[1] The method of interpreting the concession agreement under the Act on Private Participation in Infrastructure and its legal act

[2] In a case where the concession agreement between Company A and the competent authority provides that “If a project implementer completes construction in excess of the scheduled completion date without good cause, the project implementer shall be liable to pay liquidated damages, and at this time, “the scheduled completion date” means the scheduled completion date specified in the implementation plan, the case holding that the project implementer shall, in principle, be liable for liquidated damages in accordance with the provisions on liquidated damages in the concession agreement, as long as the project implementer completed construction in excess of the scheduled completion date specified in the implementation plan

[1] The execution of a public-private partnership project under the concession agreement shall follow the provisions of the Public-Private Partnership Act (hereinafter “Private Partnership Act”) and the provisions of the relevant Acts, and the concessionaire shall not perform any project other than the one recognized at the time of designation of the concessionaire, and there are restrictions or modifications, such as the prior approval of the competent authority at the time of disposition of management and operation rights or the modification of investors. Therefore, the rights and obligations acquired by a concessionaire, “the State or a local government, etc.” (hereinafter “State, etc.”) under the concession agreement differs from the rights and obligations acquired by the parties to the contract under the contract concluded between the parties on a contractual basis.

The implementation of a project under a concession agreement shall follow the specific procedures, etc. prescribed by the Public-Private Partnerships Act and relevant Acts. The State, etc. shall designate the concessionaire by concluding a concession agreement with potential concessionaire including the conditions for the implementation of the project, such as total project cost and the period of use (Article 13 of the Public-Private Partnerships Act). The same shall apply where the concessionaire prepares the relevant implementation plan before the implementation of the public-private partnership project and obtains approval from the competent authority, and modifies

Therefore, in interpreting the contents of the concession agreement and the legal act based on the concession agreement under the Private Investment Act, it should not go beyond the interpretation principles under the provisions of the Private Investment Act and the relevant laws.

[2] In a case where “A” corporation’s concession agreement entered into with the competent authority provides that “If a project implementer completes construction in excess of the scheduled completion date without justifiable grounds, the project implementer shall be liable to pay the liquidated damages, and at this time, “the scheduled completion date” shall refer to the scheduled completion date specified in the implementation plan without justifiable grounds, the court held that the lower court erred by misapprehending the legal doctrine that “A” did not have the liability for liquidated damages as a matter of principle in accordance with the provisions of the concession agreement, as long as the project implementer completed construction in excess of the scheduled completion date specified in the implementation plan and completed construction in the implementation plan, the issue of the obligation for liquidated damages is the basis for determining whether the “scheduled completion date” was completed in accordance with the provisions on liquidated damages under the concession agreement, as long as the project implementer completed construction in excess of the scheduled completion date specified in the implementation plan and completed the construction in the implementation plan.

[1] Article 2 subparag. 7, Articles 13, and 15(1) of the Act on Public-Private Partnerships in Infrastructure / [2] Article 2 subparag. 7, Article 4 subparag. 2, Article 13, and Article 15(1) of the Act on Public-Private Partnerships in Infrastructure

[1] Supreme Court en banc Decision 2017Da273441 Decided May 6, 2021 (Gong2021Ha, 1121)

A. A. B.P. Co., Ltd. (Law Firm LLC, Attorneys Kim Woo-soo, Counsel for the plaintiff-appellant)

Republic of Korea (Government Law Firm Corporation, Attorneys Choi financial et al., Counsel for the plaintiff-appellant)

Jeju District Court Decision 2019Na15434 Decided August 26, 2020

The judgment below is reversed, and the case is remanded to Jeju District Court.

The grounds of appeal are examined.

1. Special characteristics of private investment and concession agreements in public law;

A. Legislative intent

“Private investment” is a system that guarantees a private person’s right to benefit from all or part of the financial resources required by the State, a local government, etc. (hereinafter “State, etc.”) to perform a performance administration action that considers the survival of the citizens through the construction and operation of public facilities, and the operation of facilities and the right to benefit therefrom within a certain scope. As such, the purpose of using private capital and technology to expand and operate social infrastructure lies in responding to the need for the expansion of investment in social infrastructure resulting from rapid industrialization and the expansion of economic scale, and is to overcome the shortage of financial resources and inefficiency in the public sector (hereinafter “Private Investment Act”) to systematically support this system (see Constitutional Court en banc Decision 2007Hun-Ba63, Oct. 29, 2009).

