[1] Whether the "Act on the Budgeting and Management of Subsidies" can be applied to subsidies granted by local governments (negative)

[2] The case holding that a local government is allowed to provide financial assistance to a subsidized business operator on condition that the subsidized business operator should use the subsidy without financial interest rates and return the subsidy within a certain period of time

[3] In a case where the local government added the condition that the subsidy be returned within a certain period when the local government decided to pay the subsidy, the case holding that the local government's claim for the return of the subsidy to the subsidized operator is subject to a party litigation as provided by Article 3 subparagraph 2

[1] Article 2 subparagraph 1 of the Act on the Budgeting and Management of Subsidies provides that "the term "subsidies" means subsidies (limited to subsidies granted to local governments and those granted to facilities funds or operation funds of corporations or individuals) and charges (excluding those granted under international treaties) granted by the State for the purpose of creating them or providing financial assistance to the affairs or projects conducted by a non-State, and other benefits determined by the Presidential Decree, which are granted without receiving corresponding consideration." Accordingly, subsidies subject to the above Act are limited to subsidies granted by the State. Accordingly, the above Act does not apply to subsidies granted by local governments, and the Enforcement Decree of the Local Finance Act and the Local Finance Act and the Ordinance on the Management of Subsidies by the pertinent local government are only applicable.

[2] In a case where a local government added a condition that the local government should return a subsidy within a certain period when it decides to pay the subsidy, the case holding that Article 18 (2) of the Act on the Budgeting and Management of Subsidies is not applicable to this case, on the grounds that, in light of the provisions of the Ordinance on the Management of Subsidies of the local government and the provisions of the Ordinance on the Management of Subsidies of the Local Government and the fact that the decision on the payment of the subsidy has the nature of the beneficial administrative act in which the administrative agency discretion is recognized and the need to implement various forms of subsidy administration in order to promote the economy, there is no ground to deem that the local government may attach a condition that the subsidy shall be returned only when the local government makes a decision on the payment of the subsidy to a subsidized business operator without any interest on the subsidy, and it is interpreted that the local government may use the subsidy without any expense of the subsidized business operator, and that

[3] In a case where a local government added a condition that the local government should return the subsidy within a certain period when the local government decided to pay the subsidy, the case holding that the obligation to return the subsidy to the local government of the subsidized business operator is an incidental duty to the above decision to pay the subsidy, which is an administrative disposition, and since such additional duty is a public duty to the local government, the claim for return of the subsidy to the subsidized business operator is subject to a party suit as stipulated in Article 3 subparagraph 2 of the Administrative Litigation Act, which is a claim seeking the fulfillment of the obligation under public law

[1] Article 2 subparag. 1 of the Act on the Budgeting and Management of Subsidies, Article 17 of the Local Finance Act, Article 29 of the Enforcement Decree of the Local Finance Act / [2] Article 2 subparag. 1 and Article 18(2) of the Act on the Budgeting and Management of Subsidies, Article 14 of the former Local Finance Act (wholly amended by Act No. 7663 of Aug. 4, 2005), Article 24 of the former Enforcement Decree of the Local Finance Act (wholly amended by Presidential Decree No. 19226 of Dec. 30, 2005) / [3] Article 3 subparag. 2 of the Administrative Litigation Act

[1] Supreme Court Decision 2007Do1769 Decided May 31, 2007 (Gong2007Ha, 1015) Supreme Court Decision 2009Do8769 Decided March 25, 2010

Hong-gun (Attorney Jeon Young-soo et al., Counsel for the defendant-appellant)

Hongju Co., Ltd. (Law Firm Rated, etc., Counsel for the plaintiff-appellant)

Daejeon High Court Decision 2010Na3245 decided December 17, 2010

The judgment of the court of first instance is reversed, and the judgment of the court of first instance is revoked. The case is transferred to the Daejeon District Court Panel Division.

We examine the grounds of appeal.

1. According to the reasoning of the judgment of the court below, the defendant is merely a company established by the investment of the plaintiff and the Green Livestock Co., Ltd. for the purpose of integrated disposal of livestock products, such as slaughter business and meat processing business, on November 13, 1997. The defendant requested 1.5 billion won of the subsidy on December 8, 2003 under the condition that it will be repaid only five years after the short-term repayment, etc. of the subsidy. The court below determined on December 11, 2003 that the plaintiff's delivery of the subsidy was 1.5 billion won of the subsidy to the defendant on December 29, 2003, which was 1.5 billion won of the subsidy of this case, based on the agreement of the Red-gun Council to grant the above 1.5 billion won of the subsidy of this case to the defendant, which was 5 billion won of the subsidy of this case. The court below decided that the plaintiff's delivery of the subsidy of this case was 1.5 billion won of the subsidy of this case's 2000 billion won of the subsidy of this case.

