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Companies are concerned most over punitive damages

Posted July. 23, 2013 06:39,   


"Price-fixing is bad. However, it is too much to impose punitive damages up to 10 times the original damage in addition to penalties, pay for the remaining victims due to collective suits, and receive criminal punishment if related agency makes accusation. No company could survive the fourfold punishment," said a legal affairs director at a large company.

The so-called "economic democratization law," which the National Assembly passed or is seeking legislation after the launch of the Park Geun-hye administration, is triggering criticism for being impractical and carrying poisonous clauses due to excess punishment. The economic democratization law includes fair trade law, subcontractor law, commercial law and toxic chemicals control law.

The Dong-A Ilbo requested 30 conglomerates Monday to pick poisonous clauses (multiple answers) that are unreasonable or hamper management among 20 clauses to be discussed at parliament. Companies ranked No. 1 punitive damages that demand companies pay 3-10 times the original damage.

Companies said the Fair Trade Commission`s penalty already includes punitive factors, and it is too much and against legal principles to pay additionally. Excess regulation can restrict business activities and is a double punishment. Shin Seok-hoon, vice researcher at Korea Economic Research Institute, said, "Since the abolishment of Fair Trade Commission`s exclusive accusation system, companies can now be charged separately from penalty. Under these circumstances, introduction of punitive damages and collective suit will cause companies to suffer more. Companies also pointed out problems of increasing ordinary wages, banning circular shareholdings, introducing collective suit, and mandating concentrated vote system.

Among the laws that passed the parliament, the surveyed companies said banning intra-deals was the biggest poison clause. Though this aims to prevent illegal wealth transfer, it regulates even normal trading to raise competitiveness through vertical integration, thus hampering business activities. Other poisonous clauses picked included punitive damages on violation of subcontractor law, disclosure of registered executives earning more than 500 million won (447,027 U.S. dollars) in annual salary, abolition of exclusive accusation system, imposition of below 5 percent of sales when chemicals accident occurs.