Global companies entering Korea usually start with the contract templates their headquarters already uses: customer terms, distribution agreements, SaaS subscriptions, supplier terms. These templates often include broad liability caps, one-sided termination rights, and unilateral amendment clauses that are standard elsewhere. In Korea, they can run into the Act on the Regulation of Terms and Conditions (the “Standardized Contracts Act”). Under that Act, unfair clauses are void, and the Korea Fair Trade Commission (KFTC) can order them corrected. This article explains how the Act works, which clauses are most at risk, and how to localize a global template.
1. What Counts as “Standard Terms”: B2B Contracts Included
The Act applies to standard terms: contract terms that one party prepares in advance in a fixed form in order to contract with multiple counterparties. The name, format, and length of the document do not matter. It can be a short online checkout clause or a 40-page master agreement.
Two points often surprise foreign companies:
- The Act is not limited to consumers. It protects any “customer,” including businesses. Korean courts have applied it to distribution, franchise, leasing, and construction contracts between companies. Courts may apply it less strictly between sophisticated parties with equal bargaining power, but B2B status is not an exemption.
- Negotiated terms are excluded, but the burden is on you. A clause that was actually negotiated, where the customer had a real opportunity to influence its content, is not a standard term. The company relying on the clause must prove that it was negotiated. A signature on a template, or a cover email inviting comments, is generally not enough.
Key takeaway: If your headquarters template is used with many Korean customers or partners with few changes, assume the Act applies.
2. Does Choosing Foreign Law Avoid the Act?
Many global templates are governed by New York, English, or Singapore law. Whether that keeps the Act out depends on the type of contract.
- B2B contracts governed by foreign law: The Korean Supreme Court has taken the view that the Act is not an internationally mandatory rule that overrides a foreign governing law clause. Where the parties validly chose foreign law, the Act’s fairness provisions may not apply directly.
- Consumer contracts: Under Korea’s Act on Private International Law, a Korean consumer generally keeps the protection of Korean mandatory rules whatever law is chosen. The KFTC has repeatedly ordered global online platforms to correct consumer terms despite foreign governing law clauses.
- Contracts signed by the Korean subsidiary: Once a company sets up a Korean entity, contracts between that entity and Korean counterparties are often governed by Korean law, either because the counterparty insists or because Korean law governs anyway in the absence of a clear choice. The Act then applies in full.
Key takeaway: A foreign governing law clause may reduce the Act’s reach in B2B cross-border contracts, but it does not protect consumer terms or most contracts signed by a Korean subsidiary. (See our earlier article on choosing Korean or foreign law as the governing law.)
3. The Duty to Present and Explain Terms
A company using standard terms must:
- present the terms clearly and in a way the customer can understand, and provide a copy on request
- explain the important provisions, such as liability limits, termination grounds, and fees, so the customer understands them
If the company fails to explain an important clause, it generally cannot rely on that clause against the customer. The explanation duty does not apply to provisions that merely restate the law, or to matters the customer already knew or could readily be expected to know.
English-only terms
Presenting English-only terms to Korean customers, especially consumers and smaller businesses, increases the risk that a court will find the important clauses were not adequately presented or explained. Providing a Korean version, and stating clearly which language prevails, reduces this risk.
Interpretation against the drafter
Standard terms must be interpreted fairly and uniformly. Ambiguous clauses are interpreted against the drafter. Vague drafting in a global template will be read in the customer’s favor.
4. Clauses Most Often Found Invalid
Under the Act’s general clause, any term that is unfair and contrary to good faith is void. This is presumed where a term is unreasonably disadvantageous to the customer, is unexpected given the type of transaction, or restricts the customer’s essential rights so much that the contract’s purpose cannot be achieved. The Act also lists specific categories. These are the clauses in global templates that most often cause problems.
Limitation and exclusion of liability
- Clauses excluding liability for intentional misconduct or gross negligence are void.
- Clauses that unreasonably exclude or limit liability, or shift risks to the customer that the company should bear, can also be void.
- Common problem: “In no event shall Company be liable for any damages exceeding the fees paid in the prior month,” with no exception for gross negligence.
Termination
- Clauses that exclude the customer’s statutory termination rights, or that give the company termination rights without reasonable grounds, can be void.
