Hanjin Construction Co., Ltd. and one other (Law Firm Chungcheong, Attorneys Cho Jong-jin et al., Counsel for the plaintiff-appellant)

U.S. Comprehensive Construction Co., Ltd. (Law Firm Bosch Rexroth, Attorneys Cho Jae-hwan et al., Counsel for the plaintiff-appellant)

July 22, 2009

Seoul Central District Court Decision 2007Gahap72231 Decided October 22, 2008

1. Of the judgment of the court of first instance, the part against the defendant, who is the party to the lawsuit of the defendant Do and the defendant shall be revoked, and the plaintiffs' claims corresponding to the above revoked part

2. The plaintiffs' appeal against the defendant U.S. Do's successor to the lawsuit is dismissed.

3. The costs of the lawsuit are assessed against the Plaintiffs.

1. Purport of claim

Defendant U.S. Do’s lawsuit acceptance and delivery of the claim and cause modification as of November 1, 2000 to September 19, 2008, 5% per annum, and 20% per annum from the next day to the day of complete payment, respectively, for each of the above amounts of KRW 190,010,861 (each of the 190,010,861, Defendant’s lawsuit acceptance and each of the above amounts of KRW 13,063,340, respectively) and each of the above amounts to the Plaintiffs.

2. Purport of appeal

A. The plaintiff shall revoke the part against the plaintiffs in the judgment of the court of first instance against the defendant U.S. Do's litigant. The defendant U.S. Do's litigant shall pay to the plaintiffs 46,552,630 won each, and 5% per annum from November 1, 2000 to September 19, 2008 with a copy of the claim and the application for change of cause from September 19, 2008, and 20% per annum from the next day to the day of complete payment.

B. Defendant: (a) of the judgment of the first instance court, the defendant U.S. Do and the defendant's losing part is revoked; and (b) the plaintiffs' claims corresponding to the above revocation part are dismissed

1. Basic facts

A. The plaintiffs' joint and several liability conclusion

1) High engineering Co., Ltd. (the trade name was changed to Gohap Construction Co., Ltd., Ltd. on April 6, 1996, Gyeongil Construction Co., Ltd. on January 6, 1999, and Gohap Construction Co., Ltd. on February 5, 2001; hereinafter “non-party Co., Ltd”) entered into a large-scale integrated distribution complex on January 30, 1996 from the Daegu-gu District Co., Ltd. on the Daegu-dong Integrated Distribution Complex Co., Ltd. (hereinafter “non-party Co., Ltd.”) at KRW 48,357,100,000 (hereinafter “instant contract”). The construction work was contracted for the construction of the Daegu Integrated Distribution Complex Co., Ltd. (hereinafter “the instant building”).

2) On the same day, the Plaintiffs jointly and severally guaranteed the obligations under the instant contract for the non-party partnership against the non-party partnership (hereinafter “the instant joint and several guarantee agreement”).

B. Conclusion of a subcontract by the Defendants

1) On November 11, 1996, U.S. Co-Defendant Co-Defendant Co-Defendant of the first instance trial (hereinafter “U.S. Co-Defendant Co-Defendant of the first instance trial”) was awarded a subcontract with the Non-Party Co-Defendant Co-Defendant of the first instance trial (hereinafter “instant subcontract”) for the construction of reinforced concrete in the instant construction project (the volume of concrete building is 45,842 square meters in the underground floor, 14,158 square meters in the ground floor) at KRW 1,409,90,800 in the price (hereinafter “instant subcontract”).

2) The co-defendant in the first instance trial changed the volume of concrete building volume to the 47,017 square meters on March 28, 1997, the 66,569 square meters on December 31, 1997, and the 57,532 square meters on April 30, 1998.

3) On May 22, 1998, the Defendant U.S. Comprehensive Construction Co., Ltd. (hereinafter “Defendant U.S. Comprehensive Construction”) succeeded to the instant subcontract by the Co.,Defendant U.S. Co., Ltd., Ltd. (hereinafter “Defendant U.S. Comprehensive Construction”) that closed the business on May 1, 1998 changed the specific volume of the 9,037 square meters between the Nonparty Company and the ground floor.

C. Claim for damages against the plaintiffs of the non-party union and company reorganization procedure of the non-party company

1) On November 30, 1998, the non-party company completed the building of this case and delivered it to the non-party partnership. However, the non-party company suffered various defects in the building of this case including ① concrete walls, beams, stoves cracks, and ② structural cracks in the above commercial building constructed by the co-defendants of the first instance court and the defendant U.S. comprehensive construction (hereinafter referred to as the "defendants").

2) On March 3, 199, the non-party union requested the repair of defects after giving notice to the plaintiffs on the non-party company's default on the repair of defects that occurred in the building of this case.

