Court Rules "BBQ's Unilateral Termination of Logistics Service Contract Invalid... Ordered to Pay bhc 13.3 Billion Won"

[Asia Economy Reporter Yoo Byung-don] A court ruling has determined that the unilateral termination of the logistics service contract by chicken franchise BBQ with its competitor bhc in 2017 is invalid, and that BBQ must pay bhc approximately 13.3 billion KRW.

The Seoul Central District Court Civil Division 46 (Presiding Judge Lee Won-seok) partially ruled in favor of bhc in a lawsuit filed against Genesis BBQ, the operator of BBQ, and two of its affiliates, claiming payment for logistics service fees.

The court ordered Genesis BBQ and its affiliates to pay bhc a total of approximately 13.35 billion KRW, including about 3.37 billion KRW for logistics service fees and about 9.97 billion KRW in damages.

The logistics service fees include delayed damages at an annual rate of 6-8% from 2017, when BBQ notified the contract termination, so the actual amount to be paid is expected to be higher once the ruling is finalized.

BBQ sold its former subsidiary bhc to a U.S.-based private equity fund in 2013, entering into a contract under which bhc would supply logistics services and food ingredients to BBQ affiliates for 10 years, and also sold the logistics center.

Subsequently, BBQ notified the termination of the logistics service contract in April 2017, citing concerns that trade secrets such as new menu development information were leaking during the logistics supply process from bhc.

In response, bhc filed a lawsuit claiming that BBQ’s contract termination notice was based on unilateral assertions that were factually incorrect and improper, seeking payment for fees that would have been due had the contract not been terminated.

On the other hand, BBQ argued that the termination notice was lawful because bhc had breached trust by infringing trade secrets and improperly acquiring and using information.

The court stated, "The reasons cited by the defendants (Genesis BBQ and affiliates) at the time of the termination notice as grounds for breach of trust were either not recognized as factual or did not constitute grounds for destroying the trust relationship," and ruled that "the termination notice was improper and thus has no effect."

BBQ had filed complaints against bhc employees for trade secret infringement, but most cases were closed without charges, and the only employee who was prosecuted was acquitted in all three trials, which served as a basis for the court’s judgment.

The court recognized that the contract was lawfully terminated in July 2017 when bhc refused to perform the contract. Accordingly, BBQ was ordered to pay logistics service fees for April to July 2017 and damages calculated based on the expected fees bhc would have earned until the contract’s expiration in 2023.

bhc claimed that the logistics service contract with BBQ would have been automatically extended for an additional five years until 2028 unless there were special reasons, arguing that the expected profits exceed 100 billion KRW.

However, the court found it unlikely that the contract extension would have naturally occurred and determined that the expected profits were lower than bhc’s estimate, thus only partially recognizing the claim for damages.

This content was produced with the assistance of AI translation services.