Fiduciary duty

A fiduciary duty (신인의무/信認義務) is defined as an obligation to act in the best interest of another party. For instance, a director of a corporation has a fiduciary duty to the corporation as well as shareholders, a trustee has a fiduciary duty to the trust's beneficiaries, and an attorney has a fiduciary duty to a client.

A fiduciary obligation exists whenever the relationship with the client involves a special trust, confidence, and reliance on the fiduciary to exercise his/her discretion or expertise in acting for the client. The fiduciary must knowingly accept that trust and confidence to exercise his expertise and discretion to act on the client's behalf.

A fiduciary duty is the highest standard of care at either equity or law. A fiduciary (abbreviation fid) is expected to be extremely loyal to the person to whom he owes the duty (the "principal"): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents.

Key words
fiduciary duty, mandatary's duty, duty of care and due diligence, liability for damages

Similar Concepts
Under the Korean law, there are similar concepts as follows: A mandatary shall manage the affairs entrusted to him with the care of a good manager in accordance with the tenor of the mandate. Article 681 of the Civil Act.
 * Mandatary's duty of care and due diligence (수임인의 선관의무/受任人 善管義務)

This duty is imposed whenever a mandatary relationship exists. When a person has entrusted other person with the management of affairs, the other person who consents thereto becomes a mandatary. Article 680 of the Civil Act.

A director of a corporation shall perform his duties faithfully for the good of the company in accordance with Acts, subordinate statutes, and the articles of incorporation. Article 382-3 of the Commercial Act
 * Director's duty to be faithful (이사의 충실의무/充實義務)

A fiduciary duty comprises a duty of good faith, duty of due care and duty of loyalty.
 * Fiduciary duty

Duty of a Bank Director
Basically a director of a bank has a mandatary's duty of care and due diligence, because he/she has been elected by a general meeting of sharehoders. In this case, provisions relating to mandates shall apply mutatis mutandis to the relationship between the company and the directors. Article 382 (2) of the Commercial Act As a bank serves the public role of contributing to stabilization of the financial market and development of the national economy by protecting assets of depositors, maintaining credit order, and maintaining efficiency in intermediating monetary transactions, its directors shall carry out the highest standard duties - the fiduciary duty that befits such public aspect of a bank.

There is a leading case on this issue - Supreme Court Decision 2000Da9086 delivered on March 15, 2002 [Damages].

Case at Issue
The above case of Jeil Bank which suffered financial difficulties during the IMF Crisis brought into spotlight the substance of the bank director's fiduciary duty, and criteria for determination as to whether he has neglected his obligations in breach of his fiduciary duty.

Ruling
This case dealt with shareholders' derivative action (대표소송), auditor representing the company in a lawsuit between the company and its directors in conflict of interests issue, a joint intervention in litigation (공동소송참가), and so on.

The Supreme Court held:
 * A bank, which is a financial institution, is operated in the form of a joint stock company. However, a bank is different from other joint stock companies, of which the sole objective is the pursuit of profit, in that it is in the position of serving the public role of contributing to stabilization of the financial market and development of the national economy by protecting assets of depositors, maintaining credit order, and maintaining efficiency in intermediating monetary transactions.
 * Accordingly, directors of a bank who carry out such duties discharge not simply the fiduciary duty generally imposed on the directors of joint stock companies, but the fiduciary duty that befits such public aspect of a bank. Thus, in determining whether a director of a financial institution has neglected his obligations in breach of such fiduciary duty, it should be determined whether there was a fault in his decision as a reasonable loan officer to extend the loan, which cannot be overlooked, from the standpoint of the public role of financial institutions, generally taking into account various factors such as the terms, substance, amount and repayment plan of the loan, availability and substance of collateral, and the assets, management status and growth potential of the borrower. A representative director or director of a bank is liable for compensation to the bank for damages on the grounds that he neglected his obligations in breach of his fiduciary duty in deciding upon a loan.
 * [At the] standing committee consisting of standing directors including the president, executive director and managing director, which was formed to handle matters delegated by the board of directors in accordance with the provisions of the articles of incorporation of the bank, . . . the defendants, as directors who knew or at least could have known that the resolution to provide loans to Hanbo Steel was unreasonable or improper, assented to such resolution without raising any objection, thereby neglecting their fiduciary duties and duties of good faith as directors.
 * As such, it is our understanding that the discussion on the fact of the defendants' assent to the resolution of the standing committee was to show the specific acts in neglect of duty in order to support the finding of liability under Article 399 (1) of the Commercial Act.

Conclusion
Accordingly, it was ruled the appeals shall be dismissed, and all costs of appeal are assessed against the defendants. The decision has been delivered with the assent of all Justices who reviewed the appeal.

Justices Kang Shin-wook (Presiding Justice) Cho Moo-jeh (Justice in charge) Yoo Ji-dam Son Ji-yol