Is Defaulting Korean Supplier Liable for the Foreign Distributor’s Damages and Loss of Profits Resulting from the Failure of 3rd Party Reseller Deal?

그림 2A distributor from the U.S. entered into a distributorship contract with Korean supplier (exporter) for certain goods.  Of course, the U.S. distributor was thinking to resell the goods in U.S. market for a markup. But the problem broke up after the contract was duly singed and executed.  With no reason, Korean supplier suddenly refused to sell the goods and rescinded the contract.  Due to this unexpected turmoil by the foreign supplier, the U.S. distributor could not properly perform the reselling deals with the local warehouse stores, which the distributor had thought very lucrative. There would be no doubt that the act of Korean distributor constitutes a breach of distributorship agreement. But, the U.S. distributor did not pay anything, yet.  The only loss they encountered was they lost a good deal with 3rd party by reason of the Korean supplier’s breach of contract.  Now, the U.S. distributor tries to recover damages and loss of profits from the supplier in Korea which they suffered from the failure of the reselling deal with the local warehouse stores.  In this case, can the U.S. distributor prevail in Korean court and under Korean law?

The key legal issue would be whether the Korean supplier knew of the fact that the distributor had completed their negotiation with 3rd party for the resale agreement.  According to the ruling from the Supreme Court of South Korea, if the supplier knew of the fact, the supplier is liable for the distributor’s loss relating to failure or non-performance of the resale agreement with 3rd party.  By contrast, if the supplier did not know the existence of the reselling deal, the supplier is not liable, because the loss was not foreseeable. With that said, the U.S. distributor in our case must prove that the Korean supplier had known the distributor completed the negotiation of resale agreement with 3rd party, in order to with the case.

This shows how important it is for the foreign distributors and importers to let the Korean suppliers know they have already made a resale deal with 3rd party.  Without that information notified to the supplier in advance, the Korean law would do little to protect the foreign distributors seeking damages from the suppliers relating to their 3rd party reselling deals.

Chung & Partners has been providing legal advice and representation to foreign distributors and agents relating to their distribution and reselling contract deals and disputes with Korean suppliers and manufacturers.  If you have any question about distribution and resale agreement under Korean law, please send your inquiry by clicking here.

© 2013 Wonil Chung, Korean licensed Lawyer.  All rights reserved.

Because of the generality of this update, the information provided herein may or may not reflect the most current legal development at the time of view, nor is it applicable in all situations nor should be acted upon without specific legal advice based on particular situations. 

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