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Commercial Contract Negotiations

English to Korean Interpreting Services for Contract Negotiations.

We’ve blogged before about the importance of using certified translators and interpreters in commercial contract negotiations. In the case below, the owner of a foreign company used an English to Korean interpreter to negotiate a purchase order contract with an American company. A summary of the case follows below.

California Company Negotiates Oral Contract With Korean Manufacturer.

In Caravan Canopy International, Inc. v. Human Electronics Co. the plaintiff was a leisure and sporting goods company that sold its products to major retailers such as Costco, Walmart, and The Sports Authority. The defendant was a South Korean company that manufactured canopies in China for the plaintiff. The parties entered into an oral agreement in 2010 for the manufacturing of canopies, and the defendant’s owner negotiated the terms of the contract with the aid of a Korean interpreter. The plaintiff provided the defendant with a prototype of the canopies that the defendant was required to replicate exactly in manufacturing the canopies.

After the defendant provided defective canopies that did not match the prototype, the plaintiff filed suit against the South Korean company in California state court. The plaintiff alleged it incurred damages as a result of the canopies that contained defective “pin brackets.” The plaintiff also alleged it incurred damages as a result of the defendant’s failed Costco audit that revealed the defendant’s use of child labor. As a result of the failed audit, plaintiff alleged it was required to implement a costly “workaround” that involved changing the canopies’ assembly location from the defendant’s facility in China to the plaintiff’s facility in La Mirada, California.

Trial Court Rules in Plaintiff’s Favor on Breach of Contract Claim.

After a five day trial, the trial court ruled that the defendant had breached the parties’ oral agreement by failing to provide products that complied with the prototype per the contractual specifications and awarded the plaintiff over $900,000 in damages for losses on products the plaintiff purchased from the defendant. The court, however, denied the plaintiff’s $1.2 million claim for lost profits on other business it did with Costco.

The defendant appealed the trial court’s ruling, arguing that the court awarded the defendant a “windfall” because it calculated damages based on the plaintiff’s lost revenues without factoring for payments that the plaintiff withheld from the defendant. The defendant also argued that the court should not have awarded the plaintiff damages for costs associated with changing the assembly location for the canopies due to the defendant’s failed audit.

The California Court of Appeal agreed with the defendant that the trial court failed to properly calculate the plaintiff’s damages because it did not take into account the payments that were withheld. The court noted that the plaintiff had withheld $400,000 in payments to the defendants for canopies the plaintiff did not believe complied with the specifications in the contract and the prototype. Thus, the court held that “[plaintiff] obtained the benefit of the payments that it withheld from [defendant] for non-conforming merchandise whether or not those payments related directly to particular canopies that [plaintiff’s] customers later returned.”

Korean Litigation Causes Confusion.

The court stated that the trial court appeared to have viewed the unpaid funds as a debt owed to the defendant as a result of legal action the defendant took against the plaintiff’s affiliate in Korea. Although there was not much known about the Korean litigation, the court of appeal explained that the defendant was apparently successful in pursuing a claim against the plaintiff’s affiliate for payment of the canopies in a Korean court. Accordingly, the trial court was concerned about a double recovery for the defendant if it considered the $400,000 to be an “offset” in the state court litigation. However, the Court of Appeal held that the lower court’s damage award was a “windfall” to the plaintiff since the plaintiff had withheld $400,000 in payments. The court explained that “[n]either the trial court nor this court can control whether [the defendant] might obtain a double recovery due to a Korean court’s ruling that a Korean corporation may not assert a contractual defense belonging to a different, affiliated California corporation. We can only control whether the damages award in this case is correct.”

Court Finds Plaintiff Was Entitled to Damages for Defendant’s Failed Audit Due to Child Labor.

While the Court of Appeal agreed with the defendant that the trial court’s damage award was erroneous, the Court of Appeal rejected the defendant’s argument that the plaintiff was not entitled to damages resulting from the defendant’s failed Costco audit. The court agreed that the trial court reasonably concluded that the damages plaintiff incurred from changing the delivery/assembly location from China to California resulted from a breach of contract. As noted above, the evidence revealed that the defendant’s owner negotiated the terms of the oral contract with the assistance of a Korean interpreter; thus, the court found that the defendant knew that complying with Costco’s code of conduct was a condition of the parties’ contract, which prohibited the use of child labor. Accordingly, the court of appeal upheld the trial court’s award of $158,996.74 to plaintiff for the cost of shipping, labor, and other charges related to the location change.

The case is Caravan Canopy International, Inc. v. Human Electronics Co., Ltd., Court No. B27882 decided on March 27, 2018 by the Court of Appeal of the State of California, Second Appellate District, Division Two.

Legal translators and interpreters at All Language Alliance, Inc. provide translating and interpreting services from English to Korean, Japanese, Russian, Mandarin Chinese, Spanish, French, German, Portuguese, Arabic, Dari, Pashto, and other languages during commercial contract negotiations and litigation.

**This law translation blog post should not be construed as legal advice. You should always consult an attorney regarding your specific legal needs.

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