Fair Agency Transactions Act

As a general rule, the Fair Agency Transactions Act applies to agency transactions between a supplier and an agency, and whether it applies in a given case turns on a comprehensive review of factors such as whether the supplier holds a superior bargaining position over the agency.

The Act does not apply, however, where the supplier is a small or medium-sized enterprise, where the agency is not a small or medium-sized enterprise, or where the supplier is not recognized as holding a superior bargaining position over the agency.

Transactions governed by other laws, such as franchise business transactions and transactions between a large retail business and a supplying business, also fall outside the scope of the Fair Agency Transactions Act.

The Fair Agency Transactions Act requires the supplier to provide a written agency transaction contract immediately upon conclusion of the contract.

The contract must specify matters such as the type, items, and period of the transaction; the method, place, and time of delivery; the means and timing of payment; return conditions; transfer of the business; grounds and procedures for contract termination; and payment of sales incentives, and it must be retained for three years from the date the contract ends.

Once a violation is confirmed, the Korea Fair Trade Commission may order corrective measures such as cessation of the conduct and publication of the fact that a corrective order has been received.

A penalty surcharge is imposed within a range that does not exceed the amount of the violation, and where the amount of the violation is difficult to calculate, a penalty surcharge of up to 500 million won is imposed.

A person who engages in forced purchase, coercion to provide economic benefits, imposition of sales targets, provision of disadvantages, interference with management activities, refusal to confirm order details, retaliatory measures, or noncompliance with a corrective order faces imprisonment of up to two years or a fine of up to 150 million won.

A court may impose imprisonment and a fine together.

When a representative, agent, or employee of a corporation commits a violation, the same fine may fall on the corporation as well as on the individual actor.

When a supplier causes loss to an agency through a violation of the Fair Agency Transactions Act, the supplier bears liability for damages.

For violations involving forced purchase (Article 6), coercion to provide economic benefits (Article 7), or retaliatory measures (Article 12), punitive damages of up to three times the actual amount of loss apply.

The supplier is exempted from liability if it proves the absence of intent or negligence, however.

The supplier must provide a written contract immediately upon conclusion of the contract, and a failure to do so draws an administrative fine.

The same consequence follows when mandatory entries are left out of the contract.

Conduct that pushes costs such as head-office event and advertising costs or interior costs onto an agency may amount to coercion to provide economic benefits or to provision of disadvantages.

Even when a supplier labels a target as "recommended," the conduct may amount to imposition of sales targets if an agency that misses the target is made to suffer disadvantage or if meeting the target is effectively compelled.

Reducing transaction volume or terminating a contract because an agency has filed a report with the KFTC or applied for dispute mediation is a serious violation that may give rise to punitive damages as a retaliatory measure.

The supplier must retain the contract for three years from the date the contract ends.

A failure to meet this requirement draws an administrative fine.