11/09/2012

Contracts Necessary for Doing Business with Korean Companies?

If you would like to avoid court expenses and headaches related to your business in Korea, please do yourself a favor and have a contract drafted by an experienced professional prior to conducting any business with a company in Korea.

We handle litigation and arbitration matters for many clients that have either used an attorney without adequate experience in Korea or that have foregone the use of an attorney in favor of form contracts they find on the internet. The matter is, often, complicated because of these, too often, poorly drafted agreements and lack of some basic clauses that would add protections for a non-breaching party.

Any client that pleads that the fee to draft the agreement is too high or that they will just download a form agreement from the internet is immediately sent the following.

The primary reason to have a carefully tailored Korean-specific agreement drafted is the following:

1.  Parties Understand Who They are Going to Bed with and What will Happen under the Covers.  We, often, see a party to a dispute jump into bed with a Korean company before knowing what is under the covers and what will happen when they are both under the covers.  A carefully drafted and explained agreement will allow the parties to know what are the obligations of the parties and, also, know the remedy for not meeting these obligations.  Prior to even discussing any relationship with a party, please don't forget our post entitled: Listen to My Mother: JVs in Asia.

For example, lets say that you contract with a Korean company to provide you with 100 widgets every 90 days.  Without a clause setting out the damages for delay, often the Korean company will sign the agreement and, then, note that they thought this 90 days was, simply, a guideline.  The penalty clause makes the Korean party understand the seriousness of delay.

Also, do not forget due diligence comes before the deal - NOT after the deal is completed.  Sometimes it is better to forgo an opportunity in order to avoid unnecessary risk, expense and headaches . Korea Due Diligence: Not So Different than China.

2.  Non-Breaching Parties Have Remedies through a Korean Court or Arbitrator
The Korean courts will enforce written agreements, but are skeptical to enforce oral promises or relationships based on course of dealings.  A carefully drafted agreement will, normally, consider the major arguments that, typically, occur in Korea and, thus, the issues that may arise in the future will likely be addressed in the agreement.  This, allows, the potentially breaching party to reconsider breaching because of the likely damage from the breach, while, also, providing a remedy for breach.  Thus, in all but the most rare of cases, will an agreement, in Korea, be simply one of these three pagers pulled off the internet.

The Korean courts are ranked Second by the World Bank for the enforcement of contracts.  The ranking maybe be found at: World Bank: Doing Business Ranking of Economies.

3.   Liquidated Damages & Related Remedy Clauses Are Your Friends
Liquidated damages clauses should be utilized in most agreements.  Without an agreement with liquidated damages clauses it is, often, difficult for the non-breaching party to establish damages that equal the actual damages.  For a post on liquidated damages take a look at:  Liquidated Damages Necessary in Most Korean NDAs and Non-Compete Agreements.

4.  Korean Companies Fear Lawyers
Korean companies that know that you have an attorney are less likely to play footsies under the covers.  When having a contract drafted make sure the attorney is capable of, also, negotiating the agreement. 

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Sean Hayes may be contacted at: SeanHayes@ipglegal.com. Sean Hayes is co-chair of the Korea Practice Team for an international law firm.

He is the only non-Korean to have worked as an attorney 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.