[1] In a case where the penalty for delay is deemed to be excessively excessive, whether the court may reduce the penalty (affirmative); and in such a case, whether the fact-finding or proportion of the grounds for reduction belongs to the exclusive power of the fact-finding court (affirmative in principle)

[2] Where an Act provides that a juristic act in violation of the relevant provision is null and void or the relevant provision provides that it is an effective provision or mandatory provision, the method of determining the validity of the juristic act in violation of the relevant provision, unless it clearly provides for the validity of the juristic act in violation of the relevant provision and the prohibition provision

[3] Whether Article 15 of the Act on Contracts to Which the State is a Party with respect to the interest on the delay in payment of the price and Article 59 of the Enforcement Decree of the same Act apply to all public contracts (affirmative)

[1] The court may reduce the penalty for delay, where it is deemed that the penalty for delay is unfairly excessive in light of various circumstances, such as the party’s status, purpose and contents of the contract, the anticipated motive for the liquidated damages, the rate of the liquidated damages for delay to the contract amount, the amount of the liquidated damages for delay, the reasons for delay, and the prevailing transaction practices. The determination of the fact-finding or rate for the reasons for reduction is a matter of the discretionary power of the fact-finding court

[2] In a case where a statute that imposes a certain obligation on the parties to a juristic act, such as a contract, and explicitly prescribes the validity of a juristic act in violation of a certain provision, the determination of the validity or invalidity of the juristic act ought to be made pursuant to the relevant provision. If the Act provides that a juristic act in violation of the relevant provision is null and void or the relevant provision provides that the juristic act is null and void, the juristic act in violation of the relevant provision is null and void. In a case where there is no clear provision on the validity of a juristic act in violation of a prohibition provision, the determination of validity should be made by comprehensively taking into account various circumstances, such as the legislative background and purport of the provision, the legal interest and protection, the gravity of the violation, whether the parties intended to violate the legal provision, the impact of the violation on the parties to the juristic act or a third party,

[3] The Act on Contracts to Which the State is a Party (hereinafter “State Contracts Act”) was enacted for the purpose of facilitating the smooth performance of contracts by prescribing basic matters concerning contracts to which the State is a Party or public enterprises subject to the Act on the Management of Public Institutions (hereinafter “public contracts”) (Article 1). The main provisions on the basic contents of public contracts are to ensure the fair and efficient conclusion and enforcement of public contracts.

Article 15(2) of the State Contracts Act provides that the interest shall be paid according to the number of delayed days, as prescribed by Presidential Decree, if it is impossible to pay the price for the contract that becomes a burden on the National Treasury by the due date. Article 59 of the Enforcement Decree of the Act on Contracts to Which the State is a Party (hereinafter “Enforcement Decree of the State Contracts Act”) provides that the rate of interest on delay in payment of the price shall be specifically determined. Although the former Enforcement Decree of the State Contracts Act provides that the interest rate applying the overdue interest rate applicable to the general loan of financial institutions should be paid at the time of the amendment by Presidential Decree No. 19483 on May 25, 2006, Article 4 of the Enforcement Decree of the State Contracts Act, which was amended by Presidential Decree No. 19483, “The average interest rate of loans by financial institutions (the monthly average interest rate of statistical compensation by the Bank of Korea)” is reasonable in light of the aforementioned provision of Article 59 of the Enforcement Decree of the State Contracts Act, as well as the provision of the aforementioned provision of Article 159 of the State Contracts Act.

[1] Article 398(2) of the Civil Act, Articles 202 and 432 of the Civil Procedure Act / [2] Article 105 of the Civil Act / [3] Articles 1 and 15(2) of the Act on Contracts to Which the State is a Party, Article 59 of the Enforcement Decree of the Act on Contracts to which the State is a Party, Article 4 of the Addenda ( May 25, 2006)

[1] Supreme Court Decision 96Da23306 Decided March 26, 199 (Gong1995Sang, 754) Supreme Court Decision 2003Da60136 Decided November 25, 2005 (Gong2006Sang, 11) / [2] Supreme Court Decision 2008Da7519 Decided December 23, 2010 (Gong201Sang, 207) Supreme Court en banc Decision 2012Da74076 Decided December 21, 2017 (Gong2018Sang, 177)

Hyundai item Co., Ltd. (Attorneys Son Ji-yol et al., Counsel for the defendant-appellant)

Korea Railroad Corporation (Law Firm LLC, Attorneys Seo-bong et al., Counsel for the defendant-appellant)

Seoul High Court Decision 2013Na2027464 decided November 19, 2015

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. misunderstanding of the legal principles on reduction of liquidated damages (Ground of appeal No. 1)

A. In a case where the penalty for delay is deemed to be unfairly excessive in light of various circumstances, such as the party’s status, purpose and contents of the contract, the motive behind which the penalty for delay was scheduled, the rate of the penalty for delay to the contract amount, the amount of the penalty for delay, the reason for delay, and the transaction practices at the time, the court may reduce the penalty (see, e.g., Supreme Court Decision 96Da23306, Mar. 26, 199). The fact-finding or determination of the rate for the reason for reduction is a matter belonging to the exclusive jurisdiction of the fact-finding court unless it is clearly unreasonable in light of the principle of equity (see, e.g., Supreme Court Decision 2003Da60136, Nov.

B. (1) The lower court acknowledged the following facts.

On June 8, 2006, the Plaintiff entered into a contract with the Defendant to manufacture and supply to KRW 323,40,000,000 (the contract amount has been increased to KRW 347,215,635,550 following the contract amount adjustment procedure due to price fluctuation) (hereinafter “instant contract”). Under the instant contract, the amount of 60 percent of the goods under the contract was set at 36 months from the contract date ( June 8, 2009) and the remaining 40 percent as the delivery date on June 30, 2010. The Plaintiff completed the supply of the 1 minute around February 2010.

