Nuri Construction Co., Ltd. (Law Firm New Daily, Attorneys Yoon Byung-gu et al., Counsel for defendant-appellant)

Hong-gun (Attorney Song-young, Counsel for the defendant-appellant)

March 7, 2013

Daejeon District Court Decision 2012Guhap1831 Decided September 19, 2012

1. Revocation of a judgment of the first instance;

2. The plaintiff's claim is dismissed.

3. All costs of the lawsuit shall be borne by the Plaintiff.

1. Purport of claim

The defendant's disposition of restricting the participation of unjust enterprisers against the plaintiff on April 23, 2012 shall be revoked for three months.

2. Purport of appeal

The same shall apply to the order.

1. Details of the disposition;

(a) The status of the plaintiff (the trade name before modification: Rate Construction);

The plaintiff is a company established for the purpose of the soil construction business, reinforced concrete construction business, waterworks construction business, and sewerage construction business. Non-party 2, a non-party 1 member of the Red Gun Council, served as the representative director of the plaintiff from January 12, 2006 to July 31, 2007; from August 3, 2007 to November 7, 2007; and Non-party 3, a other son of the non-party 1, served as the representative director of the plaintiff from May 27, 2009 to March 13, 2012.

(b)Notification, etc. of the audit results by the Board of Audit and Inspection and of the request for disposition against Hongsung Group;

On February 2, 2012, the Board of Audit and Inspection notified the Defendant of the result of the audit of the process of concluding and implementing local government contracts, and notified the Plaintiff of appropriate measures, such as restrictions on qualification for participation in bidding, as the Plaintiff violated Article 33 of the Act on Contracts to Which a Local Government Is a Party (hereinafter “Local Contract Act”) by concluding each construction contract in attached Form 1, which is the Plaintiff’s child, the representative of Nonparty 1 of the Hongsung-gun Council, under a negotiated contract with Hongsung-gun.

(c) Making a resolution or request for retrial by the Contracting Council;

On March 15, 2012, on the ground of violation of Article 33 of the Local Contract Act, the Hongsung-gun Contract Deliberation Committee decided to restrict the qualification for participation of unjust enterprisers for bidding for three months by reducing the criteria for restrictions on participation in bidding for not less than five months but less than seven months prescribed in Article 76 and attached Table 2 of the Enforcement Rule of the same Act on the ground of the violation of Article 73

On March 27, 2012, the Plaintiff requested a retrial on the ground that the Defendant did not provide the Defendant with an opportunity to state his/her opinion on the limitation of qualification to participate in the tendering procedure. On March 28, 2012, the Defendant issued a prior notice of disposition to the effect that the Plaintiff may submit his/her opinion if he/she would be present at the hearing through prior notice prior to the restriction of qualification to participate in the tendering procedure of unjust enterprisers pursuant to Article 31 of the Local Contracts Act and Article 92 of the Enforcement Decree of the same Act.

On April 4, 2012, the Plaintiff submitted the following written opinions to the Defendant:

The table 12 contracts included in the main text are not negotiated contracts, but open competitive bidding, and thus the Plaintiff did not violate Article 33 of the Local Contract Act. ② In the case of “209 Disaster Prevention Facilities Maintenance Work” listed in paragraph (8) of the instant construction contract, the representative director at the time of the contract is not specially related with Nonparty 1 to the members of the Red-gun Association, and thus, the said contract does not violate Article 33 of the Local Contract Act. ③ The restriction on the qualification for participation in bidding for three months does not coincide with excessive sanctions.

On April 16, 2012, the Hongsung-gun Contract Deliberation Committee decided to restrict the qualification of the plaintiff to participate in the bid of unjust enterprisers for three months at the end of the review.

D. The defendant's disposition imposing restrictions on qualification for participation in bidding against the plaintiff

On April 23, 2012, the Defendant notified the Plaintiff of the restriction on qualification for participation of unjust enterprisers in bidding (hereinafter “instant disposition”).

