Franchise in Korea: Misrepresentation disputes and solutions

Michael Park, a specialist in Franchise Law at Pureum Law Office, explains.

I’d like to provide some valuable insights into franchise law disputes in Korea and encourage you to consider Pureum Law Office for your legal needs.

In August 2, 2021, the Korea Fair Trade Mediation Agency, under the Fair Trade Commission, reported that over 27% of domestic franchise disputes were related to ‘misrepresentation.’

Since then, the situation has not significantly changed. Particularly, the courts tend to hold franchisors more strictly accountable for misrepresentation compared to other violations of the Franchise Business Act, such as failing to provide a disclosure document.

Among these misrepresentations, providing false information regarding sales or profits is the most problematic. In many countries with established franchise laws, such as China, providing projected sales figures is outright prohibited to prevent the possibility of misrepresentation.

However, under the current Korean Franchise Business Act, franchisors can choose whether to provide ‘projected sales figures.’

If they do, Article 9 of the Franchise Business Act mandates that such information must be provided in writing and the basis for these projections must be documented. Furthermore, if the franchisor is a large corporation or has more than 100 franchise locations in Korea, they are required to provide these projected sales figures. Recent statistics indicate that only about 4% of franchisors fall into this category.

You can gain deeper knowledge by reviewing related cases in comic form through this link.

Violations of these regulations can lead to significant liabilities under Article 9 of the Franchise Business Act. Particularly, if the projected sales figures provided, whether orally or in writing, are false, the franchisee may be entitled to full compensation for the costs incurred in establishing the franchise. This involves various contentious issues such as the scope of damages, whether business losses are included, the potential for punitive damages, and whether emotional distress damages can be claimed when proving the amount of loss is difficult.

If you are a franchisor preparing to conduct business in Korea, it is crucial to consult with an attorney who has extensive experience and specialized training in franchise law to minimize the risk of being accused of misrepresentation.

For more information and expert legal assistance, please contact us directly.