Aug 26, 2014

Liquidated Damages Clauses Upheld by Korean Courts

When drafting an agreement with a Korean party, it is, generally, advisable in a case when a breach is not easy to quantify (e.g. Damages for violation of IP Rights) to include a liquidated damages clause.

Liquidate damages are monetary awards where a violation is agreed to be, at a minimum, a certain sum of money.  Thus, a liquidated damage clause may note that revealing of the intellectual property shall result in damages that will not be less than USD 100,000.

Korean Civil Act Article 398 (1)- (4)
(1) The parties may determine, in advance, the amount of damages payable in the event of the non-performance of an 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.

Thus, Korean Law allows a court to reduce a sum of liquidated damages if the agreed sum is "unduly excessive."  The likelihood of enforcement is increased with arbitration in Hong Kong or Singapore.

Sean Hayes may be contacted at:

 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. He is ranked, for Korea, as one of only two non-Korean attorneys as a Top Attorney by AsiaLaw.