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

[2] 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 between the price that has become the standard for uniform reduction of unit price and the price actually paid for the subcontract price (negative)

[1] Article 4(2)1 of the former Fair Transactions in Subcontracting Act (amended by Act No. 10475, Mar. 29, 2011) provides that “the unit price shall be reduced at a uniform rate” means that the unit price shall be reduced at a certain rate according to the same rate that does not reflect the same rate or difference, even though there are differences in individual circumstances, such as the subcontractor’s management status, market situation, and the type, size, size, quality, use, raw materials, manufacturing method, manufacturing process, etc. of two or more subcontractors or items, and if the determined rate of reduction can be deemed to have been reduced at a certain rate that is identical or specified as a whole in light of the foregoing standard even if the subcontractor has a certain difference, it constitutes “the act of determining the unit price at a uniform rate”.

[2] Article 25(1) of the former Fair Transactions in Subcontracting Act (amended by Act No. 10475, Mar. 29, 201; hereinafter “subcontract”) provides that Article 3(1) through (4) and (9), Articles 4 through 12, 12-2, 12-3, 13, 13-2, 14 through 16, 16-2, and 17 through 20 may recommend or order payment of subcontract consideration, suspension of violation, and other measures necessary for correcting a violation as corrective measures against the ordering person and the principal contractor who violated the provisions of Articles 3(1) through (4), 4 through 12, 12-2, 12-3, 13, 13-2, 14 through 16, 16-2, and 17 through 20 of the Subcontract Act provides for a single comprehensive corrective measure with regard to various violations subject to corrective measures and various contents thereof.

Article 4(2)1 of the Subcontract Act refers to the act of reducing the unit price at a uniform rate without considering the difference between the principal contractor and two or more subcontractors or items without justifiable grounds, and thus, it cannot be readily concluded that the price that forms the basis for a uniform unit price reduction in transactions violating the above provision is a justifiable subcontract price in light of the nature of the violation of the above provision. In addition, it is difficult to uniformly present the subcontract price between the principal contractor and the subcontractor in light of the nature of the violation of the provision.

Considering the comprehensiveness of the provision on the basis of corrective measures and the nature of the violation of Article 4(2)1 of the Subcontract Act, corrective measures against violations of Article 4(2)1 of the Subcontract Act are not permissible to order the payment of the difference between the price that has become the standard for uniform reduction of the unit price and the actual subcontract price.

[1] Article 4(2)1 of the former Fair Transactions in Subcontracting Act (Amended by Act No. 10475, Mar. 29, 2011) / [2] Articles 4(2)1 and 25(1) of the former Fair Transactions in Subcontracting Act (Amended by Act No. 10475, Mar. 29, 201)

[1] Supreme Court Decision 2009Du1990 Decided March 10, 201 (Gong2011Sang, 749) / [2] Supreme Court Decision 2007Du25138 Decided June 11, 2009

EE X-ray Marine Co., Ltd. (Attorneys Lee Han-soo et al., Counsel for the plaintiff-appellant)

Fair Trade Commission (Law Firm, Attorney O Jin-hwan, Counsel for defendant)

Seoul High Court Decision 2011Nu30795 decided June 21, 2012

The part of the lower judgment regarding the payment order is reversed, and that part of the case is remanded to the Seoul High Court. The remainder of the appeal is dismissed.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Regarding ground of appeal No. 1

A. Article 4(1) of the former Fair Transactions in Subcontracting Act (amended by Act No. 10475, Mar. 29, 2011; hereinafter “subcontract”) provides that “When entrusting a subcontractor with the manufacture, 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 manufacture, etc. of the object, etc. by using improper means.” Paragraph (2) of the same Article provides that “an act of the 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” under subparagraph 1 of the same Article.

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 a certain rate, which does not reflect the same rate or a certain rate, even though there are differences in individual circumstances, such as the management situation of two or more subcontractors or items, market conditions, and the type, size, quality, use, raw materials, manufacturing method, manufacturing process, etc. of objects, etc., but the same rate or a certain rate, which is not reflected therein. Even if a certain degree of difference is determined depending on the subcontractor, if it can be deemed that the unit price was reduced at a certain rate as a whole in light of the above criteria, it constitutes "the act of determining a unit price at a uniform rate" (see, e.g., Supreme Court Decision 2009Du1990, Mar. 10, 201).

