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| TITLE | Supreme Court Decision 2024Da215375, 215382 Decided March 13, 2025 【Damages (Etc.); Damages (Etc.)】 [full Text] |
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| Summary | |
| 【Main Issues and Holdings】 [1] Where the terms and conditions of an account agreement entered into between an investor and an investment broker for the purpose of trading derivatives stipulate that where the value of the investor’s assets in possession, including derivatives, etc., falls below a certain margin level due to sharp intraday price fluctuations, the investment broker may liquidate the investor’s derivative positions through offsetting transactions without requiring the additional deposits of the required margin, whether such “intraday forced liquidation” of the investment broker corresponds to discretionary trading exceptionally permitted under Article 7(4) of the Financial Investment Services and Capital Markets Act and Article 7(3)3 of the Enforcement Decree of the same Act (affirmative) [2] Whether the terms and conditions, allowing the investment broker to execute an intraday forced liquidation where there is a significant risk of settlement failure at maturity as the margin amount falls substantially below the expected settlement amount due to sharp intraday price fluctuations, may be stipulated in the case of a European-style option, in which a buyer can exercise the right only at maturity (affirmative) [3] Standard for determining whether an investment broker, entrusted with the authority to liquidate an investor’s derivatives due to a margin shortfall relevant to the investor’s derivatives transactions, has breached his or her duty of care as a prudent manager in the course of executing such liquidation Whether the investment broker can be seen to have breached his or her duty of care as a prudent manager on the sole basis of the circumstance that, in hindsight, there was an opportunity to execute a forced liquidation under more favorable conditions than those actually achieved (negative in principle) [4] In a case where Stock Company A, an asset management company that has established a fund, a private investment collective investment scheme in the form of an investment trust for professional investors, and Stock Companies B and others, trust business entities that received the investment trust assets of the above fund from Stock Company A, opened an account after entering into an agreement designating an account with Stock Company C under the name of Stock Company C, an investment broker, to engage in overseas derivatives transactions and then invested the investment trust assets of the above fund in Nikkei 225 Index Put Options, which correspond to an overseas derivative; when the asset valuation of the above account, which had taken multiple short positions in put options, dropped sharply due to a rapid decline in the Nikkei 225 Index and thus fell below 20% of the required margin, Stock Company C executed the forced liquidation of the Nikkei Put Options in the above account according to the provision under the above account agreement, stipulating that “where the client’s total evaluated entrusted amount falls below 20% of the required margin due to sharp intraday price fluctuations, unsettled positions may be liquidated without requiring the additional deposits of the required margin”; and Stock Company C filed a claim against Stock Companies A and B for the payment of settlement funds and other related costs it had paid on their behalf; and, in response, Stock Companies A and B, challenging the legality of the instant forced liquidation, filed a counterclaim seeking compensation for damages equivalent to the lost margin resulting from the forced liquidation, the case holding that the intraday forced liquidation by the investment broker under the aforementioned provision constitutes discretionary trading exceptionally permitted under the Financial Investment Services and Capital Markets Act and the Enforcement Decree of the Financial Investment Services and Capital Markets Act; the Nikkei 225 Index Put Options, European-style options, should be seen to be included in the scope of assets subject to the intraday forced liquidation under the aforementioned provision; if the total entrusted amount is calculated by reflecting real-time price changes around the time of liquidation, there is vast room to see that the requirements for the execution of the intraday forced liquidation were met during the instant forced liquidation; Stock Company C cannot be seen to have breached its duty of care as a prudent manager in the process of executing the instant forced liquidation; therefore, the lower court, which determined otherwise, erred and adversely affected the conclusion of judgment by misapprehending the legal doctrine | |