Detailed grounds for sanctions contained in the main sentence: Violation of Article 33 of the Local Contracts Act (Conclusion of a private contract with an enterprise whose child is the representative during the period of service of a local council member)

[Ground of recognition] Facts without dispute, Gap 1 through 3 evidence (including branch numbers in case of additional number; hereinafter the same shall apply), Eul 1 to 6 evidence, the purport of the whole pleadings

2. Judgment on the legality of the disposition

A. Summary of the plaintiff's assertion

(1) Non-existence of grounds for disposition

The representative director of the Plaintiff was not Nonparty 2 and 3, but Nonparty 4, and the remaining 11 construction contracts were concluded by means of open competitive bidding rather than a negotiated contract. Nevertheless, the Defendant rendered the instant disposition by deeming that both the instant construction contracts were contracts in violation of Article 33(2)4 of the Local Contract Act, which were concluded between Nonparty 2 and Nonparty 3 during the Plaintiff’s representative director. As such, the instant disposition was unlawful on the grounds that there were no grounds for disposition.

(2) A deviation from or abuse of discretionary authority

Even if the Plaintiff entered into each of the instant construction contracts in violation of Article 33(2) of the Local Contracts Act, the instant disposition that restricts the qualification for participation in bidding for three months is against the principle of excessive prohibition, the principle of proportionality, and the principle of proportionality, and thus, should be revoked as it is unlawful.

B. Relevant statutes

Attached Form 2 is as shown in the relevant statutes.

(c) Markets:

(1) Determination as to the existence of the reasons for the disposition

㈎ 지방계약법 등 관련 법령에서 정한 “수의계약”의 방법

The main text of Article 9(1) of the Local Contract Act provides that the head of a local government or a contracting officer shall, in principle, refer to a general tender, thereby declaring the principle of a contract through a general tender and, if necessary, may enter into a contract through a designated tender or a negotiated contract. In addition, Article 9(2) of the Local Contract Act provides that only a person who has passed the examination of qualifications may participate in or participate in a limited tender by limiting his/her participation in or participation in a part of the bidding. In addition, Article 9(3) of the same Act provides that the scope of a negotiated contract, procedures for the selection of a party to a negotiated contract, and other necessary matters shall

Furthermore, Article 25 of the Enforcement Decree of the Local Contracts Act provides for construction works, the estimated price of which is less than KRW 200 million, and Article 30(1) provides for the procedures for the selection of the subjects of a negotiated contract. In principle, Article 30(5) provides that where the estimated price is less than KRW 20,000,000, a written estimate shall be received from two or more persons, and where the estimated price is less than KRW 20,000,00, the said estimate may be received from one person, and the said designated information processing unit shall be used except for some exceptions when receiving a written estimate from more than two persons. Article 25(5) provides that the head of a local government or a contracting officer shall determine the subjects of a negotiated contract in accordance with the standards set by the Minister of the Interior

Meanwhile, according to the evidence Nos. 10-1 to 10-10 of the Ministry of Government Administration and Home Affairs, it is generally acknowledged that the person who submitted the lowest price should be selected as the counter-party in general when receiving two or more estimates, and that the person who submitted the lowest price should be collected and entered into a contract in order to promptly determine the grounds for disqualification without separately examining the grounds for disqualification (including persons falling under Article 33 of the Local Contract Act). This seems to be aimed at enhancing the transparency of the procedures for the private contract and strengthening the convenience and speediness of concluding the private contract.

㈏ 지방계약법 제33조 에서 정한 “수의계약”의 의미

Article 33 of the Local Contract Act provides that the head of a local government, a local council member, or any other person (including a juristic person, the representative of which is the local government; hereinafter the same shall apply) shall not conclude a profit-making contract with the local government in order to ensure fairness in concluding a contract for the local government. Article 33 (1) of the Local Contract Act provides that the head of the local government or the local council member himself/herself shall not conclude a contract for the purpose of profit-making with the local government including a contract through competitive bidding, while Article 33 (2) of the Local Contract Act provides that the head of the local government or the local council member himself/herself shall not conclude a "private contract" for profit-making purposes with the local government concerned.

With regard to the meaning of “private contract” under Article 33(2) of the Act on the Prohibition of Local Contracts, the Plaintiff asserts to the effect that, by using the method of competitive bidding, where there is no room for involvement in unfair influence by the head of a local government or a member of a local council in the process of concluding a contract, or where it is extremely low, it does not constitute “private contract” prohibited under Article 33 of the Local Contract Act.