3) On July 19, 199, the non-party company was ordered to commence the company reorganization procedure from the Suwon District Court, and the period of filing the reorganization claim under the above order of commencement is up to August 28, 1999. The non-party union and the plaintiffs forfeited each of the above claims because the plaintiffs failed to report to the non-party company within the period of filing the claim against the non-party company by fulfilling the damage claim in lieu of the repair of defects in the building of this case which occurred in the building of this case under the joint and several guarantee contract of this case.

4) On February 8, 2003, the Daegu District Court 2003Gahap2288 filed a lawsuit seeking compensation for damages against the plaintiffs in lieu of defect repairs in the building of this case under the joint and several surety contract of this case. On April 12, 2007, the appellate court of the above case rendered a judgment on April 12, 2007 that the plaintiffs jointly and severally paid 1,384,922,000 won and damages for delay to the non-party partnership (Tgu High Court 2004Na82666). The above judgment was finalized on September 20, 2007 by the Supreme Court's dismissal of appeal.

5) On April 27, 2007, the Plaintiffs paid KRW 2,128,296,460, respectively, to the non-party partnership as damages according to the judgment of the said lawsuit.

D. The taking-off of the lawsuit by the co-defendants of the first instance court of the construction of the U.S. comprehensive construction

On July 29, 2008, the construction of the defendant U.S. comprehensive construction merged the co-defendants of the first instance court on the merger, and taken over the lawsuit of the co-defendants of the first instance court on April 1, 2009 while the trial is pending.

[Ground of recognition] Unsatisfy, Gap evidence 1, Gap evidence 3, Gap evidence 9, and the purport of the whole pleadings

2. Relevant provisions;

- the former Construction Business Act (amended by Act No. 5230 of Dec. 30, 1996) (amended by the Framework Act on the Construction Industry)

Article 25 (1): In executing his subcontracted construction work, the subcontractor shall have the same obligation as the contractor does to the ordering person.

Paragraph 2: Paragraph 1 shall not affect the legal relations of the contractor and subcontractor.

Article 37 (3) : Where a subcontractor inflicts damage on others by roughly executing subcontracted projects due to intention or negligence, the contractor shall be liable to compensate for the damage jointly and severally with the subcontractor.

· Framework Act on the Construction Industry

Article 32 (1): In executing his subcontracted construction work, the subcontractor shall have the same obligation as the contractor does to the ordering person.

Paragraph 2: Paragraph 1 shall not affect the legal relations of the contractor and subcontractor.

Article 44 (3): Where a subcontractor inflicts losses on others by roughly executing a subcontracted construction work on purpose or by negligence, a contractor shall be under obligation to compensate for the losses jointly and severally with the subcontractor.

3. The plaintiffs' assertion

A. The Defendants, as a subcontractor of the instant construction project, have the same obligation as the Nonparty Company, pursuant to Article 25(1) of the former Construction Business Act and Article 32(1) of the Framework Act on the Construction Industry (hereinafter “former Construction Business Act”). As such, the Defendants are obligated to compensate the Nonparty Company for the damages incurred as a substitute for the repair of defects arising from the construction of the said reinforced concrete, and (2) as a result of intentional or negligent construction, caused the said damages to the Nonparty Association, the Defendants were jointly and severally liable for the damages to the Nonparty Company pursuant to Article 37(3) of the former Construction Business Act and Article 44(3) of the Framework Act on the Construction Industry (hereinafter “former Construction Business Act”).

B. The Plaintiffs, as a joint and several surety of the non-party company, paid all damages in lieu of the repair of defects arising from the instant construction work to the non-party partnership as a result of the performance of the joint and several surety obligation. Accordingly, the Defendants also exempted the obligation to pay KRW 233,482,370 for the repair of defects in concrete walls, beams, and so on to compensate for damages in lieu of the repair of defects in the non-party partnership under Article 25(1) of the former Construction Business Act.

C. The plaintiffs are entitled to indemnity against the non-party company by fulfilling their joint and several liability against the non-party company. The plaintiffs are entitled to indemnity against the non-party company by subrogation of the non-party association pursuant to Articles 481 and 482(1) of the Civil Act and exercise their right to indemnity against the defendants in lieu of defect repair against the non-party company. ② The non-party company and the defendants are liable to the non-party company as joint and several liability under Article 25(1) of the former Construction Business Act and Article 37(3) of the former Construction Business Act because they are liable to the non-party company as joint and several liability, or are in fact in the same position as a joint and several liability without any subjective joint and several liability. Thus, the non-party joint and several liability of the non-party company is entitled to direct indemnity against the defendants.

