• Copy the reference
  • Tutorial video

DMC v. DMTS

DMC Co., Ltd v. DMTS Inc., KCAB Case No. 14113-0034
Type of case:
Commercial Arbitration
Economic sectors:
Manufacturing
Manufacture of rubber and plastics products
Wholesale and retail trade; repair of motor vehicles and motorcycles
Wholesale trade, except of motor vehicles and motorcycles
Professional, scientific and technical activities
Advertising and market research
Date of introduction:
Unknown
Status of the case:
Concluded (non-ISDS case)
Claimant’s country of origin:
South Korea
Respondent's country of origin:
United States
Institution:
KCAB (Korean Commercial Arbitration Board)
Rules of arbitration:
KCAB International Arbitration Rules 2011
Seat of arbitration:
Seoul

Documents of the case

Chang-ik Seong President
Young-jin Jeong Co-Arbitrator
Kae-seong Park Co-Arbitrator

This document was contributed under the IBA x Jus Mundi Exclusive Partnership for Commercial Arbitration.

Contributor(s):

  • logo organization

    Jus Mundi

Lawyers, other representatives, expert(s), tribunal’s secretary

Arbitration Decision

The Main Clause Judgment (the Text)

1.
It is to decide that Mark-up Profit Payment Liabilities of Claimant (Respondent of Counteraction Application) to Respondent (Claimant of Counteraction Application) according to the agreement signed on May 16, 2008 does not exist except the products delivered by the transaction whose 'Initial Product Delivery Expiry Date' is marked as ‘Continued’ in Attachment 2-2 from October 1, 2015 to initial product delivery expiry date.
2.
Main application of Claimant (Respondent of Counteraction Application) and counter application of Respondent (Claimant of Counteraction Application) are dismissed.
3.
Each claimant shall be responsible for the arbitration cost.

Gist of Main Claims

1.
It is to confirm that Mark-up Profit Payment Liabilities of Claimant (Respondent of Counteraction Application, Claimant hereunder) to Respondent (Claimant of Counteraction Application Claimant; Respondent hereunder) according to the agreement signed on May 16, 2008 does not exist.
2.
Arbitration cost shall be on Respondent.

Gist of Counter Claims

1.
Claimant shall pay 1,532,618,146 Korean won and interest calculated from June 1, 2013 to September 30, 2015 at the rate of 20% per annum and from October 1 to the day when the payment is fully paid off at the rate of 15% per annum to Respondent.
2.
Arbitration cost shall be on Claimant.

Grounds of Judgment

1. Base Fact

[1].
The following facts are beyond the dispute of both parties or can be acknowledged considering Evidence A 1 to 6, 33 and 34, B 7 and 44, and gist of all the hearings.

a. Claimant which is a Korean incorporation and Respondent which is an American incorporation entered into a Sales Agent Agreement ('The First Agreement of This Case’ hereunder) on June 1, 2006 to appoint Respondent as an exclusive sales and PR agent in USA and Canada for the rubber products and related spare parts that claimant produces. According to the First Agreement of This Case, Respondent is liable to make its best to sell and advertise Claimant’s products in the territory (Article 7.1) and Claimant shall be liable to pay USD 4,000 per month as Sales Support Fee till the earlier 1) for 2 years or 2) total order amount reaches USD 5,000,000(Article 8.3 and 9.2), and the term of agreement shall be 3 years after the day of agreement with 1 year extension possibility (Article 3.1).

Claimant and Respondent signed "Agreement on Contract Change" to change provisions of The First Agreement of This Case and to apply retroactively on May 16, 2008 (‘The Second Agreement of This Case’ hereunder). The main provisions of The Second Agreement of This Case are shown below.

1. General

In principle, the subject of the sales is Korean incorporation (Claimant),and to guarantee it, the signing party of the agreement resulted from PR and sales activities shall be Korean incorporation. The followings are guaranteed so that US incorporation (Respondent) can dedicate to sales activities with peace of mind during the term of this agreement as the sales agent of Korean incorporation.

2. Sales Right of US Incorporation

a. US incorporation pursues business as a contact point.

b. Territory and Customers of US incorporation are not restricted and it shall perform its business discussing the matter with Korean incorporation.

3. Restrictions on Product Range and Sales

The sales products of US incorporation shall include rubber related products for automobiles but US incorporation can transact other products or other companies after agreement with prior consultation. Additionally, US incorporation can produce and deliver products to the companies with which Korean incorporation directly deal.

4. Term

This agreement is valid until May 31, 2017. Renewal of the agreement shall be negotiated a year before termination and renewal can be made every 4 year.

5. Confirmed Orders before Termination

If quotation or negotiation is pending before termination of the contract, it shall be processed in the same quotation method and conditions as if the contract had not been terminated.

