7/10/2016

Jurisdiction and Choice of Law Issues in Agency Agreements

In the drafting and negotiation of a commercial agency agreement between a principal located in one country and an agent located in another country, proper consideration needs to be given to governing law and jurisdiction.

Jurisdiction determines which country’s courts will hear any proceedings that may be brought in relation to the agreement, whilst governing law is the law that will be applied by the courts hearing any such proceedings that may arise under the agreement.

Ideally, the parties to the agreement should expressly agree as to choice of jurisdiction and governing law. A governing law clause will set out the parties’ choice of the law that will apply to the parties’ agreement, and a jurisdiction clause will set out the parties’ choice as to jurisdiction.

If the parties’ agreement is silent as to jurisdiction and governing law then there is a risk, in the event of dispute or other proceedings later arising between the parties, of wasteful, costly and time-consuming preliminary battle over which country’s courts ought to handle the matter and which set of laws ought to be used to interpret the parties’ obligations. Further, absence of a jurisdiction clause gives rise to risk of multiple claims proceeding in parallel in more than one jurisdiction simultaneously.

In the case that the principal is located in a country other than Korea and the agent is in Korea, then the principal might seek agreement that, in the case of dispute or other proceedings which may arise between the parties, the law, and courts, of the country in which the principal resides, shall apply.

It can be expected, that, conversely, the Korean agent will likely wish to seek agreement that choice of governing law, and jurisdiction, shall be Korea. Good legal counsel will seek to negotiate agreement that is most favorable to his or her own client. In some cases neither the law of the country in which the principal is located nor the law of the Korea may in fact be the best choice, and in such cases the parties may agree for their agreement to be governed by laws of a third country, specifying, for example, for English or New York law to apply.

It ought to be borne in mind, however, that although the parties may expressly agree that their agency agreement shall be construed in accordance with the laws of a country other than Korea, if a dispute or other proceeding in respect of the agreement were in fact brought before a Korean court then certain “mandatory” provisions of Korean law, such as those, for example, of the Standard Contract Regulation Act, and fair trade provisions, may nonetheless be applied by the court regardless of choice of governing law specified in the contract. Of these mandatory provisions, some will be for the protection of commercial agents. Such provisions cannot be contracted out of.

Generally, if governing law has not been expressly agreed to by the parties, then the applicable law will be the law of the country with the closest connection to the agency agreement. In the case that a principal is located in a country other than Korea and the agent is in Korea, the country with closest connection to the agreement would most likely be Korea. If jurisdiction has not been expressly agreed to by the parties then, ordinarily, proceedings against an agent located in Korea would be brought in the agent’s local court – provided that Korea were the country in which the agency agreement was being performed or ought to have been performed.

Alternatively, the parties may prefer to agree to resolve disputes by arbitration, in which case an arbitration clause will be included in the agreement.

Carelessness as to governing law and jurisdiction in the drafting and negotiation of a commercial agency agreement between a principal located in a country other than Korea and an agent located in Korea can lead to unintended or undesirable consequences.

7/04/2016

Establishing Business with Korea via an Agent: Korean Agency Law Basics

For some companies wishing to establish business with Korea, the use of a commercial agency relationship may be an ideal way to establish your business presence in Korea.

An agent relationship is often ideal when a company seeks to sell its products in Korea, but wishes to first evaluate and familiarize itself with the Korean market prior to establishing a distributorship relationship or establishing a legal presence in Korea via a subsidiary.

In Korea, there is no one piece of enacted legislation dedicated solely to agency law.  Rather, provisions pertaining to agency are found interspersed in various pieces of legislation, mostly within the Korean Commercial Code ("KCC") (also known as the Korean Commercial Act) and Civil Act (often referred to as the Civil Code).

The Korean Commercial Code sets out certain provisions that apply to the relationship between a commercial agent and principal. The KCC defines a “commercial agent” as “a person who acts on behalf of a particular merchant not as an employee, but as representative or intermediary in transactions falling within the class of business carried on by the principal.”

