South Korea's Supreme Court has ruled that so-called "liability limitation clauses" restricting the responsibility of trust companies handling managed land trusts constitute "material content" subject to the duty of explanation under the Act on the Regulation of Terms and Conditions.
According to legal circles on Tuesday, the First Division of the Supreme Court (presiding Justice Shin Suk-hee) recently upheld a lower court ruling in favor of plaintiff A, a property buyer who filed a lawsuit against Koramco Asset Trust seeking return of contract deposits and penalty payments.
A signed a contract in 2018 to purchase an officetel unit in Changwon, South Gyeongsang Province. However, the trust company, which had assumed project execution rights, failed to meet the move-in schedule originally set for December 2019.
When occupancy was delayed, A sent a notice of contract termination in April of the following year, invoking a contract clause stating that "the buyer may notify termination if the scheduled move-in date is exceeded by more than three months." A demanded the return of the paid contract deposit and payment of penalties. The trust company, however, argued its liability was limited based on a liability limitation clause in the contract stipulating that "even when the seller bears responsibility under the supply contract to the buyer, such responsibility is limited to the scope of trust assets." A then filed a lawsuit, claiming the trust company had not explained the clause.
The first and second courts sided with A, finding that the trust company had failed to fulfill its duty of explanation despite the clause constituting material content under the terms and conditions law. Article 3 of the Act on the Regulation of Terms and Conditions requires businesses to explain material content of their terms so that customers can understand them.
The Supreme Court dismissed the appeal, stating the lower court's decision to invalidate the clause contained no errors in legal reasoning. "A liability limitation clause that restricts a trustee's debt performance liability to within the scope of trust assets constitutes 'material content' subject to the duty of explanation under the terms and conditions law, as it can directly affect a property buyer's decision on whether to enter into a supply contract," the court explained. The court added, "Even if liability limitation clauses are commonly used in the trust industry, property buyers who lack specialized knowledge of managed land trusts and similar arrangements would find it difficult to anticipate the existence and content of such clauses without separate explanation."