Whether a principal contractor’s entrusting a subcontractor with the duties of maintaining and repairing software constitutes “service entrustment” as prescribed by the former Fair Transactions in Subcontracting Act (negative); and whether a principal contractor may take corrective measures or impose penalty surcharges pursuant to the said Act in cases where a principal contractor entrusted a subcontractor with the said duties to a subcontractor and the subcontractor did not deliver a document prescribed by statutes before the subcontractor commences such duties (negative)

Articles 2(1) and (11), 12(1), 13(5), 3(1), 4(1), 25(1), and 25-3 of the former Fair Transactions in Subcontracting Act (Amended by Act No. 11842, May 28, 2013); Article 2 subparag. 1 of the Software Industry Promotion Act

1. The term "business owner" means the business owner's business owner's business owner's business.

Administrator Kim Commercial, Inc., Ltd. (Law Firm Sejong, Attorney Jeong Jong-soo, Counsel for the defendant-appellant)

The Fair Trade Commission (Law Firm Shin, Attorneys Jeon Tae-ro et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2014Nu6939 decided September 17, 2015

The appeal is dismissed. The appeal is dismissed. The costs of appeal are assessed against the defendant, and the costs of appeal are assessed against the plaintiff's successor.

The grounds of appeal are examined.

1. As to whether a software maintenance and repair contract constitutes the supply of services

A. Administrative laws and regulations, which serve as the basis for an indivative administrative disposition, must be strictly interpreted and applied, and shall not be excessively expanded or analogically interpreted in the direction unfavorable to the other party to the administrative disposition. In addition, a teleological interpretation that takes into account the legislative intent, purpose, etc. is not entirely excluded, such interpretation shall not deviate from the ordinary meaning of the language and text (see, e.g., Supreme Court Decision 2007Du13791, 13807, Feb. 28, 2008).

B. Article 2(1) of the former Fair Transactions in Subcontracting Act (amended by Act No. 11842, May 28, 2013; hereinafter “subcontract”) provides that a business entity shall entrust another business entity with the service, as a type of a subcontract agreement, and a business entity entrusted with the service shall issue to a subcontractor a document stating a certain part of the subcontract before commencing the service performance to the subcontractor and shall not unfairly determine the subcontract price (Articles 2(1), 3(1), and 4(1)). Article 2(1) of the former Fair Transactions in Subcontracting Act provides that a business entity, who has violated such provision, may take corrective measures or impose penalty surcharges (Articles 25(1) and 25-3).

In addition, “service entrustment” under the Subcontract Act refers to activities entrusted by a software business operator pursuant to subparagraph 4 of Article 2 of the Software Industry Promotion Act or the supply of knowledge and information or services (Article 2(11)). In such a case, “service” includes activities determined and publicly announced by the Fair Trade Commission (Article 2(13)5). Accordingly, the former Public Notice of the Scope of Service Entrustment (amended by Ordinance of the Fair Trade Commission No. 2014-16, Dec. 23, 2014; hereinafter “instant Notice”) provides that “the activities entrusted by a software business operator pursuant to subparagraph 4 of Article 2 of the Software Industry Promotion Act to another business operator” refers to the activities involving consultation, demand, analysis, system integration and installation, operation, maintenance and repair of systems for a certain period of time, etc., and provides that “computer software-related instructions and output” refers to information processing equipment, such as an “computer software industry” under Article 2(1)1 of the Subcontract Industry Promotion Act and public notice of the citing and Public Notice of the Software Industry Act is excluded.

C. Examining the language and purport of the aforementioned relevant provisions in light of the legal principles as seen earlier, even if the instant provision stipulates that “the act of a business operator engaged in computer-related services entrusted with consulting, demand analysis, system integration test and installation, and system operation, maintenance, and repair for a certain period at the request of consumers,” it cannot be deemed that only the case related to the computer system among computer, telecommunications, and automation equipment constitutes “information program” under Article 2(12)1 of the Subcontract Act, and thus, it does not constitute “the subcontractor’s business” under the proviso of the instant notification provision. However, in light of the legal principles on the interpretation of the Act and subordinate statutes as seen earlier, even if the principal contractor entrusted the subcontractor with the business of maintaining and repairing the software pursuant to Article 2 subparag. 1 of the Software Industry Promotion Act, it cannot be deemed as a “service supply” under the instant notification provision, and thus, even if the subcontractor did not issue a penalty surcharge to the subcontractor prior to the commencement of the business, it cannot be deemed that the subcontractor’s business of maintaining and repairing the software under the Act.