6. Quotation Submittal

a. The final quotation shall be agreed in advance between two parties. Korean incorporation submits quotation to US incorporation based on the ex-factory price, and US incorporation submits the final price with Mark Up on the ex-factory price.

b. However, quotation for customer factories in Korea and China with which Korean incorporation has already dealt as of June 1 in 2008 does not accept Mark Up of US incorporation, and other things not specified here shall follow commercial practices in Korea.

c. US incorporation shall be consulted with Korean incorporation before submitting quotation to customer and if the final price in the order does not include Mark Up at all or include improper level of Mark Up, Korean incorporation shall consider profit of US incorporation separately.

7. Product Delivery Period

a. The term that Mark Up of US incorporation is acknowledged shall follow the term defined by quotation conditions to customer. Further extension of product delivery period shall be determined by mutual agreement.

b. ACR (Annual Cost Reduction) shall be paid by Korean and US incorporation according to pro rata of their share in the final price.

8. Range of Business

a. US incorporation shall be responsible for the whole process from the initial quotation to order taking and price related works.

b. After acceptance of order, Korean incorporation shall be responsible regardless of sales region. US incorporation can support Korean incorporation in this process, if necessary and the cost shall be paid by Korean incorporation.

9. Collection of Product Sales Money

Product sales money shall be received by Korean incorporation directly from customer and Korean incorporation shall deposit balance subtracting the quotation price submitted to US incorporation and ACR related amount to the account that US incorporation designated.

10. Aforementioned articles from 2 to 9 shall be applied to transactions with finished car companies only. With other companies than finished car companies, US incorporation shall be the party of the sales contract, receive sales payment and pay the amount to Korean incorporation.

11. Applicable Law and Dispute Settlement Process

Korean Law shall be applied to this agreement. All the disputes related to performance of this agreement shall be settled by arbitration by Korean Commercial Arbitration Board using Korean as medium of arbitration. The process can be processed through legal representatives that the parties designate, If necessary.

c. According to The Second Agreement of This Case, Respondent has performed sales activities as a sales agent of Claimant in US and other areas. In case customers are recruited resulted from sales activities of Respondent, in principle 1) In case the customer is a finished car manufacturer, Claimant shall enter into a Sales Contract with customer, receive product payment and pay Mark Up profit to Respondent (Transaction Type I hereunder), 2) in case the customer is not a finished car manufacturer, Respondent shall enter into a Sales Agreement with customer and receive product payment. Product shall be delivered to customer by Respondent who purchased the products from Claimant (Transaction Type II hereunder).

d. While they perform business according to The Second Agreement of This Case, there occurred the disputes regarding omitting some product payment received from customers between parties, and to resolve the disputes, they made the Sales Markup Agreement ("Markup Agreement" hereunder) relating with collecting payment and sales markup payment on April 29, 2011. Major contents of the aforementioned agreement are as follows.

1. Tongmyung Tongsan Co., Ltd. (Former company name of the Claimant) guarantees Sales markup of DMTS, Inc. (Respondent) as follows.

1) The items for integrated collection and Sales Markup application shall be all the products that DMTS, Inc. has received orders from customers. However, if the products are delivered to the factories of the customer in Korea and China, those transactions are excluded from Markup application but other areas are included in markup application.

2) Sales Markup payment ratio is tentatively determined as 10% of deposit and payment shall be made from the joint account to their respective designated account according to the provision of Escrow Agreement.

3) Regarding Markup ratio tentatively decided at Clause 2), two companies shall decide average Markup ratio every April as it shall be coordinated because of different Markup rate for new products and ACR agreed with customers and Markup rate specified in Escrow Agreement shall be changed accordingly.

4) To check difference according to different Markup ratio per products and settle accordingly, both companies shall disclose collection related materials voluntarily and underpayment or overpayment resulted from settlement between two companies at the end of each month shall be deposited accordingly to respective account designated at Escrow Agreement by 20th of the next month.

2. Markup application term shall follow the term determined by quotation conditions but extension of delivery period in the future can be decided by mutual agreement.

e. Claimant and Respondent entered into ESCROW Transaction Agreement (’Escrow Agreement’ hereunder) with KEB on May 3, 2011 according to Mark Up Agreement. According to the provision of Article 1 and 3, when the product payment arrives at Escrow account, KEB will transfer 10% Sales markup amount of the deposit to the account of Respondent through automatic transfer and transfer the balance subtracting Sales Markup amount and various fees to the account of Claimant through automatic transfer. For any other transaction than specified in Escrow Agreement, Payment Agreement jointly signed by Claimant and Respondent is needed.

f. Claimant filed lawsuit to Seoul Central District Court as 2012KaDan3571 claiming that they have 0.6 billion Korean won Receivables of automobile related rubber part product payment and received decision of provisional attachment of Sales Markup Payment Request Right of Respondent against KEB.

g. Claimant notified to cancel the First and Second Agreement of This Case on October 30, 2012 ('Cancellation Notice on October 30, 2012’ hereunder) to Respondent claiming that Respondent has collected Part Sales Payment (‘Product Payment’ hereunder for unification) from customers violating "The First and Second Agreement of This Case" and did not pay the amount that should be paid to Claimant.

