Supreme Court: "Annual Interest Rate Under Litigation Promotion Act Cannot Be Applied Unless It Is a Lawsuit for Performance of Damages Compensation Obligation"

Supreme Court in Seocho-dong, Seoul. Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Kim Daehyun] The Supreme Court has ruled that even if the existence of a debt is confirmed through a debt confirmation lawsuit, if the creditor has not separately filed a lawsuit demanding performance, the interest rate under the Civil Act, not the Act on the Promotion of Litigation, should be applied when calculating delay damages.

On the 25th, the Supreme Court's First Division (Presiding Justice Kim Seonsu) announced that in the final appeal of a debt non-existence confirmation lawsuit filed by Mr. A against Mr. B, it overturned the lower court's ruling that set the interest rate for delay damages at 15% and corrected it to 5%.

Earlier, in February 2017, Mr. A commissioned a demolition company to carry out construction to open a store in a building in Gwanak-gu, Seoul. However, an employee of the company caused a water leakage accident, damaging the goods of the neighboring store owner, Mr. B. As a result, Mr. A compensated Mr. B 4.12 million won, but Mr. B demanded additional compensation, claiming the total damage amounted to about 15 million won.

The first trial ruled in favor of the plaintiff. At that time, the court stated, "The burden of proof that the damage caused by the demolition work exceeds the amount already compensated lies with Mr. B," and "there is no evidence to support this."

On the other hand, the second trial ruled that Mr. A must pay about 11 million won more based on additional materials submitted by Mr. B. Furthermore, regarding delay damages, it applied a 15% interest rate from the date of judgment until full repayment according to Article 3 of the Act on the Promotion of Litigation.

The Supreme Court also recognized that Mr. A has additional liability for damages. However, it pointed out that the lower court incorrectly applied the interest rate for delay damages.

The court stated, "Article 3 of the Act on the Promotion of Litigation aims to impose disadvantages on debtors who unreasonably delay repayment to prevent unnecessary delays in litigation," and "even if the existence of the debt is recognized in a debt non-existence confirmation lawsuit alone without a creditor's performance lawsuit, the statutory interest rate under Article 3 of the Act on the Promotion of Litigation cannot be applied."

Accordingly, the Supreme Court overturned the lower court's ruling and decided that Mr. A must pay delay damages at an annual interest rate of 5% until the debt is fully repaid.