법무법인(유한) 율촌 | Yulchon LLC

Yulchon represented a securities firm (“defendant”) and secured a remand and dismissal of appeal from the Supreme Court, winning on all claims, in two actions with a matter value of around KRW 300 billion filed against the defendant because of its participation in an overseas solar power plant project as a lead arranger.

In the background of this case, the construction company for the project (“contractor”) assumed the role of a sponsor responsible for covering any deficiency in funds required to repay the asset-backed commercial papers (ABCP) issued for the project. Subsequently, when the project’s developer (“SPC”) ran out of funds for ABCP repayment, the contractor replenished funds totaling approximately KRW 311.9 billion. Following this, both the contractor and the SPC filed lawsuits against the defendant and other securities firms that succeeded to the lead arranger position. They alleged a failure to maintain the validity of the performance guarantee insurance related to potential default by joint and several guarantors. The contractor claimed an amount equal to the replenished funds, while the SPC claimed an amount equal to its debt owed to the contractor.

In the original court hearing, the SPC’s action was rejected in its entirety. However, in the case brought by the contractor, a significant portion of its claims was accepted, with the court finding that the defendant breached its good faith duty to maintain the validity of the performance guarantee insurance, which is a senior security to the contractor’s funds replenishment agreement.

In the final appeal, Yulchon, after a thorough examination of the project structure, details of the funds replenishment agreement, and trade practices in project finance, demonstrated that (i) the responsibility for raising funds for the project ultimately lies with the sponsor, (ii) a lead arranger does not bear any good faith or contractual duty to maintain a performance guarantee insurance, and (iii) the contractor anticipated incurring a loss when it signed the replenishment agreement. As a result, the Supreme Court (a) in the case initiated by the SPC, dismissed the appeal, finalizing the lower court’s decision, and (b) in the case brought by the contractor, remanded the case back to the original court, declaring that the defendant did not bear such duty. Notably, the Supreme Court fully accepted Yulchon’s contentions on how risks are shared in project financing and the intentions and roles of the parties involved in this project, incorporating those contentions verbatim into its written judgment.

It is worth noting that although the plaintiffs presented jurisdictional arguments in their appeals, the Supreme Court immediately proceeded with judgment on the merits, as Yulchon requested, without deliberating those arguments. Furthermore, the judgment was rendered swiftly within one year, a remarkable feat considering the substantial claim amount and the fact that appeals were lodged by both the plaintiffs and the defendant.

This case is noteworthy for several reasons: (i) the rare occurrence of a corporate lawsuit with such a large matter value (KRW 300 billion) ending in a complete victory for one party, (ii) the quick remand by the Supreme Court, a rare event given the meager remand rate of 5%, and (iii) the Supreme Court rulings effectively concluding a protracted, large-scale legal dispute spanning five and a half years. Additionally, the case is expected to have meaningful implications for many similar cases pending in lower courts, as the Supreme Court rulings clarify the details and scope of a lead arranger’s duty of care in project finance.