h. Around that time, Claimant filed a claim for arbitration to Korean Commercial Arbitration Board as 12113-0033 claiming that Respondent has not paid some of Transaction I and II product payment and tooling cost and requesting unpaid payment of 3,968,747,345 and delay penalty. Respondent filed counter claim to Korean Commercial Arbitration Board as 12113-0036 claiming that Respondent has credit of 1,477,536,542 and delay penalty for Business Supporting Cost and balance of Markup Profit from product payment deposited to Escrow account from June 16, 2011 to May 30, 2013. Arbitration Tribunal that tried the aforementioned cases accepted a part of claimed amount of each party and decided as follows on April 10, 2014. "Respondent shall pay 1,482,971,408 Korean won and interest on 1,150,038,201 Korean won from June 30, 2012 and on the rest of 332,933,207 Korean won from February 23, 2013 to April 10, 2014 at the rate of 6% per annum, and from the next day to the day when the payment is fully paid off at the rate of 20% per annum to Claimant." It is the arbitration judgment and it called ‘The First Arbitration Judgment’ and the arbitration process is called ‘The First Arbitration Process.’

i. Respondent made Set Off notification (‘Set Off Notification dated on January 28, 2015’ hereunder) showing its intention that the whole monetary credit of Claimant according to ‘The First Arbitration Judgment’ shall be set off from the unpaid Mark Up profit credit up to the date of Set Off Notification Date.

j. Claimant received the judgment of execution of ‘The First Arbitration Judgment' from Seoul Central District Court on May 15, 2015 as 2014 Ga Hab 537477 and received Seizure of Credit and Order of Collection on Sales Markup Payment Request Right of Respondent on KEB with the claiming amount of 1,974,587,387 Korean won (Principal 1,482,971,408 Korean won plus Delay Penalty 491,591,129 Korean won) from the same court on June 11, 2015 as 2015 Ta Chae 14056. Claimant collected 819,196,394 Korean won from KEB on July 1, 2015 based on the aforementioned Seizure of Credit and Order of Collection.

2. The Judgment on Main Claim and Counter Claim

a. Whether if the main claim is against the effect of excluding further litigation of ‘The First Arbitration Judgment’

[2].
Respondent claims that markup profit payment obligations up to May 30 in 2013 which was included in the judgment of set off appeal judgment of ‘The First Arbitration Judgment,’ application of claimant falling under this part is against the effect of excluding further litigation of ‘The First Arbitration Judgment.'
[3].
However, considering all Counts of Claims on Arbitration Application of Claimant and other claims, this application is not to dispute again if there is Markup profit payment obligations till May 30, 2013 which was included in set off appeal of 'The First Arbitration Judgment’ but Claimant requests to make it sure that there is no Markup profit payment obligations to Respondent as of the day of Trial Closing Date on the assumption that there is no Markup Profit payment obligations accrued after that. Therefore, claim of Claimant is not against the effect of excluding further litigation of ‘The First Arbitration Judgment’ and the aforementioned claim by Respondent is not accepted.

b. Whether Markup profit payment obligation exists

(1) Whether Markup profit payment obligation exists after the termination notification dated on October 30, 2012

(a) Claims of Parties

[4].
Claimant claims that 1) the second agreement of this case was terminated on October 30, 2012 not by "Expiry of the Term" but by default of Respondent. Therefore, regardless of Article 5 ("If quotation or negotiation is pending before termination of the contract, it shall be processed in the same quotation method and conditions as if the contract had not been terminated.") Claimant does not have liabilities to pay Markup Profit to Respondent, 2) the agreement was terminated because of Respondent’s faults and Respondent cannot perform sales agent works any more after the termination of the agreement, Claimant does not have liabilities to pay Mark Up profit considering characteristics of a bilateral contract or rule of faithfulness or equality, 3) the provision of Article 5 itself does not mean that Claimant shall pay the same Markup profit after the termination as if it had not been terminated.
[5].
Regarding this, Respondent claims that 1) the termination notice by Claimant is not valid as Claimant violated the agreement by collecting product payment without notifying to Respondent and not paying Markup profit at the time of termination notice on October 30, 2012 so Respondent does not have liabilities from delay of payment because of plea of simultaneous performance, 2) Markup is the right that has already been made as the payment for sales activities of Respondent, it shall be continued including extension of delivery period of the products that Respondent has taken orders regardless of cause of termination according to Article 5 of the second agreement of this case.

