Regulator also finds company failed to issue required written documents on time

Dispute over delivery deadlines heads to court

Celltrion has been sanctioned by the Korea Fair Trade Commission for violating the Subcontracting Act, including unilaterally canceling manufacturing contracts with subcontractors who bore no responsibility for the terminations.

The Fair Trade Commission announced Thursday it will issue a corrective order and impose a fine of 630 million won ($471,000) on Celltrion for failing to issue legally required written documents and for improperly canceling subcontracting orders.

The Korea Fair Trade Commission at Government Complex Sejong in Sejong [Newsis]
The Korea Fair Trade Commission at Government Complex Sejong in Sejong [Newsis]

According to the Fair Trade Commission, Celltrion placed a total of seven diagnostic kit manufacturing orders with subcontractors between September 2021 and January 2022.

During the second and seventh orders, Celltrion changed the product items but failed to issue the legally required written documents. For the third order, the company did not provide the written notice until after the subcontractor had already begun work.

The Subcontracting Act requires a prime contractor to issue written documents to a subcontractor before work on the delivery of goods begins.

Celltrion also terminated a diagnostic kit supply contract in December 2022 and unilaterally canceled manufacturing orders for about 37.17 million kits — from the second and seventh orders — that had not yet been delivered, even though the subcontractors were not at fault.

The Fair Trade Commission determined that canceling the manufacturing orders without grounds to hold the subcontractors responsible constituted an unlawful cancellation of subcontracting orders prohibited under the Subcontracting Act.

"Celltrion's position is that it canceled the orders because the subcontractors missed delivery deadlines," a Fair Trade Commission official said. "However, a court case is currently under way, and even at the first instance the delivery deadline Celltrion asserted was not accepted. The commission also found it difficult to accept that position."

The two sides disagreed on how to determine the delivery deadline. The subcontractors argued that the date written on the purchase order should be treated as the deadline, while Celltrion countered that the applicable date should be the one on which the subcontractors had earlier said production would be possible.

The Fair Trade Commission said it will continue to strictly sanction prime contractors for Subcontracting Act violations in order to strengthen the rights of subcontractors and establish a fair subcontracting order.


y2k@heraldcorp.com