(b) Classification by business operation method;

The method of implementing a private investment project shall be one of the methods prescribed in the Private Investment Act (Article 4 of the Private Investment Act). The method of private investment project is divided into the time when ownership of the infrastructure concerned belongs to the State or a local government at the time of completion of the infrastructure, and the time when the management and operation rights are exercised, and the ownership of the infrastructure is vested in the State or a local government at the time of completion of the infrastructure, and the project implementer is granted the rights to manage and operate the infrastructure for a certain period, but the State, etc. leases and uses the infrastructure for the period determined by the Convention (BTL method). In principle, the method of BTL is

(c) Characteristics of legal relations formed by the concession agreement;

The implementation of a project under a concession agreement shall comply with the provisions of the Public-Private Partnerships Act and the relevant Acts, and the concessionaire shall not perform any project other than the one recognized at the time of designation of the concessionaire, and there are restrictions or modifications, such as the prior approval of the competent authority at the time of disposal and operation rights or an alteration of investors. Therefore, the rights and obligations acquired by a concessionaire and the State, etc. under a concession agreement differs from the rights and obligations acquired by the contracting parties under a contract concluded between the parties on an equal basis with private law (see Supreme Court en banc Decision 2017Da273441, May 6, 2021).

The implementation of a project under a concession agreement shall follow the specific procedures, etc. prescribed by the Public-Private Partnerships Act and relevant Acts. The State, etc. shall designate the concessionaire by concluding a concession agreement with potential concessionaire, including the conditions for the implementation of the project, such as total project cost, the period of use, etc. (Article 13 of the Public-Private Partnerships Act). The same shall apply where the concessionaire prepares the relevant implementation plan before the implementation of the public-private partnership project and obtains approval from the competent authority

Therefore, in interpreting the contents of the concession agreement and the legal act based on the concession agreement under the Private Investment Act, it should not go beyond the interpretation principles under the provisions of the Private Investment Act and the relevant laws.

2. The judgment of the court below

A. The lower court acknowledged the following facts.

1) On September 2015, the Plaintiff concluded a concession agreement (hereinafter “instant agreement”) with the Minister of Education and the competent authority around September 2015, designating as a potential concessionaire for a project under “private-use private-use investment project newly constructed in the Jeju University and the second curriculum hall.”

2) Around October 2015, with respect to the construction of a new sports center at the Korea Sports University (hereinafter “instant construction”), among the foregoing projects, the implementation plan was approved by the president of the Korea Sports University; and the Plaintiff Surveyer submitted the commencement date stating the commencement date as “ October 2015” (hereinafter “one starting date”).

3) However, since the delay in the procedures for the selection of consulting engineers by the president of the Korea Sports University was caused on March 9, 2016, and the consent to land use was given, the Plaintiff Survey Corporation could undertake the instant construction work around that time. The Plaintiff Survey Corporation again submitted the commencement date, stating the commencement date as “ March 2016” (hereinafter “second starting date”). The Plaintiff Survey Corporation completed the construction work and obtained the confirmation of construction completion on July 19, 2017.

B. Based on the above facts, the lower court determined that, according to the instant agreement, the construction period is 510 days from the date of commencement (Article 22(1)), and the date of commencement refers to the date of commencement of construction as stated in the schedule of commencement submitted by the project implementer (Article 3 subparag. 58). The date of commencement, which is the date of commencement of construction under the terms of the agreement, refers to the date on which the supervisor is selected and the project implementer becomes able to carry out the actual construction by completing the procedure for commencement, such as obtaining consent from the competent authority to use the site, and thus, the date of commencement shall be deemed March 10, 2016, rather than the one starting date, and determined that there was no penalty for delay against the Plaintiff’s Defendant, as long as the construction period is completed before 510 days elapse.

