When does the three-year limitation period begin against an employer? Decision 2018Da241403 on knowing 'the damage and the person who caused it'

Question

Article 766(1) of the Civil Act provides that a claim for damages arising from a tort is extinguished by prescription if the injured party or the injured party's legal representative does not exercise it within three years from the day of knowing the damage and the person who caused it, and Article 766(2) produces the same result ten years after the tort. Where the claim is directed at an employer under Article 756 of the Civil Act, for damage an employee caused a third party in the course of the employer's business, the question is what the injured party must have known and from what day the three years start.

Decision 2018Da241403 raises that question for individual investors who sued Deutsche Bank AG and a securities company it established in Korea to carry on financial investment business, over market manipulation by employees of the bank and of that company. The court below counted the three years from regulators' announcements, a business suspension and press coverage in 2011, and dismissed the claims filed on 26 January 2016 as time-barred. The Supreme Court held that the investors could not be taken to have known the elements of the tort at that stage.

Material to check

The statutes are Article 756 of the Civil Act, under which a person who employs another in some business is liable for damage the employee causes a third party in the course of that business, unless the employer exercised due care in selecting and supervising the employee or the damage would have occurred despite due care, and Article 766 on the limitation periods for claims in damages arising from a tort. The current text of Article 766 also records Constitutional Court Decision 2014Hun-Ba148 (30 August 2018), holding paragraph 2 simply unconstitutional insofar as it applies to the cases provided in Article 2(1)(iii) and (iv) of the Framework Act on Settling the Past for Truth and Reconciliation, and a paragraph 3 added in 2020, under which the limitation period for a minor's claim arising from sexual harm does not run until the minor reaches majority. Neither point is at issue in the decision.

The decisions are Decision 2018Da241403 (13 September 2018), which sets out the meaning of 'the day of knowing the damage and the person who caused it' and its application to employer liability; Decision 2006Da30440 (24 April 2008), which gives the same general meaning of the phrase and the method for finding when knowledge arose, and held that, where the lawfulness of an emergency arrest was genuinely contested in the related criminal trial, the damage could be taken as known only when the related criminal judgment became final; and Decision 88Daka32500 (14 November 1989), which defined what it means to know the person who caused the damage where the State answers for a public official's act.

Possible readings

Read with Decision 2006Da30440, Article 766(1) runs from the time the injured party actually and concretely knew the elements of the tort: that damage occurred, that an unlawful act existed, and that an adequate causal link exists between the act and the damage. When that knowledge arose must be found reasonably in each individual case, taking the objective circumstances into account and bearing in mind the situation in which a claim for damages became possible in fact. Mere awareness that something went wrong is not the starting point.

For an employer sued under Article 756, Decision 2018Da241403 takes from Decision 88Daka32500 the rule that knowing the person who caused the damage means knowing the employer and the employment relationship between the employer and the wrongdoer, and in addition knowing facts from which an ordinary person could judge that the wrong was done in connection with the employer's business. The employer's liability arises where a person in an employment relationship with the employer harms a third party in the course of the employer's business; knowing that an employee acted is therefore not enough to start the three years running against the employer.

A third reading follows the earlier precedent's treatment of contested legal assessment. Decision 2006Da30440 held that, where the lawfulness of an emergency arrest turned mainly on whether the requirements for such an arrest were met and was genuinely disputed in the related criminal proceedings, the damage could be taken as actually and concretely known only when the related criminal judgment became final. Decision 2018Da241403 does not lay down a fixed rule of that kind; it weighed the circumstances of the case one by one, and its outcome is tied to the position of individual, non-professional investors.

What the decisions held

The court below, the Seoul High Court in its judgment of 10 May 2018 (2017Na2037841), found that the plaintiffs knew of the unlawful market manipulation and of an adequate causal link to their loss at the latest between 23 February 2011, when the Financial Services Commission and the Financial Supervisory Service announced their findings and it became known through press reports that the defendants' employees had led the manipulation, and about 31 May 2011, when a partial business suspension of defendant Deutsche Securities became final. It held there was no obstacle to bringing a claim in damages on the basis of employer liability, that the action was received on 26 January 2016, more than three years later, and, accepting the defendants' plea of prescription, dismissed the claim.