(b) Judgment

[6].
① First of all, Article 5 of the second agreement of this case ("If quotation or negotiation is pending before termination of the contract, it shall be processed in the same quotation method and conditions as if the contract had not been terminated.") is interpreted as "if Claimant deliver products after termination of agreement due to contribution of Respondent before termination of agreement, not only the same quotation method but also the same transaction conditions between Claimant and Respondent will be applied to the delivery." And Markup payment is naturally included in transaction conditions between Claimant and Respondent.
[7].
② Although in Article 5, it is written as "terminated" but "contract termination" and "contract conclusion" are being used to mean the same thing (They are mixed in Article 4 and 5 in the second contract of this case). Therefore, there is no special reason that we think two parties use "termination" in Article 5 to restrictedly mean "when the term of agreement expires without abnormality." Furthermore, adding that if Claimant deliver products after termination of agreement due to contribution of Respondent before termination of agreement, it is fair to acknowledge Markup profit of Respondent even though agreement is terminated because of some other causes such as "cancellation of agreement" as well as "termination by expiry of the term," it is fair to interpret that the aforementioned Article 5 shall be applied to after the cancellation of the agreement regardless of faults attributable to Respondent
[8].
③ On the other hand, Markup profit is the payment for the contribution of Respondent to order accepting and not for the payment for sales support activities of Respondent (In Article 8.b of the second agreement of this case, it is written as "After order accepting, Korean incorporation shall be responsible regardless of sales region. US incorporation can support Korean incorporation in this process, if necessary and the cost shall be paid by Korean incorporation." It means that sales support activities by Respondent after accepting orders are not mandatory but optional and the expense shall be paid by Claimant separate from Markup profit). Thus it is not unreasonable to acknowledge Markup profit payment obligations of Claimant to Respondent for the contribution of Respondent before agreement cancellation because Respondent cannot perform Sales Agent works any more after cancellation of agreement.
[9].
④ However, product sales opportunity that Claimant acquired with contribution of Respondent is limited to initial delivery period specified in agreement with customer in principle and product delivery period extension depends on the efforts of Claimant. Additionally, in Article 7.a of the second agreement of this case, it is written as "The term that Mark Up of US incorporation is acknowledged shall follow the term defined by quotation conditions to customer. Further extension of product delivery period shall be determined by mutual agreement." In Article 2 of Markup Agreement, it is written as "Markup application term shall follow the term determined by quotation conditions but extension of delivery period in the future can be decided by mutual agreement." It means that Markup profit is not accrued automatically for the extended period. Therefore, it is just to see that there are no Markup profit payment obligations of Claimant for the deliveries during the extended delivery period unless there is mutual agreement on Markup profit payment for the extended delivery period.
[10].
⑤ Although Respondent claims that agreement termination notification on October 30, 2012 is not valid, there is no evidence that Claimant violated agreement, collected product payment falling under Markup profit payment category without notifying Respondent and did not pay Markup profit, as we shall review it more in details afterwards, the aforementioned claim by Respondent is not accepted.
[11].
⑥ Finally, Claimant is responsible for paying Markup profit to Respondent for the products delivered during the initial delivery period specified in agreements with customers even after agreement termination notification for the delivery cases to which Respondent has contributed before termination notification on October 30, 2012. Aforementioned claims by Claimant and Respondent are accepted within the range of the aforementioned acknowledge range and rest of them are rejected.

(2) Whether Transaction Type II falls under Markup profit payment category

(a) Claims by Parties

[12].
Claimant claims that in Transaction Type II Respondent sells products to customers under the name of Respondent by adding their profit to original cost, so it is not the transaction that Claimant shall pay Markup profit.
[13].
Regarding this, Respondent claims that as markup profit application items were designated as all the orders that Respondent took regardless of transaction type according to Markup Agreement and product payment would be deposited to Escrow account according to Escrow agreement, Markup profit credit of Respondent shall be acknowledged in Transaction Type II.

(b) Judgment

[14].
According to main contents of the second agreement of this case, Markup profit shall be paid for Transaction Type I where Respondent has performed sales activities for Claimant as a sales agent and Claimant is the signing party, while Transaction Type II does not fall under the Markup profit payment category where Respondent becomes the signing party and collects product payment. However, when they had some disputes regarding omitted transactions relating Transaction Type I and II, they entered into Markup Agreement and Escrow Agreement. According to them, both parties agreed that all the product orders that Respondent took (excluding products delivered to factories in Korea and China) would accrue Markup profit regardless of transaction type and they opened an Escrow account to receive product payment.
[15].
Therefore, before Markup Agreement is made, Markup profit is accrued from Transaction Type I only but after April 29 in 2011 when Markup Agreement was signed Claimant shall pay Markup profit to Respondent for Transaction Type I and II.
[16].
Finally, after April 29, 2011 when Markup Agreement was signed Markup payment liability of Claimant for Transaction Type II is acknowledged. However, after October 30, 2012 when cancellation notification was sent, it is reasonable to acknowledge markup payment liability of claimant for Transaction Type II only when the sales agreement under Respondent’s name was maintained and product payment was deposited in Escrow account. Claims by Claimant and Respondent shall be accepted within the range of the aforementioned acceptance range and rest of them rejected (Respondent claims that they had damages because of unjust refusal of Claimant to supply products and agreement implementation relating Transaction Type II. However, it is reasonable to think that product supply obligations of Claimant cease to exist after cancellation notification on October 30, 2012 and there is no evidence that there was unjust refusal of product supply and agreement implementation before the date. Therefore the aforementioned claim of Respondent is not accepted.)

