What Remedies Are Available When South Korea’s Win-Win Cooperation Act Is Violated? Relief Procedures Guide [Series 3]
Table of Contents
- 1. What Remedies Can a Subcontractor Pursue Under South Korea’s Win-Win Cooperation Act?
- 2. How Does the Administrative Complaint Process Work in South Korea?
- 3. How Should a Subcontractor Prepare for a Punitive Damages Lawsuit in South Korea?
- 4. Unpaid Supply Price vs. Technology Misappropriation: A Comparative Overview
- 5. Pre-Dispute Risk Management Checklist for Subcontractors in South Korea
- 6. FAQ
A South Korean component manufacturer had not received payment for three consecutive months. The principal enterprise’s contact kept repeating that head office approval was delayed. When the subcontractor looked into its legal options, it found that the situation appeared to constitute a violation of the Win-Win Cooperation Act — but feared that filing a formal complaint would end the business relationship. Among the three available paths — administrative complaint, mediation, and litigation — which was the right one? And what should the company put in place to prevent this from happening again?
Three Paths — Which One Fits Your Situation?
* The scenario above is hypothetical and presented for illustrative purposes only.
This question does not have a single answer. The right path depends on what outcome the subcontractor is actually trying to achieve. If the priority is recovering the unpaid amount while keeping the business relationship intact, mediation may be the most appropriate starting point. If the goal is to have the principal enterprise’s conduct formally investigated and stopped by a government authority, an administrative complaint is likely more effective. If the subcontractor wants full compensation including punitive damages, litigation is necessary. This final installment in the series explains how each path works in practice, and sets out a concrete risk management framework for subcontractors — whether they are currently in a dispute or trying to prevent one.
1. What Remedies Can a Subcontractor Pursue Under South Korea’s Win-Win Cooperation Act?
South Korea’s Win-Win Cooperation Act provides three distinct channels through which a subcontractor can respond to violations by a principal enterprise. Each channel has a different purpose, procedural structure, and outcome, and the right combination depends on the specific circumstances of the dispute.
Comparative Overview of the Three Remedy Channels
| Channel | Competent Authority | Primary Outcomes | Best Suited For |
|---|---|---|---|
| Administrative Complaint | Ministry of SMEs and Startups | Investigation, corrective recommendation, corrective order, public disclosure | Seeking formal government intervention to stop the principal enterprise’s conduct |
| Mediation Application | Subcontracting Transaction Dispute Mediation Committee | Facilitated settlement; if mediation fails, the subcontractor may proceed to litigation | Recovering losses while preserving the ongoing business relationship |
| Civil Damages Lawsuit | Court | Actual loss + punitive damages (up to 5x), with provisional execution available | Seeking full compensation including punitive damages |
The Three Channels Are Not Mutually Exclusive
A subcontractor may pursue these remedies simultaneously or in sequence. In practice, it is common to file an administrative complaint with the Ministry of SMEs and Startups at the same time as applying for mediation, or to proceed directly to litigation if mediation fails. However, commencing litigation while mediation proceedings are underway may cause the mediation process to be suspended. The sequencing of remedies should therefore be considered carefully, ideally with legal advice, based on the specific facts and the subcontractor’s objectives.
2. How Does the Administrative Complaint Process Work in South Korea?
Filing an administrative complaint allows a subcontractor to invoke the investigative powers of the South Korean government without bearing the cost and complexity of litigation. While it does not directly result in a damages award, the corrective order and public disclosure mechanisms can place significant pressure on a principal enterprise.
The Process Following a Complaint
Once a complaint is filed with the Ministry of SMEs and Startups, the relevant department initiates an investigation. Article 40(1) of the Win-Win Cooperation Act authorizes the Minister of SMEs and Startups, where considered necessary, to require relevant parties to submit documentary materials, and to direct officials to enter business premises, factories, and other facilities to inspect books, records, facilities, and other items. If a violation is established, the Ministry may issue a corrective recommendation or corrective order. Where the principal enterprise fails to comply with a corrective order, or where the violation is serious and repeated, the violation may be publicly disclosed — a measure that can have direct consequences for the principal enterprise’s commercial reputation.