However, as seen earlier, Article 9 of the Local Contracts Act and Article 30 of the Enforcement Decree of the same Act, the method of “private contract” entered into between local governments under the relevant Acts and subordinate statutes, such as Article 9 of the Local Contracts Act and Article 30 of the same Act, requires two or more persons to submit a written estimate through the designated information processing unit, and determine the subjects of the private contract according to the standards determined by the Minister of the Interior, such as the estimated price of the person who submitted the estimate within the scope of the projected price and the ability to perform the contract. According to the guidelines for the operation of the private contract by local governments prescribed by the Minister of the Interior, it is only one of the general forms of “private contract” entered into between the local government and the “private contract” under Article 9 of the Local Contracts Act and Articles 24 and 30 of the Enforcement Decree of the Local Contracts Act, so long as there are no grounds to interpret “private contract” differently, it is reasonable to view “private contract” concluded under Article 33(2) of the Local Contracts Act as prohibited under Article 333 of the Local Contracts Act.

On the other hand, interpreting that a local government's private contract is not a "private contract" prohibited under Article 33 (2) of the Local Contract Act in cases where the local government has concluded a private contract by using most competitive bidding methods as alleged by the plaintiff is beyond the literal meaning of the contract method under the Local Contract Act in light of the structure of the contract method under the Local Contract Act (However, if it is interpreted that a private contract constitutes a "private contract" prohibited under Article 33 (2) of the Local Contract Act even in cases where there is no possibility that the head of the local government or the local council member may intervene in the process of concluding the contract by using the competitive bidding method, or where it is very low, it would be a somewhat restrictive result in restricting the freedom of business activities of a person in a special relationship with the local council member, but such problem constitutes a legislative formation area, even if it is considered that the local council member has prohibited the conclusion of a contract by a general competitive bidding, the freedom of business activities of a person in a special relationship with the local council member

㈐ 이 사건 각 공사계약의 지방계약법 제33조 제2항 위반 여부에 관한 판단

1) First, we examine the instant construction contract under paragraph 8 of this case.

Whether a local government has violated the above provision shall be determined as of the date of concluding the contract, and according to the evidence No. 2, the plaintiff's representative director as of May 19, 2009, which is the date of concluding the contract of this case No. 8 of this case, is recognized as having been Nonparty 4. The construction contract of this case No. 8 of this case does not constitute a contract concluded in violation of Article 33(2) of the Local Contracts Act.

However, in the instant construction contract, although it has been proved that the Plaintiff did not violate Article 33(2) of the Local Contract Act in the course of hearing against the Plaintiff, it is unclear whether the instant construction contract was included in the instant disposition grounds for disposition because the instant construction contract was included in the instant disposition grounds because it stated the grounds for sanctions only “violation of Article 33 of the Local Contract Act (Conclusion of a negotiated contract with an enterprise whose child is the representative during the tenure of office of a local council member)” in the instant disposition notice (Article 1-2) and did not reveal the details of the instant construction contract. However, as seen below, the instant disposition cannot be deemed unlawful on the grounds that the rest of the construction contract alone is justified (see Supreme Court Decision 2003Du1264, Mar. 25, 2004, etc.).

2) Next, we examine the remainder of 11 construction contracts except for the instant construction contract under paragraph (8) of the instant construction contract.

The fact that the rest of the 11 construction contract (hereinafter “the instant construction contract”) was concluded between Nonparty 2 or Nonparty 3, who is Nonparty 1’s son of the Red-gun Council, as the Plaintiff’s representative director, is not a dispute between the parties concerned. In addition, according to each of the evidence Nos. 7-1 through 11, and No. 8, the issue of the instant construction contract is acknowledged as a small-sum private contract under Article 25 subparag. 5 of the former Enforcement Decree of the Local Contract Act (amended by Presidential Decree No. 20283, Sep. 20, 2007) that was in force at the time of each contract, or Article 25(1)5 of the former Enforcement Decree of the Local Contract Act (amended by Presidential Decree No. 20283, Sep. 20, 2007).

