“Now it’s my company.” The main contractor was trying to take over the subcontractors.. What is the court’s decision?

Retaliation lawsuit filed after being reported to the Fair Trade Commission for habitual abuse of power, including non-payment of payments
Court: “It is difficult to determine agreement between the plaintiff and the defendant regarding incorporation.”

The main contractor, who was reported by the subcontractor for habitual abuse of power and non-payment of payment, filed a retaliation lawsuit and claimed ownership of the subcontractor, but it was not accepted.

On the 20th of last month, the Seoul Southern District Court dismissed the plaintiff's claim in a lawsuit claiming retained earnings filed by company A, an electronic communication device seller, against company B, a mechanical parts manufacturing subcontractor.

Retained earnings refers to the surplus based on profits earned from a company's business activities.

Company A signed a parts manufacturing contract with Company B in 2008 and continued the transaction for several years.

Afterwards, in 2016, Company A signed an exclusive contract with Company B due to business expansion.

Accordingly, Company A received a certain fee from Company B and provided the necessary equipment to produce parts.

Company B, which reorganized its factory facilities, supplied machine parts to Company A.

However, Company A engaged in abuse of power by habitually failing to pay Company B under the pretext of business support.

Ultimately, around February 2024, Company B reported Company A to the Fair Trade Commission for unfair subcontracting practices.

After the report, Company A suddenly filed a lawsuit claiming that ‘Company B is a subsidiary of Company A.’

Company A claimed, “The CEO of Company B receives a salary from Company A and is only a nominal representative,” and “We have an obligation to pay 1.7 billion won in retained earnings generated by Company B from 2016 to 2023.”

In response, Company B claimed that it is an independent business and has no relationship with Company A other than a subcontract.

He emphasized that he received a large order from Company A, but suffered extreme economic difficulties because the payment was not made on time.

The court ruled that it was difficult to say that there was agreement between the two companies regarding the incorporation of the business.

The court ruled, "It is true that the plaintiff provided some economic and human convenience to the defendant's business operation and business performance, but there is no basis to admit that there was an agreement between them to return to the plaintiff the retained earnings generated from the defendant's operation."

Kwak Nae-won, a lawyer at Daeryun Law Firm, who was in charge of legal representation for Company B, explained, "Company A claimed that Company B was its subsidiary for reasons such as the purchase of machinery. However, this support was not provided free of charge, and the machines were provided in exchange for hundreds of millions of won in payment," adding, "Company B believed in Company A's promise to increase orders and took the risk of business expansion."

He added, "Company A claimed that company B's sales increased significantly due to their business support, but other subcontractors of company A also experienced increased sales during that period. It was not a preferential treatment or in-house factoryization for company B, but showed a general subcontracting transaction pattern during company A's business expansion period."

Attorney Kwak said, "This case was difficult to respond to because Company A appointed one of the top three law firms in Korea, but we were able to win the case after proving Company A's retaliatory actions against the Fair Trade Commission's report through legal interpretation."
 

Shin Min-ji (sourminjee@ikbc.co.kr)

[View full article]
"Now it's my company" The main contractor was trying to take over the subcontractors.. What is the court's decision? (Shortcut)