3. Judgment of the Supreme Court

However, it is difficult to accept the judgment of the court below for the following reasons.

A. Review of the reasoning of the lower judgment and the record reveals the following facts.

1) Article 28(1) of the State Contracts Act provides that the project implementer shall be obligated to pay liquidated damages from the date following the completion date to the date of completion as prescribed by the Ordinance of the State Contracts Act (Article 28(1)) where the project implementer completes construction in excess of the “date of completion” by unit school of the project facilities (including the date of extension under the instant agreement) as determined by the instant agreement and the implementation plan without justifiable grounds (Article 3 subparag. 55). In this case, the term “date of completion” refers to the date of completion as stipulated in the implementation plan, and may be adjusted by reflecting it at the time of extension of the construction period or extension of the commencement date (Article 3 subparag. 55), and the term “date of completion” refers to the date specified as the date of completion in the confirmation date of completion as determined

2) However, the implementation plan for the instant construction project submitted by the Plaintiff around September 2015 is specified as February 22, 2017 as the completion date of the implementation plan, and otherwise, it is difficult to find out that the Plaintiff filed an application for mediation of the completion plan for the reasons attributable to the side of the Korea Sports University (for instance, the completion date of the implementation plan is indicated as February 22, 2017, even in the commencement date attached to the report on the commencement of the relevant construction project and the confirmation of construction completion in the name of the president of the Korea Sports University, which is all included in the completion date of the implementation plan

3) The instant agreement provides that the term “construction period” means the period from the commencement date to the date preceding the date of final confirmation of completion (Article 3 subparag. 6). The construction period for each unit of school shall be 510 days from the commencement date. The instant agreement provides that, if a project operator requests the commencement date or extension of construction period due to a cause attributable to the competent authority, force majeure, or other causes recognized by the competent authority and the competent authority approves it, the commencement date or construction period may be adjusted (Article 22(1) and (3)), and the term “construction date” shall mean the commencement date of construction as set forth in the construction period submitted by the project operator (Article 3 subparag. 55).

Meanwhile, according to the instant agreement, the concessionaire shall commence the construction project within 14 days after obtaining approval of the implementation plan and notify the competent authority of the commencement report confirmed by the project supervisor (Article 23(2) and (3)). If the project implementer fails to commence construction works within one month from the commencement date without good cause, the competent authority may terminate the instant agreement and cancel the designation of the project implementer pursuant to the Private Investment Act (Article 23(4)). The competent authority shall select a project supervisor who is an eligible business entity pursuant to the relevant statutes, such as the Construction Technology Promotion Act, and the project implementer shall enter into a construction project management agreement with the project supervisor selected by the competent authority after consultation with the competent authority on the total amount of the supervision costs and the method of paying supervision costs (Article 34(1)). Meanwhile, the Defendant asserted that the selection procedure was delayed due to the continuous change of consultation with the supervisor, and that no objection was raised against the validity of the report on the commencement of construction works by the Plaintiff on the first-time construction project supervisor without confirmation from the Plaintiff.

B. Examining the facts acknowledged by the court below in light of the legal principles as seen earlier and the contents of the instant agreement, the issue of whether the obligation to compensate for delay has accrued under the instant agreement is the basis for determining whether the “scheduled date of completion” was completed in accordance with Article 28(1), which is a provision on the compensation for delay, without justifiable cause, pursuant to Article 28(1). Thus, as long as the project implementer has completed the instant construction in accordance with the scheduled date of completion specified in the implementation plan, it shall be deemed that the obligation to compensate for delay,

Nevertheless, the lower court determined that there was no liability for liquidated damages under the premise different from the interpretation principle of the instant Convention. In so determining, the lower court erred by misapprehending the legal doctrine on the method of interpreting concession agreements under the Private-Private Partnerships Act and the requirements for compensating for delay under Article 28(1) of the instant Convention, thereby failing to exhaust all necessary deliberations. The allegation contained in the grounds of appeal assigning this error is with merit.

4. Conclusion

The lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Cho Man-sung (Presiding Justice)