Aug 14, 2017

Liquidation vs. Penalty Damages in Korea

Korea Liquidated Damages, Korea Penalty Damages, in Korea
Liquidated Damages v. Penalty Damages in Korea

Liquidated Damages vs. Penalty Damages in Korea
In Korea, liquidated damage clauses in South Korean contracts may be invalidated if the liquidated damage amount is deemed, by a Korean court of law, as "unduly excessive." (Civil Act Art. 398(2)). Article 398 of the Civil Act may be found below.

However, if an agreement, in Korea, notes a "penalty," the amount of the "penalty is presumed to be determined in advance of the damages" (Civil Act Art. 398(4)) and is presumed valid.  Of course, the difference between "liquidated" and "penalty" damages, thus, would seem critical.  However, presently, in Korea, form is prevailing, in most cases, over substance.

Liquidated damages, according to Korean courts, are damages where the parties contract with the intent to compensate the non-breaching party for the actual damages caused.  While, a penalty is intended to punish a party and, thus, discourage breach.  A penalty, thus, is in addition to actual damages (or liquidated damages - the approximation of actual damages).

Thus, with this understanding by the Korean Legal System, it is not uncommon for courts, in Korea, to consider if the amount of liquidated damages, noted in an agreement, is a reasonable approximation of the actual damages.  Courts, thus, have the power to reduce or even invalidate these liquidated damage clauses.

Courts, in short, have reduced the amount of liquidated damages in numerous cases and have even precluded the availability of liquidated damages when a plaintiff failed to establish a nexus between the established breach and the liquidated damage amount.  However, few cases have invalidated punitive penalty clauses in Korean contracts that, also, included the possibility of actual damages on top of the penalty damages.

The reality may be far from this jurisprudence, but it is always better to accept the reality and work within the reality.  I see too many agreements from many of the ubiquitous Korean law firms with the lack of nuance necessary to get their clients pre-determined damages enforced.  The solution is simple and any decent English-Speaking international lawyer in Korea should know how to draft enforceable damage clauses.

The answer is simple.  The Supreme Court has ruled that a Penalty Clause should not be invalided except in the most exceptional of cases.  The exception is a catch-all clause in the Civil of Act of Korea that prohibits acts that violate "good morals and the social order."  This vague catch-all has, thankfully, been used by the Korean courts in very few penalty clause cases where Korean lawyers drafted the agreements with care, nuance and the obvious structure.  These clauses are, regularly, enforced in Korean real estate transactions.  Thus, we have a simple solution.  Accept Form sometimes prevails over Substance

Drafting Enforceable Penalty Clauses in Korea

Thus, accept that Form wins over Substance in damage jurisprudence in Korea - in most cases. However, also realize, that the mere mentioning of a "penalty" will, likely, lead a court to hold the clause as a" liquidated damages" clause.  However,  including a penalty clause and a separate compensatory damage clause will, likely, lead to a court upholding the penalty clause and potentially even awarding compensatory damages.  Yes - this penalty clause is merely acting as a liquidated damages clause.  Who cares - deal with the reality and go on to bigger and better things.

We, highly, recommend having a complete review of all your agreements.  We see too many issues. Nuance and not form agreements are necessary for all your agreements including your supplier agreements, vendor agreements, employer agreements, lease agreements, and other agreements with third parties in Korea.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, by AsiaLaw for Korea, as one of only two non-Korean lawyers as a Top Attorney. Sean is known for his proactive New York-style street-smart advice and his aggressive and non-conflicted advocacy. Sean works with some of the leading retired judges, prosecutors and former government officials in Korea.

Sean's profile may be found at: Sean C. Hayes
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Please find Civil Act of Korea Article 398 below:
Civil Act Article 398 (Liquidated Damages)
(1) The parties may determine in advance the amount of damages payable in the event of the non-performance of a contractual obligation.

(2) Where the amount of damages determined in advance is unduly excessive, a court may reduce the amount to a more reasonable and appropriate sum.

