In a lawsuit filed by Company M’s franchisees (the “Plaintiffs”) against the franchisor (the “Defendant”) seeking restitution for unjust enrichment, Kim & Chang represented the Defendant from the initial trial to the final appeal to the Supreme Court. Our firm identified critical flaws in the Plaintiffs’ arguments and defended the client through an in-depth review of the franchise agreement and relevant legal principles. We prevailed across all levels of the judiciary. The Supreme Court affirmed the lower courts’ rulings by dismissing all claims, resulting in a final judgment that stands as a significant precedent in contrast to other recent rulings in franchise litigation.

The Plaintiffs argued that the Defendant’s two price increases for key raw and ancillary materials since 2020 were invalid for failing to follow the procedures mandated by the franchise agreement, asserting that the Defendant was liable for restitution for unjust enrichment regarding those price increases.

Our firm conducted a thorough analysis of the franchise agreement and relevant legal principles. We emphasized that (i) the Defendant complied with all substantive requirements and procedures set forth in the franchise agreement when raising product prices, and that (ii) even if procedural insufficiencies existed, the franchisees had provided subsequent and implicit consent. Furthermore, we successfully argued that in “unjust enrichment arising from benefits conferred” claims, the burden of proof lies with the Plaintiffs to show the benefits conferred were not legally due. Since the Plaintiffs paid the increased prices without evidence that the underlying transactions were invalid, no restitution was warranted.

Our firm successfully persuaded the courts by framing the Defendant’s actions within the unique nature of the franchise business, demonstrating that the price increases were both necessary and reasonable, and highlighting the franchisor’s consistent efforts to support the franchisees’ interests and ensure mutual coexistence.

On January 29, 2026, the Supreme Court dismissed the Plaintiffs’ appeal and affirmed the High Court judgment in favor of the franchisor, ruling decisively on three key issues.
 

• First, the Court upheld the lower court’s recognition of the substantive necessity/legitimacy of product price increase, citing objective factors such as increases in labor costs, logistics costs and costs of goods.

• Second, regarding compliance with contractual procedures, the Court affirmed the procedural legitimacy of the second price increase, noting that the franchisor had engaged in substantive consultations with the franchisees in accordance with the contractually required procedures.

• Finally, on the issue of recognizing subsequent and implied agreement, the Court held that while strict contractual procedures may not have been perfectly mirrored, the increase remained valid because the parties’ long-term conduct following the adjustment evidenced a clear subsequent and implied agreement.
   

Recently, disputes between franchisors and franchisees have been on the rise, with numerous pending lawsuits questioning the legal grounds for franchisors to receive certain payments from franchisees.

This case is significant because the Supreme Court affirmed the legitimacy of the supply-price increases, concluding that they resulted from a reasonable process of gathering opinions and holding substantive consultations. Furthermore, despite the scrutiny that superior bargaining power entities may face under Korean law, we persuasively contextualized the franchisor-franchisee relationship and obtained a favorable outcome for the Defendant. In this case, the Court recognized the franchisees’ subsequent and implicit agreement to the new terms, making a notable departure from earlier decisions favoring the weaker bargaining power entities.