[1] In a case where a principal contractor has determined a subcontract price by reducing the unit price at a uniform rate without any justifiable reason or unilaterally low unit price without agreement with a subcontractor, whether a determination of a subcontract price should be made without considering whether the subcontract price was determined at a remarkably lower level than the ordinary price paid separately (affirmative)

[2] The meaning of "reduction of a unit price at a uniform rate" under Article 4 (2) 1 of the former Fair Transactions in Subcontracting Act, and whether "an act of determining a unit price by reducing a unit price at a uniform rate" constitutes "an act of determining a unit price by reducing a unit price at a uniform rate" in cases where the reduction rate determined by a principal contractor at a certain level is deemed to have reduced a unit price at a certain rate as a whole or as a whole

[3] The meaning of "an act of unilaterally determining a subcontract price at a low price without an agreement" under Article 4 (2) 5 of the former Fair Transactions in Subcontracting Act, and the method of determining whether the price was unilaterally determined without an agreement

[4] Whether payment order is naturally permissible for all the provisions listed in Article 25(1) of the former Act on Fair Transactions in Subcontracting (negative), and the method of determining whether payment order is permissible for the pertinent act of violation and its scope

[5] Whether a payment order is permissible as a corrective measure against a violation of Article 4 (2) 1 or 5 of the former Act on Fair Transactions in Subcontracting (negative in principle)

[1] Article 4 (1), (2) 1, and 5 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) 5 of the former Fair Transactions in Subcontracting Act (Amended by Act No. 11842, May 28, 2013) / [4] Article 25 (1) of the former Fair Transactions in Subcontracting Act (Amended by Act No. 11842, May 28, 2013) / [5] Article 4 (2) 1 of the former Fair Transactions in Subcontracting Act (Amended by Act No. 11842, May 28, 2013)

[1] Supreme Court Decision 2008Du14296 Decided April 29, 2010 (Gong2010Sang, 1025) / [2] Supreme Court Decision 2009Du1990 Decided March 10, 201 (Gong2011Sang, 740) / [3] Supreme Court Decision 2016Du35540 Decided December 7, 201 (Gong2018Sang, 197)

Shin Young Broadcasting Co., Ltd. (Law Firm Private, Attorney Kim Gyeong-soo, Counsel for the plaintiff-appellant)

Fair Trade Commission (Law Firm In-bok, Attorneys Seo-seok et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2015Nu40271 decided October 19, 2016

All appeals are dismissed. The costs of appeal are assessed against each party.

The grounds of appeal are examined.

1. Judgment on the ground of appeal by the plaintiff

A. Standard for determining unfair subcontract consideration (Ground of appeal No. 1)

(1) Article 4 of the former Fair Transactions in Subcontracting Act (wholly amended by Act No. 11842, May 28, 2013; hereinafter “subcontract”) provides that “When a prime contractor entrusts a subcontractor with the manufacture, etc., he/she shall not force the subcontractor to determine the subcontract price at a remarkably lower level than the price generally paid for the same or similar manufacture, etc. of the object (hereinafter “determination of the unreasonable subcontract price”) or to accept such subcontract by using unlawful means.” Article 4(1) of the former Fair Transactions in Subcontracting Act provides that “The act of a prime contractor falling under any of the following subparagraphs shall be deemed to have determined the unfair subcontract price by reducing the subcontract price at a uniform rate without justifiable grounds,” and subparagraph 5 of Article 4 provides that “an act of the prime contractor to unilaterally determine the subcontract price by the prime contractor without the agreement with the subcontractor.”

As clearly prescribed in Article 4(2) of the Subcontract Act, in cases where a principal contractor has unilaterally determined a subcontract price by reducing the unit price at a uniform rate without any justifiable reason or by unilaterally low unit price without an agreement with a subcontractor, determination of an unfair subcontract price should be made without examining whether the subcontract price has been determined at a significantly lower level than the ordinarily paid unit price (see Supreme Court Decision 2008Du14296, Apr. 29, 2010, etc.).