The Supreme Court listed the circumstances that made that finding untenable. The announcement of 23 February 2011 recorded a decision to refer the matter to the prosecution and impose sanctions after confirming that employees of affiliates of defendant Deutsche Bank AG had manipulated the market, a partial business suspension of defendant Deutsche Securities became final about 31 May 2011, and the prosecution announced on 19 August 2011 that it had charged the defendants' employees and defendant Deutsche Securities with market manipulation under the Capital Markets Act; press reports and damages suits by domestic financial institutions, insurers and foreign investors followed. Yet the plaintiffs were individual investors, not professional financial investment business operators, and even though their understanding of and experience in financial product markets were relatively rich, they could not be assumed to know everything the Financial Services Commission, the Financial Supervisory Service or the prosecution knew. The defendants continued to deny the allegations strongly; the employees of Deutsche Bank AG's Hong Kong branch fled abroad, and a first-instance guilty judgment was handed down only on 25 January 2016, more than four years later, against Non-party and defendant Deutsche Securities. Deciding the unlawfulness of the manipulation required specialist knowledge of the KOSPI 200, index arbitrage and index-moving trades, the existence of unlawful manipulation was contested, and the body of that criminal judgment alone ran to 82 pages, so from an ordinary person's standpoint the existence of the unlawful act and its causal link to the loss could not be assumed to be known before that judgment. The defendants also contested their civil liability in damages, and first-instance judgments recognising employer liability against them began only around 26 November 2015, more than four years on. Defendant Deutsche Bank AG, moreover, was not among those sanctioned by the Financial Services Commission or the Financial Supervisory Service nor among those charged by the prosecution, so it was all the more untenable to assume that individual, non-professional investors knew of the employment relationship between the bank's Hong Kong branch employees and the bank, or of the connection with the bank's business, before those civil first-instance judgments.

On those facts the Court held that the plaintiffs could not be taken to have actually and concretely known the elements of the tort, the existence of the unlawful act, the adequate causal link or the employment relationship, around 23 February to 19 August 2011 when the announcements, the charges and the press reports came, and that the court below had misunderstood the law on the starting point of the limitation period, to the prejudice of its judgment. The decision set aside the judgment below and remitted the case to the Seoul High Court for fresh examination and determination, the Justices concurring unanimously.

Points left open

The decision leaves the starting date itself to the court on remand. It points to later events, the first-instance criminal judgment of 25 January 2016, the first civil first-instance judgments recognising employer liability around 26 November 2015, and the fact that defendant Deutsche Bank AG was neither sanctioned nor charged, but it does not say which event, if any, fixes knowledge against each defendant; on our reading the weighing may differ between the two defendants.

The decision also leaves open how far its reasoning reaches injured parties who are professional investors. The Court stressed that these plaintiffs were individual, non-professional investors, while financial institutions, insurers and foreign investors had already brought their own damages suits; whether the regulators' announcement, the prosecution's charges or press coverage would amount to actual and concrete knowledge for a professional investor is not answered.

When to reconsider

We revisit this brief if the judgment on remand fixes the starting date or if a later Supreme Court decision states when the period begins for professional investors or applies the employer-knowledge rule to facts like these. An amendment to Article 756 or Article 766 of the Civil Act would also change what is written here.

Statutes referred to

• 민법 제756조, 제766조

Decisions referred to

• 대법원 2018. 9. 13. 선고 2018다241403 판결 · Decision ledger
• 대법원 1989. 11. 14. 선고 88다카32500 판결
• 대법원 2008. 4. 24. 선고 2006다30440 판결

Verification status

The texts read for this brief were read at the National Law Information Center on 24 October 2026: Decision 2018Da241403 in its published holdings, cited provisions and precedents, summary and full reasons, and Articles 756 and 766 of the Civil Act in their current text. The two cited decisions were read in their published holdings and summaries.