The agent may be appointed as exclusive and or non-exclusive agent.   A commercial agency agreement should be handled with care, and as such, it is advisable for a company to seek local legal counsel for the drafting of such an agreement. In drafting, consideration ought to be given to important aspects including authorization, scope, territory, termination, and dispute resolution mechanism.  We shall be drafting additional materials on these issues over the next couple of weeks.

Furthermore, a company entering into a commercial agency agreement in Korea ought to be protecting its intellectual property by application to the Korean Intellectual Property Office (KIPO), and local legal counsel can assist with this.  For an article on enforcing your trademarks please see: Enforcing your Trademarks Rights in Korea.  For an article on IP in general please see: Protecting your Intellectual Property in Korea.

More articles on agency and distribution law may be found at:

Consequences of a Business Transfer in Korea: Employee Transfer?

In Korea, there is no statutory provision for the protection of employees in the event of a business transfer. Therefore, it has been left to the courts to decide whether, and in what circumstances, employee transfer may occur as part of a business transfer.  The following is a basic explanation of the law of business transfer in Korea as it relates to the relationship between an employer and an employee.

The Korean courts have generally held that, in the event of a business transfer, unless the employee objects, the employment relationship between the employee and employer (transferor) will automatically transfer to the transferee (without any need for the specific consent of the employee) – inclusive of the terms and conditions of the employment relationship existing at the time of closing of the business transfer, unless otherwise agreed to.  However, while it is a fairly well-established principle, this right to automatic transfer does not necessarily equate to an automatic protection against dismissal.

Though the occurrence of business transfer, per se, cannot be ground for dismissal, “urgent business necessity” – ordinarily a justification for termination under Korean labor law  – may be assumed, in the event of a business transfer. Therefore, it is necessary to look to the courts’ decisions for guidance as to the circumstances in which the employment relationship may, or may not, automatically transfer as part of a business transfer.

The first consideration with regard to this issue, is, of course, whether a “business transfer” has occurred.

In general, a business transfer has occurred if there has been a transfer of the company’s business as a whole – of the business’s organisation as a whole, including the transfer of human resources and both tangible and intangible property and rights. So, for example, if property is transferred only after a liquidation of the transferor’s assets, then a “business transfer” has not occurred. “In any case, the personnel or organisation structure should retain its integrity,” (Supreme Court Decision 99Du2680 Decided 27 July, 2001).

However, a business transfer may be held to have occurred even though the transfer was only partial – provided that, the transferred portion retains the same business function that it had prior to the transfer, with the employees involved in the same way (Supreme Court Decision 2002Da70822 Decided June, 2005).

In the case that the transfer is a transfer of assets, only, then the employment relationship between the employee and transferor is not automatically assumed by the transferee (Supreme Court Decided 99Du2680, 27 July, 2001).

However, care must be taken in assessing the actual nature of such a transfer, as in some cases a transfer may be nominally referred to as an “asset transfer” yet, substantively, a transfer of the company’s business as a whole and therefore deemed a “business transfer.”

Automatic transfer of the employment relationship extends only to those employees in employment with the transferor at the time of closing, and related to the business – or portion of the business – transferred.

Thus, a second consideration is, whether the person concerned was indeed employed by the transferor at the time of closing of the business transfer. A claim for reinstatement by a former employer of the transferor as against the transferee could not be upheld as a valid claim by the Korean courts.

Automatic transfer has been held not to extend to a former employee presently engaged in unfair dismissal proceedings against the transferor (Supreme Court Decision 91Da40276 Decided 14 July, 1997; 91Da41750 Decided 23 May, 1993).

The automatic transfer will, of course, not extend to an employee who has already voluntarily resigned and received severance pay from the transferor; however, receipt of severance pay may occur in the case that an employee is required to resign from the transferor in order to be re-hired by the transferee, merely in accordance with business policy, as part of the transfer process.

As for the carrying-over of the terms and conditions of the employment relationship, harmonization is permissible, although, for any change that would be disadvantageous to the employees, the transferee must obtain the consent of the majority-representing labor union, if there is one, or else the consent of a majority of the employees. If the change is not disadvantageous to the employees, then only consultation is required.