(2) The plaintiff asserts in the ground of appeal that the principal contractor's price should be determined at a remarkably lower level than the price normally paid, even if the principal contractor decided the subcontract price by reducing the unit price at a uniform rate without any justifiable reasons, or unilaterally decided the subcontract price at a lower level without the agreement with the subcontractor. However, such assertion is inconsistent with the above legal principles and thus is not acceptable.

B. Whether a violation of Article 4(2)1 of the Subcontract Act is established (Ground of appeal No. 2)

(1) Article 4(2)1 of the Subcontract Act provides that “the reduction of a unit price at a uniform rate” refers to the reduction of a unit price at a certain rate, without reflecting the same rate or the same difference, even though there are differences in individual circumstances, such as the subcontractor’s management situation, the type, size of transaction, size, quality, use, raw materials, manufacturing method, and manufacturing process of two or more subcontractors or items, etc., such as the goods, etc., in relation to the subcontractor’s market situation, and the object, etc., the unit price is at a uniform rate. Even if the determined rate for reduction is a certain degree of difference depending on the subcontractor’s subcontractor, if it is deemed that the unit price was reduced at a certain rate as a whole or in accordance with the same classification, then it constitutes “the act of a uniform rate reduction” (see, e.g., Supreme Court Decision 2

(2) On the following grounds, the lower court determined that the Plaintiff’s act of determining the subcontract price in this case constituted “an act of determining the subcontract price by reducing the unit price at a uniform rate without justifiable grounds” under Article 4(2)1 of the Subcontract Act (hereinafter “violation 1”).

(A) The Plaintiff classified the mobile phone model into each mobile phone model and reduced the unit price for each item at a certain rate. Since raw materials or manufacturing processes are different, the Plaintiff’s act of reducing the unit price at a uniform rate, there is no objective and reasonable ground for such reduction. However, there is no evidence to acknowledge it.

(B) The Plaintiff may be deemed to have reduced the unit price at a uniform rate set by himself/herself for his/her own convenience, rather than the characteristics of each item.

(C) As alleged by the Plaintiff, the mobile phone type was designed to reflect the factors leading to the price reduction for the model whose sales price or sales price falls rapidly, even if the mobile phone type falls short of the product type and the sales price falls short of a certain period, there is no evidence to acknowledge that the price reduction in the instant case was intended to reflect the factors leading to the price reduction for the model whose sales price or

(3) 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 interpretation and application of Article 4(2)1 of the Subcontract Act, or by exceeding the bounds of the principle of free evaluation of evidence in violation of logical and empirical rules.

C. Whether a violation of Article 4(2)5 of the Subcontract Act is established (Ground of appeal No. 3)

(1) "Act of unilaterally determining a subcontract price without agreement" under Article 4(2)5 of the Subcontract Act refers to an act of unilaterally determining a subcontract price by a method that sets the unit price, etc. at a low price without the actual consent or consent of the subcontractor, by means of the fact that the prime contractor is in a superior position in the transaction.

In this context, whether the payment was unilaterally determined without an agreement shall be determined by comprehensively taking into account the degree of the superior position of the subcontractor in the transaction with the subcontractor, the existence of the subcontractor’s transaction with the principal contractor, the existence and degree of continuous transaction relations, the continuous period of transaction relations, the market situation before and after the act in question, etc., whether the subcontractor was able to negotiate without any restriction on the autonomy of expression of intent in the process of determining the subcontract consideration, the degree of the restriction thereof, the details and degree of disadvantage suffered by the subcontractor due to the decided subcontract consideration (see Supreme Court Decision 2016Du3540, Dec. 7, 2017).

(2) On the grounds delineated below, the lower court determined that the Plaintiff’s act of determining the subcontract price in this case was unilaterally performed by the prime contractor without agreement with the subcontractor, as stipulated in Article 4(2)5 of the Subcontract Act.

