[비즈한국] Companies sometimes make decisions that are difficult to explain solely in financial terms. Understanding the laws and regulations behind them can provide a deeper insight into the reality of these situations. 'Business Law Tips (Al-Sseul-Bi-Beop)' introduces insights to help you understand the flow of business.
Sometimes, events occur that were not anticipated at the time a contract was signed, causing the terms to become a burden on one party. Examples include a sudden spike in interest rates, changes in regulations, or a doubling in the price of raw materials. Can you appeal to a court to change the contract terms in such cases? To start with the conclusion: it is not easy. Our courts are very reluctant to allow contract modifications based on changes in circumstances.
That said, it’s not that there is no path forward. Dispute mediation based on the prohibition of abuse of trading position under the Fair Trade Act can be a realistic alternative. The Supreme Court does recognize the principle of change of circumstances itself. It holds that in exceptional cases where the foundations of a contract have significantly shifted, such shifts were unforeseeable at the time of signing, and maintaining the contract as-is would result in a grave imbalance in the parties' interests or render the purpose of the contract unachievable, the contract may be canceled or terminated (Supreme Court 2004Da31302, decided March 29, 2007, etc.).
However, the threshold is high. The Supreme Court's position is that even if damages occur due to changes in economic conditions, it is not considered a change of circumstances if a reasonable person could have foreseen it, and merely experiencing disadvantages due to economic shifts is insufficient to void a continuous contract (Supreme Court 2016Da249557, decided June 8, 2017). Furthermore, the effect recognized by legal precedents is typically cancellation or termination. Demands to maintain the contract while merely modifying the terms are much harder to get accepted.
The same applies to arguments invoking the principle of good faith or the prohibition of abuse of rights. Courts are wary of appearing to base their conclusions on the subjectivity or discretion of the bench. It is rare for a claim to "interpret a contract differently because it goes against good faith" to be accepted when there is clear contractual wording. This is why lawyers often interpret the appearance of arguments regarding good faith or abuse of rights in opposing legal briefs as a sign that "they have no further logic to push" or that "they have effectively given up on the case." This is the honest atmosphere of the legal field.
It is true that there is more room for consideration since the implementation of the constitutional complaint system for court decisions in March this year, as finalized court rulings can now be subject to Constitutional Court review. However, it is extremely exceptional for the Constitutional Court to delve into the interpretation of contracts in individual civil disputes. It is difficult to expect a shift in the judiciary’s fundamental stance.
The issue is one of concrete fairness. It is difficult to see repeating the principle that "contracts must be honored" as the correct conclusion when one party is driven to the brink of bankruptcy due to changes no one could have anticipated at the time of signing. If that is the case, what is a way to correct contract terms based on reasonable standards rather than relying on discretion or arbitrary judgment?
One method is to apply for dispute mediation based on the prohibition of abuse of trading position (Article 45, Paragraph 1, Subparagraph 6) under the Fair Trade Act. The Fair Trade Dispute Mediation Council under the Korea Fair Trade Mediation Agency resolves disputes surrounding unfair trade practices and drafts a mediation record once an agreement is reached. The core advantage is that it allows for a discussion on adjusting contract terms based on a legal determination—specifically, "whether one party used its superior position to inflict a disadvantage on the other"—rather than on vague notions of 'equity.'
Here is a case. A developer constructed a commercial building through a real estate development project, and a large discount mart moved in as the anchor tenant. However, due to political regulations, the scale of the shopping complex had to be reduced, creating problems with project feasibility. To make matters worse, interest rates rose significantly compared to when the contract was signed, making it difficult to maintain the building under existing lease conditions. Furthermore, the rent payment structure was designed to fluctuate based on the tenant's operational methods.
The landlord applied for dispute mediation, claiming the large mart was using its superior trading position to set rent at an unfair rate. Regardless of whether the applicant's claims were accepted, the large mart expressed a willingness to reach an amicable agreement. The reason this outcome was possible is clear: if the building owner goes under, the tenant mart also loses its base of operations. It was also difficult to deny that the initial lease conditions were set in a somewhat unconventional manner due to various political considerations at the time of entry.
A matter that would have required knocking on the narrow doors of 'change of circumstances' and 'good faith' in a standard lawsuit became a subject of reasonable mediation within the framework of the Fair Trade Act. It is also notable that the building owner, often viewed as the 'Gap' (superior party), claimed abuse of trading position against the tenant. Trading position is judged not by the label in the contract, but by actual bargaining power.
Of course, there are clear limitations. First, there is the problem of the criteria that distinguish civil matters from Fair Trade Act matters. To constitute an abuse of trading position, the other party must hold a superior position, there must be no possibility of switching to another business partner during the initiation or continuation of the trade, and a 'lock-in' effect must be recognized due to inability to recover invested capital. If these requirements are not met, it is merely a civil dispute and not subject to the Fair Trade Act. Second, there are procedural limitations. Dispute mediation has no enforcement power. If the other party refuses mediation from the start, there is no way to continue the procedure, in which case one must seek other means such as civil litigation or reporting to the Fair Trade Commission.
Nevertheless, I recommend this method because precedents exist, and as cases accumulate, a logical methodology is taking root. The same logical structure can be seen in other fields. Article 22, Paragraph 5 of the Framework Act on the Construction Industry renders invalid those parts of a construction contract that are significantly unfair to one party, such as when one party refuses to recognize changes in the contract price due to shifts in economic conditions after the contract is signed, without good reason.
Based on this provision, the Busan High Court ruled that a special clause excluding price fluctuations—stating "the construction cost cannot be raised under any circumstances"—was invalid, and the Supreme Court confirmed this ruling in 2024 by dismissing the appeal without a hearing (Busan High Court 2023Na50434, decided Nov. 29, 2023; Supreme Court 2023Da313913, decided April 4, 2024). This follows the same trend of using specific legal provisions as a lever instead of relying on vague changes of circumstances.
It is said that heaven helps those who help themselves. You should not immediately give up just because the wording of a contract holds you back. Instead of making vague appeals to good faith, finding specific legal provisions that fit the case and building a solid logical argument often reveals a path forward. Now, with an abundance of theories, precedents, and statutes, is the best time to find that path.