[1] The meaning that "unit price is reduced at a uniform rate" under Article 4 (2) 1 of the former Fair Transactions in Subcontracting Act

[2] The meaning of "justifiable cause" under Article 4 (2) 1 of the former Fair Transactions in Subcontracting Act and the burden of proof as to such "justifiable cause"

[3] Whether corrective measures against a violation of Article 4 (2) 1 of the former Act on Fair Transactions in Subcontracting are permitted to order payment of the difference in the price at a uniform rate and the actual payment of the difference in the subcontract price (negative)

[4] The meaning of “an act of the prime contractor determining unilaterally a low unit price without an agreement with the subcontractor” under Article 4(2)5 of the former Fair Transactions in Subcontracting Act

[5] Whether the prime contractor’s lowering the price of some of the elements related to the calculation of the subcontract price for the processing service is lower than the “general level of payment” as a result of an act of determining the subcontract price at a low price under Article 4(2)5 of the former Fair Transactions in Subcontracting Act (affirmative)

[6] In a case where a principal contractor unilaterally determines a subcontract price without an agreement with a subcontractor without any justifiable reason, whether it can be seen as a determination of an unfair subcontract price without any need to consider whether it is significantly lower than an ordinarily paid subcontract price (affirmative)

[1] Article 4 (2) 1 of the former Fair Transactions in Subcontracting Act (Amended by Act No. 11842, May 28, 2013) / [2] Article 4 (2) 1 of the former Fair Transactions in Subcontracting Act (Amended by Act No. 11842, May 28, 2013) / [3] Article 4 (2) 1 of the former Fair Transactions in Subcontracting Act (Amended by Act No. 11842, May 28, 2013) / [4] Article 4 (2) 5 of the former Fair Transactions in Subcontracting Act (Amended by Act No. 11842, May 28, 2013) / [5] Article 5 (2) 4 of the former Fair Transactions in Subcontracting Act (Amended by Act No. 11842, May 28, 2013; Act No. 11842, May 28, 2013)

[1] Supreme Court Decision 2009Du1990 Decided March 10, 201 (Gong2011Sang, 740) / [3] Supreme Court Decision 2012Du1555 Decided February 18, 2016 (Gong2016Sang, 428) / [4] Supreme Court Decision 2016Du35540 Decided December 7, 201 (Gong2018Sang, 197) / [6] Supreme Court Decision 2016Du59423 Decided March 13, 2018

Sung Dong-dong Marine Co., Ltd. (LLC, Kim & Lee LLC, Attorneys Oi-seok et al., Counsel for the defendant-appellant)

Fair Trade Commission (Law Firm spring, Attorneys Kim Min-soo, Counsel for defendant-appellant)

Seoul High Court Decision 2013Nu8778 decided January 16, 2015

Of the judgment below, the payment order for unit price reduction is reversed, and this part is remanded to the Seoul High Court. The remaining appeals by the plaintiff and the defendant are dismissed.

The grounds of appeal are examined.

1. Plaintiff’s ground of appeal

A. Whether an act of determining subcontract consideration by reducing the unit price at a uniform rate without justifiable grounds (ground of appeal No. 1)

(1) Article 4(1) of the former Fair Transactions in Subcontracting Act (amended by Act No. 11842, May 28, 2013; hereinafter “subcontract”) provides that “When entrusting a subcontractor with manufacturing, etc., the prime contractor shall not compel the subcontractor to determine or accept the subcontract price at a remarkably lower level than the price generally paid for the same or similar manufacturing, etc. of the object by using unlawful means.” Article 4(2) of the same Act provides that “an act of a prime contractor falling under any of the following subparagraphs shall be deemed to have determined the subcontract price by uniformly reducing the unit price without justifiable grounds.”

Article 4 (2) 1 of the Subcontract Act provides that "the reduction of a unit price at a uniform rate" means the reduction of a unit price at the same rate or at a certain rate classified as not reflecting the aforementioned difference, even though there are individual differences in circumstances, such as the conditions of management, market situation, and the type, size, quality, use, raw materials, manufacturing method, manufacturing process, etc. of two or more subcontractors or items, etc. of the object, etc., and if the determined rate of reduction can be deemed to have reduced the unit price at a uniform rate in light of the foregoing standards, if the whole or a certain rate of reduction is deemed to have been applied to a certain extent depending on the subcontractor, it shall be deemed to constitute "the act of determining a unit price at a uniform rate (see, e.g., Supreme Court Decision 2009Du1990, Mar. 10,

(2) On April 1, 2009, when concluding a unit price contract with five business entities, including future engineering, etc., and pipeline manufacturing consignment contract, the lower court acknowledged the fact that the Plaintiff reduced 10% of the unit price for the production cost by uniformly comparing the unit price for the entire year, and concluded the same unit price contract with six business entities, including future engineering, etc. on March 29, 2010. Based on such fact, the lower court determined that the Plaintiff’s act of reducing the unit price as above constitutes a case where the Plaintiff reduced the unit price at a uniform rate” under Article 4(2)1 of the Subcontract Act by comprehensively taking account of the following: (a) the subcontractor’s sales or the number of regular employees; and (b) the transaction period or the size with the Plaintiff is different.

Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine and the evidence duly admitted, the lower court did not err by misapprehending the legal doctrine regarding the reduction of unit price at a uniform rate, as otherwise alleged in the grounds of appeal.

(3) Meanwhile, in light of the language and text of the Act on Pinnin, “justifiable cause” under Article 4(2)1 of the Subcontract Act refers to an objective and reasonable circumstance to justify an act of determining a subcontract price by reducing the unit price at a uniform rate. The burden of proof lies on the claimant.

On such premise, the lower court determined that the ground alleged by the Plaintiff, including serious depression of the total shipbuilding industry, which occurred from the global financial crisis in 2008, or the evidence presented to the lower court was not sufficient to reduce the unit price at a uniform rate to the Plaintiff.

Examining the reasoning of the lower judgment in light of the relevant legal doctrine and duly admitted evidence, the lower court did not err in its judgment by misapprehending the legal doctrine regarding “justifiable cause” in the reduction of unit price at a uniform rate, contrary to what is alleged in the grounds of appeal.

B. Whether payment order is permissible as corrective measures with regard to the reduction of unit price at a uniform rate (ground of appeal No. 2)

In full view of the legislative nature of a violation of Article 4(2)1 of the Subcontract Act and an order for payment in cases where there is a reduction in the unit price by a uniform rate, etc., corrective measures against a violation of Article 4(2)1 of the Subcontract Act are not permissible to order the payment of the difference between the price and the actual price for a subcontract (see Supreme Court Decision 2012Du15555, Feb. 18, 2016, etc.).

Nevertheless, the lower court determined that the Defendant’s disposition, which ordered the payment of an amount equivalent to the difference between the amount calculated according to the former contractual unit price and the subcontract price for the relevant offense as to the transaction of the Plaintiff’s act violating Article 4(2)1 of the Subcontract Act, was lawful. In so determining, the lower court erred by misapprehending the legal doctrine on the permissible scope of payment order under the Subcontract Act, thereby adversely affecting the conclusion of the judgment.

2. As to the Defendant’s ground of appeal

A. The meaning of Article 4(2)5 of the Subcontract Act

Article 4(2) of the Subcontract Act provides that “The principal contractor unilaterally determines the subcontract price at a low price without the consent of the subcontractor” as an act of another principal contractor that considers the determination of unfair subcontract price in subparagraph 5 of Article 4 of the Subcontract Act.

This act means an act of unilaterally determining the subcontract price in a manner that determines the unit price, etc. in the absence of the actual consent or consent of the subcontractor with the prime contractor having a superior position in the transaction.

(b) The meaning of the Low Unit Price Act;

(1) “A below the unit price” is determined on the basis of whether it is lower than the price generally paid for the same or similar transaction subject to consignment. The level of “general payment” may be determined on the basis of the content of the previous transaction between the parties involved in the transaction at issue, the degree of price formed in another transaction subject to comparison (hereinafter “trade subject to comparison”), and the degree and difference between the transaction at issue, the time, method, scale, and scale of the transaction subject to comparison, the status of the transaction business operators in the market, the scale of the transaction subject to comparison, and the price at the time of transaction, etc. (see, e.g., Supreme Court Decision 2016Du35540, Dec. 7, 2017). The burden of proof on this issue lies with the Defendant asserting the legality of disposition, such as a corrective order (see, e.g.,

(2) Meanwhile, even if the Plaintiff lowers some of the components related to the calculation of the subcontract price for the processing service, which are unrelated to the quantity, among the elements that may affect the subcontract price widely, it constitutes “an act of determining the subcontract price at a low price” under Article 4(2)5 of the Subcontract Act that should be lower than the “general payment” as a result. The reasons are as follows.

① There is no separate provision regarding the meaning of the unit price. However, the prior meaning of the “unit price” is commonly used in the relevant statutes or practice as “unit price or unit price.” Ultimately, it is difficult to see that the concept of “unit price” is clearly distinguishable from the concept of “unit price”, and rather, it is often used as the same concept as the two.

