In the lawsuit for the return of unjust profits over "excessive fees charged on PF loans," the court ruled in favor of the developer

Published 18 Dec.2023 15:46(KST)

A court ruling has determined that if a financial company charged an unfairly excessive fee to a developer during the real estate project financing (PF) process, it must return the fee. The court conducted a comprehensive review of whether the financial fees charged by the financial company were appropriate. Some analysts interpret this ruling as a kind of warning, given that as the PF market becomes increasingly challenging, securities firms or lenders may be inclined to set excessive fees.

[Photo by Beopryul Newspaper]

What is the case about?

Company A is the developer of a joint housing construction project consisting of six buildings with 570 households and ancillary facilities in B-gun, Jeonbuk Province. Jeonbuk Bank operates under the Banking Act, providing services such as fund lending. In May 2017, the two parties signed a "Financial Lead and Advisory Agreement" related to the project implementation, under which Jeonbuk Bank agreed to arrange or advise on a PF loan of up to 20 billion KRW for Company A, in return for a fee of 800 million KRW. Additionally, in June 2017, to facilitate the project, Company A borrowed 20 billion KRW from Jeonbuk Bank and separately agreed to pay an annual fee of 30 million KRW for the bank’s management of the loan funds under a "Loan and Project Agreement." In the same month, the two parties also entered into an agreement on the financial lead fee for interim payment loans, whereby Jeonbuk Bank would provide interim payment loans to the project’s buyers. Under this agreement, Company A was to pay the bank 638.56 million KRW.

During the project implementation, Company A borrowed 10 billion KRW from Jeonbuk Bank and used the loan from late June to late November 2017, a period of five months. Company A transferred a total of 1.46856 billion KRW to Jeonbuk Bank (30 million KRW for fund management fees + 800 million KRW PF fee + 638.56 million KRW interim payment fee). Additionally, Company A paid approximately 230.54 million KRW in interest on the 10 billion KRW loan. B-gun conditionally approved the building review for the project in July 2016 and approved the project plan in December 2016.

What did the court decide?

Company A claimed that Jeonbuk Bank should return the unjust enrichment, citing violations of the Interest Rate Restriction Act and the Loan Business Act, violations of the Fair Trade Act and acts against public order, and breaches of the principles of good faith or equity.

The court accepted only the claim regarding the violation of the principle of good faith.

The court stated, "According to the PF fee agreement, the PF fee is 4% of the total loan amount. Jeonbuk Bank received 800 million KRW, which is 4% of the maximum loan amount of 20 billion KRW. The agreement stipulates that Company A cannot request a refund of this fee under any circumstances, which means the provisions regarding the PF fee payment method were drafted somewhat favorably for Jeonbuk Bank."

Furthermore, the court explained, "According to the agreement, Jeonbuk Bank’s scope of work includes financial consultation and advisory services, financial structuring and lead arrangement for fund procurement, provision and modification of financial terms and conditions, and syndicate formation. Although Jeonbuk Bank claims to have performed consultation and advisory tasks such as reviewing project feasibility and risks based on documents submitted by Company A, most of the materials were prepared by Company A and provided to Jeonbuk Bank, and there is no confirmation that Jeonbuk Bank provided review reports. Moreover, Jeonbuk Bank executed the loan independently without forming a syndicate. While Jeonbuk Bank claims no other banks participated, there is no evidence to support this. Overall, the work performed by Jeonbuk Bank was limited compared to the large fees received."

The court added, "The risks borne by lenders in loans are fundamentally reflected in interest or loan agreement fees, and fees charged for delegated tasks are determined based on the nature and difficulty of the work, and are not directly related to assuming loan risks."