The investors who suffered losses in their investments in "Woori 2 Star Derivative Fund," an equity linked fund (the "Fund"), when Lehman Brothers Holdings Inc., a holding company in the United States ("Lehman Brothers"), went bankrupt, filed a lawsuit against Hana Bank who served as trustee company seeking the return of their investment money. Shin & Kim successfully represented Hana Bank in intense legal disputes and the court rendered a decision confirming the trial court’s decision that dismissed the investors’ claims.
In the present case, the investors asserted that it was a breach of contract for Woori Asset Management Co., Ltd., an asset management company (“Woori”) to change the transaction counterpart from 'BNP Paribas' to 'Lehman Brothers' the credit rating of which was two grades lower than the former, without the investors’ authorization, based on the fact that the transaction counterpart of the OTC derivatives was named 'BNP Paribas' in the Fund prospectus (the "Prospectus"). In addition, the investors argued that Hana Bank breached their fiduciary duty by following the asset management instruction from Woori requiring it to change the transaction counterparty, though Hana Bank, as a trustee company, who runs the business of managing and keeping the investment trust property in custody, had the obligation to request withdrawal, change or correct any asset management instructions if such instructions were in violation of the relevant prospectus, the terms and conditions of the trust, or laws and regulations.
As regards the legal nature of the Prospectus, the Seoul Central District Court held that "statements contained in a prospectus are not automatically incorporated into an investment trust agreement; rather, whether such statements can be binding as separate agreements shall be determined by considering the specific contents thereof, the motive behind inclusion of such statement, and the true intention of the parties in accordance with logic and experience." The court further held that, "although the transaction counterpart of the OTC derivatives was named 'BNP Paribas' in the initial prospectus, it cannot be deemed that the investors entered into the investment trust agreement with an intention of making the transaction counterpart as an important element of such agreement, and accordingly, the changing of the transaction counterparty to ‘Lehman Brothers’ in the prospectus with the consent of Hana Bank as trustee company is legitimate.” In addition, the court found that "the obligation of a trustee company to oversee with respect elements such as the asset management instructions shall be limited to the matters listed in the Act (Article 132 of the Act) and the relevant criteria for judgment shall also be limited to the laws and regulations listed in the Act, the terms and conditions of the trust, and a duly amended prospectus." With such a ruling, the court fully accepted Shin & Kim’s argument that Hana Bank's performance of management instructions from an asset management company does not constitute a breach of fiduciary duty.
The present case is meaningful in that: (i) it reaffirms the position of the court that any description of the relevant fund contained solely in the prospectus and not in the terms and conditions of the trust shall not automatically have a binding effect on the parties to an investment trust agreement; and (ii) it specifically presents the position of the court as regards "the content and scope of a trustee company’s fiduciary duty" in connection with an indirect investment trust agreement.
