2018Da209157 Action

1. A modern industrial development company;

2. A stock company with primary construction;

Law Firm LLC et al., Counsel for defendant-appellant

Lee & Lee, et al., Counsel for defendant-appellee

Echidi Hyundai Industrial Development Corporation

1. Seoul Special Metropolitan City;

Law Firm LLC (LLC)

[Defendant-Appellee] Plaintiff 1 and 1 other

2. Korea;

Seoul High Court Decision 2017Na119 Decided December 19, 2017

October 15, 2020

All appeals are dismissed.

The request for taking over a lawsuit by the applicant is dismissed.

The costs of appeal are assessed against the claimant for taking over the lawsuit, and the remainder are assessed against the plaintiffs.

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

1. Case summary

The reasoning of the lower judgment and the record reveal the following facts.

A. The Seoul Metropolitan Government Urban Infrastructure Headquarters under the Defendant Seoul Metropolitan Government requested the Republic of Korea to conclude a contract for the construction works of the Seoul subway Line 9 and the second 916 construction sections (hereinafter “instant construction works”). On December 18, 2007, the Defendant Republic of Korea publicly announced the construction of the instant construction works. The Plaintiffs participated in the bidding by organizing a joint contractors consisting of seven companies, including the Gyeongnam Enterprise Company, and the Plaintiff Hyundai Industries Development Company, and the joint contractors were selected as eligible persons. On May 30, 2008, the joint contractors concluded a contract for the instant construction works with the Defendant Republic of Korea in total amount of KRW 135,658,000,000. The contract amount includes the health insurance premiums and the national pension premiums (hereinafter “health insurance premiums, etc.”). The joint contractors concluded a contract for the construction works to be modified by the Defendant Seoul Metropolitan Government and September 30, 2015.

On September 30, 2015, a joint supply and demand company completed the instant construction project with the Defendant Seoul Special Metropolitan City, and finally entered into a contract for an additional construction project with the Defendant Special Metropolitan City (159,748,000,000). The contract amount is calculated by settling accounts of health insurance premiums, etc. and reduces KRW 1,189,781,000 by the Defendant Seoul Special Metropolitan City

B. The Plaintiffs filed the instant lawsuit seeking the payment of the reduced construction cost on the grounds that Defendant Seoul Special Metropolitan City settled health insurance premiums, etc. without contractual or legal grounds.

2. Whether health insurance premiums, etc. can be settled pursuant to the Framework Act on the Construction Industry and the Enforcement Decree thereof (the first and second grounds for dismissal);

A. Article 22 of the former Framework Act on the Construction Industry (amended by Act No. 8477 of May 17, 2007) provides that "The parties to a contract for construction works shall specify the amount required to be mandatorily borne by a constructor in connection with the construction works, such as insurance premiums under the Act on the Collection of Insurance Premiums, etc. for Employment Insurance and Industrial Accident Compensation Insurance, national pension premiums under the National Pension Act, and health insurance premiums under the National Health Insurance Act, in the statement of the contract amount of the construction works, in accordance with the Presidential Decree." Accordingly, the former Enforcement Decree of the Framework Act on the Construction Industry (amended by Presidential Decree No. 20488 of Dec. 28, 2007) stipulates that "the parties to the contract for construction works shall specify the cost of the construction works, such as insurance premiums, in the statement of contract amount calculation according to the standards determined and publicly notified by the Minister of Construction and Transportation."

The Framework Act on the Construction Industry (hereinafter referred to as the "Framework Act on Construction Industry") amended by Act No. 8477 of May 17, 2007 and enforced January 1, 2008, newly established the provision in the latter part of Article 22(5) that "where, in this case, the amount specified in the report on the calculation of the contract amount of the construction works exceeds the amount actually paid, matters concerning the settlement thereof shall be prescribed by Presidential Decree." Article 2 of the Addenda Article 2 of the Act that "Article 22(5) of the Act on Construction Industry (hereinafter referred to as the "Framework Act on Construction Industry") provides that "The amended provisions of Article 22(5) shall apply

According to delegation, Article 26-2 of the Enforcement Decree of the Framework Act on the Construction Industry (hereinafter referred to as the "Enforcement Decree of the Framework Act on the Construction Industry") which was amended by Presidential Decree No. 20488 on December 28, 2007(hereinafter referred to as the "Enforcement Decree of the Framework Act on the Construction Industry") provides that "the ordering person may verify whether the constructor who has received a contract for the construction works bears the burden of insurance premiums, etc. In such cases, if the ordering person deems it necessary, he/she may request the constructor to submit a certificate of payment of insurance premiums, etc.", and "the ordering person" under paragraph (3) provides that "if the constructor has confirmed the details of payment of insurance premiums, etc. and the national pension premiums and health insurance premiums specified in the statement of contract amount

In the past, there have been problems such as avoiding insurance coverage even though the cost of insurance, etc. obligated to subscribe to the National Health Insurance and National Pension Insurance, etc. was reflected in the construction cost. Accordingly, in order to induce a person placing an order to purchase insurance and promote the proper execution of construction works and the sound development of the construction industry through the promotion of workers' welfare, the aforementioned provision on the settlement of insurance premiums, etc. was newly established. In addition, the Framework Act on the Construction Industry also sets forth that the Framework Act on the Construction Industry applies to construction works ordered by the State, a local government, or a public institution prescribed by Presidential Decree (hereinafter referred to as "public construction works for convenience"), under the premise that the Framework Act on the Construction Industry applies as a matter of principle, "examination on the propriety of subcontract" (the latter part of Article 31(1), "Presentation of a lower-level plan" (Article 31-2), "Adjustment of subcontract consideration following design change (Article 36(2))" (Article 36(2)) and "Adjustment of subcontract consideration for construction works ordered by the State, a local government, or a government-invested institution."

