Where the competent authority issues a supervisory order to a project implementer pursuant to Article 45 (1) of the Act on Private Participation in Infrastructure, the method of determining whether it is done within the scope that does not undermine the free management activities of the project implementer.

Articles 1, 7(1) and (2), 10(1) and (3), 11(1)1, 3, and 7, 13(1), (2) and (3), 15(1), 24, and 45(1) of the Act on Private Participation in Infrastructure (hereinafter “Private Investment Act”), and Article 35 subparag. 1 of the Enforcement Decree of the Act on Private Participation in Infrastructure set the objectives of creating conditions for promoting the investment of the private sector in infrastructure, thereby ensuring the creativity and efficiency of the private sector, taking into account the importance of the national economy, imposing liability on the government to maintain the public interest in the construction, operation, etc. of infrastructure created through a public-private partnership project shall be determined in accordance with the concession agreement, and the competent authority shall determine the infrastructure to be managed and operated by the public-private partnership project in accordance with Article 45(1)1 and 45(1) of the Act on Public-Private Partnerships in Infrastructure within the scope of free business activities of the project implementer.

Therefore, where the competent authority issues a supervisory order under Article 45(1) of the Act on Public-Private Partnerships in Infrastructure on the premise that a concessionaire has a certain obligation, whether such order was given to the extent that it does not undermine the free management activities of the concessionaire should be determined individually according to specific cases, comprehensively taking into account such factors as the content of the supervisory order, the purpose and character of the infrastructure concerned, the relevant statutes, the relevant instruction for proposal, private investment, or concession agreement, on the premise that such private investment project is characterized.

Articles 1, 7(1) and (2), 10(1) and (3), 11(1)1, 3, and 7, 13(1), (2), and (3), 15(1), 24, and 45(1) of the Act on Private Participation in Infrastructure; Article 35 subparag. 1 of the Enforcement Decree of the Act on Private Participation in Infrastructure

Suwon Investment Co., Ltd. (Attorneys Lee Jae-de et al., Counsel for the defendant-appellant)

Busan Metropolitan City Mayor (Law Firm LLC, Attorneys Kim Ji-hyung, et al., Counsel for the plaintiff-appellant)

Busan High Court Decision 2014Nu22861 decided June 3, 2016

The appeal is dismissed. The costs of appeal are assessed against the defendant.

The grounds of appeal are examined.

1. Regarding ground of appeal No. 1

The lower court determined that it was difficult to view that the Plaintiff, under the concession agreement of this case concluded in 199 by the concessionaire and the competent authority of the account settlement tunnel private investment project and the Defendant, the competent authority, had a duty to maintain the fund structure premised on the time of conclusion of the concession agreement of this case. In so doing, the lower court’s determination is justifiable, and contrary to what is alleged in the grounds of

2. Regarding ground of appeal No. 2

A. (1) The purpose of the Act on Public-Private Partnerships in Infrastructure (hereinafter referred to as the “Act”) is to contribute to the development of the national economy by facilitating the investment of the private sector in infrastructure facilities and promoting the expansion and operation of infrastructure facilities in a creative and efficient manner (Article 1 of the Act). The Government shall, in establishing and publicly announcing the basic plan for infrastructure facilities, meet the mid- and long-term plans for national investment priorities, and endeavor to maintain the public interest while creating conditions for the creation of a private sector’s initiative and efficiency (Article 7(1) and (2) of the Act). Furthermore, the competent authority shall establish and publicly announce the basic plan for infrastructure project (hereinafter referred to as “basic plan for infrastructure”) in accordance with the basic plan for infrastructure project within one year after it is designated as a project subject to the pertinent year (Article 10(1) and (3) of the Act); matters concerning the estimated amount of investment, etc. subject to the project (Article 10(1)1); matters concerning revenue of the project implementer (Article 3(1)7(1)1)1) of the Act.

A person who intends to conduct a public-private partnership project shall prepare a project plan and submit it to the competent authority in accordance with the instruction for proposal publicly announced as above (Article 13 (1) of the Act), the competent authority shall designate the concessionaire by concluding a concession agreement including the conditions for implementing the project, such as the designated potential concessionaire and the period of use, after reviewing and evaluating the project plan (Article 13 (2)), and the designated potential concessionaire from among the proposers, and the total project cost and period of use, etc. (Article 3). The concessionaire shall prepare the relevant project implementation plan before the implementation of the public-private partnership project and obtain approval from the competent authority (Article 15 (1) of the Act), and the land and infrastructure created or installed through a public-private partnership project after the implementation thereof

Meanwhile, Article 45(1) of the Act provides that “The competent authority may supervise affairs related to a public-private partnership project of a concessionaire and issue an order necessary for supervision to the extent that it does not undermine the free management activities of the concessionaire,” and Article 35 subparag. 1 of the Enforcement Decree of the Act provides that “Where the competent authority deems it necessary for the normal operation of the facility” as one of the grounds for ordering supervision.

(2) As can be seen, the above statutory provisions aim at promoting the investment of the private sector in infrastructure and creating conditions in which the creativity and efficiency of the private sector can be displayed, while imposing on the government the responsibility to maintain the public nature of infrastructure facilities, taking into account the importance of the national economy, such as the installation and operation of infrastructure facilities, and determine the infrastructure facilities created through private investment projects so as to be managed and operated in accordance with the provisions of the concession agreement, and even where the competent authority issues a supervisory order in accordance with Article 45(1) of the Act to the extent that it does not undermine the free management activities of the concessionaire.

Therefore, where the competent authority issues a supervisory order under Article 45(1) of the Act on the premise that a concessionaire has a duty, whether such an order was given to the extent that it does not undermine the free management activities of the concessionaire should be determined individually depending on specific cases, on the premise of such nature of the private investment project, comprehensively taking into account the contents of the supervisory order, the purpose and character of the infrastructure in question, the purpose and content of the relevant statutes, the instruction for proposal, or concession agreement, etc.

B. The lower court determined that: (a) insofar as the structure of the project implementer’s financial structure does not violate the minimum equity capital ratio necessary for the stable operation of build-transfer projects, it basically falls under the business techniques of the project implementer; (b) although the Plaintiff’s financial position was in the state of capital erosion of KRW 15.5 billion in 2008, the debt ratio was 2,534% due to the removal of capital erosion in 2011; (c) in 2012, the debt ratio was continuously reduced to 907%; and (d) the Plaintiff’s financial structure differs from the funds structure premised on the instant concession agreement, the normal operation of the settlement tunnel cannot be deemed difficult solely on the ground that the Plaintiff’s financial structure was different from the funds structure premised on the instant concession agreement; and (c) even based on the intellectual matters of the Board of Audit and Inspection’s proposal on the instant disposition, the lower court did not err by misapprehending the legal doctrine regarding the supervisory order, etc., or by exceeding the bounds of the supervisory order, as alleged in the grounds for appeal.

3. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Dong-won (Presiding Justice)