[1] Meaning of “where important matters are omitted” under Article 9(1) of the former Fair Transactions in Franchise Business Act, and in such a case, whether a franchisor is liable for damages to a prospective franchisee under Article 37(3) of the former Fair Transactions in Franchise Business Act and Article 56(1) of the Monopoly Regulation and Fair Trade Act (affirmative)

[2] In a case where Gap et al. leased a store and operated convenience stores with the right to operate a franchise store granted by Eul et al., and the local government received a warning of removal, etc. on the ground that the said store cannot be operated as a convenience store for the general public pursuant to the Industrial Cluster Development and Factory Establishment Act, and subsequently suspended its business, Eul et al., and notified Eul of the termination of the said contract, the case holding that Eul's act of failing to notify the above circumstances in the course of consultation or consultation for concluding the franchise agreement constitutes a violation of the duty to provide information or duty to notify.

[1] The phrase "cases where important matters under Article 9 (1) of the former Fair Transactions in Franchise Business Act (amended by Act No. 12094, Aug. 13, 2013; hereinafter "Franchising Business Act") are omitted means cases where a prospective franchisee is not notified of the fact that it may have a significant impact on the decision-making of a prospective franchisee, such as the conclusion and maintenance of a franchise agreement, or that a prospective franchisee would not have entered into a franchise agreement if he/she was notified of certain circumstances, or where it is evident in light of the empirical rule that the prospective franchisee would not enter into the franchise agreement if he/she was notified of such circumstances, etc. In order to enter into the franchise agreement, the franchisor would be in violation of the obligation to provide information or obligation to notify a prospective franchisee under Article 9 (1) of the Franchis Business Act. A franchisor is liable to compensate for damage to a prospective franchisee under Article 56 (1) of the Monopoly Regulation and Fair Trade Act applied mutatis mutandis under Article 37 (3) of the Franchis Business Act.

[2] In a case where Gap et al. leased a store and operated convenience stores with the right to operate a franchise store granted by Eul et al., and the local government received warnings from Gap et al. for removal, etc. on the ground that the store cannot be operated as a convenience store for the general public pursuant to the Industrial Cluster Development and Factory Establishment Act, and then suspended its business, and notified Eul et al. of the termination of the contract, the case held that the court below's act of failing to inform Eul et al. of the fact that the establishment and operation of a franchise store could not operate an ordinary convenience store for the general public, even if the store was established and operated in the same manner as the above store location, and that the act of failing to inform Eul et al. of the fact that the prospective franchisee would not have any significant influence on the decision-making of the prospective franchisee, such as the conclusion and maintenance of the franchise agreement, or that the prospective franchisee would not have concluded the franchise agreement if it were consulted or consulted about important matters to enter into the franchise agreement, constitutes an act of failing to inform Eul et al. of such circumstances.

[1] Articles 9(1) and 37(3) of the former Fair Transactions in Franchise Business Act (Amended by Act No. 12094, Aug. 13, 2013); Article 56(1) of the Monopoly Regulation and Fair Trade Act / [2] Articles 9(1) and 37(3) of the former Fair Transactions in Franchise Business Act (Amended by Act No. 12094, Aug. 13, 2013); Article 202 of the Civil Procedure Act

[1] Supreme Court Decision 208Da51120, 51137, 51144, 51151 decided August 20, 209 (Gong2009Ha, 1516), Supreme Court Decision 2014Da84824, 84831 decided April 9, 2015 (Gong2015Sang, 689)

Plaintiff 1 and one other (Attorney Kim-sik, Counsel for the plaintiff-appellant)

Gyeong Flaz Co., Ltd. (Law Firm Bululul, Attorneys Park Young-young, Counsel for the defendant-appellant)

Daegu District Court Decision 2018Na303729 Decided January 23, 2019

The judgment below is reversed, and the case is remanded to the Daegu District Court.

The grounds of appeal are examined.

1. A. The legislative purpose of the former Fair Transactions in Franchise Business Act (amended by Act No. 12094, Aug. 13, 2013; hereinafter “Franchising Business Act”) is to establish a fair trading order for franchise business and to ensure complementary and balanced development between franchisers and franchisees on an equal footing (Article 1). A franchisor requires franchisees to use a franchisor’s business mark to sell goods, etc., and also to support and educate their management, business activities, etc. as well as to control franchisees (Article 2 subparag. 1). A franchisee shall pay a consideration to a franchisor in order to receive the aforementioned continuous support and education (Article 2 subparag. 1 and 6). A franchisor has a duty to provide franchisees with advice and support on the quality management and supply of goods, etc., including for the success of franchise business, as well as on the management of franchisees and business activities (Article 5). A franchisee shall be obligated to comply with the franchiser’s obligations to comply with Article 6(1).

Article 9(1) of the Franchise Business Act provides that "no franchiser shall provide false or exaggerated information or omit important matters in providing prospective franchisees with information," and Article 41(1) of the same Act provides that "any person who provides false or exaggerated information or omits important matters in violation of Article 9(1) shall be punished by imprisonment with labor for not more than five years or by a fine not exceeding 150 million won."