② Article 4 of the Subcontract Act prohibits “determination of subcontract consideration at a level lower than that paid in general” under paragraph (1) of the same Article and presents cases where it is deemed unfair subcontract consideration determination under each subparagraph of paragraph (2) of the same Article. In light of the foregoing language and text, the object to be prohibited under Article 4(2)5 of the Subcontract Act is ultimately determined at a lower level.

(3) Meanwhile, in cases where a principal contractor unilaterally determines a subcontract price at a low price without an agreement with a subcontractor without any justifiable reason, it shall be deemed an unfair determination of a subcontract price without examining whether the subcontract price at a significantly lower level than the price ordinarily paid is determined (see, e.g., Supreme Court Decision 2016Du59423, Mar. 13, 2018).

C. Review of the reasoning of the lower judgment and the evidence duly admitted reveals the following circumstances.

(1) In relation to a violation of Article 4(2)5 of the Subcontract Act, the Defendant issued a corrective order that “the Plaintiff shall not re-determine the same act as determining subcontract consideration in a way that unilaterally lowers the number of time without consultation with the subcontractor while entrusting 18 subcontractors, including a light company, a stock company, etc., with the manufacture of vessel block assembly.”

(2) In addition, the Defendant ordered the Plaintiff to pay a total of KRW 2,302,728,000 to the Plaintiff without delay. The sum of the reduced amount was determined on the basis of the initial contract terms applied to the same type of block, and then the following contract terms were compared to the contract terms applied to the same type of block, and was determined on the basis of the increase or decrease in the contract terms. In other words, other factors such as the increase in the contract terms, other than the change in the contract terms, were not considered.

(3) Under the premise of the amount of reduction calculated, the Defendant ordered the Plaintiff to pay the penalty surcharge, following the procedure for calculating the subcontract price, calculating the basic amount of the penalty surcharge, calculating the adjusted penalty surcharge, and calculating the penalty surcharge.

D. The lower court determined as follows based on these facts, etc.

(1) If the Plaintiff, while entrusting the subcontractor with the manufacture by mutual vote, increased the rent rate instead of reducing the time limit, the Defendant should have determined whether the subcontract price set above is significantly lower than the previous contract price. In other words, the portion of increase in the rent rate should have also been considered.

(2) Nevertheless, on the erroneous premise that the rent rate should be increased by reflecting the inflation rate, it is difficult to view that the Defendant’s act of determining the subcontract price for the block assembly part of the instant case solely focusing on only the time reduction portion without considering whether the agreed subcontract price was significantly lower than the previous contract price, without excluding the Plaintiff’s increase in the rent rate and examining whether the agreed subcontract price was significantly lower than the previous contract price.

(3) Therefore, since the evidence presented by the Defendant alone, it is difficult to find out whether this part of the subcontract price determined by the evidence presented by the Defendant constitutes a significantly lower level than the previous contract price, the corrective order, the payment order, and the instant penalty surcharge payment order as to this part are unlawful without further determination as to the remainder of the Plaintiff’s assertion.

E. The lower court erred by determining to the effect that the subcontract consideration should be determined at a remarkably lower level than the ordinary price paid, but constitutes an unfair determination of subcontract consideration.

Meanwhile, according to the legal principles seen earlier, the subcontract consideration should be lower than the “general payment” level in order to constitute a “act of determining the subcontract consideration at a low price” under Article 4(2)5 of the Subcontract Act.

However, according to the facts acknowledged earlier, the Defendant deemed that “subcontracts” constituted unfair subcontract consideration decision on the basis of only the reduced amount at the time of contract without considering whether the “subcontracts” was lower than the level of general payment. Thus, the above payment order and penalty surcharge payment order were made on a premise different from the aforementioned legal principles, and are unlawful. Furthermore, even if the text of the above-mentioned corrective order continues to state that it is unnecessary to consider whether the Defendant increased the rent rate through the grounds of appeal, it is not different from the corrective order.

Ultimately, the lower judgment erred by demanding the level of “ significantly lower” than the price normally paid on the premise of recognizing the determination of unreasonable subcontract consideration. However, it is justifiable to conclude that each of the above dispositions is unlawful, and such error did not affect the conclusion of the judgment. Therefore, the Defendant’s ground of appeal is without merit.

3. Conclusion

Therefore, the part of the lower judgment against the Plaintiff regarding the payment order for unit price reduction is reversed, and that part of the case is remanded to the lower court for further proceedings consistent with this Opinion. The remaining appeals by the Plaintiff and the Defendant’s appeal are all dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Shin (Presiding Justice)