Meanwhile, Article 73 of the Enforcement Decree of the Act on Contracts to Which the State is a Party (hereinafter “Enforcement Decree of the Act on Contracts to Which the State is a Party”) provides that the head of each central government agency or a public official in charge of contracts may enter into a contract under the condition of ex post facto cost review if he/she is unable to determine the amount of each item constituting the budget price before bidding (paragraph (1)). In order to enter into a contract under the provision of paragraph (1), the head of each central government agency shall set the standards and procedures necessary for ex post cost review, taking into account the characteristics of the subject matter of the contract before bidding, the amount of contract, the period of performance, etc. before bidding, and allow those who desire to participate in the bidding to peruse the said standards and procedures (Paragraph (2).), and Article 93 of the Enforcement Decree of the Framework Act on the Construction Industry (hereinafter “the Enforcement Decree of the Act on Contracts to Which the Accounting Rule is established”) to stipulate that the public health insurance premium shall not be subject to ex post facto settlement or public health insurance premium settlement under Article 73 of Enforcement Decree.

B. The lower court acknowledged the fact that the Defendants did not expressly state the matters concerning the follow-up settlement of health insurance premiums, etc. in the public announcement of the instant construction project, and determined that the Defendant Seoul Special Metropolitan City was justifiable to settle and reduce the health insurance premiums, etc. from the construction

The Framework Act on the Construction Industry shall apply to public construction projects. Since the amendment provision of Article 22(5) of the Framework Act on the Construction Industry was concluded on May 30, 2008 after the enforcement of January 1, 2008, the provision on the settlement of the revised Framework Act on the Construction Industry and the Enforcement Decree thereof applies. Article 73 of the Enforcement Decree of the State Contracts Act and Article 93 of the Enforcement Decree of the State Contracts Act provide for the requirements, procedures, etc. for settlement in comparison with Article 22(5) of the Framework Act on the Construction Industry and Article 26-2 of the Enforcement Decree thereof, and there are differences in the grounds for settlement. Considering the purpose of introducing the ex post facto settlement system for health insurance premiums, etc., even if a contracting officer did not specify the matters concerning the post settlement of health insurance premiums, etc. in a public construction project, the health insurance premiums, etc. may be settled pursuant to Article 22(5)

C. Examining the reasoning of the lower judgment in light of the record, the lower court’s determination that Defendant Seoul Special Metropolitan City could settle health insurance premiums is justifiable in accordance with the foregoing legal doctrine. In so determining, it did not err by misapprehending the legal doctrine on interpretation of Article 26-2(3) of the Enforcement Decree of the Framework Act on the Construction Industry, the Enforcement Decree

3. The remaining grounds of appeal (ground of appeal Nos. 3 and 4) were determined as follows. It is difficult to recognize that the Plaintiffs agreed to follow the procedures set forth in the criteria for tender and contract execution with Defendant Seoul Special Metropolitan City and the Government, but that health insurance can be settled ex post. Since Article 22(5) of the Framework Act on the Construction Industry and Article 26-2(3) of the Enforcement Decree thereof prior to entering into the instant contract for construction project, the Plaintiffs trusted that the Plaintiffs would not have any ex post facto settlement of health insurance premiums, etc., even if they trusted that they would not have any

Examining the reasoning of the lower judgment in light of the record, the lower court did not err by misapprehending the legal doctrine on the prohibition of retroactive entry and the protection of trust.

4. Request for taking over a lawsuit by an applicant.

On May 2, 2018, the Plaintiff Hyundai Industrial Development Co., Ltd. filed an application for succession of the lawsuit after the lapse of the period for filing the appellate brief, claiming that the Plaintiff succeeded to the rights and obligations related to the instant lawsuit, which was divided and established by the said Plaintiff on May 2, 2018. However, the application for succession of the lawsuit is not accepted on the ground that it is not necessary for the newly incorporated company to take over the litigation proceedings when the Supreme Court declares a judgment without pleading at the same stage (see Supreme Court Decision 2017Da276679, Aug. 29, 20

5. Conclusion

The plaintiffs' appeal is dismissed in entirety as it is without merit, and it is dismissed by the requester for taking over the lawsuit. The costs of appeal are assessed against the requester for taking over the lawsuit and the remainder are assessed against the plaintiffs. It is so decided as per Disposition by the assent of all participating Justices on the bench.

The presiding Justice shall mobilization by the presiding Justice

Justices Kim Jae-sik in charge

Justices Min Min-young

Justices Noh Tae-ok