(3) Whether there is Transaction Type I product payment omitted from the first arbitration process

(a) Claims by Parties

[17].
Respondent claims that 1) Claimant intentionally concealed or omitted Transaction Type I payment of USD 1,519,732 deposited in the other account than Escrow account before the First Arbitration Judgment at the First Arbitration Process and evaded from Markup profit payment liabilities so Claimant is liable to pay USD 167,170 as Markup profit according to 11% Markup Profit ratio as agreed in the First Arbitration Process, 2) as the intentional Markup profit payment evasion falls under tort, Claimant shall pay the aforementioned USD167,170 for the purpose of compensation, too.
[18].
Regarding this, Claimant claims that 1) Claimant did not conceal or omit any Transaction Type I payment, 2) Markup profit payment request on Transaction Type I payment before the First Arbitration Judgment cannot be permitted, as it is against the effect of excluding further litigation of the First Arbitration Judgment.

(b) Judgment

[19].
First of all, markup payment request of Respondent for Transaction Type I payment during the period that had been reviewed during the First Arbitration Process with the reason of omission is against the effect of excluding further litigation of the First Arbitration Judgment. Additionally, according to the evidences that Respondent submitted it is admitted that there was some product payment that Claimant received at other account than Escrow account during the transaction period that was reviewed in the First Arbitration Process and the Claimant did not mention the payment during the First Arbitration Process, but it is not enough to acknowledge that the payment was accrued from the transaction to which Respondent contributed. If it was from the transaction to which Respondent contributed and the payment was not deposited to Escrow account, Respondent should have appealed but there was no evidence that Respondent complained about it.
[20].
Then Respondent’s request of Markup profit payment and compensation for tort presuming that there is some concealed or omitted Transaction Type I payment during the First Arbitration Process is not accepted without further investigation.

(4) Whether T300 product transaction falls under Markup profit payment category

(a) Claims by Parties

[21].
Claimant claims that Markup profit payment liabilities of Claimant does not exist because they agreed that instead of paying 30,000,000 Korean won in lump sum to Respondent at the time of order accepting of T300 products Claimant would not pay Markup profit afterwards.
[22].
Regarding this, Respondent T300 product falls under Markup payment category as Respondent has submitted new quotation including Markup profit to customer after specifications were changed.

(b) Judgment

[23].
There is no dispute regarding the fact that Claimant paid 300,000,000 Korean won to Respondent when it received the first order of T300 products.
[24].
However, regarding the claim that they agreed not to pay Markup profit at all except aforementioned 30,000,000 Korean won for T300 product sales, contents of Evidence A 163 and 164 are not enough and there are no other evidences to support Claimant’s claim.
[25].
Considering evidences and gist of hearings, it can be accepted that T300 product transactions fall under Transaction Type I because T300 is delivered to GM, and T300 product payment has been deposited to Escrow account even after 300,000,000 Korean won had been paid. Considering those facts, Claimant could receive product payment in its own account as Claimant is the signing party if there were no more liabilities to pay Markup profit in addition to aforementioned 30,000,000 Korean won. However, T300 product payment was deposited to Escrow account and it could be considered as evidence to support Respondent’s claim that T300 products fall under Markup payment category after specifications change. Therefore, it is reasonable to think that at least T300 product transaction which had history that the payment had been deposited to Escrow account falls under Markup profit payment category.
[26].
Therefore, aforementioned claims by Claimant and Respondent are accepted within the range of the aforementioned acknowledge range and rest of them are rejected.

(5) Range of GM related transactions which fall under Markup profit payment category

(a) Claims by Parties

[27].
Claimant claims that 1) regarding local incorporation of GM in Indonesia, Poland, Uzbekistan, Thailand and Australia other than in the US Claimant can expand sales through GM Korea so product delivery to those local incorporations do not fall under Markup payment category, 2) in case of carry over products that were delivered to GM USA through GM Korea, they do not fall under Markup payment category as Respondent made no contribution to this order.
[28].
Regarding this, Respondent claims that 1) transactions with other local incorporations of GM than GM USA shall accrue Markup profit, 2) in case of carry over products, they fall under Markup payment category as they should go through separate order accepting process.

(b) Judgment

[29].
According to Markup Agreement Article 1.1 products delivered to other areas than Korea and China are included in markup application. Therefore, products delivered to local incorporations of GM other than USA or carry over products delivered to GM USA through GM Korea fall under markup payment category as long as contribution of Respondent can be recognized.
[30].
Therefore, aforementioned claims by Claimant and Respondent are accepted within the range of the aforementioned acknowledge range and rest of them are rejected.

