Supreme Court: "Cancellation of 'Non-Prosecution Agreement' Due to Coercion Possible"... Hyundai·Kia 1st and 2nd Tier Supplier Dispute

The Supreme Court has ruled that a 'non-litigation agreement'?in which a first-tier supplier to Hyundai and Kia Motors agreed not to sue a second-tier supplier?can be revoked.

The ruling holds that an agreement made under circumstances where the second-tier supplier deliberately delayed or stopped supplying parts by refusing to return molds necessary for production can be regarded as a 'declaration of intention under duress' under civil law.

Supreme Court, Seocho-dong, Seoul.

According to the legal community on the 17th, the Supreme Court's First Division (Presiding Justice No Tae-ak) overturned the second-instance court's decision, which upheld the first-instance court's dismissal, in the appeal filed by Company A, a first-tier supplier to Hyundai and Kia Motors, against Company B, a second-tier supplier, regarding a lawsuit for the return of unjust enrichment, and remanded the case to the first-instance court (Ansan Branch of Suwon District Court).

Company A is a first-tier supplier that directly contracts with Hyundai and Kia Motors to supply automotive parts such as car bodies and frame components. Company B is a second-tier supplier that contracts with Company A, borrowing molds and inspection jigs necessary for parts production from Company A and supplying the produced parts back to Company A.

However, in September 2018, disputes arose between the two companies over issues such as parts price adjustments, delivery delays, and quality control. Ultimately, on November 9, 2018, Company A notified Company B of contract termination and demanded the return of molds and other items.

But Company B refused to return the molds, demanding a large settlement payment, and showed an attitude of delaying or stopping parts supply.

On December 6, 2018, Company A filed a provisional injunction seeking the return of molds from Company B, and Company B warned that it would not supply parts unless the injunction application was withdrawn, subsequently actually halting parts supply.

With some production lines halted, Company A, at Company B's request, drafted an agreement stating that "under no circumstances will any legal actions such as injunctions related to molds be taken" and withdrew the injunction application.

Thereafter, from January 24, 2019, Company B demanded payments ranging from 2.2 billion to 2.7 billion KRW under the names of settlement money, investment costs, and loss compensation, but did not provide detailed documents on the settlement breakdown, and again began delaying parts supply on January 25 of the same month.

Eventually, on January 31, 2019, Company A paid Company B 2.2 billion KRW (excluding VAT) for investment and loss costs and signed an agreement to receive the return of molds and other items.

The agreement between the two companies included a special clause stating that after the agreement, under no circumstances could Company A make claims contrary to the agreement or file civil or criminal lawsuits or objections (such as various injunctions or return claims) against Company B or its executives and employees, and a memorandum was also attached.

The agreement also stipulated that if this special clause was violated, Company A would compensate Company B twice the settlement amount (including VAT, 2.42 billion KRW), and contained a deemed provision that filing a complaint with the court, police, or prosecution, or withdrawing such filings after submission, would be considered as having raised objections.

Furthermore, the agreement stated that if any information related to the agreement or its process was provided or leaked to third parties, or if any behavior including minor slander that could hinder Company B's business activities or obstructive acts were committed, or if molds related to this case were separately produced in violation of the agreement, Company A would compensate 5 billion KRW for each item.

In June 2019, Company A filed a lawsuit against Company B demanding the return of unjustly received settlement money and interest.

However, both the first and second instance courts dismissed Company A's claims, reasoning that the agreement with Company B was lawful and thus no lawsuit could be filed. After the lawsuit was filed, rehabilitation proceedings against Company B commenced, and the defendant's position was succeeded by the litigation successor.

In the trial, Company A argued that the agreement was made under duress by Company B, but this was not accepted.

The first-instance court ruled, "Based solely on the evidence submitted by the plaintiff, it is insufficient to recognize that Company B's personnel unlawfully threatened Company A's personnel causing fear and leading to the agreement, or that coercive means violating public order were used during the agreement process, and there is no other evidence to recognize this."

The second-instance court held the same view. In particular, the second-instance court referred to the fact that in the criminal trial first instance for the charge that Company B's personnel extorted 2.42 billion KRW from Company A by coercion, a not guilty verdict was rendered, and thus upheld the first-instance ruling.

However, the Supreme Court's judgment differed.

The court stated, "Company B's representative delayed or stopped parts supply without returning the molds necessary for parts production to Company A, and as a result, Company A was unable to review the detailed settlement breakdown and paid the demanded settlement money through this agreement, relinquishing rightful actions such as injunctions or civil and criminal lawsuits, and agreeing to pay a huge amount of damages for exercising its rights. This can be regarded as a declaration of intention under duress caused by unlawful threat."

It continued, "Therefore, the lower courts' judgments that concluded this agreement was not a declaration of intention under duress misapplied the legal principles regarding declarations under duress and failed to conduct necessary hearings, which is a reason for reversal and remand."

The court added, "The lower court rulings are overturned, and since this case is sufficiently ready for direct trial by the Supreme Court, the first-instance ruling is canceled, and pursuant to Articles 425 and 418 of the Civil Procedure Act, the case is remanded to the first-instance court for retrial and judgment."

Article 418 of the Civil Procedure Act stipulates that when a first-instance ruling dismisses a case due to procedural impropriety, the second-instance court must remand the case to the first-instance court, but if the first-instance court has sufficiently examined the merits or with the parties' consent, the second-instance court may rule on the merits itself.

Article 425 of the same law applies the appeal procedure to the Supreme Court's trial.

Article 110, Paragraph 1 of the Civil Act (Declarations of intention by fraud or duress) states that "Declarations of intention made by fraud or duress may be canceled," allowing cancellation of declarations made under the other party's duress.

Meanwhile, the representative of Company B, who was indicted for extortion under the Act on the Aggravated Punishment of Specific Economic Crimes, was acquitted in the first-instance criminal trial but later found guilty in the second instance, sentenced to imprisonment, and the sentence was confirmed by the Supreme Court.

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