(3) The determination in advance of the amount of damages shall not affect the obligee's demand for performance or rescission of the contract.

(4) The agreement of a penalty is presumed to be determined in advance of the amount of damages.

(5) Even where the parties have agreed beforehand that something other than money shall be applied as compensation for damages, the provisions of the preceding paragraphs shall apply mutatis mutandis.

Aug 9, 2017

The Signs of a Great Criminal Lawyer in Korea | English-Speaking Criminal Defense Lawyers in Seoul

There are few great English-fluent criminal defense lawyers working in Korea, because of the nature of the Korean criminal justice system and other Korean realities.  It is even more difficult to find competent English-speaking criminal defense attorneys outside of Seoul.

In Korea, in all cases, where you are accused of a crime and you fear that you may be sentenced to time in a Korean jail, may be deported from Korea or the Korean conviction may harm your future - hire, quickly, an experienced and proactive attorney in Korea with experience in Korean criminal law prior to any interrogations by the Korean police or prosecution.

As I mentioned in a post entitled English-Speaking Criminal Defense Lawyers in Korea: Who to Hire - Who Not to Hire
"Sadly, few lawyers, in Korea, are useful for criminal matters, since few lawyers are proactive when it comes to matters concerning the Korean government, experienced in criminal matters for foreigners or willing to upset the status quo (aggressively engage the prosecutor)"
Here are a few signs that you may have hired a good Korean Defense attorney.
  • Your lawyer doesn't work for one of the ubiquitous firms working for foreign clients.  Some of these firms are more concerned with their reputation than yours.   Many are notoriously bad in criminal cases.
  • Your Korean lawyer is between the age of 40 and 60.  If the lawyer is too young (Early 30s) or too old (70s).  The lawyer will, likely, not have the experience necessary to handle the matter or will, simply, not be handling the matter.
  • Your lawyer is a retired judge with significant criminal defense experience and numerous not guilty verdicts. 
  • You talk directly with your Korean lawyer every time you meet the lawyer.   If you lawyer is directing you, consistently, to talk with a less experienced lawyer - run.  The less experienced lawyer is likely, only, doing the work and the more experienced lawyer is simply a rainmaker.
  • Your Korean lawyer has great English language skills.  Without someone fluency in English, you run the risk of never getting your side of the story heard. 
  • Your Korean lawyer has many non-Korean clients.  Handling criminal matters for foreigners is vastly different than handling a typical criminal matter for a Korean.  Often, deals can be obtained with the Korean prosecutor in non-violent crimes for foreigners, that are unavailable to Koreans.  Also, violent and  crimes, often, need to be handled with a decree of media and cultural savvy, since judges and prosecutors are heavily affected when the victim is a Korean and the perpetrator of the crime is a foreigner. 
  • Your lawyer contacts you often, meets you in jail often and leads the conversation.  A lawyer that never speaks, never contacts you and never visits you is, typically, not a proactive lawyer.  
  • Your lawyer speaks, but, also, listens when you talk.  Too often, lawyers, ignore clients.  Great defense lawyers in Korea develop great defenses by listening and responding to clients.  
  • Your lawyer in Korea seems busy, but not overwhelmed.  If he seems too busy he probably is too busy.  Criminal cases, often, need a great deal of time.  If the lawyer is not able to spend the time to talk with you, you may never be able to get the attorney to provide the time necessary to handle the matter.
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Sean Hayes
SeanHayes@ipglegal.com

NY Attorney Sean Hayes is the only non-Korean to have worked as a government attorney for the Korean court system and one of the first to be a regular member of a Korean law faculty.

English-Speaking Criminal Defense Lawyers in Korea: Defense Lawyer to Hire and Not to Hire?

In all cases, in Korea, where you are accused of a crime and you fear that you may be sentenced to time in jail, may be deported or the conviction may harm your future, hire, quickly, an experienced and proactive English-Fluent Korean criminal attorney prior to any interrogations by the Korean police or prosecution.