Of course, the transferee may be offering terms and conditions that are indeed favorable to those existing at closing. Liabilities, such as unpaid wages or other payments, should be jointly and severally borne by the transferor and transferee, although the transferee may exercise its right to indemnification against the transferor.

We shall be posting more updates on Labor & Employment law over the next couple of weeks.

6/30/2016

Termination of a Franchise Agreement in Korea: Korean Franchise Law Basics

The Fair Franchising Transactions Act of Korea ("Franchise Act") and its Enforcement/Presidential Decree, the Commercial Law of Korea and the Korea Franchise Promotion Act are the main bodies of law regulating the relationship between franchisors and franchisees in Korea.  The law is enforced by the Korea Fair Trade Commission and the Korean courts.
terminating a franchise in korea
Franchise Termination in Korea

Korea's Franchise Act, facially, limits the power of the franchisor to terminate a franchise.  The Franchise Act notes that:
"Article 14 of the Franchise Act of Korea
(1) Any franchisor that intends to terminate a franchise agreement shall clearly note the franchisee's breach of the agreement during a grace period of not less than two months and shall give written notice at least twice that it will terminate the agreement unless such breach is corrected during the given period: Provided, that the foregoing shall not apply to cases specified by Presidential Decree . . ..
(2) The termination of a franchise agreement without complying with the procedure under paragraph (1) shall have no effect."
The major published disputes, with regard to Article 14 of the Franchise Act of Korea, relates to the seriousness of the alleged breach alleged by the franchisor, whether the breach was corrected and the intent of the franchisor in terminating.  Because of many perceived abuses by franchisors, the Fair Trade Commission of Korea has been active in fining franchisors for these perceived abuses and the courts have deemed some terminations as ineffective under Article 14(2) of the Franchise Act.

Article 15 of the Presidential Decree/Enforcement Decree to the Franchise Act stipulates certain exceptions to the "grace period/cure period" noted in Article 14 of the Franchise Act of Korea.

The exceptions include:
  1. Franchisee Bankruptcy, insolvency, or corporate reorganization;
  2. Franchisee bounced promissory note;
  3. Franchisee's Force Majeure;
  4. Franchisor business is damaged because of dissemination of malicious lies or the leak of trade secrets by the franchisee;
  5. Franchisee's violation of law in relation to operation of the franchised business that is not rectified;
  6. Franchisee's violation of law in relation to operation of the franchised business that is impossible to rectify;
  7. Repeated violation of legal franchisor demands by the franchisee;
  8. Franchisee operates the franchise in a manner that gives rise to an imminent fear to public health or safety;
  9. Franchisee abandons the franchise business; and
  10. Franchisee is convicted of a crime related to operation of the franchise business. 
Terminating a Franchise is not easy in Korea.  Few attorneys, in Korea, are adept at Korea's franchising law and even fewer lawyers understand the business-side of franchising.  Franchising is a true specialty in Korea that few attorneys know much about.   Get a Korean franchise lawyer that is business savvy prior to even consider terminating a franchise in Korea.  This lawyer, because of Korean realities, should be working with an experienced retired senior judge, since many of these cases end up in court.  The ubiquitous firms are not always the answer and not, always, the best at resolving matters in a proactive and non-conflicted manner.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

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

A "Franchise" Defined under Korean Law: Franchise Law Basics

Franchise Law in Korea
Korea Franchise Law 

Korea has a very broad definition for a "franchise."  The definition of a franchise is noted in Korea's Franchise Act and has been fairly consistently applied by the courts and Korea's Fair Trade Commission.  

Korea's Franchise Act defines a franchise as:
"a continuous business relationship in which the franchisor allows the franchisee to sell goods or services under certain quality standards and business method using its trademarks, service marks, trade name, signs and other business marks ("Business Marks") and supports, educates and controls the franchisee with regard to relevant management and operating activities, and in which the franchisee must pay franchise fees to the franchisor in return for the use of the Business Marks and the support and education concerning the management and operating activities." 
This broad definition of a Korean franchise leads to most relationships where a company owning Business Mark maintains a degree of "control" over another company as a franchise relationship when a fee is charged for the use of the Business Mark.  The definition has been interpreted broadly by the courts and the Fair Trade Commission of Korea.

