Suwon Investment Co., Ltd. (Attorney Lee Jong-soo et al., Counsel for the defendant-appellant)

Busan Metropolitan City Mayor (Law Firm Jeong, Attorneys Yoon Sung-chul, Counsel for the plaintiff-appellant)

April 22, 2016

Busan District Court Decision 2013Guhap21152 Decided October 10, 2014

1. The defendant's appeal is dismissed.

2. The costs of appeal shall be borne by the Defendant.

1. Purport of claim

On August 26, 2013, the Defendant revoked an order of supervision to correct the structure of funds for the public-private partnership project to the Plaintiff on August 26, 2013.

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

1. Quotation of judgment of the first instance;

The reasoning for this Court’s reasoning is as follows, except for the addition of “a judgment on the Defendant’s argument” under Paragraph (2) below, and thus, the reasoning for this Court’s reasoning is identical to the reasoning for the first instance judgment. As such, it may be cited in accordance with Article 8(2) of the Administrative Litigation Act and the main text of

2. Judgment on the defendant's argument of the trial

A. The defendant's assertion

The business profit rate is higher or same than the weighted average capital cost (WACC, the rightsed Average Co., Ltd.) x equity capital cost x equity capital ratio x equity capital cost x other person capital ratio x ratio). Since tolls and business profit rate are calculated in linkage with the weighted average capital cost, in order to maintain tolls and business profit rate, factors constituting the weighted average capital cost, such as equity capital ratio and other person capital ratio, must be observed. The instant concession agreement fixed the business profit rate to 8.28%. The instant concession agreement model prescribed the equity capital ratio to 3.3% of the total required financial cost 1,62.7 billion won as the equity capital ratio among the total required financial cost 82.5 billion won, and the subsequent amendment concession agreement model changed to 65.3% of the equity capital ratio. In the process of implementing the instant project, the Plaintiff, despite its duty to voluntarily comply with the above equity capital ratio set forth in the above financial model, did not violate the concession agreement.

On the other hand, the Defendant has dual status as a party to a contract under the public law and the status to seek the exercise of a disposition based on the Private Investment Act in the same private investment project as the instant project. As such, apart from the case where the Plaintiff can seek remedy for the breach of the instant concession agreement, which is a public law contract, a supervisory order may be issued in compliance with the requirements under the Private Investment Act within the discretionary scope prescribed by the Private Investment Act. However, as in the instant case, the Plaintiff’s act of undermining the equity capital ratio by lowering the equity capital ratio in order to stimulate profits and causing the reduction of the national treasury by avoiding corporate tax is contrary to the public nature of the private investment project, thereby hindering the normal operation of the instant project, which is a private investment project. Accordingly, the instant

B. Determination

Comprehensively taking account of the following circumstances acknowledged by the facts and evidence, the Plaintiff does not bear the duty to maintain the equity capital ratio under the concession agreement of this case, and the Plaintiff’s arbitrary change of the equity capital ratio cannot be deemed as having been difficult to operate in a normal manner, and the disposition of this case interferes with the Plaintiff’s free business activities, which is the concessionaire, and thus, does not meet the requirements for supervisory orders by the competent authority under the Private Investment Act. Therefore, the Defendant’

① Although capital structure, such as equity capital ratio, serves as a factor to consider business profit ratio and traffic volume calculation, it cannot be deemed that the Plaintiff is obligated to maintain capital structure, as a matter of course, such as the Plaintiff’s equity capital ratio. Of the family conditions for tolls calculation, the period of free use is 25 years (Article 4), total project cost is 1,393.3 billion won (Article 10), total project cost is 793.3 billion won (excluding corporate tax), actual profit rate is 8.28% (Article 34), while the equity capital ratio or interest rate applicable to loan repayment is specified as a basic family condition in the financial model, and it is not specified in the main text of this case. Thus, if the Defendant intends to specify the equity capital ratio as the contents of the instant concession agreement just as the above other conditions, such provision may not be separately provided, notwithstanding the fact that it could have been explicitly stated. Thus, it is not meaningful to determine the equity capital ratio or the interest rate of another person’s loans as the contents of the instant concession agreement as it is.