2. However, we cannot agree with the above judgment of the court below for the following reasons.

A. According to the facts acknowledged by the court below, the defendant requested the plaintiff to provide the subsidy on the condition that only principal shall be repaid five years after the beginning. The plaintiff accepted it and attached the condition of the subsidy payment in this case while making the decision to pay the subsidy. Furthermore, the defendant submitted a letter of undertaking to return the subsidy in lump sum by December 31, 2008. Thus, the decision to pay the subsidy in this case is not a content of granting the defendant a subsidy of KRW 1.5 billion to the defendant without compensation, but it is clear that the defendant paid the principal by December 31, 2008, but it is a content of granting the subsidy as a condition of exempting interest during the five-year period from December 31, 2003 to December 31, 208. Therefore, the decision to pay the subsidy in this case has the substance of giving the defendant an amount equivalent to the financial interest in the city during the five-year period.

B. However, Article 2 Subparag. 1 of the Subsidy Act provides, “The term “subsidies provided for in the above Act” means subsidies (limited to subsidies granted by the State to local governments and those granted to facilities funds or operation funds of corporations or individuals) and charges (excluding those granted by international treaties) that are granted without receiving corresponding consideration, which are determined by the Presidential Decree, granted by the State to create them or provide financial assistance to the affairs or projects conducted by a non-State. Accordingly, subsidies subject to the above Act are limited to subsidies granted by the State (see, e.g., Supreme Court Decision 2009Do8769, Mar. 25, 2010). Accordingly, there is no application of the above Act with respect to subsidies granted by the Plaintiff, a local government, to the Defendant, and only the Enforcement Decree of the Local Finance Act, the Enforcement Decree of the Local Finance Act, and the Ordinance on the Management of the Subsidies of

C. Article 2 Subparag. 1 of the Local Finance Act and the Enforcement Decree of the Local Finance Act provide that “The term “the term “subsidies” means funds granted by the Gun or to provide financial assistance to affairs or projects conducted by persons other than the Gun in accordance with the needs of public interest and policy” and Article 7 of the Local Finance Act provides that “the head of the Gun may, in determining the grant of subsidies, attach a condition that it is deemed necessary for the accomplishment of the purpose of granting subsidies set forth in the laws and regulations and the budget.”

D. In full view of the above provisions of the Ordinance on the Subsidy Management of Hongsung-gun and the fact that the decision on the payment of the subsidy in this case has the nature as a beneficial administrative act in which the administrative agency’s discretion is recognized, and in particular, there is a need to implement various forms of subsidy administration in order to promote the economy, there is no ground to deem that the Plaintiff may attach a condition to allow the return of the subsidy only when the Plaintiff would have accrued to the subsidized business operator in the course of making a decision on the payment of the subsidy. It is interpreted that the Plaintiff may allow the subsidized business operator to use the subsidy without a financial interest to pay the subsidy, taking into account the details and financial status of the subsidized business operator’s application for the subsidy, the Plaintiff’s budgetary condition, necessity

Article 18(2) of the Subsidy Act provides, “The head of a central government agency may, when a subsidy program is completed, attach a condition that the amount equivalent to all or part of the subsidy already granted be returned to the State to the extent that it does not contravene the purpose of the subsidy grant if substantial profits accrue to the subsidy program operator.” However, this provision is applicable to cases where the State made a decision to pay a subsidy which is not premised on the return of the original subsidy, and it is interpreted as a provision that takes into account the conflict with the original purpose of the subsidy grant if the State grants a condition that the subsidy be returned in whole or in part, regardless of whether the subsidy would incur profits to the subsidy operator even though the decision to pay the subsidy was made. However, as in this case, if the Defendant applied for the subsidy under the condition that the original purpose of the subsidy be repaid, and the Plaintiff, which is a local government, has accepted the subsidy

E. Therefore, the condition of granting this case, which the Plaintiff accepted the Defendant’s conditional application for granting of the principal and added while making the decision to grant the instant subsidy, is consistent with the original Defendant’s application, and is also necessary even if the Plaintiff achieves the purpose of granting the instant subsidy while making the decision to grant the instant subsidy, and thus, it cannot be deemed that there exists a serious defect in the terms of granting this case or that the said defect is objectively apparent and null and void solely on the ground that the Plaintiff would have repaid the subsidy regardless of whether the instant condition of granting the instant subsidy

Therefore, the court below erred by misapprehending the legal principles on the legal nature of subsidies granted by local governments.

The ground of appeal pointing this out is with merit.

3. Meanwhile, the Defendant’s obligation to return the subsidy to the Plaintiff is an incidental duty to the instant decision on the payment of the subsidy, which is an administrative disposition, and such additional duty is a public law obligation that the Defendant owes to the Plaintiff (see Supreme Court Decision 80Da731, 732, Dec. 28, 1982, etc.).

Therefore, the Plaintiff’s claim against the Defendant is a claim seeking the performance of obligations under public law against one of the parties to the legal relationship under public law, and is obviously a party’s lawsuit as stipulated in Article 3 subparag. 2 of the Administrative Litigation Act.

Nevertheless, the first instance court and the lower court did not err by misapprehending the legal principles on party litigation under the Administrative Litigation Act, thereby violating the provisions on exclusive jurisdiction. In so doing, the first instance court and the lower court erred by misapprehending the legal principles on party litigation under the Administrative Litigation Act.

4. Therefore, the judgment of the court of first instance shall be reversed ex officio, and the case shall be transferred to the competent court for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yang Chang-soo (Presiding Justice)