Hanjin Industries Co., Ltd. (Attorney Han Han-il et al., Counsel for the defendant-appellant)

Korea Land and Housing Corporation (Attorney Kim Han-sung, Counsel for defendant-appellee)

March 23, 2011

Suwon District Court Decision 2010Guhap4958 Decided July 1, 2010

1. Revocation of a judgment of the first instance;

2. The disposition taken by the Defendant against the Plaintiff on April 13, 2010 shall be revoked.

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

The same shall apply to the order.

1. The part citing the judgment of the court of first instance

The reasoning of the lower court’s judgment is as follows, with the exception of the following: (a) the Plaintiff’s assertion and determination on January 2, 201; (b) the relevant laws and regulations (from the second fourth to the fourth fourth) are as follows. The pertinent parts are cited in accordance with Article 8(2) of the Administrative Litigation Act; (b) the main text of Article 420 of the Civil Procedure Act.

○ Paragraph 2 of the "paragraph 3, 11 and 12," shall be advanced as follows:

【Article 15(1) of the Contract Affairs Rules cited by the Defendant as the ground for the instant disposition is invalid beyond the scope delegated by Article 39(3) of the Act on the Management of Public Institutions (hereinafter “Public Institutions Act”). It does not constitute “a person who is obviously deemed to harm the proper implementation of the contract” under Article 39(2) of the Public Institutions Act solely on the ground that Nonparty 2, the Plaintiff’s site supervisor, delivered KRW 2 million to Nonparty 1, the Defendant’s site supervisor.

○ The phrase “related Acts and subordinate statutes” is replaced by the phrase “related Acts and subordinate statutes” at the end of this judgment.

2. Determination

(a) Comparing with the details and form of statutes related to restrictions on qualifications for participation of improper enterprisers in bidding;

1) Statutes relating to restrictions on qualifications for participation in bidding by public enterprises, etc.

Article 39(2) of the Public Institutions Act provides that a public corporation or quasi-governmental institution (hereinafter “public corporation, etc.”) may restrict the eligibility for participation in tendering for a certain period of not more than two years to persons determined to be likely to undermine fair competition or the appropriate implementation of contracts. Contracts entered into by a public corporation, etc. are permitted to participate in tendering without restriction by a person who meets certain requirements in accordance with the general competition method. As such, the above provision allows a public corporation, etc. to take measures to restrict the eligibility for participation in tendering for unjust enterprisers as prescribed by the Act on Contracts to Which the State is a Party (hereinafter “State Contracts Act”), by referring to the restriction system on eligibility for participation in tendering for unjust enterprisers, which is obviously likely to undermine fair competition or the appropriate implementation of contracts. The purpose is to prevent various public harm caused by the participation in contracts by a public corporation, etc., ensure fairness in contracting, as well as ensure the faithful implementation of contracts in order to achieve the public goals pursued by the public corporation, etc. (see Constitutional Court Order 2003HunBa40, Apr. 28, 2005).

Article 39(3) of the Act on Public Institutions provides that matters necessary for the standards, etc. for restrictions on qualifications for participation in bidding under the provisions of paragraph (2) shall be delegated to the Rules on Contract Affairs which are Ordinance of the Ministry of Strategy and Finance. Accordingly, Article 15(1) of the Rules on Contract Affairs provides that the head of a agency shall restrict qualifications for participation in bidding within the scope of not less than one month but not more than two years for the counter-party to a contract or the participant in bidding (including an agent, manager, or other employees of the counter-party to the contract or the participant in bidding) falling under any of the subparagraphs of Article 76(1) of the Enforcement Decree of the Act on Contracts, and Article 76(2) provides that the period for restrictions on qualifications for participation in bidding under the provisions of paragraph (1), the period for restriction on qualifications for participation in bidding, the period for restriction, and other necessary matters shall be governed by Article 76 of the Enforcement Rule of the State Contracts Act.

The former Accounting Rules of Government-Invested Institutions (repealed on October 21, 199), which is the first public notice of the Minister of Finance and Economy, provides that the former Framework Act on the Management of Government-Invested Institutions (amended by Act No. 5821 of Feb. 5, 199) may restrict the participation in bidding for a certain period of time when entering into a contract, and Article 20(2) of the same Act provides a provision that the entity may restrict the participation in bidding for a certain period of time, which is obviously likely to undermine fair competition or appropriate implementation of the contract, may lead to a provision that is similar to the current law of the public institution replacing the provision. The amendment of the former Framework Act on the Management of Government-Invested Institutions (amended by the former Act on the Management of Government-Invested Institutions), is not an administrative disposition subject to administrative litigation, but merely an act of notification with the legal effect of preventing the other party from participating in bidding conducted by the government-invested institution (see Supreme Court Order 9Da3939, Nov. 26, 199).

