The meaning and validity of the so-called "general contract" in a long-term continuing construction contract under Article 21 of the former Act on Contracts to which the State is a Party, and Article 69 (2) of the Enforcement Decree of the Act on Contracts to which the State is

Article 21 of the former Act on Contracts to Which the State is a Party (Amended by Act No. 11377, Mar. 21, 2012); Article 69(2) of the Enforcement Decree of the Act on Contracts to which the State is a Party

Supreme Court en banc Decision 2014Da235189 Decided October 30, 2018 (Gong2018Ha, 2370)

Dongcheon Construction Co., Ltd. (Law Firm Dongin, Attorneys Park Jin-hee et al., Counsel for the defendant-appellant)

Jeong-gun (Law Firm LLC, Attorneys Kim Byung-sung et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2014Na2926 decided October 12, 2016

The part of the lower judgment against the Defendant regarding the ancillary claim is reversed, and that part of the case is remanded to the Seoul High Court. The Plaintiff’s appeal is dismissed.

The grounds of appeal are examined.

1. The plaintiff's ground of appeal and the defendant's ground of appeal No. 1

The lower court, on the grounds the grounds indicated in its reasoning, determined that, although it is inappropriate to institute a lawsuit against the part of indirect non-performing claims that the Hanjin Heavy Industries (hereinafter “Korea Heavy Industries”) and the limited partnership company in the US and China (hereinafter “China”) paid by the Plaintiff among indirect construction cost claims (hereinafter “indirect costs”) that the Plaintiff acquired, the lower court was lawful to institute a lawsuit against the part of indirect non-performing claims directly paid by the Plaintiff.

Examining the record in accordance with the relevant legal principles, the above determination by the lower court is justifiable. In so doing, it did not err by misapprehending the legal doctrine on the litigation trust.

2. As to the defendant's grounds of appeal Nos. 2 and 3

A. Article 21 of the former Act on Contracts to Which the State is a Party (amended by Act No. 11377, Mar. 21, 2012); Article 69(2) of the Enforcement Decree of the Act on Contracts to which the State is a Party is a long-term continuing construction contract, not in the form of entering into a separate contract concerning total construction cost and total construction period, and further entering into a separate contract for each business year, with regard to the total construction cost and total construction period, is not in the form of entering into the first construction contract for each business year, but in the form of additional statement of total construction cost and total construction period. The agreement on total construction cost and total construction period additionally entered into at the time of entering into the first construction contract is ordinarily called a "general contract". Such general contract is not in itself a final agreement with regard to total construction cost or total construction period, but rather linked with the conclusion of each annual contract. In other words, the general contract should be deemed to have an effect of executing the overall contract based on the total amount of each annual contract and the total construction amount of each contract.

B. As the total construction period of the instant construction project is extended, the lower court: (a) asserted that the Defendant is liable to pay the Plaintiff’s claim for indirect costs incurred by the Plaintiff, among the indirect costs incurred in the extension of the total construction period for the long-term continuing construction project of this case; (b) held that, in principle, in a long-term continuing construction project, whether the contract is performed based on annual contracts; (c) the terms and conditions of the contract; (d) the adjustment and payment of the contract amount should be determined based on the overall contract in exceptional cases where the overall contract can not be properly reflected in the contents or intent of the overall contract; or (e) the modification of the total construction period overlaps with the alteration of the construction period of the annual contract; and (e) determined that the former may claim adjustment of the contract amount through the adjustment of the total construction price due to the extension of the total construction period, but for the latter, the application for the adjustment of the contract amount due to the extension

C. However, it is difficult to accept the determination by the lower court on the following grounds, where the change in the total construction period does not overlap with the change in the annual contract period.

Examining the legal principles as seen earlier, the validity of a general contract is merely limited to the determination of a contracting party, determination of intent to perform a contract, contract price, etc., and the details of performance by a contracting party, the scope of construction price to be paid to a contracting party, the period of execution of a contract, etc. are determined through annual contracts. As such, the adjustment of the contract amount of the total construction price due to the change of the total construction period shall be conducted through the annual contract adjustment process, regardless

Therefore, the lower court should have calculated the indirect cost to be paid by the Defendant to the Plaintiff only to the part of the indirect cost claimed by the Plaintiff that underwent the annual contract adjustment process.

Nevertheless, the lower court determined that the application for the adjustment of the contract amount due to the extension of the total construction period may be filed prior to the receipt of the final payment for the overall contract in cases where the change of the total construction period overlaps with the change of the construction period of an annual contract. In so doing, the lower court erred by misapprehending the legal doctrine on the relationship between the overall contract and the annual

3. As to the Defendant’s fourth ground of appeal

For the reasons indicated in its holding, the lower court rejected the Defendant’s assertion that “the construction amount was adjusted by reflecting all indirect costs incurred in the extension of the construction period at each time of entering into the instant annual contract.”

Examining the record, the lower court’s aforementioned determination is justifiable. In so doing, it did not err by failing to exhaust all necessary deliberations or exceeding the bounds of the principle of free evaluation of evidence against logical and empirical rules.

4. As to the Defendant’s fifth ground of appeal

Based on its reasoning, the lower court rejected the Defendant’s assertion that “The Plaintiff cannot claim the above indirect cost to the Defendant, as indirect cost paid by the Plaintiff is not a claim against the Defendant of the Hanjin Heavy Industries and the Heavy Construction.”

Examining the record, the above determination by the lower court is justifiable. In so doing, it did not err by misapprehending the legal doctrine on the subject of indirect costs burden.

5. Conclusion

Therefore, without further proceeding to decide on the remainder of the Defendant’s grounds of appeal, the part against the Defendant regarding the ancillary claim is reversed, and that part of the case is remanded to the lower court for further proceedings consistent with this Opinion. The Plaintiff’s appeal is dismissed. It is so decided as per Disposition by the assent of all participating Justices

Justices Min You-sook (Presiding Justice)