- Common problem: termination for convenience available only to the company, with immediate effect and no cure period, combined with forfeiture of prepaid fees.
Unilateral amendments
- Clauses that let the company change the content of its performance, prices, or terms unilaterally without reasonable grounds can be void.
- Common problem: “Company may amend these terms at any time by posting the updated version on its website.”
Deemed consent and notices
- Clauses treating a customer’s silence or inaction as consent, or treating notices as received when they reasonably would not have been, can be void.
- Common problem: “Continued use of the service after an update constitutes acceptance of the updated terms.”
Excessive penalties
- Unreasonably high liquidated damages or penalties imposed on the customer can be void. Separately, the Korean Civil Code allows courts to reduce excessive liquidated damages.
- Common problem: forfeiture of the entire remaining contract value if the customer terminates early.
Waiver of customer rights
- Clauses excluding or limiting the customer’s right of set-off, right to withhold performance, or other defenses without reasonable grounds can be void.
Dispute resolution clauses
- Clauses that unreasonably restrict the customer’s right to sue, or set an unfair forum, can be void.
- Common problem: consumer terms requiring Korean consumers to sue exclusively in a foreign court, or to arbitrate abroad. The KFTC has challenged such clauses in the terms of global platforms.
Burden of proof
- Clauses that shift the burden of proof to the customer without reasonable grounds can be void.
5. Consequences and KFTC Enforcement
Only the unfair clause is void
As a rule, only the unfair clause is void and the rest of the contract remains in force. The gap is filled by Korean statutory default rules, which often favor the customer more than a reasonable negotiated clause would have. The whole contract becomes void only where the contract’s purpose cannot be achieved without the invalid clause, or where keeping the rest would be unfairly burdensome on one party.
KFTC enforcement
- The KFTC can recommend or order a company to delete or amend unfair clauses. Its review can be triggered by a customer complaint or by its own investigation.
- Failure to comply with a corrective order can lead to criminal penalties.
- KFTC decisions are typically made public, which carries reputational risk, especially for global brands.
- Failure to meet presentation and delivery duties can result in administrative fines.
KFTC standard terms
The KFTC publishes model standard terms for many industries, including software, e-commerce, rentals, and distribution. Aligning with these where they exist is a practical way to reduce risk.
6. Related Sector-Specific Laws
Depending on the business, other laws may restrict the same clauses even more strictly, and some apply regardless of whether the terms are standard terms:
- Fair Agency Transactions Act: Distribution and dealer relationships, including purchase quotas, unilateral price changes, and termination
- Fair Franchise Transactions Act: Franchise agreements, together with disclosure document requirements
- Fair Transactions in Subcontracting Act: Manufacturing, construction, and service subcontracting
- Electronic Commerce Act: Online sales to consumers, including withdrawal rights and disclosure duties
(See our earlier articles on exclusive distribution agreements, franchise entry, and e-commerce obligations in Korea.)
7. Localization Checklist
- Identify standard-form contracts used in Korea: customer terms, distributor and reseller agreements, supplier terms, and SaaS subscriptions.
- Check the governing law and whether the counterparties are consumers, small businesses, or large companies.
- Carve out intentional misconduct and gross negligence from all liability exclusions and caps.
- Balance termination rights: give reasonable notice and cure periods, and avoid one-sided termination for convenience.
- Replace unilateral amendment clauses with advance notice, an explanation of changes, and a right for the customer to terminate.
- Review penalties and forfeiture clauses for proportionality.
- Reconsider foreign forum and arbitration clauses, especially in consumer terms.
- Prepare Korean versions and set out clearly which language prevails.
- Document negotiations with key counterparties, including redlines and correspondence, to show which terms were individually negotiated.
- Check the KFTC model terms and sector-specific laws for your industry.
8. Conclusion
A headquarters template that works well in other markets can contain clauses that are void in Korea. The most common are broad liability exclusions, one-sided termination rights, unilateral amendments, and foreign forum clauses in consumer terms. The Act applies to B2B contracts as well as consumer contracts. A foreign governing law clause is not a reliable shield, especially once a Korean subsidiary is signing the contracts. And the KFTC can order corrections publicly.
Localizing templates before they are rolled out costs far less than defending them in a dispute or a KFTC investigation, and the result is contracts that Korean counterparties sign more readily.