When the distribution contract with a boiler manufacturer ended upon the expiration of the contract period, a number of distributors filed an injunction and a claim for damages against the boiler manufacturer, alleging that the boiler manufacturer had imposed sales targets that were difficult to achieve and had refused to renew the contract on the grounds of the distributors’ failure to meet the targets.

In addition, the distributors filed a complaint with the KFTC, which, in addition to accepting the case as a complaint duly filed, conducted a wide-ranging and thorough investigation, including conducting several on-site inspections of the boiler manufacturer's headquarters and branches by making an ex officio determination of whether the boiler manufacturer had violated the law.

On July 27, 2022, the Daegu District Court denied the distributors’ application for a preliminary injunction, which was filed to seek a suspension of the effect of the refusal to renew the distribution contract on the premise that the refusal was invalid, giving the following reasons:

(1) The distribution contract gives the distributors the right to request renewal and the boiler manufacturer the obligation to accept, provided that the total contract period does not exceed four years, but the distribution contract period in this case has exceeded four years.

(2) The sales performance of the distributors was significantly below the average sales performance of their branches and neighboring distributors for a significant period of time.

(3) The boiler manufacturer notified the distributors in writing of its refusal to renew and termination of the contract 60 days before the expiration date of the contract, as required by the distribution contract.

On October 13, 2023, in a civil case, the Seoul Southern District Court also determined that the boiler manufacturer's refusal to renew the contract was valid because it could not be considered a violation of the Fair Trade Act or a breach of good faith, and dismissed all of the distributors' claims for nullification of the renewal and damages on the basis of the following reasons:

(1) The boiler manufacturer refused to renew the distribution contract because the distributors were unable to recover from a significant decline in the number of boilers sold and the market share of the distributors, and the reason for such refusal could not be considered grossly unreasonable or arbitrary.

(2) The boiler manufacturer refused to renew the distribution contract due to a change in circumstances, as the actual operator of some distributors was employed by another contractor around the expiration date of the contract, and it could not be considered that the refusal to renew was made with the intention of excluding the distributor's trading opportunities or making it difficult for the distributor to carry out its business activities.

(3) Based on the evidence presented by the distributors, it could not be recognized that the boiler manufacturer presented specific sales targets to the distributors beyond mere encouragement of sales and forced them to fulfill them.

On November 7, 2023, the KFTC also decided to terminate the examination process on the grounds that it was difficult to confirm the facts of whether or not the sales target was forced, considering the following reasons:

(1) It is difficult to see a connection between the refusal to renew the distribution contract and the achievement of sales targets.

(2) There were only conflicting claims between the parties about the forced achievement of sales targets, and there was no clear evidence to prove it.

As regulations on agency and distributorship are strengthened, even the day-to-day business activities of the headquarters are considered to be in violation of the law, and there is a risk of being subject to administrative sanctions or being held liable for damages in tort.

In the case in which a distributor alleged unilateral imposition of sales targets and unfair refusal of a transaction, we successfully argued that:

(1) The sales of all distributors were lower than the sales of branches and neighboring distributors, and the downward trend continued during the contract period.

(2) The establishment of the headquarters' sales policy was a normal business activity of the company, and there was no coercion beyond mere encouragement during the consultation process between the branches and the distributors.

In particular, from the very beginning of the case, we developed a clear response logic and supported it with prompt evidence collection to obtain a decision to dismiss the preliminary injunction application, and based on this decision, we consistently obtained the same judgment in the civil main case and the KFTC investigation case, leading to a decision to dismiss the claim and end the investigation process.

The significance of this case is that we established the defense logic of the company in an agency dispute case, where even normal sales activities to actively encourage sales are easily misunderstood as violations of the law, and successfully defended the company by implementing it in both civil cases and KFTC investigations.

□ Attorneys in charge: Park Jae-peel, Seo Hye-sook, Chung Kyung-hwan, Chung Yang-hun, Kim Yong-hyun and Jung Soo-hyun