[로펌의기술]⑤ “Promises must be kept, even if it is a’parking deal’…” The’precision method’ of the Pacific Ocean, which was kneeling by Hyundai Motor Company

Enter 2021.02.10 06:00

Hundreds of billions of billions of dollars of money going between the few’players’ and limited experts who buy and sell the asset-backed corporate paper (ABCP), a complex structured financial product. A trading site with a very short hit, where agreements are reached in seconds or minutes. In the conversation that takes place at that moment, how far should it be considered that there was a consensus between the two sides? How can we argue the legal meaning of the non-standardized’promise’?

The ruling of the first trial was overturned in the appeal trial of a lawsuit filed by Yuanta Securities and Shinyoung Securities (the plaintiff) against Hyundai Motor Securities (the defendant). The plaintiff’s claim that Hyundai Motor Securities had violated the sales contract was accepted. It is the purpose of breaking the ABCP contract bargaining against the’principle of good faith’ in civil law.

Yuanta Securities and Shinyoung Securities appointed Pacific Law Firm as their legal representatives, while Hyundai Motor Securities appointed Yulchon Law Firm. The first trial raised the hand of the defendant who claimed that it was not legal as it was not a transaction through an official platform. However, the second trial overturned the decision of the first trial, citing various cases of congruence of intentions for non-standardization in the financial market.

◇Hyundai Motors refused to sign a contract when it was’defaulted’ after selling some
The incident dates back to May 8, 2018. Hyundai Motor Securities employee D inquired with Yuanta Securities employee C whether he could purchase a total of 160.5 billion won (185 days, 364 days) of the corporate draft in this case through a specific messenger, a system dedicated to bond trading. In addition, if it is possible to buy, he said that he would sell part of the bill through K employee L.

In response, C responded that it is possible to purchase through inquiries from the in-house risk team. L said that it would sell 15 billion won worth of 185-day drafts and 1.05 billion won of 364-day drafts of corporate drafts. Afterwards, C received a 364-day bill of 1 billion won and paid 95996,6449 won to the plaintiff.

The problem arose when a cross-default (combined default) was declared for private equity bonds, the underlying assets of corporate papers in this case. The fact that the credit rating of the bill has been downgraded from AA to C has been widely reported by Bloomberg News. It was in the aftermath of the’ABCP bankruptcy from China’, which was a big issue in the financial industry in 2018.

Eventually, the 186-day bill of the case was not repaid until November 9 of the same year when it expired, and the Chinese local public corporation G failed to fulfill the payment guarantee, so the bill was finally defaulted. The plaintiff argued that “Hyundai Motor Securities, which promised to pay the payment within a short period of time and take delivery, refused to pay the bill when the bill was defaulted.”

On the other hand, Hyundai Motor Securities countered that “there has not been a sale contract.” It is argued that there was no consensus between the two sides of a firm and binding physician. Even if the contract on the corporate draft in this case was signed, the defendant stressed that G at the time had guaranteed the payment of private equity bonds and purchased the corporate draft in this case on the premise that the credit rating was AA. In other words, he argued that the contract of sale may be canceled due to a significant defect in the bill, or canceled due to an error, and that the plaintiff was not obligated to pay the trading price.

The first trial court ruled against the plaintiff, saying, “It is not enough to say that there was a consensus, and there is no evidence to admit it otherwise.” On the other hand, the Seoul High Court Civil Affairs Division 12-3 (Deputy Judge Lee Seung-han, Cheon Dae-yeop) broke the court case and ruled in some of the plaintiffs. Hyundai Motor Securities ordered to pay 10.35 billion won to Yuanta Securities and 6.88 billion won to Shinyoung Securities, respectively.

The 2nd Tribunal said, “Of the 96.1 billion won of corporate drafts that Hyundai Motor Securities employees decided to buy from investment securities, etc., they temporarily stored 36.1 billion won in other companies, which exceeded their internal limit of 60 billion won.” “Under the premise of buying the corporate draft again within a certain period of time or having a third party buy it, I had Yuanta Securities buy and store the corporate draft, but only part of it and did not buy the rest.”

“This act is illegal because it refused to sign the sale contract without reason even though it gave a legitimate expectation that the sale contract for bills would be concluded.”

◇’Precision method’ selected Pacific “Please look at the facts accurately”
Pacific law firm, acting on behalf of the plaintiff, pondered how to logically prove that there was agreement between the two sides. As a result, dozens of financial company executives and employees have secured the details of communication. The focus was on expressing the fact that the majority of agreements are usually informal in contracts for the sale of corporate papers.

Attorney Ji-Hyo Yoon of the Pacific (Judicial Research and Training Institute 40th) said, “How do you trade between so-called financial players? In a very short time, tens and hundreds of billions of billions come and go, and a lot of conversations and agreements through messengers. I have secured it,” he said.

He also emphasized that “if it is considered that the effect of not using a specific messenger program in the bond market is not valid, the remaining transactions are likely to be denied effect.” Earlier, the first trial court did not see that the intention to trade was definitive in that the two sides had conversations on Telegram, not the messenger officially used by the stock market.

Of course, there was also a’gobi’. Hyundai Motor Securities (Representative Yulchon Law Firm) tried to mislead the issue by emphasizing the illegality of’packing transactions’. Parking transaction is an unusual act of entrusting excess bills using personal intimacy between employees. It became a big problem in the financial sector in 2008 and disappeared, but it is still used by some.

In response, the Pacific appealed to the court, saying, “Please see the facts accurately and judge the facts rather than the operation,” and such a precision law eventually overturned the judgment. However, the currency details submitted as evidence contained the circumstances in which both sides made a parking transaction and discussed future countermeasures, and the court admitted only 70% of the damages due to partial recognition of the plaintiff’s responsibility for this.

Attorney Seong-soo Kim (24th term), who joined the Pacific after serving as the Deputy Judge of the Seoul Central District Court, said, “After careful examination of the reality of ABCP OTC market transactions involving only a small number of institutional investors, we also discussed the informal agreement between financial institution managers. It is meaningful in that it has confirmed that it is legally binding.” In addition, he added, “It is of great significance in that it has contributed to the establishment of a sound financial transaction order based on the principles of fairness and good faith.”