(ii) relevant laws and regulations concerning restrictions on qualifications for participation in tendering procedures conducted by the head of each central government agency;

Article 27 (1) of the State Contracts Act provides that the head of each central government agency shall restrict the eligibility to participate in a tender within two years, as prescribed by Presidential Decree, for a person who is likely to undermine the fair enforcement of competition or appropriate implementation of a contract, or who is deemed inappropriate to participate in a tender, and Article 76 (2) of the Enforcement Decree of the State Contracts Act provides that the head of each central government agency shall restrict the eligibility to participate in the tender within the scope of not less than one month but not more than two years, without delay, after the relevant fact is discovered pursuant to Article 27 of the Act, for any of the following contract parties or bidders (including his/her agent, manager, and other employees):

B. Whether Article 15(1) of the Rules on Contract Affairs has the binding force in interpreting and applying Article 39(2) of the Public Institutions Act

1) Article 39(2) of the Public Institutions Act provides that "it is apparent that it will prejudice the proper implementation of a contract" is not a separate requirement necessary for measures to restrict participation by improper enterprisers in bidding, but the purpose thereof is "reasonable implementation of a contract." The defendant argues that it would be "in cases where it is evident that it would prejudice the proper implementation of a contract," and that it would be "in cases where it is evident that it would interfere with the proper implementation of a contract," and that it would be "in cases where it falls under any of the above subparagraphs, where it is evident that it would interfere with the proper implementation of a contract."

2) Article 39(2) of the Public Institutions Act provides that “A public corporation or quasi-governmental institution may restrict participation in bidding for a certain period of not more than two years against a person, corporation, organization, etc. that is obviously likely to prejudice fair competition or appropriate implementation of a contract.” Thus, it is apparent that the requirement to restrict participation in bidding constitutes “a person, etc. that is obviously likely to undermine fair competition or appropriate implementation of a contract, etc.,” and does not separately delegate the requirement prescribed by an Act to an order or rule, etc. Article 39(3) (amended by Act No. 8852, Feb. 29, 2008). However, in light of the language and text thereof, the provision does not expressly stipulate that “necessary matters concerning the criteria, etc. for restriction on participation in bidding under the provisions of paragraph (2) shall be prescribed by Ordinance of the Ministry of Strategy and Finance.”

Even if Article 76(1) of the Enforcement Decree of the State Contracts Act, which applies mutatis mutandis by Article 15(1) of the Rules on Contract Affairs, forms a type of “where it is obvious that the proper implementation of the contract will be harmed,” it has the nature of internal administrative guidelines to be followed by administrative agencies, and if it falls under any subparagraph of Article 76(1) of the Enforcement Decree of the State Contracts Act, it does not have any external binding force to be deemed “where it is obvious that the proper implementation of the

3) Even though Article 39(3) of the Public Institutions Act delegates a provision that allows a specific determination of the reason that “it is obvious that it would prejudice the fair competition or appropriate implementation of contracts,” Article 15(1) of the Rules on Contract Affairs thereby goes beyond the scope of delegation, and thus, is not binding within that scope, in light of the following facts.

The Ministry of Strategy and Finance may limit the eligibility to participate in tendering procedure under the conditions as prescribed by the Presidential Decree for persons who are deemed likely to cause harm to the proper performance of the contract, or inappropriate to participate in tendering procedure under the State Contracts Act. On the other hand, the Public Institutions Act provides that “the qualifications to participate in tendering procedure shall be limited” to those who are deemed to be clearly harmful to the proper performance of the contract, and the requirements for restrictions on eligibility to participate in tendering procedure may be prescribed by Ordinance of the Ministry of Strategy and Finance if the provisions are beyond the scope delegated by the Act (see, e.g., Supreme Court Decision 97Nu13474, Nov. 26, 199). In full view of the foregoing, the State Contracts Act provides that the restriction on eligibility to participate in tendering procedure under the State Contracts Act shall be limited to cases where the State enterprises, etc. are delegated by the State enterprises, etc., taking into account the public nature and special nature of the public enterprises, etc., and it is clear that the restriction on eligibility to participate in tendering procedure may not be limited to cases where the public enterprises, etc.