Source: Act on the Promotion of Mutually Beneficial Cooperation between Large Enterprises and Small-Medium Enterprises, Article 40(1)
Retaliation Prohibition and Complaint Protections
Article 25(1)(xiv) of the Win-Win Cooperation Act prohibits a principal enterprise from disadvantaging a subcontractor — including by reducing order volumes or suspending the business relationship — because the subcontractor reported a violation to a relevant authority or filed a mediation application. Such retaliation is subject to punitive damages of up to three times the actual loss, or five times where the retaliation relates to a report of technology data misappropriation, under Article 40-2(2).
Source: Act on the Promotion of Mutually Beneficial Cooperation between Large Enterprises and Small-Medium Enterprises, Articles 25(1)(xiv) and 40-2(2)
Any change in the principal enterprise’s conduct immediately following a complaint — for example, a reduction in orders or a change in payment terms — should be documented in writing at once. If such changes can be established, they may give rise to a separate claim for punitive damages based on the retaliation itself.
The Limits of Administrative Relief
The principal limitation of the administrative complaint channel is that it does not directly result in a damages award. Even if a corrective order is issued and complied with, the subcontractor must bring a separate civil lawsuit to recover its actual loss. For smaller enterprises experiencing acute cash flow pressure, the time required for an administrative investigation may make parallel litigation a practical necessity.
3. How Should a Subcontractor Prepare for a Punitive Damages Lawsuit in South Korea?
A subcontractor pursuing a punitive damages claim under the Win-Win Cooperation Act does not need to prove that the principal enterprise acted intentionally. Understanding the precise structure of the liability provisions is the starting point for effective litigation preparation.
The Liability Framework: The Principal Enterprise Bears the Burden of Proving Its Own Innocence
Article 40-2(1) of the Win-Win Cooperation Act provides that where a principal enterprise violates the Act and causes loss to another party, the principal enterprise is liable for damages. It is liable unless the principal enterprise proves that it acted without intent or negligence. This is a significant structural advantage for the subcontractor: the subcontractor need only demonstrate the violation and the resulting loss, and it is then for the principal enterprise to establish that it was neither intentional nor negligent in its conduct. The burden of proving the absence of fault rests entirely with the principal enterprise.
Source: Act on the Promotion of Mutually Beneficial Cooperation between Large Enterprises and Small-Medium Enterprises, Article 40-2(1)
Factors Courts Consider When Setting the Punitive Damages Multiplier
Article 40-2(3) requires courts to take the following factors into account when determining the punitive damages multiplier: the degree of intent or awareness of the risk of harm (subparagraph 1); the scale of losses suffered by the subcontractor and other affected parties (subparagraph 2); the economic benefit gained by the principal enterprise through the violation (subparagraph 3); compliance with improvement recommendations, corrective recommendations, or corrective orders, and whether these were publicly disclosed (subparagraph 4); any criminal sanctions imposed in connection with the violation (subparagraph 4-2); the duration and frequency of the violation (subparagraph 5); the principal enterprise’s financial position (subparagraph 6); and the extent of the principal enterprise’s efforts to remedy the harm (subparagraph 7). Of these, the economic benefit gained by the principal enterprise and the duration and frequency of the violation are items the subcontractor should actively gather evidence to support.
Source: Act on the Promotion of Mutually Beneficial Cooperation between Large Enterprises and Small-Medium Enterprises, Article 40-2(3)
Evidence Preservation Before Litigation Begins
Once the decision to litigate has been made, the first priority is securing the evidence currently available. If there is a risk that the principal enterprise may destroy or conceal relevant materials, a subcontractor may apply to the court for a pre-litigation evidence preservation order under Articles 375 et seq. of the Civil Procedure Act. The document production order mechanism under Article 40-5 of the Win-Win Cooperation Act is only available after litigation has been commenced. Evidence that may disappear before the lawsuit is filed should therefore be preserved through a separate pre-litigation procedure.
4. Unpaid Supply Price vs. Technology Misappropriation: A Comparative Overview
The two violations addressed in the first and second installments of this series — non-payment of the supply price under Article 25(1)(ii) and technology data misappropriation under Article 25(2) — are both prohibited by the Win-Win Cooperation Act, but they differ significantly in their damages frameworks and evidentiary structures. The comparison below clarifies which strategic considerations apply to each type of dispute.
