Fair Trade Commission: "Korea Shipbuilding & Offshore Engineering and Hyundai Construction Equipment Shift Equipment Buyers' Unpaid Balances to Sales Agents"

Correction Order and Fine of 55 Million KRW Imposed

[Sejong=Asia Economy Reporter Joo Sang-don] Korea Shipbuilding & Offshore Engineering and Hyundai Construction Equipment have been sanctioned by the Fair Trade Commission for passing on unpaid amounts from construction equipment buyers to their sales consignment agencies.

The Fair Trade Commission announced on the 23rd that it decided to issue a correction order to Korea Shipbuilding & Offshore Engineering and impose a fine of 55 million KRW on Hyundai Construction Equipment for such actions.

According to the Fair Trade Commission, from June 2009 to February 2016, Hyundai Construction Equipment, through sales consignment agencies, offset (deducted) unpaid construction equipment payments?unpaid due to the buyer's fault?against the sales commissions payable to the agencies, and only paid the remaining commission to the agencies.

At that time, the contracting party with the agencies was Hyundai Heavy Industries, but on April 3, 2017, through a spin-off, Hyundai Construction Equipment was newly established to operate the construction equipment business division. On June 3, 2019, Hyundai Heavy Industries underwent another physical division and changed its name to Korea Shipbuilding & Offshore Engineering.

When Hyundai Construction Equipment signed contracts with the agencies, it included provisions allowing the company to claim the buyer's debts from the agencies and offset them in case of unpaid amounts due to buyer defaults such as bankruptcy. Based on this, Hyundai Construction Equipment calculated and paid commissions monthly, excluding unpaid amounts. In May 2016, Hyundai Construction Equipment deleted the relevant contract clause and stopped offsetting unpaid amounts arising from buyer faults.

The Fair Trade Commission judged that the agencies were in a position to receive business instructions and supervision from Hyundai Construction Equipment according to the contract, were exclusive agencies handling only Hyundai Construction Equipment’s products, and that it was practically difficult to secure alternative trading partners other than Hyundai Construction Equipment, as its competitors also had exclusive agencies in each region. Therefore, Hyundai Construction Equipment was deemed to hold a transactional position over the agencies. Furthermore, the Commission viewed Hyundai Construction Equipment’s act of shifting the responsibility for collecting purchase payments to the agencies through offsetting as unfair.

A Fair Trade Commission official stated, "This case clearly establishes that deducting unpaid product payments, for which the agencies are not responsible, from sales commissions payable by the head office to the agencies constitutes a violation of the law. It is expected to contribute to clarifying the scope of agency responsibility in transactions between head offices and agencies and to eradicating the practice of unilaterally shifting full responsibility for product payments onto agencies."

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