(6) Summary

[31].
According to the aforementioned accepted standards, Claimant has liabilities to pay Markup profit to Respondent for the orders to which Respondent has contributed. Therefore, detailed markup profit shall be calculated below.

c. Calculation of Markup Profit

(1) Markup Profit Ratio

[32].
The parties agreed to make Markup profit uniformly 10% for the transaction period after the first arbitration judgment out of whole transaction period which is reviewed in this arbitration process (Besides, Claimant withdrew their claims to deduct business support expenses).
[33].
Therefore, we will calculate Markup profit as 10% of product payment during the agreed transaction period, even though there are cases that Respondent could not include Markup profit in final quotation, or the Markup Profit that Respondent included was over or under 10%.
[34].
On the other hand, as the product payment deposited by customer may have already reflected ACR (Annual Cost Reduction), if we calculate Markup profit from the deposited product payment at the rate of 10%, Respondent automatically pays pro rata ACR defined in the provision of Article 7.b of the second agreement of this case. Therefore, we do not need to consider ACR reduction additionally when calculating Markup profit.

(2) Markup Application Period

[35].
Respondent claims that USD 167,170 Markup profit was accrued from Transaction Type I from June 1, 2011 to May 31, 2013 which was not covered by the first arbitration judgment, and USD 2,144,729.83 was accrued from transactions specified in Attachment 1-1 to 1-4 from June 1, 2013 to September 30, 2015 (Sales Revenue USD 21,448,217.16).
[36].
However, as we have reviewed before, the claim that Claimant concealed or omitted Transaction Type I product payment at the first arbitration process is not accepted. Thus, we will review if there is Markup profit accrued during the period from June 1, 2013 to September 30, 2015 (Transactions specified in Attachment 1-1 to 1-4).

(3) Transactions for Markup Application out of Transactions on Attachment 1-1 to 1-4 and markup Profit Amount

[37].
(a) To accrue Markup profit, there should be recognizable contribution of Respondent. Therefore, from transaction specified in Attachment 1-1 to 1-4, transactions which meet criteria accepted at b. and to which Respondent made contribution are the ones that accrue Markup profit. As submitted transaction data is extensive and it is difficult to identify individual transaction, Markup profit shall be accrued according to the following detailed criteria.
[38].
① First of all, Claimant and Respondent made agreement to deposit product payment to Escrow account regardless of Transaction Type I or II when the transaction was made with contribution of Respondent after markup Agreement was signed on April 29, 2011. Therefore, if there is history to be deposited in Escrow account, it is reasonable to see that Respondent has contributed to the transaction unless there are special circumstances. On the other hand, transactions which do not have history to be deposited to Escrow account, those transactions cannot be considered to accrue markup profit unless Respondent proves their contribution to the transaction separately.
[39].
② Furthermore, after cancellation notice on October 30, 2012, there cannot be Respondent’s contribution (As reviewed above, it is reasonable to see that delivery period extension is resulted from efforts of Claimant unless there are special circumstances). In principle, among transactions whose payment has been deposited to Escrow account before the aforementioned cancellation notification those with remaining initial delivery period fall under Markup profit accruing category. (As Respondent claims the period from June 1, 2013, those with the remaining initial delivery period as of June 1, 2013 shall be the transactions accruing Markup profit). However, if initial delivery payment was deposited after the cancellation notification, it can be interpreted that the parties designated Escrow account as payment collection account because they agreed contribution of Respondent to the transaction. Therefore, for those transactions, Markup profit should be acknowledged till initial delivery period specified in the agreement is expired.
[40].
③ It is natural that Markup profit is accrued from the transactions accruing revenue during the period that Respondent claims.
[41].
④ For the transactions to which Respondent’s contribution is recognized but the initial delivery period agreed with customer is not known, 5 years which Claimant claims as usual life cycle of automotive parts is considered as initial delivery period. However, if product payment kept being deposited to Escrow account after 5 years, it is considered that both parties agreed to pay Markup profit for the transaction.
[42].
⑤ When product supplier was not Claimant, when customer was GM Korea, or when products were supplied to areas in Korea or China, those transactions are excluded from Markup application.
[43].
⑥ On the other hand, Transaction Type II transactions, whose signing party was changed into Claimant after cancellation notice was sent on October 30 2012, are excluded from Markup application after the transfer, although they originally accrued Markup profit.
[44].
⑦ When it is difficult to calculate revenue during the period by evidences, we use the amount that Claimant admits. However, in case of GM Mexico, we use export revenue endorsed by KTA (Korean Trade Association). [According to KTA, total revenue from June 1, 2013 to September 30, 2015, total revenue was USD 786,288.00, revenue from June 1, 2013 to January 28, 2015 was USD 460,264 (More accurately, it is sales revenue till the end of January but we consider it revenue till January 28 for convenience.), and revenue from January 29, 2015 to September 30, 2015 was USD 326,024]. On the other hand, Benteler revenue was originally Transaction II type considering provisions of Evidence A No. 22 and gist of whole hearings. But the sales agreement was transferred to Claimant after cancellation notification on October 30, 2012. As it is difficult to calculate sales revenue before the contract name transfer, it is supposed to be before January 28, 2015 and sales revenue till then is considered as USD 315,323.12 as Claimant admitted. (For convenience’s sake, it will be written with Transaction Type I as Respondent has prepared).
[45].
⑧ In case of tooling cost written in Attachment 1-1 and 1-3 is not the object to accrue Markup profit and Evidence B No. 26 is not enough to show liabilities of claimant to Respondent and there are no other evidences to support it.
[46].
(b) According to criteria described above, transactions not included in markup application category are highlighted in Attachment 1-1 to 1-4.
[47].
Furthermore, we sort transactions accruing Markup profit separately, calculate revenue during the remaining initial delivery period and 10% markup profit accordingly and prepare Attachment 2-1 and 2-2.
[48].
As you can see in the tables, sales revenue accruing markup profit from June 1, 2013 to January 28, 2015 is USD 9,294,692 (delete cents, the same rule applied hereunder) and markup profit from those transactions is USD 929,469 and sales revenue accruing markup profit from January 29, 2015 to September 30, 2015 is USD 1,188,155 and markup profit from those transactions is USD 118,815 (To sum up, sales revenue accruing markup profit from June 1, 2013 to September 30, 2015 is USD 10,482,847 and markup profit from those transactions is USD 1,048,284).