Sadly, few lawyers, in Korea, are useful for criminal matters, since few lawyers are proactive when it comes to matters concerning the Korean government, experienced in criminal matters for foreigners or willing to upset the status quo (aggressively engage the prosecutor and court).

Please do your future a favor,  forgo any options provided at no or low cost unless you have no other options.  The reality is the most important decision you shall make, at this time, is the choice of lawyer.

If you are under SOFA, you may choose any lawyer you want as noted on a form JAG provides to you before, or sometimes after, your choice of a lawyer.  Choose the lawyer you feel is the best for your needs - not the lawyer that others may feel is the best for not, only, your needs.

If you can't afford an attorney, the Korean court (if you are not under SOFA), normally will appoint an attorney to assist you.  In most cases, the appointment of the Korean government-appointed attorney will be useless for your defense/sentence, since the appointment will be after interrogations, after the decision of the prosecutor to indict and often the Korean attorney is an attorney that will only be going through the basic processes necessary for him to complete the matter and go on to the dozens of other matters that he has in front of him/her.

If you are in the U.S. military, the military will appoint you an attorney.  Also, the attorney will be appointed too late in the investigation stage.   The attorney appointed, overwhelmingly, in the cases that I have seen will simply go through the motions.

The handful of attorneys picked by the military are some of the least proactive attorneys I have seen in Korea and want, in the majority of the cases, to simply be on the good graces of their bread-and-butter (a Korean employee of the U.S. military).  If you are convicted of a crime, you will, likely, be discharged from the military.   This was not true a decade ago, but the military, even for "minor" violations of law have been quick to discharge soldiers.  Hire an attorney that you feel comfortable with and has your interest as the main priority.

Signs that you May Have Hired the Wrong Korean Lawyer
  • Your Korean lawyer is too young (Early 30s) or too old (70s).  The lawyer will, likely, not have the experience necessary to handle the matter or will, simply, not be handling the matter.
  • Your law has not judicial experience.  It is preferable to hire, because of Korean realities, a retire senior judge and in some cases a retired senior prosecutor.  
  • Your Korean lawyer is directing you, consistently, to talk with a less experienced (junior) lawyer.  The less experienced lawyer is likely, only, doing the work and the more experienced lawyer is simply a rainmaker.
  • Your Korean lawyer has poor English language skills.  Without someone fluent in English, you run the risk of never getting your side of the story heard.  Hire a English-Speaking lawyer that has near fluent English language skills.  It is preferable that the attorney was educated abroad.  
  • Your Korean lawyer has few non-Korean clients.  Handling criminal matters for foreigners is vastly different than handling a typical criminal matter for a Korean.  Often, deals can be obtained with the prosecutor in non-violent crimes for foreigners, that are unavailable to Koreans.  Also, violent and notorious crimes, often, need to be handled with a decree of media and cultural savvy, since judges and prosecutors are heavily affected when the victim is a Korean and the perpetrator of the crime is a foreigner. 
  • Your lawyer never speaks.  A lawyer that never speaks is, typically, not a proactive lawyer.  Criminal cases are best handled with strategy and a proactive counsel willing to engage the police investigators, prosecutor and judges.  If your lawyer won't speak to you, he won't be speaking to anyone else and will likely simply go through the process, receive a guilty verdict and the typical sentence.
  • Your lawyer seems not to be listening.  Too often, lawyers, ignore clients.  Great defense lawyers  in Korea develop great defenses by listening and responding to clients.  If you have a lawyer that is not listening, he will likely just go through the process, receive a guilty verdict and the typical sentence.
  • Your lawyer in Korea has too many cases.  If he seems too busy he probably is too busy.  Criminal cases, often, need a great deal of time.  If the lawyer is not able to spend the time to talk with you, you may never be able to get the attorney to provide the time necessary to handle the matter.
  • Your lawyer in Korea hates you.  Koreans are passionate people.  If the lawyer hates you, he will likely take your money and do nothing for you.    Passion, too often, can lead Korean lawyers to be less than reasonable.   As we know, this is not only a Korean trait.
What do you think?
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by Sean Hayes
SeanHayes@ipglegal.com

NY attorney Sean Hayes is the only non-Korean to have worked as a government attorney for the Korean court system and one of the first non-Koreans to be a regular member of a Korean law faculty.  He is rated as a Top Attorney by LawAsia. 

