Contracts Necessary for Doing Business with a Korean Company?

If you would like to avoid Korean court expenses and headaches related to your business in Korea, please do yourself a favor and have you Korean contracts drafted by an experienced Korean professional prior to doing business with a Korean company. Many of the standard agreements utilized in the West are not adequate for Korea.

We handle litigation and arbitration matters for many clients that either used a Korean attorney without adequate experience or that have foregone the use of an attorney in Korea in favor of form contracts they find on the internet or via an attorney with no experience in Korea. The litigation 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. We find that if you spend a little money upfront, you can avoid added expenses and headaches in the future.

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 have a 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. A 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 Specific Iterated 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 a 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 a simple three page agreement shall not be adequate to inform a party of the likely outcome of the breach.

Arbitration clauses are, typically, advisable.

3. Liquidated Damages & Related Remedy Clauses are Useful in Proving Damages
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 Often Fear Lawyers
Korean companies that know that you have an attorney on your side in Korea 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.

If you would like to schedule a call with an attorney, please schedule a call at: Schedule Call with an Attorney.