) Even if Nonparty 3 submitted the instant additional agreement on the instant time charter to the Defendants to actively conceal the fact that the second time charter was concluded, such circumstance alone does not change to the contrary insofar as the Defendants did not independently verify the terms and conditions of the contract with the Hanjin Shipping.

(3) On the grounds indicated in its reasoning, the lower court determined that there was no negligence in providing erroneous information because the Defendants failed to verify the content of the instant time charter at the time of the establishment of the fund. In so doing, the lower court erred by misapprehending the legal doctrine on the duty to protect investors of an asset management company and a distributor, thereby adversely affecting the conclusion of the judgment. The allegation contained in

2. Of the grounds of appeal No. 1, as to the part concerning the violation of the duty of care and good faith in the operation of the Defendantsan Asset Management

A. Article 19(1) of the former Indirect Investment Act provides that “When an asset management company commits an act in violation of Acts and subordinate statutes, the terms and conditions of an investment trust, the articles of incorporation of an investment company, and an investment prospectus under Article 56, or causes damage to indirect investors by neglecting its business, the company shall be liable to compensate for such damage.” Article 86(1) provides that “An asset management company of an investment trust and an investment company shall manage the indirect investment property with the care of a good manager and protect the interests of indirect investors.” Thus, the asset management company has a duty of prudently and with the belief that it is consistent with the interests of indirect investors based on the collected information to the extent possible in managing the indirect investment property, to fulfill its responsibility as a good manager. If the asset management company causes damage to investors in violation of this provision, it shall be liable for damages to investors (see Supreme Court Decision 2011Da96130, Nov. 28, 2013).

B. On the grounds indicated in its reasoning, the lower court rejected the Plaintiffs’ assertion that: (a) it is difficult to readily conclude that Defendant C&C did not directly verify whether the contents of the instant time charter contract have been modified on the grounds that: (b) it is difficult to conclude that Defendant C&C violated the duty of care in the course of managing the Fund, on the grounds that the charterage of the instant vessel was normally deposited as stipulated in the instant time charter contract; (c) Defendant C&C had a duty to verify the vessel’s operating entity by confirming charterage deposit holders; and (d) Defendant C&C had adequate response to the acquisition of the right to secure charterage claims of the Fund; and (e) endeavored to secure charterage claims by actively operating the instant vessel and actively endeavor to secure charterage claims; and (e) Defendant C&C violated the duty of care in the course of managing the Fund.

C. However, we cannot accept the judgment of the court below for the following reasons.

(1) According to the reasoning of the lower judgment, Nonparty 3, around August 2008, when the first two-year charter period under the instant time charter contract expires, determined the charter period between Hanjin-do Shipping and the instant time charter period for the remainder of three years up to the maturity of the instant fund. The first six-month period was changed to USD 7,500 per day, and the remainder two-year six-month period was changed to USD 10,000 per day, and then the forgery of the instant time charter contract was forged and submitted to Defendant Busan Asset Management, demanding to change part of the terms of the instant trust agreement while submitting the instant time charter agreement to Defendant Busan Asset Management. Defendant Busan Asset Management did not take measures such as partially amending the instant trust agreement with the consent of the Plaintiffs on September 10, 2008, and confirming the contents of the time charter in the process.

(2) We examine these facts in light of the legal principles as seen earlier.

Of the content of the instant time charter, the matters concerning the party to the instant charter contract, the charter period, and charterage are important matters that affect the profit and risk of the instant fund. Therefore, the Defendant, the asset management company of the instant fund, regardless of whether the terms of the instant charter contract have been modified favorable to the hub, is obligated to accurately investigate and confirm whether the terms of the instant charter contract have been modified and the terms of the modified contract have been notified to the selling company or the Plaintiffs. Nevertheless, the Defendant Busan Asset Management Company did not find out the forgery of the said contract and the changed contents of the instant time charter contract as it did not take measures, such as ascertaining the forged contents of the instant time charter contract with the trust of Nonparty 3, thereby failing to take measures, such as ascertaining the Hanjin Shipping. Accordingly, it is reasonable to deem that the Plaintiffs violated the duty of due care as an asset management company

Nevertheless, the lower court determined that it was difficult to view that Defendant Mountain Asset Management was obligated to directly verify whether the content of the instant sub-charter that Nonparty 3 forged was changed favorable to the hub, etc., and that it was difficult to view that the change of the time charter was made. In so doing, the lower court erred by misapprehending the legal doctrine on the duty of care of the asset management company, thereby adversely affecting the conclusion of the judgment. The ground of appeal assigning this error is with merit

3. Conclusion

Therefore, without further proceeding to decide on the remaining grounds of appeal, all the judgment below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-young (Presiding Justice)