{"id":1163,"date":"2026-05-07T22:28:23","date_gmt":"2026-05-07T22:28:23","guid":{"rendered":"https:\/\/atlaw.kr\/en-blog\/?p=1163"},"modified":"2026-07-30T10:55:26","modified_gmt":"2026-07-30T10:55:26","slug":"representations-warranties-breach-ma-south-korea","status":"publish","type":"post","link":"https:\/\/atlaw.kr\/en-blog\/representations-warranties-breach-ma-south-korea\/","title":{"rendered":"What Happens When Representations and Warranties Are Breached in a South Korean M&#038;A Contract? Four Supreme Court Decisions Analyzed"},"content":{"rendered":"<p><!-- ATLAS_HREFLANG_START -->\n<link rel=\"alternate\" hreflang=\"ko\" href=\"https:\/\/atlaw.kr\/kr-blog\/ma-representations-warranties-breach-kr\/\" \/>\n<link rel=\"alternate\" hreflang=\"en\" href=\"https:\/\/atlaw.kr\/en-blog\/representations-warranties-breach-ma-south-korea\/\" \/>\n<link rel=\"alternate\" hreflang=\"x-default\" href=\"https:\/\/atlaw.kr\/kr-blog\/ma-representations-warranties-breach-kr\/\" \/>\n<!-- ATLAS_HREFLANG_END --><\/p>\n<style>@import url('https:\/\/cdn.jsdelivr.net\/gh\/orioncactus\/pretendard@v1.3.9\/dist\/web\/static\/pretendard.css'); :root { --global-content-narrow-width: 1290px !important; } .entry-content-wrap { max-width: 1290px !important; } *, *::before, *::after { box-sizing: border-box; margin: 0; padding: 0; } :root { --navy: #0a2540; --navy2: #1a3353; --wine: #722f37; --text: #1a1f36; --muted: #697386; --rule: #e3e8ee; } body { font-family: 'Pretendard', -apple-system, BlinkMacSystemFont, sans-serif; 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} .summary-text { font-size: 15px; } .context-text { font-size: 14px; } .answer-box { padding: 18px 16px; } .case-box { padding: 18px 16px; } th { font-size: 13px; padding: 8px 10px; } td { font-size: 13px; padding: 8px 10px; } .faq-q { font-size: 14px; } .faq-item p:not(.faq-q) { font-size: 14px; } .author-box { display: block; overflow: hidden; } .author-avatar { float: left; width: 36px; height: 36px; margin-right: 10px; border-radius: 50%; } .author-section-label { display: inline; font-size: 11px; letter-spacing: 0; margin: 0 3px 0 0; } .author-name { display: inline; font-size: 14px; } .author-detail { clear: both; font-size: 13px; line-height: 1.55; margin-top: 8px; margin-bottom: 1px; } .author-detail ~ .author-detail { clear: none; margin-top: 2px; } .author-link { clear: both; display: block; font-size: 13px; margin-top: 8px; } p.closing { font-size: 14px; } }<\/style>\n<p><!-- ATLAS_SEO_BLOCK_START --><br \/>\n<script type=\"application\/ld+json\">{\"@context\":\"https:\/\/schema.org\",\"@type\":\"Article\",\"@id\":\"https:\/\/atlaw.kr\/en-blog\/representations-warranties-breach-ma-south-korea#article\",\"mainEntityOfPage\":{\"@type\":\"WebPage\",\"@id\":\"https:\/\/atlaw.kr\/en-blog\/representations-warranties-breach-ma-south-korea#webpage\"},\"headline\":\"What Happens When Representations and Warranties Are Breached in an M&A Contract? Four South Korean Supreme Court Decisions Analyzed\",\"description\":\"When a seller makes false representations and warranties in a South Korean M&A contract, liability for breach of contract arises. Four Supreme Court of Korea rulings establish the framework for damages claims, buyer knowledge, and scope of loss.\",\"datePublished\":\"2026-05-08T09:00:00+09:00\",\"dateModified\":\"2026-05-08T09:00:00+09:00\",\"inLanguage\":\"en-US\",\"author\":{\"@type\":\"Person\",\"@id\":\"https:\/\/atlaw.kr\/taejin-kim\/#person\",\"name\":\"Taejin Kim\",\"alternateName\":\"\uae40\ud0dc\uc9c4\",\"jobTitle\":\"Managing Partner\",\"worksFor\":{\"@id\":\"https:\/\/atlaw.kr\/#legalservice\"}},\"publisher\":{\"@type\":\"LegalService\",\"@id\":\"https:\/\/atlaw.kr\/#legalservice\",\"name\":\"Atlas Legal\",\"url\":\"https:\/\/atlaw.kr\"},\"about\":[\"M&A contract South Korea\",\"representations and warranties\",\"breach of contract\",\"share purchase agreement\",\"contingent liability\"]}<\/script><br \/>\n<script type=\"application\/ld+json\">{\"@context\":\"https:\/\/schema.org\",\"@type\":\"FAQPage\",\"@id\":\"https:\/\/atlaw.kr\/en-blog\/representations-warranties-breach-ma-south-korea#faqpage\",\"inLanguage\":\"en-US\",\"mainEntity\":[{\"@type\":\"Question\",\"name\":\"What legal liability arises when representations and warranties are breached in a South Korean M&A contract?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"Under South Korean law, a seller who makes false representations and warranties regarding the target company's condition is deemed to have failed to perform a contractual obligation, giving rise to liability for breach of contract. If the contract contains both a representations and warranties clause and a damages clause, the damages clause governs. If only the representations and warranties clause is present, liability is assessed under Article 390 of the Korean Civil Act (Supreme Court of Korea, October 12, 2018, 2017Da6108).\"}},{\"@type\":\"Question\",\"name\":\"How are damages calculated for a breach of representations and warranties under Korean M&A law?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"Where the contract specifies a method for calculating damages, that method must be followed. Where no such method is specified, damages are calculated either as the decrease in the value of the target company's shares owned by the buyer, or as the difference between the price actually paid and the price that would have been paid had the breach been disclosed. South Korean courts generally require that the parties contractually define this method in advance to avoid uncertainty (Supreme Court of Korea, October 12, 2018, 2017Da6108).