Supreme Court: "Joint Responsibility of Aegis Asset Management and Kookmin Bank for Seoyoung Building Fire"

Article 758 of the Civil Act Liability for Structures Lies with Direct Possessor
Real Estate Management Company Is Merely a Possession Assistant

The Supreme Court ruled that when a fire occurs in a building owned by a trust company in which a real estate fund has invested, causing damage to a tenant, the parties liable for compensation under the Civil Act's provisions on the liability of occupiers and owners of structures are the investment company and the trust company, who can be regarded as the direct occupiers of the building.

It was held that the real estate management company is merely an auxiliary occupier and cannot be considered liable under the structure liability provisions.

Supreme Court in Seocho-dong, Seoul.

According to the legal community on the 11th, the Supreme Court's Second Division (Presiding Justice Lee Dong-won) upheld the appellate court's partial ruling in favor of the plaintiff in the damages claim lawsuit filed by Seoyoung Engineering against Aegis Asset Management, Kookmin Bank, S-1 Corporation, and others, ordering Aegis Asset Management and Kookmin Bank to jointly pay 4,645.3 million KRW.

On December 11, 2015, a fire broke out in the ceiling of the first-floor parking lot of the Seoyoung Building in Bundang-gu, Seongnam-si, completely burning some parts of the building's interior and exterior walls. Seoyoung Engineering, which occupied floors 6 through 12, suffered damage to various computer equipment, fixtures, and components.

The building was owned by Kookmin Bank since 2013, following a trust contract with Aegis Asset Management (a collective investment business operator) which had established a private real estate collective investment vehicle (fund) in the form of an investment trust. S-1 Corporation was managing the building as a real estate management company.

Seoyoung Engineering, which suffered damages due to the fire, filed a damages claim lawsuit in April 2016 against Aegis Asset Management as the collective investment business operator, Kookmin Bank as the trustee and building owner, and S-1 Corporation as the building management company.

The first-instance court ordered Aegis Asset Management and Kookmin Bank to jointly compensate Company A 4,645.3 million KRW and to pay employees between 160,000 and 610,000 KRW each. The claim against the building management company S-1 Corporation was dismissed.

Seoyoung Engineering held Kookmin Bank and Aegis Asset Management, as parties to the lease contract, liable for ▲breach of lease contract obligations (Article 623 of the Civil Act: the lessor's duty to maintain the leased property in a condition suitable for use and enjoyment) ▲liability for damages due to defects in installation or preservation of structures (Article 758, Paragraph 1 of the Civil Act) ▲tort liability (Article 750 of the Civil Act). Against S-1 Corporation, they claimed liability under the structure liability and tort liability provisions.

Article 758 of the Civil Act (Liability of Occupiers and Owners of Structures), Paragraph 1, states: "When damage is caused to another person due to defects in the installation or preservation of a structure, the occupier of the structure shall be liable for damages. However, if the occupier has not neglected the necessary care to prevent the damage, the owner shall be liable for damages."

The court found it difficult to recognize breach of contract liability on the part of Aegis Asset Management or Kookmin Bank as lessors.

The court stated, "In cases where a fire occurs in a part not subject to the lease (such as the parking lot in this case), making the use and enjoyment of the leased property impossible, it is difficult to consider that the lessor has an obligation to maintain, repair, or manage parts not subject to the lease for the tenant to use and enjoy the leased property, unless there are special circumstances."

It was judged that it is difficult to impose liability for the fire on the basis of breach of maintenance and management obligations for the parking lot, which is outside the leased premises used by Seoyoung Engineering.

Instead, the court recognized the liability of Aegis Asset Management and Kookmin Bank as occupiers and owners of the structure under Article 758 of the Civil Act.

At the time of the fire, the parking lot was effectively controlled by S-1 Corporation, a real estate asset management outsourcing company. However, S-1 Corporation was only assisting Aegis Asset Management's occupancy based on the management rights delegated by Aegis Asset Management, which had entrusted the building's management. The direct occupiers of the parking lot were the actual owner Aegis Asset Management and the legal owner Kookmin Bank, and S-1 Corporation was merely an auxiliary occupier, according to the first-instance court's conclusion.

Liability under Article 758 of the Civil Act concerning structures is a special type of tort liability that does not require the perpetrator's intentional or negligent act or causation of damage, unlike general tort liability under Article 750 of the Civil Act. Owners bear strict liability even if they are not at fault for the damage.

The court held that S-1 Corporation, being only an auxiliary occupier, cannot be held liable under Article 758 of the Civil Act. Regarding general tort liability, the court stated, "Since the cause of the fire originating from the electrical wiring in the parking lot ceiling has not been clearly identified, it cannot be concluded that the fire was caused by negligence in the maintenance and management of the building. There is no claim or proof that the defendant failed to take necessary measures for electrical and facility safety in the first-floor part of the building. Therefore, the plaintiff's claim in this regard is dismissed."

Both the plaintiff and defendants appealed the ruling, but the appellate court and the Supreme Court upheld the same judgment.

The Supreme Court cited as grounds for liability that the asset management company exercised substantial authority by instructing the real estate management company and setting budget limits, and that the trust company, as the owner, exercised management and disposal rights over the building externally.

The court stated, "Although the lower court's reasoning was somewhat insufficient, the conclusion regarding the parties liable as occupiers of the structure is acceptable, and there is no error in law, violation of precedent, omission of judgment, or insufficient examination under Article 758, Paragraph 1 of the Civil Act that would affect the judgment," thus dismissing the appeal.

Meanwhile, the scope of liability was also an issue in this case. The asset management company and the bank argued that their liability for damages should be limited to the value of the building. They cited Article 80, Paragraph 2 of the Capital Markets Act, which limits the liability related to the acquisition and disposal of investment trust property to the extent of the investment trust property.

However, the Supreme Court rejected this argument.

The court gave two reasons. First, it pointed out, "According to Article 80, Paragraph 2 of the Capital Markets Act, collective investment business operators and trustees bear liability related to the acquisition and disposal of investment target assets limited to the investment trust property. However, under Article 64, Paragraph 1 of the Capital Markets Act, if they violate laws or neglect their duties causing damage to investors, they bear liability with their own property."

It added, "The liability of collective investment business operators and trustees as occupiers under the structure liability provisions is not related to the performance obligations concerning the acquisition and disposal of investment trust property, so their liability is not limited to the investment trust property."

Furthermore, the court stated, "According to Article 114, Paragraph 1 of the Trust Act, a limited liability trust, which limits the trustee's liability for debts belonging to the trust property to the trust property itself, only takes effect upon registration of the limited liability trust. Since there is no registration of a limited liability trust for this fund, it has no effect as a limited liability trust."

The court concluded, "The lower court's judgment is proper, and there is no error affecting the judgment such as misunderstanding the legal principles regarding the liability limits under the former Article 80, Paragraph 2 of the Capital Markets Act and the limited liability trust system under the Trust Act."

This content was produced with the assistance of AI translation services.