SOUTH KOREA Law and Practice Contributed by: Woong-kyu Cho, Ji-eun Kim and Hyun-kyung Kim, Barun Law LLC
of inheritance or in an adjudication on the division of inherited property. • Basic principle of damages – In Korea, damages are, in principle, intended to restore the property status that would have existed had the damage not occurred. Although punitive damages have been introduced under certain special statutes, they do not apply to asset management disputes such as inheritance and trust disputes. 6. Roles and Responsibilities of Fiduciaries 6.1 Prevalence of Corporate Fiduciaries In Korea, the degree of obligations borne by a manda - tary differs depending on whether the mandate rela - tionship is for consideration or gratuitous, and does not vary depending on whether the mandatary is a corporation or professional, or an individual. How - ever, in the case of trusts, only financial institutions authorised under the Financial Investment Services and Capital Markets Act may receive remuneration for the performance of trustee services, and such finan - cial institutions are subject to additional obligations imposed under the Financial Investment Services and Capital Markets Act, in addition to those under the Trust Act. 6.2 Fiduciary Liabilities Under Korean law, trust property is legally separate from the trustee’s own assets. A trustee’s liability to the beneficiary for debts arising from the trust instru - ment is, in principle, limited to the trust. However, for debts owed to third parties in the ordinary course of administering the trust, the trustee is generally per - sonally liable including with the trustee’s own assets. Likewise, a corporation has a legal personality sepa - rate from its shareholders. However, these protections may be disregarded where they are inconsistent with the substance of the legal structure. In the case of a trust, an arrangement under which the trustee lacks genuine authority to manage or dis - pose of the trust property is not recognised as a valid trust under the Trust Act, and liability may instead be attributed to the settlor. Similarly, where a corporation is merely a façade, liability may be imposed directly
on its shareholders. Trusts established for improper purposes, such as defrauding creditors, may also be challenged, and transfers that prejudice creditors may be revoked under creditor protection rules. Although a trustee is generally liable only for the trust property, personal liability may arise where the trus - tee breaches their duties. Exculpatory clauses are permitted but are generally effective only if properly disclosed and explained to the customer. In addition, with the beneficiary’s consent and for a justifiable rea - son, a trustee may delegate trust administration to a third party. In such cases, the trustee’s liability is gen - erally limited to the proper appointment and supervi - sion of that third party. 6.3 Fiduciary Regulation Korea strictly regulates fiduciary duties through indi - vidual statutes, such as the Civil Act, the Trust Act, and the Financial Investment Services and Capital Markets Act, by dividing them into the duty of care of a good manager and the duty of loyalty. Under Korean law, representative fiduciaries entrusted with asset management (such as trustees under the Trust Act and collective investment business entities under the Financial Investment Services and Capital Markets Act) owe the duty of care of a good manager and the duty of loyalty, which require them to handle asset management affairs solely in the best interests of the beneficiaries (or investors) and prohibits them from seeking their own interests or the interests of a third party. In other words, although Korea does not have an express Prudent Investor Rule as found in com - mon law jurisdictions, it regulates trustees’ investment activities mainly through the duty of care and the duty of loyalty, and adopts a system that places greater emphasis on the reasonableness and prudence of the investment decision-making process than on the suc - cess or failure of the investment. 6.4 Fiduciary Investment In Korea, Modern Portfolio Theory (MPT) has not been expressly codified by statute. The Trust Act and the Civil Act impose on trustees the duty of care of a good manager and the duty of loyalty, and these general principles also apply to the investment and manage - ment of trust property.
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