Atlas Legal completed advisory services for a large-scale exclusive supply contract. The supplier’s proposed contract was comprehensively redesigned from the buyer’s perspective, establishing robust investment protection mechanisms including penalty clauses, minimum guaranteed volume provisions, deposit delay damages, and mandatory notarization requirements.
Project Overview
Our client, a recycled raw materials business operator, was entering a five-year long-term contract to exclusively purchase the entire raw material inventory held by a specific business consortium. With deposits amounting to several hundred million won, the supplier’s proposed contract lacked enforcement mechanisms for exclusivity violations and contained vague supply obligations, necessitating a complete redesign from the buyer’s perspective.
Securing Exclusivity Rights Effectiveness
We transformed the abstract “grant of exclusive rights” provision into specifically enumerated prohibited acts. The contract now explicitly prohibits third-party sales, reservations, and information disclosure, with high-value penalty clauses and immediate termination rights triggered upon violation. Critically, we specified that the penalty is “a penalty clause, not liquidated damages,” thereby securing the right to claim actual damages separately.
Minimum Guaranteed Volume and Tiered Penalties
To specify supply obligations concretely, we established a Minimum Guaranteed Volume (MGV) provision. The contract specifies minimum supply amounts within defined periods, with a tiered penalty structure that applies varying penalty rates based on actual supply volumes. This design provides the supplier with partial performance incentives while enabling strong sanctions for complete non-performance.
Deposit Protection Mechanisms
We clarified that the deposit functions as an advance payment to be sequentially offset against purchase prices, with immediate return obligations for any unoffset balance upon contract termination. Delay damages of 20% per annum apply from the day after contract execution until actual return, providing the supplier with strong incentives for prompt return. The deposit return obligation was structured to allow cumulative claims alongside penalty and compensation obligations.
Immediate Termination Rights and Mandatory Notarization
The contract provides for immediate termination without prior notice upon creditworthiness deterioration events such as bankruptcy, default, or business closure, as well as core obligation violations including exclusivity breaches and MGV shortfalls. Additionally, we mandated completion of notarization with acknowledgment of compulsory execution within 14 days of contract execution, enabling immediate enforcement without separate litigation if the supplier fails to return deposits.
Legal Expertise
Atlas Legal possesses extensive experience in corporate advisory and commercial dispute resolution. We specialize in designing contracts tailored to our clients’ positions in complex inter-business transactions including exclusive supply agreements, joint venture agreements, and shareholders’ agreements.