-Daily Newspaper 2015. 9. 25

A short time ago, the Daegu District Court Gimcheon Jiwon made an eye-catching ruling (2014 Gahap 1556) to the effect that 'the company that acquired the golf course real estate by trust public auction does not bear the obligation to return the membership fee to the existing members' in a 'claim for the return of the membership fee' filed by the existing members of the golf course against the newly acquired company.  

This is the first ruling of its kind in the country, and according to this ruling, golf course members are not only denied membership, but also do not receive a refund of the initiation deposit they paid when purchasing a membership, making members more cautious when purchasing a membership, On the other hand, it has a double meaning that golf courses in financial difficulties have no reason to recognize existing members and do not have to return the initiation deposit, which makes it easier for them to find a way to operate, and that golf courses that want to acquire golf courses may also compete in the future.

The plaintiffs in this case are golf course memberships operated by Company A. Company A, which was in business difficulties, entered into a trust agreement with Bank B regarding the golf course worth tens of billions of won and completed the transfer of ownership.   

Bank B then proceeded with a short sale process for the golf course, and in the absence of a competitor due to the membership deposit return debt amounting to tens of billions of won, Company C acquired the golf course with a purchase price of about 1.4 billion won, with the risk of assuming the debt. In response, the plaintiffs filed a lawsuit against the defendants, claiming that they had inherited the membership deposit return liability and sought its return.

▶ Plaintiffs' Claims and Defendants' Counterclaims

Article 27 (1) and (2) of the Act on the Establishment and Use of Sports Facilities (Sports Facilities Act) stipulates that a person who acquires a sports facility business is obligated to take over the rights and obligations under the registration or notification of the sports facility business, and obligations to existing members (such as their status as members and the obligation to return the initiation deposit) are also among the obligations of the acquirer.

Based on this, the plaintiffs argued that Defendant Company C was obligated to pay the return of the initiation deposit because it had acquired the golf course and inherited the obligation under Article 27 of the Sports Facilities Act.

In response to these claims, the real estate team of Hanbyul Law Firm, led by Attorney Hyun In-hyuk, who represented the defendant, argued that, uniquely in this case, Defendant C did not inherit the obligation to return the initiation deposit from the plaintiffs, including their status as members.

▶Determination of whether the defendant succeeded to the plaintiffs' obligation to return the enrollment deposit

In response, Mr. Hyun explained, "It is true that a person who acquires a sports facility in accordance with the procedures set forth in Article 27 (2) of the 'Sports Facilities Act' is obligated to succeed to the obligation to return the enrollment deposit borne by the former sports facility operator, but the short sale procedure prescribed by the Trust Act, such as the one in this case, is not included in the procedures set forth in Article 27 (2) of the Sports Facilities Act."

Hyun continued, "In general, the trust short sale procedure is a change of rights under the contract, which is different from the procedure prescribed in Article 27(2) of the Sports Facilities Act, which is a change of rights under legal regulations, and considering that Article 27(2) of the Sports Facilities Act is a regulation to determine the scope of the acquirer's debt succession, a strict interpretation is required to ensure the safety of the transaction."

Hyun also emphasized that in a trust sale process, the scope of succession of rights and obligations to existing members can be determined by a voluntary agreement between the former owner and the acquirer, so it is not necessary to enforce the succession under the statutory provisions.

In the end, the court accepted the defendant's argument and dismissed the claim, holding that "Article 27 of the Sports Facilities Law does not apply to the acquisition of essential facilities through a trustee sale process, and therefore the defendant is not obligated to return the membership deposit to the plaintiffs."

As a result of this ruling, Company C acquired the golf course with the risk of being liable for the return of tens of billions of won, but in return for making the right legal judgment, it has the potential to gain tens of billions of won.

▶ In the case of a short sale through a trust, membership status and enrollment deposits are not protected, and managers are more likely to find a new business even in the case of golf courses and gyms that are in trouble.

In this regard, until now, the Supreme Court has ruled that 'Article 27(2) of the Sports Facilities Act cannot be applied to the trust short sale procedure' in the case of membership-based fitness centers, However, considering the specificity of the golf course business, where the amount of deposit return liabilities to members is tens of billions of won, it was widely expected that the existing judicial attitude would not be maintained unless the rights and interests of the majority of members could be easily ignored.

Hyun In-hyuk emphasized, "This ruling is significant because it is the first ruling in the country to explicitly determine that the obligation to return the initiation deposit to the existing members does not inherit even in the case of the acquisition of a golf course facility through a trustee sale process."   

This means that members with initiation deposits have been interpreted in the past as being protected even if the golf course changes hands, and this has also been the case for various gyms, but this ruling makes it clear that they are not protected in the case of a short sale through a trust. Therefore, it is not advisable to expect that golf course memberships will be protected.

In addition, in the case of golf courses, gyms, and other sports facilities that are currently in trouble, new buyers are often hesitant to acquire them due to the obligation to return deposits to existing members, the size of which is unknown.

"However, now, if you use the trust system, you do not have to take over the status of the existing members and do not have to return the deposit, so it has become easier to transfer golf courses and use various financial systems," said Hyun In-hyuk. "However, if you intentionally use the trust system, some legal problems may arise and the trust itself may be invalid, so you need to consult a legal expert."

△ In Hyuk Hyun

- Graduated from Seoul National University College of Law, Department of Justice

- Completed Master's Program at Seoul National University College of Law (Civil Law Major)

- Passed the 42nd Korean Bar Examination

- Completed the 32nd Judicial Training Institute

- Managing Attorney at Hanbyul Law Firm

- Registered as a patent attorney and tax attorney