Korean law emphasizes the obligations a seller of goods has to a buyer in the event that a good that the seller manufactures, imports, sells, or supplies is defective. The product defect reporting obligations are extensive and not reporting may have significant impact on your business in Korea. This Duty to Report is codified, in part, under Korea’s Framework Act on Consumers and Framework Act on Product Safety. This post is, only, intended as a short introduction to these acts. Additional explanations shall follow in posts over the next few weeks. For a general article on damages for product liability please see: Product Liability Damages in Korea and for a general article on mass torts and class action law suits in Korea please see: Class Actions/Mass Torts in Korea.
In short, in some cases, business entities are required to report defects of goods which cause or are likely to cause danger or injury to the lives, health, or properties of consumers. Failure to do so may lead to administrative fines, criminal sanctions, and the awarding of actual and special damages to consumers. Additionally, in many cases non-disclosure may lead to additional scrutiny of the company by various government agencies.
Framework Act on Consumers Article 86(3) imposes potential fines on “Any person who fails to make a report of any serious defect in goods, etc. or makes a false reports thereon, in violation of Article 47(1).” A “Serious Defect” is defined by the Framework Act on Consumers in Article 34 of the Act.
Article 34 (Scope, etc. of Serious Defects)
- The scope of serious defects on which a business entity is liable to report under Article 47(1) of the Act shall be as follows:
- Any defect of lacking ordinary safety in the manufacture, design, indication, distribution, or supply of goods, etc., which inflicts or is likely to inflict the following danger and injury on consumers:
- Physical injuries or disease, such as fracture of bones, suffocation, burns, or electric shocks, which require at least three weeks of treatment at medical institutions under Article 3(2) of the Medical Service Act;
- Any defect of goods, etc. which is in violation of the safety standards prescribed by relevant statutes.
Furthermore, Article 13 of the Framework Act on Consumer Safety details the timing of disclosure as “immediately” for any “serious defects” that may harm “consumers’ lives, bodies, or property.”
The Framework Act on Consumers states that damages from failure to comply with reporting obligation may result in administrative “fees” not exceeding 30 million won. In comparison, failure to comply with reporting obligations under the Framework Act on Product Safety could lead to imprisonment for up to three years. It is also important to note that while Article 393 of the Civil Act states that, generally, damages for failure to comply with reporting obligations shall be limited to ordinary damages an exception exists in cases where special damages may be proven and the seller had foreseen or could have foreseen the effects of the defect.
Under Korean law, it is prudent for a seller of goods to report defects that cause or may likely cause harm to the life, body or property of consumers to the appropriate entity in Korea. If not, Korean law may impose civil, criminal, and administrative sanctions on the seller who fails to comply with the aforementioned reporting obligations. Additionally, and often more importantly, non-reporting may lead to additional reactionary scrutiny by various government entities.
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