The lower court determined that: (a) the Plaintiff reduced the unit price at a different rate for the work and the work on board; (b) the previous work on board was reduced by 25% in comparison with the previous contract unit price for the reason that the Plaintiff entrusted the work on the preceding work on October 23, 2009 through March 30, 2010 to the public interest companies (hereinafter “interest companies”) with the work on the preceding work on the block of 59 vessels to subcontract for management difficulties; and (c) the Plaintiff decided to reduce the unit price at a uniform rate of 30% in comparison with the previous contract unit price for the work on the preceding work on the board; (c) the previous work on the board and the work on the board were divided into two parts; and (d) the detailed conditions of the subcontract agreement between the Plaintiff and the public interest companies are subdivided by the process; and (e) the determination of the unit price at a reduced rate of 10% in total for the preceding work and the work on the preceding work on the following basis, not for the preceding work on the two preceding work on the basis.

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 exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on “unit price reduction at a uniform rate”.

B. In addition, the lower court determined that there was no justifiable reason to reduce the unit price at a uniform rate to the Plaintiff, taking into account the following circumstances: (a) there was no particular change in the unit price of the wage for the pre-ship and the payload work between the Plaintiff and the interesting, and (b) the Plaintiff appears to have reduced the unit price of the instant subcontract price without a specific review as to whether the price drop due to managerial difficulties caused by the depression of shipbuilding, the price drop, the rapid decrease in the quantity of the pre-ship, the increase in raw materials prices, etc.

Examining the reasoning of the lower judgment in light of the relevant legal doctrine and evidence duly admitted, the lower court did not err in its judgment by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules, or by misapprehending the legal doctrine on “justifiable cause” under a uniform unit price.

2. Regarding ground of appeal No. 2

A. Article 25(1) of the Subcontract Act provides that an ordering person and a principal contractor who have violated the provisions of Articles 3(1) through (4) and (9), 4 through 12, 12-2, 12-3, 13, 13-2, 14 through 16, 16-2(2), and 17 through 20 of the Subcontract Act may recommend or order payment of subcontract consideration, suspension of an offense, and other measures necessary for correcting the offense in question, thereby comprehensively stipulating that the ordering person and the principal contractor may take corrective measures, such as payment of subcontract consideration, etc., suspension of an offense, and other measures necessary for correcting the offense in question.

The contents of corrective measures under the Subcontract Act shall be clear and specific, and shall be in proportion to the contents and degree of the relevant violation (see, e.g., Supreme Court Decision 2007Du25138, Jun. 11, 2009). However, Article 4(2)1 of the Subcontract Act means that the behavior of the principal contractor to reduce the unit price at a uniform rate without reflecting the difference in individual circumstances between two or more subcontractors or items without justifiable grounds and the principal contractor itself shall be deemed to be unfair decision-making. Thus, it cannot be readily concluded that the price which forms the basis for uniform reduction of unit price in transactions violating the above provision is the subcontract price. Moreover, considering the nature of the violation of the above provision, it is difficult to uniformly present the subcontract price between the principal contractor and the subcontractor.

Considering the comprehensiveness of the provision on the basis of such corrective measures and the nature of the violation of Article 4(2)1 of the Subcontract Act, it should be deemed that corrective measures against the violation of Article 4(2)1 of the Subcontract Act are not permissible to order payment of the difference between the price that has become the basis for uniform reduction of the unit price and the actual subcontract price.

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

3. As to the third ground for appeal

The lower court determined that there was no deviation or abuse of discretion in the instant penalty surcharge order, on the grounds that the Defendant determined 5% of the upper limit of the penalty surcharge as the basic penalty surcharge in consideration of the type of the instant violation, the ratio of the amount of the violation, and the existence of past record of the violation of the law, etc., and that the Plaintiff again faces managerial difficulties, such as aggravation of the status of the violation after the second half of 2008, aggravation of the price, increase in raw materials prices, etc.

Examining the reasoning of the lower judgment in light of the evidence duly admitted, the lower court did not err by misapprehending the legal doctrine on deviation and abuse of discretion in the calculation of penalty surcharges.

4. Conclusion

Therefore, the part of the judgment of the court below regarding payment order is reversed, and that part of the case is remanded to the court below for a new trial and determination. The remaining appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim So-young (Presiding Justice)