Supreme Court: Trust Company's Limitation of Liability Clause Invalid Without Explanation

Limitation of Liability Clause Constitutes
'Important Information' Under Terms and Conditions Act
Cannot Be Enforced Without Proper Explanation

The Supreme Court has ruled that, in officetel sales contracts, a special provision by a trust company stating "responsibility is limited only to the scope of trust assets in the event of a problem" is only effective if it is fully explained to the buyer. If such an explanation is not provided, the clause is deemed invalid.

According to the legal community on April 6, the First Division of the Supreme Court (Presiding Justice Shin Sookhee) upheld the appellate court's decision in favor of the plaintiff, the buyer, in a lawsuit against Koramco REITs Management & Trust for the return of the deposit and a penalty for breach of contract.

In this case, the buyer signed an officetel purchase agreement in 2018 and paid the deposit; however, due to delayed occupancy, they sought to terminate the contract in 2020 and requested a refund of the deposit, among other claims. In response, Koramco REITs Management & Trust denied liability for compensation from its own assets, citing a special provision that "the seller's liability is limited to the scope of trust assets."

The key issue was whether this limitation of liability clause constitutes "important information subject to an explanation obligation" under the Act on the Regulation of Terms and Conditions. The Supreme Court held that the clause is indeed important information. In a management-type land trust structure, the trustee is, in principle, liable with both trust assets and its own assets; this clause reduces that liability to only the trust assets.

The bench stated, "Such a limitation of liability is a matter that significantly affects the buyer's decision to enter into the contract," adding, "Ordinary buyers, who are not familiar with business structures, would have difficulty fully anticipating this without a separate explanation." The Court also clarified that the widespread use of this clause in the trust industry does not exempt the trust company from its obligation to provide an explanation. "It must be separately assessed whether the clause is generally and commonly understood in the industry, and whether the customer could have individually anticipated it," the Court emphasized.

Both the first and second instance courts had previously found that the trust company failed to fulfill its duty to explain the clause, and therefore could not rely on it as a contractual term. The Supreme Court found no error in the lower courts' legal reasoning and dismissed the appeal.

This content was produced with the assistance of AI translation services.