Related Articles

Aug 4, 2017

Termination after Childcare Leave in Korea: Childcare Leave Law in Korea

Korea's generous Childcare Leave Law poses difficulties to many smaller employers in Korea.  The Childcare Leave Law, in Korea, allows for a one year period of leave per child under the age of seven. These employers, often, are required to hire a replacement employee when the employee departs for this childcare leave.  This situation, often, leads to an employee returning to employment with little to no work to do.

So can an employer, in Korea, layoff the returning Korean worker for the lack of a position for the worker?

The answer is, typically, NO.  Notwithstanding, the issue of tenure and the selection criteria for layoffs, the law specifically notes the following.

I. Childcare Leave Law: Prohibition of Termination of Employee based on Childcare Leave
Equal Employment Opportunity and Work-Family Balance Assistance Act Art. 19 notes:
(3)"No employer shall dismiss or take any disadvantageous measure against a worker on account of childcare leave or dismiss the relevant worker during the period of childcare leave." 
(4)"After a worker completes childcare leave, the employer shall reinstate the relevant worker in the same work as before the leave or any other work paying the same level of wages."
Thus, employers must grant "childcare leave" and must reinstate, in short, the employee after childcare leave to a job of the same pay.  Employers, however, are not required, in most cases, to return the employee to the same position as when the employee departed for the childcare leave.

II.  Dismissal of a Worker in Korea based on "Urgent Managerial Necessity" 
An employer may dismiss and employee for an "urgent managerial necessity" or for "justifiable cause." Again, notwithstanding the issue of the selection criteria for layoffs - an employer may terminate an employee for "urgent managerial necessity" or for "justifiable cause."  "Justifiable cause" was discussed in numerous prior blog posts including a post concerning the dismissal of foreign executives in Korea. 

Korean Labor Standards Art. 24 notes: "Where an employer intends to dismiss a worker for managerial reasons, there must be an urgent managerial necessity. In this case, it shall be deemed that there is an urgent managerial necessity for the transfer, merger, or acquisition of the business in order to prevent managerial deterioration."  The law, facially, has no definition of "urgent managerial necessity."

The Supreme Court of Korea, however, recently elaborated on this "urgent managerial necessity" standard by noting that:
"'Urgent Managerial Necessity' is one of the requirements for planned layoffs, and includes, but is not limited to, avoiding bankruptcy and downsizing to prepare for possible crises in the future; however, such downsizing should be acknowledged as reasonable from an objective perspective. In determining an 'urgent managerial necessity,' an entity's overall business status should be reviewed rather than solely relying on the profit figures of an entity's division or place of business, excluding exceptional cases where: (i) the entity's division is independent of an and separate from other divisions in terms of workforce, logistics and location; (ii) the entity's financing and accounting operations are segregated; and (iii) the entity's division operates under business conditions different from those of other divisions" (2012DU25873 Decided May 28, 2015).
This test places a significant burden on the employer in proving the "urgent managerial necessity." It is possible that the worldwide company situation of a multinational may even be considered in the determination of the "urgency" of the alleged "necessity."
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, by AsiaLaw for Korea, as one of only two non-Korean lawyers as a Top Attorney. Sean is known for his proactive New York-style street-smart advice and his aggressive and non-conflicted advocacy. Sean works with some of the leading retired judges, prosecutors and former government officials in Korea.