B. Comprehensively taking into account such contents of the Franchise Business Act, the term “in cases of omitting significant matters under Article 9(1) of the Franchise Business Act” means cases where a prospective franchisee was unable to enter into and maintain a franchise agreement, or where it is evident in light of empirical rule that a prospective franchisee would not enter into a franchise agreement if he/she was notified of certain circumstances, he/she did not notify the prospective franchisee of such fact at the stage of consultation or consultation in order to enter into the franchise agreement. If a franchisor commits such an act, the franchisor breached the obligation to provide information or to notify under Article 9(1) of the Franchise Business Act, and the franchisor is liable to compensate a prospective franchisee for damages pursuant to Article 56(1) of the Monopoly Regulation and Fair Trade Act which applies mutatis mutandis under Article 37(3) of the Franchise Business Act (see, e.g., Supreme Court Decision 2014Da84824, 84831, Apr. 9, 2015).

2. We examine this case.

A. Review of the reasoning of the lower judgment and the record reveals the following facts.

1) On June 2012, Plaintiff 2 entered into the instant contract with the Defendant, the franchisor, which was entitled to operate the instant store by leasing the instant store from the Seamen Industry Co., Ltd. (hereinafter “Nonindicted Company”). around that time, Plaintiff 2 entered into the instant contract with the Defendant, which was the franchisor, with respect to the instant store, and completed the instant registration of collateral security concerning the land owned by Plaintiff 1, the husband, in order to secure the performance of obligations under the instant contract, etc., and started the convenience store business for the general public at the instant store.

2) However, in principle, the store of this case can not be operated as a convenience store for the general public. Under the Industrial Cluster Development and Factory Establishment Act (hereinafter “Industrial Cluster Act”), the store of this case is located under the ground where the non-party company purchased the site for industrial facilities from the Ulsan Metropolitan City Mayor and newly constructed the site. Under Article 12 subparagraph 2 and 3 of the ○○ Industrial Complex Occupancy Agreement entered into between the non-party company and the Ulsan Metropolitan City Mayor, the non-party company is prohibited from changing the purpose of use or making profits from the sale site without the consent of the Ulsan Metropolitan City Mayor. Article 13 (1) of the Industrial Cluster Act provides that the non-party company may take measures or make profits from the sale site without the consent of the Ulsan Metropolitan City Mayor. Article 2 subparagraph 1 of the Industrial Cluster Development and Factory Establishment Act (hereinafter “Industrial Cluster Act”) provides that "factory shall have manufacturing facilities such as structures or structures, machinery and equipment forming manufacturing processes, and ancillary facilities thereof, and it shall not include manufacturing facilities prescribed by Presidential Decree in the Enforcement Rule of the same Act."

3) On July 2012, Ulsan Metropolitan City notified the Defendant of the corrective order on the grounds that it was unable to operate convenience stores for the general public at the instant store, and issued a warning of removal, etc. In the end, Plaintiff 2 suspended business on or around December 2013 (the location where the instant store exists is located is more than 30 residents), and around January 2014, notified the Defendant of the termination of the instant contract, asserting that “A cause is attributable to the Defendant insofar as there is no legal problem regarding the establishment of member shops.”

4) The defendant asserts that the court below also held that the store of this case can be operated within the scope of the store store for the internal employees of the factory, and that there are a number of cases of operating convenience stores at the same location as the store of this case in fact as the store of this case, and that there are many cases of operating convenience stores within the industrial complex during the process of concluding the contract of this case, it seems that the defendant is only a member store in operation, but the defendant did not notify the above legal restrictions.

B. Examining these facts in light of the aforementioned legal principles, the circumstance that the location of the store of this case is the same as the location of the store of this case, but the ordinary convenience store business for the general public cannot be operated, and the type of limited store store business for the factory employees is inevitable, such as the conclusion and maintenance of the franchise agreement, or that if a prospective franchisee was notified of such circumstances, he/she would have not entered into the franchise agreement if he/she was notified of the fact. If the defendant did not notify the defendant of such circumstance in the course of consultation or consultation with the contract to enter into the franchise agreement, such act constitutes an omission of important matters as provided by Article 9(1) of the Franchise Business Act, i.e., a violation of the duty to provide information or the duty to notify. In addition, the existence of liability for damages caused by such breach, the extent of recognition of liability for damages, and the obligation of collateral security registration of this case (subject to settlement) must be re-calculated in accordance with the aforementioned legal principles.

The lower court rejected all claims for damages filed by Plaintiff 2 and Plaintiff 1 for the cancellation of the instant registration on the ground that the cause attributable to the termination of the instant contract was not the Defendant, without examining whether the Defendant breached the duty to provide information or to notify under Article 9(1) of the Franchise Business Act, and is liable for damages against Plaintiff 2. In so doing, the lower court erred by misapprehending the legal doctrine on the duty to provide information or the duty to notify under Article 9(1) of the Franchise Business Act, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal on this point is with merit.

3. The judgment of the court below is reversed without examining the remaining grounds of appeal, and the case is remanded to the court below for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Noh Tae-tae (Presiding Justice)