(2) The lower court calculated the penalty for delay at around KRW 75.1 billion according to the instant contract, and 20% of the penalty for delay was reduced by taking account of various circumstances revealed in the process of concluding and implementing the instant contract.

C. Examining the reasoning of the lower judgment in light of the evidence duly admitted, it is difficult to view the rate of reduction of liquidated damages to be considerably unreasonable in light of the equitable principle, and the lower court did not err in its judgment by misapprehending the legal doctrine on reduction of liquidated damages, contrary to what

2. misunderstanding of legal principles as to the content and interpretation of legal act (Ground of appeal No. 2)

A. In a case where an Act explicitly provides for the validity of a juristic act in violation of a certain obligation to the parties to a juristic act, such as a contract, or an Act prohibiting a certain act, determination of the validity of the juristic act ought to be made pursuant to the relevant provision. If the Act provides that a juristic act in violation of the relevant provision is null and void or the relevant provision provides that the juristic act in violation of the relevant provision is null and void, the juristic act in violation of the relevant provision is null and void. In other cases where there is no clear provision on the validity of the juristic act in violation of the prohibition provision, the legislative background and purport of the provision, the legal interest and protection of the law, the gravity of the violation, whether the parties intended to violate the legal provision, the impact of the violation on the parties to the juristic act or a third party, the social, economic, and ethical value assessment of the violation, and the attitude of the law on any act similar or closely related thereto, etc. (see, e.g., Supreme Court en banc Decision 2008Da75119, Dec. 23, 2017>

The Act on Contracts to Which the State is a Party (hereinafter “State Contract Act”) was enacted for the purpose of facilitating the smooth execution of contracts by prescribing basic matters concerning contracts to which the State is a Party or a public corporation subject to the Act on the Management of Public Institutions (hereinafter “public contracts”) (hereinafter “public contracts”) (Article 1). The main provisions on the basic contents of public contracts are to ensure the fair and efficient conclusion and enforcement of public contracts.

Article 15(2) of the State Contracts Act provides that the interest shall be paid according to the number of delayed days, as prescribed by Presidential Decree, if it is impossible to pay the price for the contract that becomes a burden on the National Treasury by the due date. Article 59 of the Enforcement Decree of the Act on Contracts to Which the State is a Party (hereinafter “Enforcement Decree of the State Contracts Act”) provides that the rate of interest on delay in payment of the price shall be specifically determined. Although the former Enforcement Decree of the State Contracts Act provides that the interest rate applying the overdue interest rate applicable to the general loan of financial institutions should be paid at the time of the amendment by Presidential Decree No. 19483 on May 25, 2006, Article 4 of the Enforcement Decree of the State Contracts Act, which was amended by Presidential Decree No. 19483, “The average interest rate of loans by financial institutions (the monthly average interest rate of statistical compensation by the Bank of Korea)” is reasonable in light of the aforementioned provision of Article 59 of the Enforcement Decree of the State Contracts Act, as well as the provision of the aforementioned provision of Article 159 of the State Contracts Act.

B. (1) According to the reasoning of the lower judgment and the record, the following facts are revealed.

(A) Except as otherwise provided, the general terms and conditions of the purchase contract of this case (hereinafter “general terms”) shall be governed by the Enforcement Decree, the Enforcement Rule, etc. of the State Contracts Act (Article 2 subparag. 3), and the payment of the amount calculated by applying “the overdue interest rate applied at the time of a financial institution’s loan of general funds” to the interest on delay in payment (Article 23(1)).

(B) The general conditions are not applied to reflect the agreement between the Plaintiff and the Defendant, but are automatically adopted as a contract concluded by the Defendant, a public corporation, in accordance with the relevant provisions of the State Contracts Act. The Plaintiff and the Defendant concluded the instant contract and did not hold a separate consultation on the interest on delay in payment. The general conditions applicable to the contract to be concluded by the Defendant after the instant contract were amended on May 25, 2006 in accordance with Article 59 of the Enforcement Decree of the State Contracts Act (hereinafter “Enforcement Decree of the instant case”).

(2) According to the above facts and legal principles, the following conclusions can be derived.

The provision of the Enforcement Decree of the State Contracts Act shall apply to interest in arrears on the price of goods, as a public contract. According to the interpretation of Article 4 of the Addenda of the Enforcement Decree of the instant case, the instant contract applies to the Enforcement Decree of the instant case, which was in force at the time of the conclusion of the contract. Article 23(1) of the General Conditions, is because the Defendant merely used the previous form without any amendment of the Enforcement Decree of the State Contracts Act prior to the conclusion of the instant contract, and the parties did not intend to determine the rate of interest in arrears on the price of goods differently from the Enforcement Decree of the instant case.

C. The lower court, on the basis that the parties agreed to comply with the provisions of the Enforcement Decree of the State Contracts Act, which entered into force at the time of entering into a contract with respect to the rate of interest in arrears on the price of goods, and on the premise that the instant contract is governed by the Enforcement Decree of the instant contract, applied the annual rate of 6% higher than the “average loan interest rate of financial institutions (the average loan interest rate of the Bank of Korea statistics compensation (the monthly average loan interest of the Bank of

Although the reasoning of the lower judgment is inaccurate, the lower court’s conclusion, based on the premise that the Enforcement Decree of this case is applied to interest in arrears on the price of goods, is justifiable in light of the foregoing legal doctrine. In so determining, the lower court did not err by misapprehending the legal doctrine on the interpretation of legal acts

3. Conclusion

The Plaintiff’s appeal is dismissed as it is without merit, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Dong-won (Presiding Justice)