\"}},{\"@type\":\"Question\",\"name\":\"Can a buyer in South Korea claim damages for a breach of representations and warranties if the buyer already knew about the breach at signing?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"Yes, provided the contract does not contain an explicit clause excluding liability toward a buyer with knowledge of the breach. The Supreme Court of Korea held that the purpose of representations and warranties clauses is to allocate economic risk and allow post-closing price adjustment, and this purpose remains valid even where the buyer was aware of the breach. Knowledge alone does not establish a violation of good faith (Supreme Court of Korea, October 15, 2015, 2012Da64253).\"}},{\"@type\":\"Question\",\"name\":\"Does a seller's liability under representations and warranties in South Korea cover regulatory fines and surcharges arising from the target company's pre-closing conduct?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"Yes. The Supreme Court of Korea held that where contingent liabilities arise from conduct occurring before the transfer of corporate control, those liabilities constitute loss suffered by the buyer through the seller's breach of representations and warranties. Administrative surcharges, damages paid to third parties, criminal fines, and related litigation costs are all included within the scope of recoverable loss (Supreme Court of Korea, October 12, 2018, 2017Da6108).\"}},{\"@type\":\"Question\",\"name\":\"Can a Korean court limit a seller's liability under representations and warranties based on principles of fairness or good faith?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"Only in extreme and exceptional circumstances. The Supreme Court of Korea has consistently held that restricting a validly formed contractual obligation through general principles such as equity or good faith poses a serious threat to private autonomy and legal certainty, and must therefore be recognized only with great caution and in truly exceptional cases. The mere fact that the buyer had knowledge of the breach is insufficient to trigger this exception (Supreme Court of Korea, October 15, 2015, 2012Da64253).\"}},{\"@type\":\"Question\",\"name\":\"Do representations and warranties obligations apply to debt assignment agreements in South Korea, not just share purchase agreements?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"Yes. The Supreme Court of Korea confirmed that the representations and warranties framework applies equally to debt assignment agreements. Where a seller warranted that the assigned receivable existed and was free from defects, but the receivable in fact never existed, the seller is liable for breach of the warranty clause, and contractual damages provisions \u2014 including penalty clauses \u2014 apply to that breach (Supreme Court of Korea, January 13, 2022, 2019Da285226).\"}},{\"@type\":\"Question\",\"name\":\"How do earn-out or settlement clauses interact with representations and warranties in Korean M&A transactions?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"Settlement clauses (jeongsan gyujeong) and representations and warranties clauses can coexist in the same Korean M&A agreement and can be pursued as alternative claims. Courts will apply the settlement clause where its conditions are met, and separately assess whether the representations and warranties clause also covers the disputed item. Minimum thresholds (e.g., a KRW 50 million floor before settlement liability attaches) in settlement clauses do not necessarily limit the parallel representations and warranties claim (Supreme Court of Korea, September 29, 2022, 2018Da285144).\"}}]}<\/script><br \/>\n<script type=\"application\/ld+json\">{\"@context\":\"https:\/\/schema.org\",\"@type\":[\"LegalService\",\"LocalBusiness\"],\"@id\":\"https:\/\/atlaw.kr\/#legalservice\",\"name\":\"Atlas Legal\",\"alternateName\":[\"\ubc95\ubb34\ubc95\uc778 \uc544\ud2c0\ub77c\uc2a4\",\"Atlas Law Firm\"],\"url\":\"https:\/\/atlaw.kr\/\",\"telephone\":\"+82-32-864-8300\",\"email\":\"info@atlaw.kr\",\"priceRange\":\"$$$\",\"address\":{\"@type\":\"PostalAddress\",\"streetAddress\":\"B-2901, 323 Incheon Tower-daero\",\"addressLocality\":\"Yeonsu-gu, Incheon\",\"addressRegion\":\"Incheon Metropolitan City\",\"postalCode\":\"22007\",\"addressCountry\":\"KR\"},\"geo\":{\"@type\":\"GeoCoordinates\",\"latitude\":37.399438,\"longitude\":126.629812},\"openingHoursSpecification\":[{\"@type\":\"OpeningHoursSpecification\",\"dayOfWeek\":[\"Monday\",\"Tuesday\",\"Wednesday\",\"Thursday\",\"Friday\"],\"opens\":\"09:00\",\"closes\":\"18:00\"}],\"areaServed\":[{\"@type\":\"Country\",\"name\":\"South Korea\"},{\"@type\":\"Place\",\"name\":\"Songdo International Business District\"},{\"@type\":\"Place\",\"name\":\"Cheongna International City\"},{\"@type\":\"Place\",\"name\":\"Yeongjong International City\"},{\"@type\":\"Place\",\"name\":\"Incheon\"},{\"@type\":\"Place\",\"name\":\"Seoul Metropolitan Area\"},{\"@type\":\"Place\",\"name\":\"Incheon Free Economic Zone (IFEZ)\"}],\"serviceType\":\"M&A Advisory & Dispute Resolution\",\"knowsAbout\":[\"Representations and Warranties in Korean M&A\",\"Korean M&A Contract Law\",\"Corporate Disputes in South Korea\",\"Corporate Law in South Korea\",\"Incheon Free Economic Zone (IFEZ) Legal Services\",\"Foreign Investment in South Korea\"]}<\/script><br \/>\n<!