(c) Whether Article 39(2) of the Public Institutions Act is applicable;

1) In the event that the binding force cannot be recognized on the requirements for restricting the eligibility for participation in tendering procedure under Article 15(1) of the Rules on Contract Affairs (in this case, the requirements for relevant public officials to give a bribe in connection with the performance of a contract, as prescribed by Article 76(1)10 of the Enforcement Decree of the State Contracts Act, which is applicable mutatis mutandis under the aforesaid provision), whether Nonparty 2, the Plaintiff’s site warden, in relation to the delivery of KRW 2 million to Nonparty 1, the Defendant’s site supervisor, can be recognized as “a person who is obviously deemed to interfere with the proper performance of a contract,” as prescribed by Article 39(2) of the Public Institutions Act. To this end, along with the purpose of the system for restricting the eligibility for participation in tendering procedure, relevant circumstances, such as the relationship between the parties, the details of payment

2) The following facts can be acknowledged in full view of Gap evidence Nos. 2, 3, 4, 6, 12 through 19, Eul evidence Nos. 1 (including each number), non-party 1, non-party 2, and non-party 3's testimony of the court below, and the whole purport of the arguments.

A) The Plaintiff is a company whose total number of officers and employees reaches 1,400 persons, and in the case of construction parts, the average annual amount of KRW 1,740 billion between the 14th in Korea and the 3-year average annual amount of KRW 1,740 billion (6.5% in Korea). The total contract amount of the instant construction works is approximately KRW 11.8 billion, and the amount corresponding to the Plaintiff’s share (42%) among them is approximately KRW 4.9 billion.

B) On June 1, 1993, Nonparty 2, who was employed by the Plaintiff, was on the job site and worked for the first time on June 15, 2007 as a general manager in charge of the management of the instant construction site. Nonparty 1, from December 22, 2006, served as the supervisor in charge of the instant construction site from November 1, 2007.

C) Nonparty 2 was first aware of Nonparty 1 during the instant construction process, and Nonparty 1’s demand from Nonparty 1 to “to enable Nonparty 1 to enter and work at the site,” etc., but did not have any difference with Nonparty 1 on the wind to refuse.

D) Nonparty 1 demanded, directly and indirectly, money and valuables, etc. to Nonparty 2 several times. However, Nonparty 2, who was married at the head office, did not have to pay for the on-site management expenses, and did not accept one demand from Nonparty 1 on October 12, 2007, and on October 31, 2007, Nonparty 1 issued KRW 2 million each, upon request by Nonparty 1, a total of KRW 1 million.

E) On August 25, 2009, Nonparty 2 was sentenced to the suspension of indictment on the charge of taking property in breach of trust on August 25, 2009 with respect to Nonparty 1’s giving KRW 2 million to Nonparty 1. Accordingly, Nonparty 1 was sentenced to the judgment of conviction (two years of suspended sentence for imprisonment for eight months) at the Seoul Central District Court on December 4, 2009 on the ground of the acceptance of bribe equivalent to KRW 10 million in total on seven occasions from Nonparty 4, the representative of another construction company, and the acceptance of the bribe from Nonparty 4, the representative of another construction company. The above judgment became final and conclusive around that time.

F) The Plaintiff completed the instant construction work on May 31, 2008 and received full completion money on July 15, 2008 after undergoing the completion inspection from the Defendant. The Plaintiff has no record of having been subject to measures restricting participation in the bid of unjust enterprisers since its establishment in 1937.

3) As the Plaintiff’s employee, Nonparty 2, the site supervisor of the instant construction site, delivered KRW 2 million to Nonparty 1, the Defendant employee, along with the request for construction related to the construction. However, in light of the fact that the instant contract was not in part of the Plaintiff’s total sales amount, Nonparty 2 was able to make a passive payment upon Nonparty 1’s request, and that the amount was only two million won, and that the payment of money was made more, the purport of the payment of money would be to facilitate the construction work, and that there was a request to prevent the Plaintiff from entering the head office due to the tree planting, and that it was only a private request by Nonparty 2, or that there was no adequate relationship with the execution of the contract, and completed the inspection without completion, and that the Plaintiff did not have any history of having been subject to restrictions on participation of unjust enterprisers in the construction. In light of the fact that Nonparty 2 received money from the Plaintiff, it is insufficient to recognize that the Plaintiff was a juristic person that could obviously harm the proper implementation of the instant contract.

3. Conclusion

The instant disposition is unlawful. The judgment of the court of first instance is inappropriate based on its conclusion. The judgment of the court of first instance is revoked and the Plaintiff’s claim is accepted.

[Attachment Form 5]

Judges Kim Jong-dae (Presiding Judge)