Legal Remedies for a Breach of Contract Between Companies

There are many situations in which a sales agreement between two companies will encounter problems.  The most common is when a company fails to provide goods after payment was sent or fails to pay after goods were sent.  For example, Company A agrees to purchase goods from Company B and sends payment for the goods.  However, Company B fails to send the goods.  Or on the flip side, Company A agrees to purchase goods from Company B.  Company B sends A the goods, but Company A does not send payment.   

If the company that failed to perform their end of the bargain is located in Korea, they can be sued.  Of course one should always try to fix the problem by contacting the company first.  However, if the company refuses to cooperate, the last option is to sue.  In that case, the process in Korea follows this path (please be aware that the steps outlined below are for the most common case, and the steps may vary according to each case's unique facts):

1.      Perform an asset check (length: 2 to 3 weeks): there is no point in suing a company, if they do not have any funds to pay for your damages. Therefore the first step is to perform an asset check. Asset checks are conducted by a third party specializing in these matters.  

2.      Temporary attachment/injunction (length: 1 to 4 weeks): depending on the type of asset and the nature of the dispute, it is possible to apply to the court for a temporary attachment or injunction.  This prevents the breaching party from getting rid of assets to avoid paying after the case is over.

3.      Filing criminal charges to the Prosecutor  (length: 3 to 9 months): While it does not always apply, it is possible to file a complaint to the Prosecutor for fraud.  This method encourages parties who have hidden assets (assets not in the company's name) to try to settle in order to receive more favorable treatment from the court.

4.      Notice (length: 1 to 2 weeks): It is generally considered common courtesy to let the other party know that you are planning to filing a suit.  Sometimes this encourages the party to settle before suit is filed.

5.      Filing a Civil Complaint/Civil Proceedings (length: 6 months to 1 year and 6 months): The suit will involve the facts of case, and the court will determine whether there was a breach of contract, and what the money awarded should be.  If the party is successful, the court will issue a judgment awarding money damages.

6.      Appeal (length: 6 month to 1 year): Unlike some countries, in Korea, it is fairly common for the losing party to appeal.  The appeal rate of civil cases in Korea is 40%, so one should be aware that the total length of their case may be longer than they anticipate.

7.      Compulsory execution of the judgment (length: 2 weeks to 6 months depending on the property type *real estate needs to be foreclosed so that takes 6 months to 1 year): If the court issues a judgment awarding damages to the victim, but the breaching party still refuses to pay, the victim needs to seek compulsory execution of the judgment.  This means that the court will order the breaching party's assets to be liquidated and paid to the victim, until the judgment amount is satisfied. 

Again, please be aware that each fact is unique to the case.  Especially in breach of contract cases, the length and nature of the case greatly depends on the type of assets being used to pay for the damages.  For e.g. cash is the easiest since the breaching party simply needs to pay the victim; on the other hand, real estate is the most complicated and lengthy since it needs to be foreclosed, put up on sale, and sold before the victim can get the damages award.   

One should always consult an experienced attorney who understands your needs, and is honest in assessing your situation. 

Performing an Asset Check to See if the Company has Money to Pay for Damages

Why is an Asset Check Important? 
In Korea, it is normal to conduct and asset check before starting a lawsuit.  In order to recoup the damages incurred (money or value lost), a party must sue the Korean company for breach of contract for failing to provide payment. Then the court will issue a judgment awarding damages to the Victim. However, if the Korean company still refuses to pay, then there needs to be a judgement to enforce the damages award.

 

In that case, all assets under the company's name ― such as real property (land, buildings, etc.) and private property (inventory, cars, furniture, etc.) ― and company assets held by third parties (e.g. savings accounts, rental deposit, etc.) can be used towards enforcing the judgement and receiving the money owed.

 

In order to avoid a situation in which the Victim expends significant time, money, and effort to win a case, only to find that the Korean company has no assets to pay for the award, it is a top priority to conduct a property check on the breaching party.

 

Procedures and Methods of Conducting the Asset Check

  

What assets a Korean company has is normally considered confidential information. However, it is possible to conduct a property search by an attorney representing a victim who is preparing to sue the company for breach of contract. It is actually very common for the victims to request the attorney conduct an asset check on the breaching party.

  

The asset check is conducted by an asset checking company (not the law firm) and the cost is KRW 200,000 to 300,000 (approximately USD 176 to 265) and it takes approximately 2 to 3 weeks. The asset checking company will then present a report detailing all real estate (e.g. land, buildings), personal property, rental deposits, bank accounts that is present under the Korean company's name.

If the Korean company turns out not have any assets, or the assets will not cover the money owed, it is a good idea to give up pursuing the lawsuit. However, this means that the victim is basically giving up their rights to receive the judgment. Presently, in the situation where it is expected that the company will have assets in the future, it is possible to receive a judgement awarding damages, and to renew the judgment to enforce every 10 years at a minimal cost.

 

Reporting Fraud to the Prosecutor

When a party to a contract fails to perform the terms of the contract, or when a debtor fails to repay their debts, it is common to use the Korean civil court system (filing a civil suit, compulsory execution, etc.) to force contract performance or recover damages suffered as a result of the breach of the contract.

 

However, in addition to the civil court system, it is common for attorneys to also file criminal charges against the breaching party.

 

This does not mean that everyone who breaches a contract or fails to pay a debt can be criminally charged. A party who, from the beginning, did not have the intent or the monetary means to fulfill the contract, but still entered into the contract, received a benefit, and then breached the contract, can be charged with criminal fraud. In the same manner, a debtor who borrows money without he intent or the means to repay the loan can be charged with criminal fraud.

 

For example, Company A located in South Korea enters into a contract with Company B located in the U.S. for the sale of 1,000 tons of copper at 1,000,000 U.S. dollars. Company B sends 100,000 U.S. dollars as a deposit. However, Company A never had 1,000 tons of copper available for sale, and thus breaches the contract. In that case, Company A will sue Company B in civil court and simultaneously file a complaint with the prosecutor's office to bring criminal fraud charges against Company B.

 

The reasons why an aggrieved party would want to also file criminal charges against the breaching party or the unpaying debtor is because, the fear of a guilty verdict will encourage the breaching party to quickly settle. This is because if the breaching party settles before the trial is over, the fraud charges may be dropped or a sentence may be suspended. Even after the defendant is found to be guilty for criminal fraud, many parties will still settle with the victim in order to receive a lesser punishment, especially if it helps them avoid jail time.

Especially, there are situations were the aggrieved party is successful in the civil litigation, but the breaching party does not have any funds under their name to pay for damages, so the aggrieved party cannot recover any funds lost as a result of the contract breach.

 

However, if the breaching party is also found guilty of criminal fraud and sentenced to jail; before filing an appeal, the breaching party will try to settle with the aggrieved party, by using funds not under their name, to try to get a more favorable sentence during the appeals process. This way, a party was unsuccessful in recovering damages in civil court can still get paid.

This is the reason why an attorney always researches the possibility of reporting criminal fraud while filing a civil suit for a breach of contract or to recover monies owed by a debtor.