This article is a contribution by Attorney Jaesik Moon of Choi & Lee Law Firm. If you would like to share quality content for startups in the form of a contribution, please contact the Venture Square editor team at editor@venturesquare.net.
I think that readers who run startups have probably worked hard to win projects commissioned by the government or other organizations. In order to win these projects or bid successfully, the documents that startups need to prepare and the procedures that they need to go through are not easy, and even after investing all their material and human resources, they cannot avoid the risk of failing to win the project. There is someone who exploits these startups' weaknesses. They are 'brokers'.
Brokers claim that they know the person in charge of the institution well and will introduce them to you, or that they are familiar with the bidding or ordering process and procedures and will prepare and assist with the necessary documents with their own know-how, and ask for a large amount of money. Startups have no choice but to stamp the large service contract presented by the broker and pay most of the total amount in advance as a deposit or down payment from the time of signing the contract. However, after stamping the contract, the broker only provides document forms that can be obtained anywhere and does not provide any advice on actual document preparation or bidding. In the end, the broker's work is of no help at all, and if the startup goes through all the hardships and succeeds in winning the order, it is fortunate, but if it fails, the broker is not responsible. It seems that there are many cases of damage caused by such brokers through our consultations and case handling. In this article, we will guide you on prevention (assuming that the broker is a legitimate broker) and response measures for damage related to broker service contracts.
- Carefully draft the service contract
Brokers also usually request the drafting of a service contract. However, the content of the service contract itself is sloppy and is obviously written to the broker’s advantage. Therefore, if you do not have a service contract drafted, request one, and carefully check the following items in the contract and request modifications and supplements (if possible, we recommend that you seek the help of a legal professional).
- Be as specific as possible about the broker's duties, work details, work performance deadlines, and stages (for example, write a bid application on 0/0/0, review and confirm attached documents on 0/0/0, etc.). Usually, the service contract written by a broker tends to very vaguely describe the broker's duties, but very specifically describe the payment. This means that you will receive the exact amount of money you are owed. If the broker does not properly perform the duties afterward, you can make demands based on the contract and it is easier to hold them accountable. If they do not accept such demands, it is best not to work with that broker.
- Check the parties listed in the contract carefully. In order to make it difficult for the company to receive a refund of the service fee later, brokers sometimes try to avoid being listed as a party by listing the name of the corporation (stock company) in the contract as a party and themselves as an agent and receiving the fee in the name of the corporation. In this case, the corporation is likely to be a paper company, and even if you actually file a lawsuit against the corporation for the return of the fee, it may not be enforceable because it has no assets. Therefore, please be sure to list the broker as a party to the contract, or even if it is a corporation, check the relationship between the corporation and the broker, whether the corporation is actually operating, etc.
- It would be better to add penalty provisions, such as liquidated damages or penalty provisions for breach of contract, to other contracts to prepare for risks in case of future breaches.
- If damage occurs, file a criminal complaint for fraud
In the case of malicious and illegal brokers, they receive service fees by deceiving people into believing that they will definitely succeed in bidding or receiving orders, even though they do not have the ability or will to act as actual brokers. This is a fraud crime under the criminal law. If the broker used the service fees for personal use or purposes other than the actual bidding and receiving orders, this clearly supports the crime of fraud. Therefore, if the above circumstances are confirmed, you can actively consider filing a criminal complaint for fraud. In accordance with the criminal complaint, the broker is likely to request an agreement to pay the damages in order to receive a favorable disposition from the investigative agency or a reduced sentence.
- Request for refund of service fee to recover damages
If the above criminal complaint is a criminal response measure, there are civil measures such as restoration to the original state through termination of the contract, and a request for a reduction in the commission fee for the consignment contract, to request a return of the service fee already paid.
If you have already paid most of the total service fee as a deposit or advance payment (or under the name of a down payment), but the broker does not properly perform the work he or she promised and does not perform despite repeated requests for performance, you can terminate the service contract by notifying termination of the contract and receive a full refund of the amount already paid. Even if there is no clause regarding termination or cancellation in the service contract, it is a statutory termination reason recognized under civil law, so you can exercise the right to terminate.
In addition, since a service contract with a typical broker is a type of 'delegation contract', if there are circumstances that can be considered that the agreed upon compensation amount is unreasonably excessive and violates the principle of good faith or equity after considering the circumstances of the delegation, the course and difficulty of the delegated work, the level of effort invested, and the specific benefits that the principal obtains from the work, the compensation may be recognized as a reduced amount from the agreed upon compensation in the contract (see Supreme Court Decision 2015Da35560 dated February 18, 2016, etc.). If the broker did do the work as promised, but it was not a task with a high level of difficulty that anyone could do, or if the work was not actually performed, at least the agreed compensation may be deemed excessive, and a portion of the prepaid amount may be returned or the unpaid amount may be refused.
In the case of early startups, there will be a dire need for institutional bids or orders. Always be aware that bad brokers who take advantage of this desperation are targeting you. If you feel that you absolutely need the help of a broker, check if the broker has the ability to help you, and if you decide to enter into a contract, it would be best to carefully review the contract to prevent damage in advance. Even if actual damage occurs, there are ways to recover damages through criminal charges, refund claims, etc., so you should quickly take legal action by receiving expert advice.
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