The Enforcement Decree of the Act on Fair Agency Transactions

Duty of preparation and retention of the agency transaction contract
The Act requires suppliers to prepare, distribute and retain the contract, and it specifies that the contract must include certain information. The purpose for this requirement is to prevent suppliers from abusing their superior bargaining position when dealing with agents, such as by forcing agents to enter into verbal contracts or by arbitrarily interpreting contracts in a manner that is unfair to agents. (Article 5, Paragraph 1, Subparagraph 3 of the Act). The FTC may impose penalties on suppliers who breach these obligations (e.g. breach of duty to prepare the agreement: W50 million or less; breach of duty to retain the agreement: W10 million or less).

The Act specifies (a) the types, items and duration of transactions, (b) methods, time and place of delivery, (c) methods and time of payment, (d) terms for return of goods, (e) terms relating to assignment of business, (f) reasons and procedures for termination of the agreement, and (g) processes relating to payment of incentives to encourage sales (Article 5, Paragraph 1 of the Act). Additionally, the Enforcement Decree provides that (h) the extent of the consignment business and method of execution of such business, and (i) issues relating to consideration or price for consignment sales should be included in the agreement (Article 2 of the Enforcement Decree).

Details regarding the dispute mediation process
The Act provides for the prompt establishment of an agency-related dispute mediation commission under the Korea Fair Trade Mediation Agency in order to resolve disputes related to agency transactions (Article 13 of the Act). If parties involved in a dispute agree to mediate through the commission, such mediation is acknowledged to have the same effect as a court-ordered resolution (Article 21, Paragraph 1 of the Act).

The Enforcement Decree also identifies procedures for conducting mediations before the agency-related dispute mediation commission, filing an application for a mediation, and further detailing the operation of the dispute mediation process prescribed under the Act (Article 8-19).

Types and criteria of unfair trade acts prohibited by the Act
The Act bans unfair trade practices including coercive sales, forced provision of financial benefits and compulsive goal setting for sales, as well as other acts that are disadvantages to agents and interrupt their business activities (Article 6 through 10 of the Act). The Enforcement Decree also categorises such unfair trade practices by the types of acts involved, including those commonly seen in agency transactions (Articles 3 through 7 of the Enforcement Decree).

The unfair practices prohibited by the Act might also be regulated under the Monopoly Regulation and Fair Trade Act (The Fair Trade Act) as an abuse of position in a transaction. However, beginning December 23, 2016, when enforcement of the Act begins, the Act will take precedence over the Fair Trade Act in applying its provisions to unfair practices related to agency transactions.

Criteria for calculating penalties for violation of the Act
The Act permits penalties for unfair transaction practices to be imposed in an amount up to the “violated amount” (Article 25 of the Act). The Enforcement Decree specifies the meaning of “violated amount” in detail for each type of unfair practice (Article 20, Paragraph 1 of the Enforcement Decree) so that people can more easily anticipate how the Act will be enforced.

If the Act is enforced, a supplier subject to the Act will be more likely to face active investigation and restrictions imposed by the FTC, as well as litigation for compensation of damages among other things. In view of the foregoing, it is advisable that businesses covered by the Act (1) examine any of their agreements that are executed or renewed after implementation of the Act, to see if they fulfil all the requirements prescribed by the Act, and (2) thoroughly review the details of unfair trade practices that give rise to punishment under the Act to avoid engaging in practices that might cause trouble.

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