(A) The subcontractor, the subcontractor, had absolute dependence on the Plaintiff’s transaction.

(B) The instant agreement on the reduction of the unit price, which unilaterally unfavorable to the COS, is not drafted through substantial consultation with the Plaintiff, but can be seen as having been unilaterally prepared by the Plaintiff, and may be deemed as having been drafted by demanding the Plaintiff to affix a seal to the COS. Considering the superior status to the Plaintiff’s COS, it was practically difficult for COS to refuse the Plaintiff’s request to affix a seal.

(C) As the KIC was unable to obtain sufficient information on how the unit price is determined on any ground, the KIC was not in a situation where the actual unit price reduction agreement would have been reached.

(3) Examining the reasoning of the lower judgment in light of the foregoing 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, contrary to what is alleged

2. Judgment on the Defendant’s ground of appeal

A. Article 25(1) of the Subcontract Act provides that the Fair Trade Commission may recommend or order the payment of subcontract consideration, suspension of violation, prevention of recurrence in the future, and other measures necessary for correction as corrective measures against the ordering person and the principal contractor who have violated Articles 3(1) through (4) and (9), 4 through 12, 12-2, 12-3, 13, 13-2, 14 through 16, 16-2(4), and 17 through 20.

Inasmuch as various violations subject to corrective measures and various corrective measures against these violations are stipulated by a single provision, it cannot be readily concluded that a payment order, which is a special form of corrective measures, is naturally allowed with respect to all the above provisions. Therefore, in full view of the legal nature and contents of the specific offenses, the legal nature of the benefits subject to the payment order, the amount being the basis for calculating the payment order under the law, and whether the calculation standard amount can be clearly and specifically derived from the interpretation, determination of whether the payment order pursuant to the relevant offense is permissible or not should be made.

B. Article 4(2)1 of the Subcontract Act means that an act of a prime contractor to reduce a unit price at a uniform rate without reflecting any difference in individual circumstances with respect to two or more subcontractors or items without justifiable grounds itself is deemed to be an act of determining an unfair subcontract price (see Supreme Court Decision 2012Du15555, Feb. 18, 2016). Moreover, Article 4(2)5 of the Subcontract Act means that an act of unilaterally determining a subcontract price in a manner that lowers the unit price, etc. without the prime contractor’s consent or consent, solely based on the fact that the prime contractor is in a superior position in the transaction, shall be deemed to be a determination of an unfair subcontract price (see Supreme Court Decision 2016Du35540, Dec. 7, 2017).

An order for payment due to a violation of Article 4 of the Subcontract Act can be deemed as an order for compensation, etc. The Fair Trade Commission’s simple payment of damages. If an order for payment due to a violation of Article 4(2)1(b)5 of the Subcontract Act is permitted, such order for payment should be premised on the amount determined by private autonomy between the parties concerned. However, even if a violation of Article 4(2)1(b) or 5 is committed, it cannot be readily concluded that the unit price before the act of violation can be the basis for calculating the amount of payment order as a matter of course, inasmuch as individual circumstances exist for each item or transaction, even if a violation of Article 4(2)1(b) or 5 exists, and it is difficult for the principal contractor and the subcontractor to present the amount actually determined if there was no such a violation of subparagraph 1 or 5

C. In the same purport, the lower court determined that the order to pay the difference between the amount calculated according to the unit price before the violation and the amount of the subcontract price for the violation as the corrective measure against the violation under subparagraph 1 and subparagraph 5 was unlawful. In so determining, the lower court did not err by misapprehending the legal doctrine on the payment order for the violation under subparagraph 1 and subparagraph

3. Conclusion

The grounds of appeal by the plaintiff and the defendant are dismissed in entirety as they are without merit, and the costs of appeal are assessed against each party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Kim Chang-suk (Presiding Justice)