[edit] Supreme Court Decision 2001Da30469 delivered on December 24, 2001 [Confirmation of Claim]

【Main Issues】

[1] The legal nature of the management fee and the commitment fee which an obligor pays to a lending bank participating in a syndicated loan

[2] A precedent that allowed a loan agreement to be interpreted under Korean law and the general principles of law where there was no submission of document relating to the English law, the governing law of such agreement

[3] A precedent that held that, where a participating bank in a syndicated loan declares bankruptcy the obligor's right of claim against such bank for the return of commitment fees resulting from the rescission of the loan agreement is an estate claim under the Bankruptcy Act and that, in such event, there is no benefit in filing an action to confirm the presence of a claim since the obligor may directly demand performance

【Summary of Decision】

[1] In a syndicated loan where multiple banks form a syndicate to lend funds to the obligor, absent special circumstances, the manger banks are entitled upon execution of the loan agreement to the management fee which is paid by the obligor to the arranging banks in return for forming the syndicate and executing the loan agreement. If afterwards one of the manager banks fails to perform its lending obligations under the loan agreement and the loan agreement is rescinded with respect to such portion, such bank is not obligated to return to the obligor such bank's share of the management fee received under the internal agreement among the arranging banks. In contrast, the commitment fee is paid by the obligor to the participating banks in consideration of each bank's agreement to lend, and if any bank fails to lend and the agreement to so lend is therefore rescinded, such bank must return the commitment fee received from the obligor as a means of restitution with respect to the rescinded agreement.

[2] A precedent that upheld the court below decision which interpreted the terms of a lending agreement under the Korean law and the general principles of law on the grounds that, where a lending agreement in the context of a syndicated loan provides for the English law as its governing law and there is no submission of documents relating to the law so as to make review impossible of the provisions of such law, there is no basis to hold that such agreement would be interpreted differently under the English law as opposed to the Korean law or the general principles of law.

[3] A precedent that held that, where a participating bank in a syndicated loan declares bankruptcy, the obligor's right of claim against such bank for the return of commitment fees resulting from the rescission of the loan agreement is an estate claim under the Bankruptcy Act and that, in such event, there is no benefit in filing an action to confirm the presence of a claim since the obligor may directly demand performance.

【Reference Provisions】 [1] Articles 105, 548 and 598 of the Civil Code / [2] Article 1 of the Civil Code / [3] Articles 38(4), 50 and 51 of the Bankruptcy Act and Article 228 of the Civil Procedure Act

Article 38 of the Bankruptcy Act (Scope of Estate Claim) The following claims shall be regarded as estate claims:

1.~3. <omitted>

4. Claims caused by an act of the bankruptcy trustee with respect to the bankruptcy estate

5. <omitted>

Article 50 of the Bankruptcy Act (Rescission or Performance of a Bilateral Contract) (1) If a bankrupt party and the other party fail to complete the performance of a bilateral contract when the bankruptcy is declared, the bankruptcy trustee may, in its discretion, rescind the contract, or perform the obligations of the bankrupt party and demand that the other party perform its obligations.

(2) In an event as set forth in the preceding paragraph, the other party may demand the bankruptcy trustee to provide a definite answer within a reasonable time as determined by such other party as to whether the bankruptcy trustee intends to rescind the contract, or demand the performance of obligations. If the bankruptcy trustee fails to provide a definitive answer within such time, the contract shall be deemed to be rescinded.

Article 51 of the Bankruptcy Act (Rescission by the Bankruptcy Trustee and the Right of the Other Party) (1) If a contract is rescinded under the provisions of the preceding Article, the other party may step into the place of the bankruptcy creditor and exercise its rights to indemnification.

(2) If the bankruptcy estate presently includes any consideration received by the bankrupt party, the other party may claim the return thereof and, if not, he may step into the place of the bankruptcy creditor and exercise its rights to the value thereof.

【Reference Cases】 [2] Supreme Court Decision 80Da2189 (delivered on February 10, 1981, Gong1981, 13727), Supreme Court Decision 80Nu316 (delivered on December 28, 1982, Collection 30-4, Special 132), Supreme Court Decision 89Daka20252 (delivered on April 10, 1990, Gong1990, 1043), Supreme Court Decision 90Daka19470 (delivered on February 22, 1991Gong1991, 1060), Supreme Court Decision 91Da41897 (delivered on July 28, 1992, Gong1992, 2551), and Supreme Court Decision 98Da35037 (delivered on June 9, 2000, Gong2000Ha 1593) / [3] Supreme Court Decision 64Da82 (delivered on July 14, 1964), Supreme Court Decision 64Da1957 (delivered on March 23, 1965), Supreme Court Decision 80Da16, 17 (delivered on March 25, 1980, Collection 28-1, Civil 188), Supreme Court Decision 91Da6757 (delivered on July 23, 1991, Gong1991, 2224), Supreme Court Decision 93Da40089 (delivered on November 22, 1994, Gong1995Sang 57), and Supreme Court Decision 95Da5622 (delivered on December 22, 1995, Gong1996Sang 489).

