Expiration Versus Termination of a Distribution Agreement in Korea: Korean Distributor Basics

While Korean Law does not specifically detail the differences in treatment in law between the non-renewal (expiration) of a distribution agreement versus the termination, in reality, Korean courts are less likely to rule in favor of distributors in cases where a distribution agreement is not renewed.  Thus, typically, it is advisable to have a distribution agreement based on a specified term of years.  However, even with the expiration of the Korean Distribution Agreement, termination risks exist.

In some cases, Korean courts have noted that termination and even non-renewal is a violation of Korean Law since the non-renewal or termination of the Korean distributor was not based on “good faith.”  In many cases, Korean courts have required a showing of “good cause” to terminate or even to not renew a relationship.  Contractual formalities and structural realities often assist in allowing a non-performing distributor from prevailing in court.  Thus, a nuanced and Korean-centric Distribution Agreement is often necessary.  A choice of law clause, if the majority of the work of the distributor is in Korea, does not solve the issue.

In many cases in Korea, even if termination or non-renewal of a Korean distribution agreement is authorized under Korean law, compensation to the distributor must be provided.  An article on terminating of a distributor can be found Here.  The article details the compensation, typically, necessary to be paid to the distributor for termination of a Distribution Agreement in Korea.

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