On February 20, 2013, in a lawsuit filed by bank customers against a commercial bank claiming the return of costs for establishment of keun mortgage and the return of unjust gains, the Seoul Central District Court held that even if a provision in a standardized contract allows the customer to select the party responsible for the costs for establishment of keun mortgage, if the customer does not actually have the right of selection, such provision constitutes a standardized contract, and that such provision constitutes an unfair standardized contract since, absent special circumstances, the costs spent by a security holder (in this case, the bank) to secure its security rights should be borne by the security holder itself, and thereby rendered a decision in favor of the plaintiffs and holding the bank liable (Seoul Central District Court decision on case no. 2011GaSo2521238 rendered on February 20, 2013).

As introduced in our newsletter of January 7, 2013, on December 6, 2012, the Seoul Central District Court held that customers are actually granted the right of selection, since the provision contained in standardized forms used for loan contracts contemplate bargaining with customers through a provision whereby the customer selects the party responsible for the costs for establishment of keun mortgage, and in fact, approximately 40% of customers executed loan contracts by selecting the bank as the party responsible for such costs through such provision, and that such provision therefore does not constitute a standardized contract.  In its recent decision, however, the Seoul Central District Court held that the above provision does constitute a standardized contract, on the grounds that the section on the party responsible for such costs was not manually marked to indicate which party is responsible, and the customer unilaterally assumed such costs without individual negotiations, such as having the interest rate reduced to a certain extent on the condition that the customer assumes the costs for establishment of keun mortgage.

In sum, the above decisions are merely the result of a difference in the factual finding on whether the customer actually had the right of selection, and it is difficult to view the decisions as a change in the court’s basic judgment on the law.  In the proceedings before the higher courts, if those cases are further appealed, the key issue is likely to be whether the customer was actually granted the right of selection, given the specific factual circumstances.