d. Deduction and Set Off

(1) Escrow Account Deposit Deduction

[49].
Claimant claims that markup profit deposited to Respondent’s account from June 1, 2013 to the end of December, 2014 (USD 344,603 and 815 Euros) should be deducted from Markup profit to be paid to Respondent.
[50].
It is acknowledged that amount deposited to Escrow account from June 1, 2013 to December 31, 2014 which was not included in set off coverage at the first arbitration judgment was USD 3,446,033 and 8,155 Euros and 10% of the amount such as USD 344,603 and 815 Euros were transferred to Respondent’s account according to Escrow agreement, referring to Evidence A No. 148-1,148-2 and 149 and gist of whole hearings.
[51].
On the other hand, Claimant claimed lawsuit to Seoul Central District Court as 2012KaDan3571 and received decision of provisional attachment of Sales Markup Payment Request Right of Respondent against KEB as reviewed before. However, USD 344,603 and 815 Euros were transferred to Respondent’s account and it means they were excluded from provisional attachment.
[52].
Therefore, as USD 344,603 and 815 Euros which were transferred to Respondent’s account should be deducted from Markup profit of USD 929,469 accrued from June 1, 2013 to January 28, 2015, Claimant’s deduction claim is reasonable. On the other hand, according to the gist of whole hearings, exchange rate on January 10, 2015 which is near to January 28, 2015 was 1.1302 dollar per Euro. Applying the exchange rate, 815 Euro becomes USD 921 and it makes total USD 345,524 by adding it to USD 344,603. Therefore, when subtracting USD 345,524 from markup profit of USD 929,469 from June 1, 2013 to January 28, 2015, there remains USD 583,945 and total markup profit from June 1, 2013 to September 30, 2015 is reduced to USD 702,760 (= 1,048,284 - 345,524).

(2) Set Off with the First Arbitration Judgment Amount According to Set Off Notification on January 28, 2015

[53].
As we reviewed above, Respondent made set off notification to Claimant on January 28, 2015 that monetary credit of Claimant according to the first arbitration judgment would be set off from the unpaid markup profit.
[54].
On the other hand, the main text of the first arbitration judgment says, "Respondent shall pay 1,482,971,408 Korean won and interest on 1,150,038,201 from June 30, 2012 and on the rest of 332,933,207 Korean won from February 23, 2013 to April 10 in 2014 at the rate of 6% per annum, and from the next day to the day when the payment is fully paid off at the rate of 20% per annum to Claimant." Accordingly, when calculating the arbitration judgment amount by the date of January 28, 2015, we have got total 1,866,488,457 Korean won with principal of 1,482,971,408 Korean won and delay penalty of 383,517,049 [= 1,150,038,201 Korean won x (650 days/365 days x 0.06 + 293 days/365 days x 0.2) + 332,933,207 Korean won x (412 days/365 days x 0.06 + 293 days/365 days x 0.2)] (Less than 1 Korean won is deleted, the same rule is applied hereunder).
[55].
At the time of January 28, 2015, markup profit credit of Respondent was USD 583,945 as reviewed above. When converting it to Korean won using the foreign exchange rate as of January 28, 2015 which is 1,082.90 Korean won per USD 1, we have got 632,354,040 Korean won. (Before January 28, 2015, we cannot specify sales revenue per zone and a part of markup profit has been transferred to Respondent’s account through Escrow account as reviewed above, for convenience sake the time appointed for payment of markup profit credit is considered as January 28, 2015. For the same reason, the time appointed for payment of markup profit credit from January 29, 2015 to September 30, 2015 is considered as September 30, 2015.)
[56].
As at the time of January 28, 2015, automatic credit (Markup profit of Respondent 632,354,040 Korean won) is not enough to set off manual credit (the first arbitration judgment amount of Claimant 1,866,488,457 Korean won) we will pay delay penalty 383,517,049 Korean won first according to Article 479-1 and the balance will be used to pay off principal amount. Accordingly, when we pay the principal amount of the first arbitration judgment from the balance of automatic credit after paying the delay penalty [248,836,991 Korean won (=632,354,040 - 383,517,049)] we will have unpaid principal amount of the first arbitration judgment about which is 1,234,134,417 Korean won (= 1,482,971,408 Korean won -248,836,991 Korean won).