Sean's profile may be found at: Sean C. Hayes

Aug 2, 2017

Korea Notarizations, Apostille, Powers of Attorney, Consularizations, Legalizations of Korean Translations and Documents

Korean Apostille Documents Notarization



Our Korean lawyers at our law firm in Korea receive numerous emails requesting our services in assisting with either legalization of a Korean translation for use in court, authentication, notarization or apostille of a Korean, Chinese, American, British, French, German, Russian or other country document for either use in Korea or use in another country.

We, normally, receive these calls from a fellow attorney, a financial institution or an individual with the need for an important document to be "legalized" for an important transaction.  Many times these documents are required for foreign or Korean courts, administrative agencies and quasi-government institutions.  Usually, the person contacting us believes the procedure shall take a trivial amount of time.

Usually the party contacting us believes that we can just stamp the document and the matter is complete.  We wish things were so easy.

Often getting documents recognized by a Korean government entity or recognized by a foreign government entity requires much more than a mere stamp and prayer.  Normally, it requires one of our Korean attorneys or Korean speaking international attorneys or staff to understand the specific intended use of the document and requires this individual to contact the respective government entity that shall require the document.  In many cases, the document that is believed necessary is not the only document necessary.

We, also, often need to coordinate the notarization and appostille process with the individual.  Yes - seems like all a waste of time.  However, in civil law systems, these type procedures are intended to be official and important government or quasi-government functions.  Thus . . . time.

Please when attempting to "legalize" a document avoid wasting your time and get someone that will take the time and the effort to do the work necessary to help to insure that the document is recognized by authority that you need it recognized by.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.  Sean is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, by AsiaLaw for Korea, as one of only two non-Korean lawyers as a Top Attorney. Sean is known for his proactive New York-style street-smart advice and his aggressive and non-conflicted advocacy. Sean works with some of the leading retired judges, prosecutors and former government officials in Korea.

Sean's profile may be found at: Sean C. Hayes

Aug 1, 2017

Abuse of Market Dominance in Korea: Competition Law in Korea

The Seoul Central District Court ruled earlier this year that Namyang Dairy Products Co. (“Namyang”) was in violation of the Monopoly Regulation and Fair Trade Act of Korea by abusing its market dominance and "unfairly taking advantage" of retailers.

Namyang was accused by retailers of, among other things, of forcing retailers to purchase expired or soon to expire products and purchase unpopular products.  The Seoul Central District Court in 2014GaHab592238 ruled the company was in violation of Article 23 of the Monopoly Regulation and Fair Trade Act of Korea and awarded damages to the plaintiffs.

Monopoly Regulation and Fair Trade Act of Korea Article 23(1), no. 4 prohibits a company or individual from:
"Trading with a certain transacting partner by unfairly taking advantage of his/her position in trade."
The Court held, in short, that Namyang, a major dairy producer in Korea, compelled retailers to purchase expired products and less popular products via, inter alia, threatening not to deal with retailers and placing unwanted items on an online list of products ordered by these retailers even though these retailers never ordered the products.

This tactic, in Korea, is referred to as mireonaegi in Korean. Some manufacturers push products on retailers even though the manufacturers know the product shall expire and, thus, shall not be able to be sold by the retailer, thus, the manufacturers are simply trying to pass a loss onto the retailer.

Namyang has been accused of this practice numerous times over the last few years.  Another article on this issue may be found at: Namyang Agrees to Compensate Agents.

We shall be writing, over the next few months, numerous articles on Korean Competition/Antitrust Law.  Please check back.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. 

Sean is ranked, by AsiaLaw for Korea, as one of only two non-Korean lawyers as a Top Attorney. Sean is known for his proactive New York-style street-smart advice and his aggressive and non-conflicted advocacy. Sean works with some of the leading retired judges, prosecutors and former government officials in Korea.