D. In addition, in an appeal litigation, the defendant who asserts the legality of the disposition bears the burden of proof as to the legal ground (see, e.g., Supreme Court Decision 2009Du15005, Sept. 8, 201). Moreover, the court’s right to request proof is recognized only when it is evident that the party’s right to request proof is not proven due to negligence or misunderstanding in light of the degree of litigation (see, e.g., Supreme Court Decision 2005Da25755, Sept. 29, 2005). The solicitation of submission of the requirements or means of attack and defense regarding the legal effect that the party did not assert, is contrary to the principle of pleading and deviates from the limitation of the exercise of the right to request explanation (see, e.g., Supreme Court Decision 2002Du7234, Jan. 14, 2005).

E. However, according to the reasoning of the lower judgment, the Defendant: (a) rendered the instant disposition on the premise that the contract under which the Plaintiff’s contract for the maintenance, repair, development, construction, etc. of the software entered into with the subcontractor, including Bable Pungs Ltd. (hereinafter “each contract of this case”) constitutes a service entrustment; and (b) during the process of the written resolution on the instant disposition and the oral argument of the lower court, the Defendant alleged that a considerable number of of the contracts of this case were related to the maintenance and repair of the software.

Examining these facts in light of the legal principles as seen earlier, the part concerning the maintenance and repair of the software in each of the instant contracts does not constitute “services” as stipulated in the Notification Clause of this case. Moreover, the evidence submitted by the Defendant alone cannot be recognized to include the part concerning the supply of “services” other than the maintenance and repair of software in each of the instant contracts, and thus, the instant disposition based on the premise that each of the instant contracts constitutes “service entrustment” as stipulated in the Subcontract Act is unlawful. Furthermore, it is difficult to find out any circumstances that it is evident that the lower court did not assert or prove that part of each of the instant contracts may constitute “service entrustment” due to the Defendant’s negligence or misunderstanding, etc. on the records, it is difficult to view that the lower court should have exercised its right of explanation or should have deliberated thereon by urging the Defendant to assert and prove this part.

F. The lower court, on the premise that the provision of this case’s notice only provides services related to the computer system and the proviso of this case’s notice provision excludes only “production” of the software, is inappropriate in light of the legal doctrine as seen earlier, that the scope of service under the provision of this case’s notice constitutes “maintenance and repair of the software related to the computer system,” but the conclusion that the instant disposition was unlawful is justifiable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by misapprehending the legal doctrine on the interpretation of the notice provision of this case, failing to exhaust all necessary deliberations or failing to exercise

2. As to whether each of the contracts of this case constitutes the preparation of knowledge and information outcomes

The grounds of appeal on this part include matters concerning the development and construction of software in addition to the matters concerning the maintenance and repair of software. This constitutes “the preparation of knowledge and information results” as provided by Article 2(11) of the Subcontract Act, and eventually, each of the contracts of this case constitutes a service entrustment as provided by Article 2(11) of the Subcontract Act. However, this cannot be a legitimate ground of appeal on the ground that the court below's failure to assert it was first asserted in the final appeal.

3. As to the application for taking over the lawsuit by the plaintiff applicant for taking over the lawsuit

On September 23, 2016, the Plaintiff filed a motion to resume a lawsuit with this court on September 23, 2016 while the Plaintiff received a decision on commencing the rehabilitation procedure during the instant lawsuit in the final appeal.

According to the records, the defendant's appeal and the defendant's attorney filed a statement of grounds for appeal on July 14, 2016, which was after the defendant's appeal and the defendant's attorney filed a statement of grounds for appeal. However, as long as the litigation procedure in the court of final appeal entered the same stage, there is no need for the plaintiff's applicant to take over the lawsuit (see, e.g., Supreme Court Decision 2005Da22398, Sept. 21, 2007). Thus, the above request for resumption of the lawsuit

4. Conclusion

Therefore, all appeals are dismissed, and the costs of appeal are assessed against the losing party, and the costs of appeal for the request for a takeover of lawsuit are assessed against the plaintiff's requester. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kwon Soon-il (Presiding Justice)