(3) Balance of the First Arbitration Judgment Amount According to Collection of Claimant by Execution Judgment

[57].
As reviewed above, under the judgment of execution of the first arbitration judgment as 2014 Ga Hab 537477 from Seoul Central District Court on May 15, 2015 Claimant got seizure of credit and collection order on June 11, 2015 with the claiming amount of 1,974,587,387 Lorean won (Principal 1,482,971,408 Korean won plus delay penalty 491,591,129 Korean won) on Sales markup Profit Payment Request Right of Respondent on KEB according to Escrow Agreement and collected 819,196,394 Korean won (It is Markup profit that has already been paid to Respondent through Escrow Account) on July 1, 2015.
[58].
On the date of July 1, 2015 when the collection was made according to Collection Order, the unpaid balance of the first arbitration judgment payment was 1,234,134,417 Korean won and delay penalty accrued from this from January 29, 2015 to the time was 104,140,657 Korean won (=1,234,134,417 Korean won x 154 days/ 365 days x 0.2). When it is used to pay the principal amount, unpaid principal amount balance would be 519,078,680 Korean won (= 1,234,14,417 Korean won - 715,055,737 Korean won). (As at the time of the collection there was remaining unpaid principal amount of the first arbitration judgment payment, claim of Respondent that the collected amount of 819,196,394 Korean won is excessive profit is groundless.)

(4) Set Off by the Balance of the First Arbitration Judgment Amount and Execution Judgment Litigation Expense

[59].
Claimant claims that the balance of the first arbitration judgment payment and execution judgment litigation expenses and Markup profit credit that Respondent claims shall be set off.
[60].
Markup profit credit up to January 28, 2015 has already been used up with Escrow account deposit and set off notice on January 28, 2015 and markup profit credit from January 29, 2015 to September 30, 2015 is USD 118,815. When converting it to Korean won using the foreign exchange rate as of September 30, 2015 which is 1,181.50 Korean won per USD 1, we have got 140,379,922 Korean won.
[61].
On the other hand the unpaid balance of the first arbitration judgment payment at the time of September 30, 2015 is principal amount of 519,078,680 Korean won and delay penalty from July 2, 2015 up to them is 25,882,827 Korean won (=519,078,680 Korean won x 91 days/365 days x 0.2). Considering the provision of Evidence A No. 153 and gist of whole hearings, the litigation expense that Respondent should pay to Claimant by judgment of Seoul Central District Court 2014 Ga Hab 537477 Execution Judgment Case was fixed as 14,628,877 Korean won.
[62].
According to set off claim by Claimant, we will set off those credits. According to legal succession of appropriation in accordance with the provision of Article 479.1 of Civil Act, markup profit of Respondent 140,379,922 Korean won is first used to pay the aforementioned legal expense 14,628,877 Korean won and then 125,715,045 Korean won will be remained (=140,379,922 Korean won - 14,628,877 Korean won). It is being used to pay delay penalty 25,822,827 Korean won and then we have balance of 99,868,218 Korean won 擠=125,751,045 Korean won -25,882,827 Korean won). Finally, with the balance we will pay the principal amount 519,078,680 Korean won, then we will have balance of unpaid first arbitration judgment payment of 419,210,462 Korean won (=519,078,680 Korean won - 99,868,218 Korean won).

(5) Summary

[63].
Eventually, markup profit credit of Respondent up to September 30, 2015 dissipated. However, as it can be seen in Attachment 2-2, Claimant is liable to pay markup profit to Respondent for the transactions whose initial delivery period has not ended yet after October 1, 2015.
[64].
[Claimant claims that they got damage of 366,737,468 Korean won, USD 1,385,785 and 129,296 Brazilian Real because of default of Respondent to open and maintain US business office (HR cost, office and residence rent, logistics warehouse rent, logistics agent fee, business trip expenses, insurance fee and etc.) and it shall be set off with Markup profit credit of Respondent. However, the aforementioned expenses are spent according to the needs of Claimant and this expense had to be spent by claimant instead of exempting from paying sales activity support cost or markup profit to Respondent as the agreement with Respondent has been terminated. It cannot be seen as damages related to default of Respondent so the set off claim of the claimant is not accepted.

3. Conclusion

[65].
In the main application of the claimant, claims except product supplies by transactions whose "initial product delivery termination" is marked as "Continued" from October 1 to the end of the initial delivery period are accepted because they have sound but the rest of them are rejected. Next, counter application by Respondent is rejected as there is no markup profit credit during the claiming period.
[66].
Finally, regarding arbitration cost, it is decided as Clause 3 in Decision in accordance of the provision of Article 52.2 of Arbitration Rule.
Whole document
para.
Click on the text to select an element Click elsewhere to unselect an element
Select a key word :
1 /

Instantly access the most relevant case law, treaties and doctrine.

Start your Free Trial

Already registered ?