Sean's profile may be found at: Sean C. Hayes

Jul 31, 2017

Korea's Improper Solicitation and Graft Act: Kim Young-ran Act

The Improper Solicitation and Graft Act of Korea ("Graft Act") was enacted on March of 2015 and came into effect in September of 2016.
Korea's Anti-Corruption and Civil Rights Commission published in English and Korea a decent Handbook to the Graft Act.  The Handbook to the Improper Solicitation and Graft Act of Korea may be found at: Handbook to Korea's Graft Act.  It is worth a read.

Please check back to this blog.  We shall be writing over the next couple of weeks articles on:
  • Scope of Application of the Improper Solicitation and Graft Act of Korea.
  • Hypothetical Improper Solicitations in Korea under the Graft Act of Korea.
  • Hypothetical Acceptance of Financial or other Advantages under the Graft Act of Korea.
  • Disciplinary Actions/Punishments under the Improper Solicitation and Graft Act of Korea.
  • Overview of the Kim Young-ran Act.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  Sean is known for his proactive New York-style street-smart advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes

Jul 24, 2017

Korean Distributor Sales Territory or Customer Restriction in Korea

Korea's Distribution Law is governed, primarily, by the Commercial Code of Korea, Monopoly Regulation and Fair Trade Law of Korea (FTL) and the, newly enacted, Fairness in Distributor Transactions Act of Korea.  The laws comprise a substantial body of law that is consistently evolving

The main regulatory body enforcing the FTL of Korea is the Fair Trade Commission of Korea ("FTC").  The Fair Trade Laws of Korea, in most cases, creates the most significant risk for suppliers and manufacturers doing business with distributors in Korea.  A nuanced understand coupled with a proactive approach to your distributors is necessary in succeeding in the Korean market.
Korean, Distribution Agreement
Distribution Agreements in Korea

General Rule

In general, Korea prohibits the "unfair restriction" of trade based on the territory or type of customer. However, numerous exceptions exist.  I shall be detailing some of these exceptions over the next couple of months.  Please check back regularly.  The following is, only, and is, only, intended to be a brief explanation of this issue.

Territory Restrictions on Trade in Korea
Korean courts and the FTC have deemed the restricting of a distributor from engaging in business based on territory as an "unfair restriction" on trade if the restriction imposes a severe penalty on the distributor.  Thus, if no "severe penalty" or "strict enforcement" is imposed by the supplier on the distributor the restriction may not be deemed per se illegal in Korea.

The case law on this issue is less than clear and very nuanced.  It is advisable to have someone carefully draft the "restriction," if one is necessary, with an eye to business realities, knowledge of the accepted practices in Korea and nuanced understanding of this developing body of Agency & Distribution Laws in Korea.  Additionally, a nuanced structure may be more successful in your business needs than facial contractual restrictions.

Restriction on Customers
In general, a supplier may legally designate certain customers as customers that the supplier may solely deal.  However, a blanket restriction on competition with the supplier is, often, deemed a violation of the FTL.

Those a violation of the FTL may face corrective orders, administrative fines and even criminal sanctions.  A distributor may, also, prevail in a lawsuit for damages caused by the restriction.

The key in developing distributor relationships in Korea is to first consider the law with a professional with deep knowledge of your business, Korean business practices and a nuanced understanding of Korean Law, the FTC and Korean Litigation.  It is not so easy to find this type of individual and, often, because of Korean legal realities these type individuals are impossible to find in the ubiquitous Korean law firms.  Make sure you shop around and make sure you find someone with a proactive manner and a deep understanding of your industry or a willingness to understanding your industry.  A form puller - is useless in Korea.

Entering into a distributor relationship is easy - getting out of a bad relationship, in Korea, is much more difficult.  Thus, take your time in finding the right attorney and/or business professional to develop, vet and formalize the distributor relationship.

Also, don't forget the vetting process: Distributor Due Diligence in Korea.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  Sean is known for his proactive New York-style street-smart advice and his aggressive and non-conflicted advocacy.  Sean works with some of the leading retired judges, prosecutors and former government officials working in Korea.

Sean's profile may be found at: Sean C. Hayes

Other Articles on Korean Distribution Law that may be of interest: