Minimizing Risk through Review of an Overseas Transaction Agreement

1. The Client's Situation

The client, a domestic electronic components manufacturer, requested Your Legal Team to conduct a legal review of an English-language basic transaction agreement received from a large Japanese partner company, prior to concluding a new supply contract with that partner. This contract was a version that had been prepared based on a Korean-language basic agreement the client already held and then revised by the partner company's legal team, with several clauses changed in the supplier-partner's favor. Accordingly, concerned about whether the contract contained terms unfavorable to itself and whether it could pre-empt the possibility of future disputes, the client requested a thorough legal review.

Your Legal Team identified the key risk factors across the contract and provided advice centered on their impact on actual business operations. In particular, we examined the impact on the supply chain of the minimum period within which the partner could give notice of discontinuation, the exchange-rate risk of the clause stipulating payment in Japanese yen, and the appropriateness of setting an inspection deadline of within five business days after receipt of the products. We also presented practical alternatives regarding the point that the re-inspection clause granted the partner unilateral discretionary authority, the acceptability of the product warranty period, and the feasibility of the clause designating an international arbitration tribunal as the forum in the event of a dispute. We proposed concrete amendments negotiable from the client's standpoint, such as changing the governing law to Korean law and specifying the Seoul Central District Court as the dispute resolution forum.

Through this advice, the client was able to respond during the renegotiation process with the partner based on clear standards and reasoning regarding the key issues. As a result, the client achieved a degree of revision and supplementation of the major risk clauses, and was able to secure contractual stability by adjusting in advance the unfavorable elements relating to jurisdiction and warranty liability, which frequently become problematic in international transactions. This was, beyond a mere contract review, an achievement of comprehensive risk management that also took into account the client's future supply chain operations and the possibility of disputes.