-- ATLAS_SEO_BLOCK_END --><\/p>\n<div class=\"direct-answer\">\n<strong>Core Answer:<\/strong> When representations and warranties (R&#038;W) in a South Korean M&#038;A contract are breached, the buyer may bring a contractual damages claim (warranty claim) independently of \u2014 and concurrently with \u2014 civil claims for mistake or fraud under the Civil Act. The Supreme Court in Cases 2017Da6108 and 2012Da64253 held that even a buyer who had prior knowledge of the breach (e.g., an antitrust violation or regulatory fine) retains a valid R&#038;W claim. Key practical issues include the priority between indemnification clauses and adjustment provisions (Supreme Court 2018Da285144), as well as cap, basket, and scope-of-loss limitations in the SPA.\n<\/div>\n<div class=\"hero\">\n  <span class=\"category-tag\">Corporate Advisory \u00b7 M&amp;A \u00b7 Corporate Disputes<\/span><\/p>\n<div class=\"hero-title\">What Happens When Representations and Warranties Are Breached in a South Korean M&amp;A Contract?<br \/>Four Supreme Court Decisions Analyzed<\/div>\n<div class=\"hero-meta\">\n<div class=\"hero-info\">\n      <strong>Taejin Kim<\/strong> \u00b7 Managing Partner, Atlas Legal<br \/>\n      Supreme Court 2017Da6108 &nbsp;\u00b7&nbsp; 2012Da64253 &nbsp;\u00b7&nbsp; 2019Da285226 &nbsp;\u00b7&nbsp; 2018Da285144\n    <\/div>\n<\/p><\/div>\n<\/div>\n<div class=\"content\">\n<div class=\"toc-nav\">\n<p class=\"toc-label\">Contents<\/p>\n<ol>\n<li><a href=\"#sec-1\">1. What Are Representations and Warranties in Korean M&amp;A Contracts?<\/a><\/li>\n<li><a href=\"#sec-2\">2. What Legal Liability Arises from a Breach of Representations and Warranties?<\/a><\/li>\n<li><a href=\"#sec-3\">3. Cases 1 &amp; 2 \u2014 Can a Buyer Who Knew About the Breach Still Claim Damages?<\/a><\/li>\n<li><a href=\"#sec-4\">4. Case 3 \u2014 Does the Framework Apply to Debt Assignment Agreements?<\/a><\/li>\n<li><a href=\"#sec-5\">5. Case 4 \u2014 How Do Settlement Clauses and Representations and Warranties Interact?<\/a><\/li>\n<li><a href=\"#sec-6\">6. Key Practical Takeaways for M&amp;A Transactions in South Korea<\/a><\/li>\n<li><a href=\"#sec-faq\">7. Frequently Asked Questions (FAQ)<\/a><\/li>\n<\/ol><\/div>\n<p>  <!-- Hook --><\/p>\n<p class=\"lead-text\">An acquisition closes. Months later, the buyer discovers that the target company had been participating in a bid-rigging cartel before the deal \u2014 a fact the seller warranted against. Regulatory surcharges, civil damages, criminal fines, and litigation costs follow in rapid succession. The share purchase agreement contains an explicit representations and warranties clause. Can the buyer recover? Under South Korean law, the answer turns on how courts interpret contractual obligations and the allocation of economic risk.<\/p>\n<p>  <!-- Instant Answer Box --><\/p>\n<div class=\"answer-box\">\n<p class=\"answer-box-label\">Key Answer<\/p>\n<p>Under South Korean law, a seller who makes false representations and warranties regarding the target company&#8217;s condition is deemed to have breached a contractual obligation, giving rise to liability under the Korean Civil Act. Where the contract specifies a method for calculating damages, that method is binding on the court. A buyer&#8217;s knowledge of the breach at signing does not bar the claim unless the contract explicitly says otherwise. These principles were established by the Supreme Court of Korea across four decisions spanning 2015 to 2022 (Supreme Court 2017Da6108; 2012Da64253; 2019Da285226; 2018Da285144).<\/p>\n<\/p><\/div>\n<p>  <!-- Context --><\/p>\n<p class=\"context-text\">The representations and warranties clause \u2014 borrowed from U.S. M&amp;A practice \u2014 has become a standard fixture in Korean share purchase agreements, asset purchase agreements, and related transactions. Between 2015 and 2022, the Supreme Court of Korea issued four landmark decisions that define how this clause operates: what liability it creates, how damages are measured, when the buyer&#8217;s own knowledge is relevant, and whether it extends beyond traditional M&amp;A deals into debt assignments and mixed structures that include settlement clauses. For foreign companies transacting in South Korea \u2014 including those operating in the Incheon Free Economic Zone (IFEZ), which encompasses Songdo International Business District, Cheongna International City, and Yeongjong International City \u2014 understanding this framework is essential before any deal closes.<\/p>\n<p>  <!-- Section 1 --><br \/>\n  <\/p>\n<h2 id=\"sec-1\">What Are Representations and Warranties in Korean M&amp;A Contracts?<\/h2>\n<p>A representations and warranties clause (known in Korean as <em>jinsu l\u00b7bojeung<\/em>, \uc9c4\uc220\u00b7\ubcf4\uc99d) is a contractual provision through which the seller affirms specific facts about the target company&#8217;s legal and financial condition and guarantees their accuracy. The clause serves two core functions: it gives the buyer a basis for damages if disclosed facts turn out to be false, and it allocates between the parties the economic risk of unknown or contingent liabilities.<\/p>\n<p>In Korean M&amp;A practice, representations and warranties typically cover the following categories:<\/p>\n<ul>\n<li>Compliance with applicable laws and regulations \u2014 no past violations, no ongoing investigations or administrative proceedings<\/li>\n<li>Accuracy of financial statements \u2014 no undisclosed off-balance-sheet liabilities or contingent obligations<\/li>\n<li>Clean title to assets \u2014 no encumbrances, third-party claims, or unauthorized transfers<\/li>\n<li>Absence of material litigation, arbitration, or regulatory action<\/li>\n<li>Validity of material contracts, permits, and licenses<\/li>\n<\/ul>\n<p>The Supreme Court of Korea characterized this clause as follows in its October 2018 ruling:<\/p>\n<div class=\"case-box\">\n<p class=\"case-box-title\">Supreme Court of Korea, October 12, 2018, 2017Da6108 \u2014 Legal Characterization<\/p>\n<p style=\"font-size:16px; line-height:1.8; margin-bottom:0;\">&#8220;A business acquisition agreement is a contract transferring corporate control through the sale of shares or assets. It generally includes a clause under which the seller makes statements and guarantees regarding the condition of the target company \u2014 commonly referred to as a representations and warranties clause. Where a seller makes representations and warranties regarding the target company&#8217;s condition that differ from the facts, and this causes loss to the buyer, the seller has failed to perform a contractual obligation, giving rise to a form of liability for breach of contract.&#8221;<\/p>\n<\/p><\/div>\n<p>  <!-- Section 2 --><br \/>\n  <\/p>\n<h2 id=\"sec-2\">What Legal Liability Arises from a Breach of Representations and Warranties?<\/h2>\n<p>The Supreme Court of Korea established a two-track framework in the 2017Da6108 decision that governs all subsequent cases.<\/p>\n<h3>Track A \u2014 Contract Contains Both a Representations and Warranties Clause and a Damages Clause<\/h3>\n<p>The damages clause governs. The court must apply it. Whether the resulting liability is strict (no-fault) or fault-based depends on the contract&#8217;s language and interpretation. Critically, where the contract specifies a method for calculating the amount of damages, that method is binding and cannot be displaced or restricted by the court unless there are exceptional circumstances justifying departure.<\/p>\n<h3>Track B \u2014 Contract Contains Only a Representations and Warranties Clause, Without a Damages Clause<\/h3>\n<p>Liability is assessed under Article 390 of the Korean Civil Act (\ucc44\ubb34\ubd88\uc774\ud589, <em>chaemubuihaeng<\/em>), the general provision governing breach of contractual obligations. Damages are then calculated as either the decrease in the value of the target company&#8217;s shares as held by the buyer, or the difference between the price actually paid and the price that would have been paid had the breach been disclosed \u2014 whichever method best captures the buyer&#8217;s actual loss.<\/p>\n<table>\n<thead>\n<tr>\n<th>Scenario<\/th>\n<th>Governing Rule<\/th>\n<th>Damages Calculation<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Both R&amp;W clause and damages clause present<\/td>\n<td>Contractual damages clause<\/td>\n<td>Method specified in contract (contingent liabilities realized, impaired assets discovered, etc.)<\/td>\n<\/tr>\n<tr>\n<td>R&amp;W clause only; no damages clause<\/td>\n<td>Article 390, Korean Civil Act<\/td>\n<td>Decrease in share value, or difference between price paid and price that would have been paid<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>This framework was confirmed without modification by the Supreme Court in its January 2022 ruling (2019Da285226).<\/p>\n<p>  <!-- Section 3 --><br \/>\n  <\/p>\n<h2 id=\"sec-3\">Cases 1 &amp; 2 \u2014 Can a Buyer Who Knew About the Breach Still Claim Damages?<\/h2>\n<p>The two rulings discussed in this section arise from the same transaction. Together they represent the most significant judicial development in Korean M&amp;A law on the topic of representations and warranties.<\/p>\n<h3>Background Facts (Anonymized)<\/h3>\n<div class=\"case-box\">\n<p class=\"case-box-title\">Transaction Summary (Anonymized)<\/p>\n<table>\n<tbody>\n<tr>\n<td style=\"width:160px; font-weight:600;\">Buyer (X)<\/td>\n<td>Major refinery company<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Sellers (Y1\u2013Y4)<\/td>\n<td>Subsidiaries of a major chemical and energy conglomerate<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Target company (Company A)<\/td>\n<td>Petroleum refinery<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">SPA signing date<\/td>\n<td>April 2, 1999<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Closing date<\/td>\n<td>August 31, 1999<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Representation given<\/td>\n<td>At signing and closing, Company A was in compliance with all applicable laws and regulations, and was not under investigation by or in discussions with any regulatory authority<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Damages clause<\/td>\n<td>If any breach of warranty (including newly discovered contingent liabilities) is found after closing, or if Company A or X suffers loss from any breach of obligations under the agreement, Y1 et al. shall compensate X in cash (capped at KRW 50 billion)<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Losses incurred<\/td>\n<td>Cartel surcharge of approx. KRW 14.5 billion; civil damages to the government; criminal fine of KRW 200 million; litigation costs of approx. KRW 726 million \u2014 all arising from bid-rigging in military fuel procurement tenders (1998\u20132000)<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n<p>After closing, Korea&#8217;s Fair Trade Commission (KFTC) established that Company A had participated with several other refineries in a price-fixing cartel for military fuel procurement tenders from 1998 to 2000, in violation of the former Monopoly Regulation and Fair Trade Act, Article 19(1)(i). Company A was hit with a corrective order, a surcharge payment order, and ultimately a restated surcharge of KRW 14.511 billion. The government of South Korea subsequently sued the participating refineries for civil damages, resulting in a court-approved settlement under which Company A&#8217;s share was approximately 11.84% of the total amount. A criminal fine of KRW 200 million was also imposed.<\/p>\n<h3>Issue 1 \u2014 Does a Buyer&#8217;s Knowledge of the Breach Bar the Claim? (2012Da64253)<\/h3>\n<p>The lower courts dismissed X&#8217;s claim on the ground that X had itself participated in the same cartel and therefore knew of the breach at the time of signing. The courts held that a buyer seeking to hold sellers liable for a warranty breach it was already aware of, having had every opportunity to factor the breach into the purchase price, was barred by principles of equity and good faith (<em>sincheuk<\/em>).<\/p>\n<p>The Supreme Court reversed. Its reasoning proceeded as follows:<\/p>\n<ul>\n<li>The contract contained no clause excluding the sellers&#8217; liability toward a buyer with knowledge of the breach. Under Korean contract interpretation doctrine, where the objective meaning of a written instrument is clear, courts must give effect to it as written. Departing from clear contract language in ways that have a material impact on the parties&#8217; legal relationship requires an even more stringent interpretive standard.<\/li>\n<li>The purpose of the representations and warranties clause \u2014 allocation of economic risk and post-closing price adjustment \u2014 remains fully valid even when the buyer is aware of the breach. The analysis does not change based on the buyer&#8217;s state of mind at signing.<\/li>\n<li>The KFTC did not open its investigation until after closing. It cannot be assumed that X, at the time of signing, anticipated that the KFTC would impose substantial surcharges on Company A.<\/li>\n<li>Restricting a validly formed contractual obligation through general principles such as equity or good faith poses a serious threat to private autonomy and legal certainty. Such restriction is permissible only in truly exceptional circumstances. The fact that the buyer had knowledge of the underlying conduct does not, by itself, create such an exception.<\/li>\n<\/ul>\n<h3>Issue 2 \u2014 Does &#8220;Loss&#8221; Include Regulatory Surcharges and Fines Arising from the Target&#8217;s Own Conduct? (2017Da6108)<\/h3>\n<p>On remand, the Seoul High Court again dismissed the claim on different grounds: since Company A had itself engaged in the cartel, the surcharges and fines it incurred could not be characterized as &#8220;loss suffered by Company A&#8221; attributable to the sellers. The Supreme Court reversed a second time.<\/p>\n<p>The agreement&#8217;s damages clause provided that where Company A or X suffered loss from a breach of warranty \u2014 including newly discovered contingent liabilities \u2014 Y1 et al. would compensate X in cash. The Supreme Court held that this language established a specific contractual method for calculating the scope and amount of recoverable loss. Under that method, any contingent liability arising from conduct occurring before the transfer of corporate control, or any impaired asset additionally discovered, constitutes loss recoverable by X \u2014 absent special circumstances to the contrary. The fact that Company A itself participated in the cartel did not eliminate the sellers&#8217; liability, because the sellers had warranted that no such conduct had occurred and no such liability existed.<\/p>\n<div class=\"case-box\">\n<p class=\"case-box-title\">Core Holdings \u2014 Cases 1 &amp; 2<\/p>\n<table>\n<thead>\n<tr>\n<th>Decision<\/th>\n<th>Issue<\/th>\n<th>Holding<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Supreme Court<br \/>Oct. 15, 2015<br \/>2012Da64253<\/td>\n<td>Whether a buyer with knowledge of the breach may still claim damages<\/td>\n<td>Yes. Absent an explicit exclusion clause, buyer knowledge alone does not violate good faith and does not bar the claim.<\/td>\n<\/tr>\n<tr>\n<td>Supreme Court<br \/>Oct. 12, 2018<br \/>2017Da6108<\/td>\n<td>Whether surcharges and fines from the target&#8217;s own pre-closing conduct fall within &#8220;loss&#8221; under the R&amp;W clause<\/td>\n<td>Yes. Pre-closing contingent liabilities are within the scope of recoverable loss under the contractual damages clause, regardless of the target&#8217;s own participation in the underlying conduct.<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n<p>  <!-- Section 4 --><br \/>\n  <\/p>\n<h2 id=\"sec-4\">Case 3 \u2014 Does the Framework Apply to Debt Assignment Agreements?<\/h2>\n<h3>Background Facts (Anonymized)<\/h3>\n<div class=\"case-box\">\n<p class=\"case-box-title\">Case 3 \u2014 Transaction Summary (Anonymized \/ Supreme Court Jan. 13, 2022, 2019Da285226)<\/p>\n<table>\n<tbody>\n<tr>\n<td style=\"width:160px; font-weight:600;\">Buyer \/ Assignee (P)<\/td>\n<td>Corporate buyer<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Seller \/ Assignor (Company Q)<\/td>\n<td>Corporate seller (beneficial owner: R)<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Assigned receivable<\/td>\n<td>Company Q&#8217;s claimed receivable against Debtor B, principal plus interest totaling KRW 1.34 billion<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Assignment price<\/td>\n<td>KRW 400 million<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Warranty given (Art. 5)<\/td>\n<td>The assigned receivable exists, has not been assigned to or attached by any third party, and P may acquire it free of any defect<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Damages clause (Art. 8)<\/td>\n<td>If Company Q&#8217;s actions cause the contract to be rescinded or P suffers loss, Company Q shall pay the penalty specified in Article 6 (twice the assignment price) and refund the full assignment price<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Problem discovered<\/td>\n<td>P sued Debtor B on the assigned receivable. The court found that the loan agreement had been executed without B&#8217;s authority and that apparent authority did not apply \u2014 Company Q&#8217;s receivable against B had never legally existed.<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n<h3>Court&#8217;s Analysis<\/h3>\n<p>The lower court held that the debt assignment agreement was void for initial objective impossibility \u2014 the assigned receivable never existed \u2014 and that the contractual penalty clause therefore did not apply.<\/p>\n<p>The Supreme Court partially reversed. It held that Company Q, through Article 5 of the agreement, had made representations and warranties that the assigned receivable existed and was free from defect. Since the receivable had never existed, Company Q was in breach of Article 5. The Article 8 damages clause \u2014 providing for payment of the Article 6 penalty and refund of the assignment price in the event of loss to P \u2014 operated as a damages provision covering breaches of the warranty clause. P had paid the assignment price and received nothing of value in return; Company Q (and R, who had separately guaranteed the assignment) were therefore obligated to pay the penalty amount as damages.<\/p>\n<p>This ruling confirms that the representations and warranties framework applies beyond traditional share purchase agreements to <strong>debt assignments, asset transfers, and other transaction types<\/strong> \u2014 wherever one party has warranted specific facts about what is being transferred. It also establishes that contractual penalty provisions can serve as the operative damages mechanism for a warranty breach claim.<\/p>\n<p>  <!-- Section 5 --><br \/>\n  <\/p>\n<h2 id=\"sec-5\">Case 4 \u2014 How Do Settlement Clauses and Representations and Warranties Interact?<\/h2>\n<h3>Background Facts (Anonymized)<\/h3>\n<div class=\"case-box\">\n<p class=\"case-box-title\">Case 4 \u2014 Transaction Summary (Anonymized \/ Supreme Court Sep. 29, 2022, 2018Da285144)<\/p>\n<table>\n<tbody>\n<tr>\n<td style=\"width:160px; font-weight:600;\">Buyer (S)<\/td>\n<td>Corporate acquirer<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Sellers (T1\u2013T4)<\/td>\n<td>Four individual and corporate sellers<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Target company (Company U)<\/td>\n<td>Fertilizer manufacturer<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Transaction<\/td>\n<td>Acquisition of 100% of shares and management control of Company U<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Closing date<\/td>\n<td>December 8, 2015<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Settlement clause<\/td>\n<td>Off-balance-sheet liabilities and contingent liabilities exceeding KRW 50 million trigger sellers&#8217; obligation to pay the excess amount to S<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">R&amp;W clause<\/td>\n<td>Parallel warranty covering the same items; available as an alternative claim<\/td>\n<\/tr>\n<tr>\n<td style=\"font-weight:600;\">Disputes<\/td>\n<td>Product defects in silicic acid fertilizer; inventory shortfalls; uncollectable receivables; defective organic fertilizer inventory<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n<h3>Key Legal Principles Established<\/h3>\n<p>This case addressed several interpretive questions about how settlement clauses and representations and warranties clauses operate together in Korean M&amp;A agreements.<\/p>\n<p><strong>Cutoff date:<\/strong> Sellers&#8217; settlement liability attaches to off-balance-sheet liabilities arising from events occurring before the transfer of corporate control \u2014 here, December 8, 2015, the date S paid the balance of the purchase price and received the shares. This principle mirrors the representations and warranties framework from Cases 1 and 2.<\/p>\n<p><strong>Scope of settlement items:<\/strong> The court held that even if the settlement clause&#8217;s literal text did not expressly cover asset losses arising from events the parties did not anticipate at the time of signing, such losses fall within its scope by purposive interpretation. The clause&#8217;s objective \u2014 allocating risk of unknown conditions \u2014 warrants an expansive reading.<\/p>\n<p><strong>Proportional liability reduction:<\/strong> Where S&#8217;s own post-acquisition management decisions exacerbated the losses from the silicic acid fertilizer defects, the court reduced the sellers&#8217; settlement liability to 80%. This reflects a contributory negligence-adjacent principle applied in the Korean M&amp;A context.<\/p>\n<p><strong>Floor threshold:<\/strong> Because the settlement clause applied only to liabilities exceeding KRW 50 million, the court deducted KRW 50 million from the gross amount of qualifying liabilities before calculating the sellers&#8217; obligation.<\/p>\n<p><strong>Parallel claims:<\/strong> The structure of the agreement \u2014 with a settlement clause and a representations and warranties clause as alternative bases for recovery \u2014 was not challenged by the court. The two claims may coexist. Where the settlement clause applies, it governs; items outside its scope may separately be pursued under the representations and warranties clause.<\/p>\n<p>  <!-- Section 6 --><br \/>\n  <\/p>\n<h2 id=\"sec-6\">Key Practical Takeaways for M&amp;A Transactions in South Korea<\/h2>\n<p>The four decisions discussed above yield a set of concrete drafting and litigation principles for any party to an M&amp;A transaction governed by Korean law.<\/p>\n<h3>1. Contract Language Is Paramount<\/h3>\n<p>Korean courts apply a strict plain-meaning rule to written instruments. The outcome of a dispute over representations and warranties will in most cases be determined by the contract&#8217;s text. Ambiguities in the damages clause, the scope of warranted items, or the definition of &#8220;loss&#8221; will be resolved against the party that could have drafted more clearly. Foreign parties should treat every clause as if it will be enforced literally.<\/p>\n<h3>2. Specify the Damages Calculation Method<\/h3>\n<p>Where the contract sets out a method for calculating damages \u2014 for example, defining loss as &#8220;any contingent liability arising from pre-closing events&#8221; \u2014 Korean courts are bound to apply it. The alternative (no contractual method, defaulting to Article 390 of the Civil Act) produces a less predictable and typically less favorable result for buyers. Buyers should insist on an explicit, comprehensive damages calculation clause.<\/p>\n<h3>3. Buyer-Knowledge Exclusion Clauses Must Be Express<\/h3>\n<p>A seller wishing to exclude liability toward a buyer that knew of the breach at signing must include an explicit clause to that effect. Relying on equitable principles or good faith to achieve the same result will fail under Korean Supreme Court doctrine. The burden is on the drafting party \u2014 typically the seller \u2014 to capture this exclusion in writing.<\/p>\n<h3>4. Pre-Closing Contingent Liabilities Are Broadly Covered<\/h3>\n<p>The scope of &#8220;loss&#8221; under a Korean M&amp;A representations and warranties clause is interpreted broadly. Regulatory surcharges, civil judgments, criminal fines, and related litigation costs arising from the target&#8217;s pre-closing conduct are all recoverable where the seller warranted the absence of regulatory violations. The target company&#8217;s own participation in the underlying conduct does not eliminate the seller&#8217;s warranty liability.<\/p>\n<h3>5. The Framework Extends Across Transaction Types<\/h3>\n<p>Whether the transaction is structured as a share purchase, an asset purchase, or a debt assignment, the same representations and warranties liability framework applies under Korean law. Foreign investors acquiring Korean companies or Korean assets in any form should conduct thorough pre-closing due diligence and negotiate comprehensive warranty protection regardless of deal structure.<\/p>\n<h3>6. Settlement and R&amp;W Clauses Can \u2014 and Should \u2014 Coexist<\/h3>\n<p>Including both a settlement (earn-out \/ price adjustment) clause and a representations and warranties clause in the same agreement gives the buyer maximum flexibility. The two mechanisms serve different functions and do not conflict. Buyers in Korean M&amp;A deals should resist seller pressure to include one mechanism at the expense of the other.<\/p>\n<table>\n<thead>\n<tr>\n<th>Drafting Checkpoint<\/th>\n<th>Buyer Perspective<\/th>\n<th>Seller Perspective<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Damages calculation method<\/td>\n<td>Require a specific, comprehensive method in the contract<\/td>\n<td>Define the method and set a liability cap<\/td>\n<\/tr>\n<tr>\n<td>Buyer-knowledge exclusion<\/td>\n<td>Resist inclusion of any such clause<\/td>\n<td>Insert an explicit written exclusion clause<\/td>\n<\/tr>\n<tr>\n<td>Definition of &#8220;contingent liability&#8221;<\/td>\n<td>Require broad definition (fines, surcharges, third-party damages, litigation costs)<\/td>\n<td>Limit to specifically enumerated categories or include a basket \/ de minimis threshold<\/td>\n<\/tr>\n<tr>\n<td>Liability cap<\/td>\n<td>Negotiate cap as high as possible relative to purchase price<\/td>\n<td>Set a meaningful aggregate cap and survival period<\/td>\n<\/tr>\n<tr>\n<td>Settlement clause floor<\/td>\n<td>Confirm floor does not eliminate effective R&amp;W claim for same items<\/td>\n<td>Ensure floor and R&amp;W clause are clearly delineated to avoid double exposure<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>  <!-- FAQ Section --><br \/>\n  <\/p>\n<h2 id=\"sec-faq\">Frequently Asked Questions (FAQ)<\/h2>\n<div class=\"faq-item\">\n<p class=\"faq-q\">Q. What legal liability arises when representations and warranties are breached in a South Korean M&amp;A contract?<\/p>\n<p>A. Under South Korean law, a seller who makes false representations and warranties is deemed to have failed to perform a contractual obligation, giving rise to liability for breach of contract. If the agreement contains both a representations and warranties clause and a damages clause, the damages clause governs. If only the representations and warranties clause is present, liability is assessed under Article 390 of the Korean Civil Act (Supreme Court of Korea, October 12, 2018, 2017Da6108).<\/p>\n<\/p><\/div>\n<div class=\"faq-item\">\n<p class=\"faq-q\">Q. How are damages calculated for a breach of representations and warranties under Korean M&amp;A law?<\/p>\n<p>A. Where the contract specifies a calculation method, that method is binding and must be applied. Where no such method is specified, damages equal either the decrease in the fair value of the target company&#8217;s shares or the difference between the price actually paid and the price that would have been paid had the breach been disclosed. Courts cannot displace a contractually agreed calculation method absent exceptional circumstances (Supreme Court of Korea, October 12, 2018, 2017Da6108).<\/p>\n<\/p><\/div>\n<div class=\"faq-item\">\n<p class=\"faq-q\">Q. Can a buyer in South Korea claim damages for a breach of representations and warranties if the buyer already knew about the breach at signing?<\/p>\n<p>A. Yes, unless the contract explicitly excludes liability toward a buyer with knowledge of the breach. The Supreme Court of Korea held that the purpose of the clause \u2014 risk allocation and post-closing price adjustment \u2014 remains valid regardless of the buyer&#8217;s knowledge, and that buyer knowledge alone does not constitute a violation of good faith under Korean law (Supreme Court of Korea, October 15, 2015, 2012Da64253).<\/p>\n<\/p><\/div>\n<div class=\"faq-item\">\n<p class=\"faq-q\">Q. Does a seller&#8217;s warranty liability in South Korea cover regulatory surcharges and fines arising from the target&#8217;s own pre-closing conduct?<\/p>\n<p>A. Yes. The Supreme Court of Korea held that contingent liabilities arising from the target&#8217;s conduct before the transfer of corporate control fall within the scope of recoverable loss under the representations and warranties clause, including administrative surcharges, civil damages, criminal fines, and related litigation costs. The target&#8217;s own involvement in the underlying conduct does not break the causal chain between the seller&#8217;s warranty breach and the buyer&#8217;s loss (Supreme Court of Korea, October 12, 2018, 2017Da6108).<\/p>\n<\/p><\/div>\n<div class=\"faq-item\">\n<p class=\"faq-q\">Q. Can a South Korean court limit a seller&#8217;s warranty liability based on principles of equity or good faith?<\/p>\n<p>A. Only in truly exceptional circumstances. The Supreme Court of Korea has consistently held that restricting a validly formed contractual obligation through general principles such as equity or good faith threatens private autonomy and legal certainty, and is therefore permissible only with great caution in extreme cases. Buyer knowledge of the breach at signing is insufficient to trigger this exception (Supreme Court of Korea, October 15, 2015, 2012Da64253).<\/p>\n<\/p><\/div>\n<div class=\"faq-item\">\n<p class=\"faq-q\">Q. Does the representations and warranties framework apply to debt assignments and other deal structures in South Korea, not just share purchases?<\/p>\n<p>A. Yes. The Supreme Court of Korea confirmed that the framework applies equally to debt assignment agreements. A seller who warranted the existence and validity of an assigned receivable that in fact never existed is liable for breach of the warranty clause, and contractual damages provisions \u2014 including penalty clauses \u2014 apply to that breach (Supreme Court of Korea, January 13, 2022, 2019Da285226).<\/p>\n<\/p><\/div>\n<div class=\"faq-item\">\n<p class=\"faq-q\">Q. How do settlement clauses and representations and warranties clauses interact in Korean M&amp;A agreements?<\/p>\n<p>A. The two clauses can coexist and be pursued as alternative claims. A settlement clause typically provides a price-adjustment mechanism for identified categories of off-balance-sheet liabilities above a specified threshold. The representations and warranties clause provides broader coverage, including items not captured by the settlement clause. Where the settlement clause applies, it governs; for items outside its scope, the buyer may pursue the representations and warranties claim instead. A floor threshold in the settlement clause does not automatically bar the representations and warranties claim for the same items (Supreme Court of Korea, September 29, 2022, 2018Da285144).<\/p>\n<\/p><\/div>\n<p class=\"closing\">Representing clients in South Korean M&amp;A disputes \u2014 from contract structuring through warranty claims and post-closing arbitration \u2014 requires precise knowledge of how Korean courts interpret representations and warranties obligations. Atlas Legal advises corporate clients and foreign investors on transaction documentation, due diligence strategy, and post-closing dispute resolution throughout South Korea. For specific matters, please consult a qualified Korean attorney.<\/p>\n<div class=\"author-box\">\n    <img decoding=\"async\" class=\"author-avatar\" src=\"https:\/\/atlaw.kr\/kr-blog\/wp-content\/uploads\/sites\/2\/2025\/07\/1111.jpg\" alt=\"Taejin Kim, Managing Partner \u2014 Atlas Legal\"><\/p>\n<div class=\"author-text\">\n<div class=\"author-section-label\">About the Author<\/div>\n<div class=\"author-name\">Taejin Kim | Managing Partner<\/div>\n<div class=\"author-detail\">Corporate Counseling, Corporate Disputes, White-Collar Criminal Defense<\/div>\n<div class=\"author-detail\">Former Public Prosecutor | Judicial Research and Training Institute, 33rd Class<\/div>\n<div class=\"author-detail\">Korea University LL.B. &amp; LL.M. (Criminal Law), University of California, Davis LL.M.<\/div>\n<div class=\"author-detail\">Atlas Legal | Incheon Songdo, South Korea<\/div>\n<p>      <a class=\"author-link\" href=\"https:\/\/atlaw.kr\" target=\"_blank\" rel=\"noopener noreferrer\">Visit Atlas Legal Homepage \u2192<\/a>\n    <\/div>\n<\/p><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>When representations and warranties are breached in a Korean M&#038;A contract, the buyer may claim damages even with prior knowledge of the breach. Four Supreme Court decisions (2017Da6108, 2012Da64253, 2019Da285226, 2018Da285144) analyzed for practical deal structuring.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_kadence_starter_templates_imported_post":false,"_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[723],"tags":[],"class_list":["post-1163","post","type-post","status-publish","format-standard","hentry","category-corporate-transactions"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.2 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What Happens When Representations and Warranties Are Breached in a South Korean M&amp;A Contract? 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