In this case, the Korea Fair Trade Commission (the “KFTC”) investigated and reviewed
Korea’s largest company’s violation of the Fair Subcontract Transaction Act for 3 years,
thereby 1) imposing 11.5 billion KRW of surcharges, the largest amount on record in the
history of the Act.
This is 2) the first case to rule on the purpose of duty to delivery written documents of terms
and the burden of proof in relation to reasons that could justify a violation. In addition, 3) the
case is significant in that it is the first decision regarding ‘subcontract payments based on
discount of unit prices at a uniform rate’ prohibited under Subparagraph 1, Paragraph 2,
Article 4 of the Act. The court ruled that for this practice to have ‘justifiable reasons’, there
must be sufficiently objective and reasonable reasons to allow reduction of unit prices at a
certain rate, such as ‘decreased raw material prices due to high increase in transaction volume,
decrease in labor costs, or other cost reductions’. Moreover, 4) notwithstanding the fact that
subcontractors may have consented to, or any monetary compensation or reimbursement (by
products) were given in place of delayed payments, such practice was ruled to be unfair, by
strict interpretation of Subparagraph 2, Paragraph 1 and Article 8 of the Subcontract Act. In
addition, 5) the plaintiff’s demand for specification sheets from subcontractors describing
manufacturing information and request for due diligence of subcontractors were regarded to
be undue management interference. With the amendment of the Subcontract Act, Article 12-3
(Prohibition of request for technical information) was newly enacted. Therefore, going
forward, contractors’ demands and receipt of specification sheets from its subcontractors
shall be regarded illegal as a request for technology information under the current provisions
of the Subcontract Act.
Lastly, the judgment held that, 6) during investigation, even if the plaintiff company itself
did not participate in any obstruction, if high-level employees of the plaintiff obstruct the
investigation, higher surcharges or less discount rates may be applied.
Even though this case was adjudicated by the High Court, it had great significance for
important issues under the Subcontract Act, serving as an important milestone for major cases
that subsequently followed.