(2) In addition, considering the following: (a) other capital costs and equity capital costs cannot be determined in advance by the concessionaire or the Defendant; (b) other capital ratio, equity capital ratio, and equity capital ratio may also be contingent depending on changes in the external financial environment; and (c) the issue of how to maintain the capital structure is basically belonging to the management techniques of the concessionaire due to its characteristics, it is reasonable to view that the concession agreement of this case does not specify the capital structure differently from other conditions, such as actual yield, and reflects the characteristics of the capital structure as above.

③ At the time of the conclusion of the instant concession agreement, the Defendant entered into the concession agreement for the public-private partnership project in the white tunnel, and the actual yield rate of 8.28% is the same as the instant concession agreement in the concession agreement for the public-private partnership project in the white tunnel. As for the family condition for the calculation of tolls as added to the concession agreement for the white tunnel, the equity capital ratio is assumed to be 25% different from the equity capital ratio of 33% or 65.3% as stipulated in the financial model of the instant concession agreement. In other words, even though the equity capital ratio is different, in light of the fact that the concession agreement for the public-private partnership project in the white tunnel and the settlement of accounts for private investment project in the instant case guarantees the same real yield, it cannot be deemed that

(4) In the case of Gwangju Metropolitan City Investment Project, which was pointed out by the Board of Audit and Inspection as in the white-sea tunnels or water-sharing tunnels, Article 75 of the concession agreement of this case provides that "the implementation of the agreement between the parties concerned until the conclusion of this agreement shall continue to be effective unless it conflicts with the contents of this agreement." Accordingly, the agreement prepared in the process of concluding the concession agreement shall be included in the concession agreement, and accordingly, it shall be stated that the private investment project included in the concession agreement shall be paid at least 25% of the total costs as the equity capital. It shall be stated in the project plan and the public notice of the approval of the concession agreement as approximately 28.7% of the equity capital ratio as at the time of the concession agreement, and there is no room to view that there is a maintenance agreement on the 28.7% of the equity capital ratio as at the time of the concession agreement (see Gwangju High Court Decision 2013Nu580, Jan. 9, 2014). It shall not be deemed that the agreement is included in the agreement or model 30% of this case.

⑤ Furthermore, the Plaintiff and the existing project implementer, applying for approval of transfer or acquisition of the right to manage and operate the adjustment tunnel (Evidence No. 18) submitted to the Defendant, and the Plaintiff and the existing project implementer, specifically stated the Plaintiff’s financial status (total asset 2,374,926,07 won, equity capital 2,307,448,657 won, paid-in capital 2,739,400,000 won). On May 10, 2002, the Defendant granted approval of transfer or acquisition of the Plaintiff’s right to manage and operate the adjustment tunnel and submitted the above written request for approval of transfer or acquisition, only presented an abstract conditions of approval that the Plaintiff should comprehensively succeed to the rights and obligations of the adjustment tunnel and approved transfer or acquisition without any problem as to the Plaintiff’s financial structure or equity ratio.

6) Even based on the matters pointed out by the Board of Audit and Inspection based on the instant disposition, the purport was to propose the amendment of the Convention for the benefit-sharing, and, if no agreement for the amendment of the Convention was reached, to respond to commercial arbitration, civil trial, etc., and not to include the purport of issuing a supervisory order to return the structure itself under the conditions established at the time of the instant concession agreement.

7) According to the Plaintiff’s major contents of the financial statements from 2008 to 2012, the Plaintiff’s financial status was in capital erosion of approximately KRW 15.5 billion in 2008, but the said ratio was 2,534% since the said capital erosion was resolved in 2011, and the said ratio was reduced to 907% in 2012. The Plaintiff’s financial structure at present differs from the financial structure premised on the instant concession agreement, and it cannot be deemed difficult to normally operate the settlement tunnel solely on the ground that the corporate tax anticipated to be initially borne by the Plaintiff was reduced.

(8) As long as the structure of funds by a project implementer does not violate the minimum equity capital ratio necessary for stable operation of build-transfer-lease projects, it is reasonable to deem that it falls under management techniques of the project implementer. Therefore, inasmuch as there are no special circumstances such as violating the minimum equity capital ratio necessary for stable operation of build-transfer-lease projects, ordering the competent authority to change the fund structure of the project implementer into a specific fund structure in the form of

3. Conclusion

Thus, the plaintiff's claim of this case is justified, and the judgment of the court of first instance is just with this conclusion, and the defendant's appeal is dismissed as it is without merit.

Judges Kim Jong-cheon (Presiding Judge)