All franchises, in Korea, must be registered with the Korean Fair Trade Commission.  Ramifications for not registering may be severe.  Register your franchise and obtain a great business-savvy franchise agreement.

Prior to licensing your trademark to any individuals in Korea, please consider whether your relationship with the licensee is, actually, a franchise relationship.  Operating under a "license agreement" does not guarantee that the relationship is a mere license relationship.   Korea considers the reality of the relationship over the mere form of the agreement.

Please note that few lawyers, in Korea, are adept at franchise law.  Franchise law is a true specialty in Korea that requires a deep understanding of franchise jurisprudence in Korea and a working relationship with Korea's Fair Trade Commission.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

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

Entering into a Joint Venture/Partnership in South Korea?

One of the major parts of my law practice for international clients, in Korea, is the structuring of joint ventures and the resolution of joint venture disputes in court and through arbitration.  I find, in most of these cases, the non-Korean party is not in need of a joint venture with a a Korean party to succeed in Korea and the Korean party does not realize or has no intent in satisfying obligations under the joint venture agreements.  The parties are commencing a relationship, thus, with an immediate potential for failure.

Thus, many disputes are caused by the realization by the non-Korean party that he/she doesn't need the Korean party and the realization by the non-Korean party that the Korean party had no intent, at signing, in following the joint venture agreement.  

Do You Need a Korean Joint Venture to Succeed in Korea?

We find that a joint venture is, normally, only successful in a few situations.  The following are the major situations that we encounter that tend to make sense for both parties.
  1. The Korean party has instant access to a proven distribution network (retail outlets) or supply chain and the non-Korean has a product that easily fits into this supply chain.   Often this, however, is best addressed through a distribution/license agreement and, not, a joint venture agreement, but in some cases the joint venture makes sense.  Be careful, often a joint venture is not necessary and changed circumstances can kill the relationship.
  2. The industry is an industry closed to foreigners (few industries in Korea as closed to foreigners - ie. publishing) and the Korean party needs the expertise or money of the non-Korean party in order to succeed in the industry.  Be careful, needs often quickly change and, often, these industries are heavily regulated and, often, lead into a money pit that you will never dig anything out of.   Knowing the governor does not mean that you will receive government support.  Everyone in Korea has contacts, however, few are able to capitalize on these contacts, thus, don't be sold a can of hooks.
  3. The non-Korean party is broke and, thus, unable to commercialize an invention and the Korean party is in need of a new product line or has spare manufacturing capacity.   Be careful, the learning curve may not be as great as you think and you may not be needed for too long.
  4. The industry is a niche industry with only a handful of players and the non-Korean can receive instant access to one of the main players through the joint venture and the Korean is able to gain access to the technology through the joint venture.  Typically, this is a joint venture between a Korean conglomerate (chaebol) and a multinational company.  Often these relationships are fleeting and lead us to many hours in arbitration.   
If you have money, have the expertise in doing business in Korea (or can hire experts), are not in a  regulated industry, carefully consider the market, have a local guide and are not in a need of joint venture because of the nature of the business - forgo the risk of a joint venture and hit road in Korea on your own. 

Other articles that may be of interest;
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team for one of the leading international law firms. He is the only non-Korean to have worked as an attorney for the Korean court system (Constitutional Court of Korea).

Internship Available at Law Firm in Seoul, Korea

We are looking for a dedicated intern that will work either P/T or F/T.  We are paying a decent stipend.

Requirements

  • College Student or Recent Grad.
  • Ability to communicate in English.
  • Tech Savvy.
  • Ability to commit to working for three months.  
  • Ability to work with a team of Korean and American lawyers.
  • Fun atmosphere and you will get real work assignments.  
  • You will not be doing legal work. Most assignments with relate to marketing and PR.  

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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-market 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