Adhesion Contract in South Korea: Regulating Unfair Terms and Conditions

Adhesion Contract is a contract drafted by a party with stronger bargaining power and signed by a party with lesser bargaining power. The party that has weaker bargaining power does not have the capacity to negotiate the terms and conditions of the contract and they just adhere completely to what the party with the upper hand has to offer.

In South Korea, in order to avoid such unfair one-way contract and prevent business persons from imposing unfair terms and conditions on customers, Act No. 11840 or Act on the Regulation of Terms and Conditions has been passed into law.

Unfair Clauses

Under Article 6 of Act No. 11840, any clause that is against the principle of trust and good faith and is not fair shall be considered to be invalid or has no legal validity. And the following clauses are considered to be unfair:

1. A clause which is unreasonably unfavorable to customers;
2. A clause which customers would have difficulty anticipating in light of various circumstances, including the type of transaction the contract represents;
3. A clause which is so restrictive of essential rights under a contract that the purpose of the contract may not be achieved.
Article 6 (General Principles), Act on the Regulation of Terms and Conditions

The Act gives wide discretion to judges in interpreting the meaning of these broad clauses.

Terms and Conditions that Are Not Allowed

In addition to the unfair clauses above, the following terms and conditions are also not allowed to be included in contracts between business persons and customers:

A provision that exempts liability for intentional or gross negligence committed by the business person, his agent, or employee (Article 7, Par. 1, Act No. 11840)
A provision that requires the customer to pay an unreasonable or exorbitant amount of indemnification (Article 8, Act No. 11840)
A provision that does not allow customers to file a legal complaint (Article 14, Par. 1, Act No. 11840)

Better Protection to Customers

Indeed, Act No. 11840 greatly protects the customers from unscrupulous business persons who are taking advantage of the weaker bargaining power of the former, but it allows never unfettered discretion to a judge. We are looking forward to a body of case that is consistent and allows predictability in this area of law. ,

If you want to know more about Adhesion Contracts and how you can protect yourself or company, you may schedule an initial free consultation with a lawyer at: Schedule a Call with an Attorney in Korea.