【Plaintiff, Appellant and Appellee】 Meridian Maritime Shipholding SA and one other (Law Firm Kim, Shin and Yoo, Attorneys Park Joon-young and 2 others, Counsel for plaintiff, appellant and appellee)

【Defendant, Appellant and Appellee】 Cho Hong-lae, as bankruptcy trustee of Dong Nam Bank and one other (Busan Law Firm, Attorney Kim Woe-suk, Counsel for defendant, appellant and appellee)

【Court of First Instance】 Busan District Court Judgment 99Gahap2679 delivered on March 31, 1999

【Court of Second Instance】 Busan High Court Dcision 99Na4429 delivered on April 6, 2001

【Disposition】 The court below decision shall be reversed and the case shall be remanded to the Busan High Court.

【Reasoning】 1. The court below made the following findings of fact.

A. For the purpose of raising funds necessary for the construction of a ship, on October 29, 1998, the plaintiffs entered into loan agreements in the form of a syndicated loan with twenty-one banks, including the bankrupt party, Dong Yang Bank (hereinafter referred to as the "bankrupt party"). The bankrupt party participated in the group of the manager banks for the loan agreements as the extended arranging bank. Under each of the loan agreements entered between the plaintiffs and the manager banks, including the bankrupt party, the participating syndicate banks agreed to lend their respective allotted amount to the plaintiffs on a fixed date and in return for forming the syndicate and making the loans, the plaintiffs agreed to pay, in addition to interest and various other costs, management fees to the manager banks and commitment fees to the participating banks. Allocation of management fees and commitment fees among the participating syndicate banks was to be decided separately by the manager banks and the syndicate banks without any participation by the plaintiffs.

B. Pursuant to the loan agreement, the plaintiffs paid the bankrupt party management fees and commitment fees from November 21, 1997 to July 27, 1998. The bankrupt party was declared bankrupt by the court on October 28, 1998, which was prior to the agreed lending date under the relevant loan agreement.

C. The plaintiffs subsequently filed a suit to confirm their right to claim the return of the management fees and the commitment fees already paid to the bankrupt party. The court below ordered the defendant to provide a definite answer as to whether he intended to rescind the contract or demanded the performance of obligations, and the defendant responded that he would opt for the latter. However, when the defendant failed to perform his obligation to lend as of the fixed date as set forth in the loan agreement, the plaintiffs rescinded such agreement.

2. On the ground for appeal by plaintiffs

In a syndicated loan where multiple banks form a syndicate to lend funds to the obligor, absent special circumstances, the manger banks are entitled upon execution of the loan agreement to the management fee which is paid by the obligor to the arranging banks in return for forming the syndicate and executing the loan agreement. If afterwards one of the manager banks fails to perform its lending obligations under the loan agreement and the loan agreement is rescinded with respect to such portion, such bank is not obligated to return to the obligor such bank's share of the management fee received under the internal agreement among the arranging banks.

With the same reasoning as aforementioned, the court below correctly held that even if the individual loan agreements between the plaintiffs and the bankrupt party are rescinded, the plaintiffs may not demand the return of the portion of the management fees allocated to the bankrupt party where the manager banks obtained the management fees pursuant to the loan agreements. The court below did not misinterpret the law as otherwise alleged in the appeal. Therefore, the appeal with respect to the foregoing is groundless.

3. On the ground for appeal by defendant

A. The court below correctly held that the terms of a lending agreement may be interpreted under the Korean law and the general principles of law on the grounds that, where a lending agreement in the context of a syndicated loan provides for the English law as its governing law and there is no submission of documents relating to the law so as to make review impossible of the provisions of such law, there is no basis to hold that such agreement would be interpreted differently under the English law as opposed to the Korean law or the general principles of law. The court below did not misinterpret the law or make inadequate factual investigations as otherwise alleged in the appeal. Therefore, the claim of appeal with respect to the foregoing point is groundless.

B. The court below correctly held that the commitment fees are paid by the obligor to the participating banks in consideration of each bank's agreement to lend, and if any bank fails to lend and the agreement to so lend is therefore rescinded, such bank must return the commitment fees received from the obligor as a means of restitution with respect to the rescinded agreement. The court below did not misinterpret the law as to the nature of the commitment fee or contractual rescission as otherwise alleged in the appeal. Therefore, the ground for appeal with respect to the foregoing is groundless.

4. Under the authority vested in this court, we however hold that, since, as alleged by the plaintiffs, the claim of the plaintiffs' right against the defendant for the return of commitment fees is an estate claim under the Bankruptcy Act and the plaintiffs are claiming that such claim has a fixed amount and is due and payable, demand of the defendant's direct performance of such obligation shall be a separate matter and absent special circumstances, an action against the defendant to confirm the presence of such claim shall not be permitted for a lack of benefit. Despite the foregoing, the court below decided on the merit of this case under the premise that the plaintiff's making such claim had a benefit of confirmation. The court below erred in misinterpreting the law concerning the benefit of confirmation.

5. Accordingly, the court below's decision shall be reversed and the case shall be remanded to the court below. It is so ordered per Disposition.

Justices Bae Ki-won (Presiding Justice)

Suh Sung (Justice in charge)

Lee Yong-woo

Park Jae-yoon

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