A Supreme Court ruling has stated that when a managed land trust investor notifies of mid-term contract termination, they can only receive back the distribution fees within the limits of the trust property. Even if there is fault on the part of the trust company in terminating the contract, if a 'responsibility limitation clause' has been established, the investor cannot recover more than the amount they entrusted to the trust company.
Managed land trusts involve real estate trust companies receiving land from project implementers and constructing and distributing dwellings, commercial facilities, and logistics facilities, then distributing revenue. Recently, many trust companies have entered into 'responsibility limitation clauses' stating that they will only bear responsibility within the scope of the trust property, and the Supreme Court has recognized the validity of this clause.
The Supreme Court's second division (Chief Justice Seo Kyung-hwan) announced on the 15th that it has reversed the ruling of the second instance, which had favored 10 hotel investors who filed a claim for the return of unjust enrichment against the real estate trust company Korea Trust, and remanded the case to the Seoul High Court.
The investors entered into a hotel distribution contract with Korea Trust and the implementing company A in 2018. The project team completed the building at the end of 2020 and received the necessary approvals from local governments in early the next year.
However, around this time, the investors filed a complaint with the local government, claiming that the project team made design changes without consent, and subsequently notified of termination of the distribution contract. In February 2021, the local government criminally accused Korea Trust and company A of violating the building distribution law. The representative of company A was indicted, with some guilt acknowledged, and in January 2022, a fine of 1 million won was confirmed.
When Korea Trust refused to terminate the distribution contract, the investors filed a lawsuit. In the first and second instances, the key issue was whether the representative of company A, who received a fine for violating the building distribution law, was justified as a reason for terminating the distribution contract. This is because the distribution contract stated that if Korea Trust received a fine, the distribution contract could be terminated.
The first instance did not accept the investors' claims. However, the second instance ordered Korea Trust to terminate the contract with the investors and fully refund the distribution fees. The court stated, 'Separating the contracting party (Korea Trust) in the distribution contract from the actual wrongdoer (the implementing company) under criminal responsibility results in the loss of the right of the sub-distributor to terminate the contract, which is unfair.'
However, the Supreme Court overturned the second instance ruling. The Supreme Court stated that despite the distribution contract including a 'responsibility limitation clause,' the second instance's order for the trust company to pay the full distribution fee to the investors was erroneous. The Supreme Court noted, 'The responsibility limitation clause limits Korea Trust's obligation to refund the distribution fees to the extent of the trust property, and its validity is recognized unless there are special circumstances.'