| Item | Non-Payment / Unlawful Reduction of Supply Price | Technology Data Misappropriation |
|---|---|---|
| Statutory Basis | Article 25(1)(i) (reduction), Article 25(1)(ii) (non-payment) | Article 25(2)(i) and (ii) |
| Punitive Damages Ceiling | Reduction: up to 3x actual loss / Non-payment: general damages only (exempt if no intent or negligence proved) | Up to 5x actual loss |
| Special Interest | Where reduced supply price is paid more than 60 days after receipt of goods, interest at up to 40% per annum applies on the reduced amount (Article 25(3)) | Not applicable |
| Statutory Damages Calculation Methods | No specific provision (the reduced or unpaid amount itself is the baseline) | Article 40-3: three methods (lost profit on units sold, reasonable royalty, actual profit gained by principal enterprise) |
| Evidentiary Burden-Shifting Provisions | None | Article 40-4 (obligation to present own conduct); Article 40-5 (document production order) |
| Key Evidence | Purchase orders, delivery confirmations, tax invoices, payment records | Non-disclosure agreements, technology data transfer lists, confidentiality markings, similarity evidence |
| Document Retention Period | 3 years from end of transaction (Enforcement Rules, Article 11(2)) | 7 years from end of transaction (Enforcement Rules, Articles 11(1)(ii) and (2)) |
Source: Act on the Promotion of Mutually Beneficial Cooperation between Large Enterprises and Small-Medium Enterprises, Articles 25, 40-2, 40-3, 40-4, and 40-5; Enforcement Rules, Article 11
The structural difference worth noting is this: in supply price disputes, the subcontractor can typically identify the amount claimed with reasonable precision — the unpaid or reduced sum is the measure of loss. In technology misappropriation cases, quantifying the loss is structurally more difficult, because the extent to which the technology was used and the benefit derived by the principal enterprise are facts that reside within the principal enterprise’s own records. The special evidentiary provisions in Articles 40-3 through 40-5 exist precisely to address this asymmetry.
5. Pre-Dispute Risk Management Checklist for Subcontractors in South Korea
A dispute that is well-prepared for before it arises is far easier to resolve than one that is not. The following checklist covers the areas where subcontractors most commonly encounter avoidable evidentiary gaps in Win-Win Cooperation Act disputes.
Supply Price Document Management
- Is a written purchase order obtained and retained for every transaction?
- Is the date of payment recorded for each delivery, so that the gap between delivery and payment can be demonstrated?
- Is the difference between the date of tax invoice issuance and the date of actual payment being tracked?
- Where the principal enterprise has unilaterally adjusted the supply price, has the circumstances been documented in writing?
- Are supply price documents being retained for at least three years from the end of each transaction? (Enforcement Rules, Article 11(2))
Technology Data Document Management
- Is all technology data provided to the principal enterprise marked as confidential before transfer?
- Is a non-disclosure agreement executed before any technology data is provided? (Article 21-2(1))
- Does the non-disclosure agreement specifically identify the protected data, the scope of confidentiality obligations, and the consequences of breach?
- Are non-disclosure agreements being retained for at least seven years from the end of the transaction? (Enforcement Rules, Articles 11(1)(ii) and (2))
- Is a separate list of all technology data transferred to the principal enterprise, with transfer dates, being maintained?
- Is access to technology data at the principal enterprise’s end restricted to named individuals?
Steps to Take Immediately Before and After a Dispute Arises
- When an adverse communication is received from the principal enterprise, record the date and substance in writing immediately
- Back up all email and messaging records promptly — if the counterparty deletes records, recovery may be impossible
- After any telephone conversation with the principal enterprise’s representatives, follow up in writing to confirm the key points discussed
- Before filing a complaint or commencing litigation, prepare a complete inventory of available evidence and have it reviewed by a legal professional
- Document any change in the principal enterprise’s conduct immediately after a complaint is filed — this is the critical evidence for a retaliation claim
6. FAQ
This three-part series has examined the core protections that South Korea’s Win-Win Cooperation Act provides to subcontractors. The first installment addressed non-payment of the supply price. The second covered technology data misappropriation and the quintuple punitive damages framework. This final installment has outlined the three available remedy channels, compared the two main dispute types, and set out a practical pre-dispute checklist. The statutory framework is genuinely protective — but only for subcontractors that are positioned to use it. In practice, the difference in outcomes between companies that have maintained systematic documentation and those that have not is substantial.
* The legal information in this article is provided for general informational purposes only. All statutory references are to the Act on the Promotion of Mutually Beneficial Cooperation between Large Enterprises and Small-Medium Enterprises, its Enforcement Rules, and the Civil Act as currently in force in South Korea. Legal outcomes depend on the specific facts of each case, and this article does not constitute legal advice. Parties involved in actual disputes should consult a qualified attorney.