D. Therefore, the defendant is obligated to pay to the plaintiffs each amount of KRW 203,074,201 [the amount of KRW 233,482,370, and KRW 172,77,032, out of KRW 685,226,080, total of KRW 172,77,032 (the portion of the first instance trial co-defendant 207,35,690, KRW 26,126,680 among the damages paid by the plaintiff to the non-party association) and damages for delay.

4. Determination

A. First, with the right to indemnity against the non-party company, whether the plaintiffs can subrogate the rights under the Construction Business Act and the Framework Act on the Construction Industry (the right to indemnity in lieu of repair) against the defendants of the non-party association with the right to indemnity against the non-party company, the right to subrogation the non-party association under Article 482(1) of the Civil Act as the right to indemnity against the non-party company is the right to claim against the non-party company and its collateral. The right under the Construction Business Act and the Framework Act on the Construction Industry against the defendants of the non-party association is particularly recognized by each of the above Acts. In particular, the owner (the contractor) has the right to indemnity in lieu of the defect repair to the subcontractor on behalf of the contractor in lieu of the defect repair. Thus, the right to indemnity in lieu of the defect repair that the non-party association has against the defendants under each of the above Acts is not a claim against the non-party company of the non-party association, but a right to secure its claim. Therefore, this part of the plaintiffs' claim

B. Next, as to whether the plaintiffs have the right to claim the return of unjust enrichment against the defendants, if the plaintiffs were to be liable for damages in lieu of the defect repair against the non-party partnership by performing their duties as a joint and several surety against the non-party partnership, the above damages were extinguished pursuant to the joint and several surety contract of this case, and the above damages were not done without any legal cause, and the plaintiffs can exercise their right to claim the reimbursement against the non-party partnership, and thus, they cannot be deemed as losses to the plaintiffs. Even if the obligation of the plaintiffs under the Construction Business Act and the Framework Act on the Construction Industry against the non-party partnership was actually extinguished due to the performance of the joint and several surety obligation against the non-party partnership, it cannot be deemed as extinguished, and therefore, the defendants cannot be deemed as having gained profits from the performance of their joint and several surety obligation of the plaintiffs, and therefore, the plaintiffs' assertion on this part of this part is without merit.

C. Finally, we examine whether the non-party company and the Defendants are liable for joint tort under Article 25(1) of the former Construction Business Act and Article 37(3) of the former Construction Business Act against the non-party union, or whether the Plaintiffs have the right to claim the return of unjust enrichment against the Defendants in relation to joint and several liability.

The term "construction work" under Article 37 (3) of the former Construction Business Act means the construction work conducted in violation of various Acts and subordinate statutes, design documents, construction practices, and general common formula as a constructor, such as the Building Act, thereby damaging the safety of a building itself or its construction work, or causing danger and injury to another person's body or property (see Supreme Court Decision 2000Da58859, Jun. 12, 2001). Even if the defendants' above reinforced concrete construction work, ① concrete walls, beams, puls cracks, and ② floor cracks of the building itself or the construction work of this case, there is no evidence to acknowledge that such construction work causes damage to the safety of the building or the construction work of this case or causes danger and injury to another person's body or property, and there is no reason to assert this part of the plaintiffs' joint tort liability against the non-party company and the defendants.

In addition, considering the contents of Article 25(1) of the former Construction Business Act as well as Article 25(2) of the same Act and Article 32(2) of the Framework Act on the Construction Industry, "the provisions of paragraph (1) do not affect the legal relations between the contractor and the subcontractor", the above provision provides that the subcontractor shall have the subcontractor perform the same obligation as the contractor in the performance of subcontracted construction works, and thereby, it seems to be a provision for fostering subcontracting and clarifying the legal relations by preventing the subcontractor from affecting the legal relations between the contractor and the subcontractor. Thus, even if the subcontractor (foreign company) performed the obligation of compensation in lieu of defect repair against the client (foreign company), it cannot be deemed that the subcontractor (the plaintiff) has acquired the right of direct indemnity or the right of return of unjust enrichment against the subcontractor (the plaintiff) under the above provision. Thus, under the premise that the plaintiffs had the right of claim for return of unjust enrichment against the defendants (the plaintiffs in this case is not the plaintiffs' right of subrogation against the non-party company.)

5. Conclusion

Therefore, the plaintiffs' claim against the defendant, who is the party taking over the lawsuit and the defendant, is dismissed as it is without merit. Since the judgment of the court of first instance, which has different conclusions, is unfair, the defendant's appeal is accepted as the party taking over the lawsuit and the defendant's appeal is revoked, the plaintiffs' claim corresponding to the revoked part is all dismissed, and the plaintiff's appeal against the party taking over the lawsuit against the defendant, the non-party taking over the lawsuit is dismissed, and it is so decided as per Disposition.

Judges Kang Jong-ju (Presiding Judge)