Furthermore, according to the above evidence and evidence evidence Nos. 9 and evidence No. 9, the contract of this case was concluded through two or more estimates pursuant to Article 30 of the Enforcement Decree of the Local Contract Act and the Guidelines for Operation of the Local Government Negotiated Contract (Rules of the Ministry of Government Administration and Home Affairs) as determined by the Minister of Government Administration and Home Affairs. Moreover, with respect to the contract of this case, the Hong-gun Accounting Officer stated in attached Nos. 1 and 3 among the contract of this case, the contract of this case is a bid method for which the successful bidder is determined in accordance with the guidelines for operation of the local government's free contract among the private contract of this case under Article 25 subparag. 5 of the Enforcement Decree of the Local Contract Act, the contract of this case was publicly notified as "the construction subject to exemption of qualification examination because the contract of this case is a bid method for which the successful bidder is determined in accordance with the guidelines for operation of the local government's free contract."

According to the above facts, although the issue of the construction contract of this case that the plaintiff entered into with Hongsung-gun was invoked a method of a certain competitive bidding, it is reasonable to view that the contract of this case is only one of the general forms of a negotiated contract as stipulated in Article 30 of the Enforcement Decree of the Local Contract Act, and it constitutes a negotiated contract after selecting the other party in accordance with the relevant statutes, such as Article 9 of the Local Contract Act and Article 30 of the Enforcement Decree thereof.

㈑ 소결

Ultimately, the Plaintiff’s assertion that the issue of the instant construction contract is not a free contract, but a general bid contract is without merit.

(2) Determination as to whether discretionary power has been abused or abused

Whether a disciplinary administrative disposition deviates from or abused by social norms shall be determined by objectively examining the substance of the violation and the purpose of the public interest to achieve the disposition, and all the circumstances pertaining thereto, which are the grounds for the disposition, and by comparing the degree of infringement on public interest and the disadvantages suffered by an individual (see Supreme Court Decision 2004Du3854, Apr. 14, 2006, etc.). In addition, even if the criteria for a disciplinary administrative disposition are prescribed in the form of Ordinances of Ministries, it is nothing more than that for the administrative agency’s internal business rules, and it has no effect to externally bind citizens or courts. Furthermore, whether such disposition is legitimate or not shall be determined in accordance with the provisions and purport of the relevant Acts and subordinate statutes, as well as the above criteria for disposition. Thus, the pertinent disposition does not immediately conform with the above criteria for disposition. However, unless the above criteria for disposition do not conform with the Constitution or laws, or if there are reasonable grounds to believe that the sanctions pursuant to the above criteria are considerably unreasonable in light of the content and purport of the relevant Acts and subordinate statutes and subordinate statutes, it should not be determined as abuse discretion (see Supreme Court Decision 20067.

Based on the above legal principles, the following circumstances are revealed in addition to the purport of the entire argument as to this case. ① The Local Contract Act limits the qualification for participation of unjust enterprisers in bidding for a certain period of time. The purpose of the Local Government Contract Act is to secure the sincere performance of contracts to which the local government is a party by excluding participation in bidding for a certain period. ② In particular, Article 33 of the Local Contract Act aims to prevent the local government from exercising unreasonable influence on the local government and its local government members in the process of concluding a contract and executing a contract. ③ The plaintiff concluded a long-term free contract in violation of Article 33(2) of the Local Contract Act, and submitted a statement that does not constitute grounds for disqualification as stipulated in Article 33 of the Local Contract Act, in particular, even if the representative of Red Military Contract did not know that it constitutes grounds for disqualification as stipulated in Article 36 of the Local Government Contract Act, and the defendant did not know that it constitutes grounds for disqualification as stated in the judgment of the Supreme Court for non-party 1's exclusion from the contract.

3. Conclusion

Therefore, the plaintiff's claim of this case shall be dismissed as it is without merit, and the judgment of the court of first instance shall be revoked as it is unfair, and the plaintiff's claim shall be dismissed as per Disposition.

[Attachment]

Judges Lee Jin-hun (Presiding Judge)