[1] Whether the main text of Article 11(1) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents, which provides that a constructor of a rearrangement project shall be selected through competitive bidding as determined by the Minister of Land, Transport and Maritime

[2] Whether the main sentence of Article 11 (1) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents violates the principle of prohibition of comprehensive delegation or the principle of clarity, or violates freedom of contract against the principle of excessive prohibition (negative)

[3] The legal nature of the main text of Article 11(1) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (i.e., mandatory provisions) and the validity of a resolution on the selection of a contractor and a bid made by a public tender rather than a method of competitive bidding in violation of the foregoing provision / Whether the above provision violates the above provision in a case where a union or a tendering company, although the general meeting of cooperatives passed a resolution on the selection of a contractor by a public tender in a form of competitive bidding, in substance, has an influence on the resolution of a general meeting

[1] The main text of Article 11(1) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (amended by Act No. 11690, Mar. 23, 2013) provides that the procedures for and methods of selecting contracting parties shall be made by means of “tenders” at a partnership general meeting, thereby directly restricting the methods of selecting contracting parties by law and embodying the details of restrictions. However, the said provision is merely providing that the Minister of Land, Transport and Maritime Affairs shall determine only the detailed matters, such as the procedures for conducting competitive bidding, and it is difficult to view that this is essentially limited to the procedures that should be governed by law. Furthermore, the term “tenders” is a concept that covers a bidder among bidders who maintain fairness in competition, and thus, the said provision does not entirely stipulate the standards for selecting successful bidders. Accordingly, the said provision does not violate

[2] The main text of Article 11(1) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (amended by Act No. 11690, Mar. 23, 2013; hereinafter “former Act”) delegates to the Minister of Land, Transport and Maritime Affairs the detailed contents of procedures to ensure fair competition in the process of selecting a contractor of an improvement project, or of evaluation and decision-making methods thereof. This constitutes an inevitable case where delegation is made due to the nature of business as minor matters. Furthermore, considering the concept of tender or the procedures under the general principle of civil law, the contents to be regulated by the said provision can be sufficiently predicted that restrictions such as specific types of competitive bidding, tender announcement, bidding, bidding procedure, schedule, and decision-making method leading to successful bid, and thus, it does not go against the principle of prohibition of comprehensive delegation. Therefore, Article 11(1) main text of the former Act does not violate the principle of clarity by setting very abstract standards only.

In addition, the above provision aims to enhance transparency and fairness in the process of selecting a contractor for a rearrangement project, and it is difficult to find ways to restrict the freedom of a cooperative or contracting party while securing fairness in the selection of a contractor, and thereby, it cannot be said that there is a violation of the freedom of a contract contrary to the principle of excessive prohibition, since the disadvantage suffered by a cooperative or contracting party is larger than the public interest achieved.

[3] The main text of Article 11(1) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (amended by Act No. 11690, Mar. 23, 2013; hereinafter “former Act”) and legislative purport of Article 11(1) of the same Act, if an act of violating this provision is valid, it would seriously infringe upon the interests of partners by inducing disputes among union members as to the selection of a contractor, which is the core procedure of an improvement project, and infringing on transparency and fairness in the selection process. In full view of the fact that an act of violating the above provision is subject to criminal punishment under Article 84-3 subparag. 1 of the former Act, the main text of Article 11(1) of the former Act is a mandatory provision, and a bid and a resolution of selecting a contractor by means other than competitive bidding shall be deemed null and void as a matter of course. Furthermore, even if an association’s resolution of selection by competitive bidding was made formally, it may be deemed that an act of violating the above provision was prohibited in the process of selecting a contractor or a tender.

[1] Article 11(1) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (Amended by Act No. 11690, Mar. 23, 2013); Articles 37(2), 40, 75, and 95 of the Constitution / [2] Article 11(1) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (Amended by Act No. 11690, Mar. 23, 2013); Articles 37(2), 75, and 95 of the Constitution / [3] Articles 11(1) and 84-3 subparag. 1 of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (Amended by Act No. 11690, Mar. 23, 2013); Article 105 of the Civil Act

[1] [2] Constitutional Court en banc Order 2014HunBa382 Decided March 31, 2016 (HunGong234, 571) / [2] Constitutional Court en banc Order 2007HunBa39 Decided June 25, 2009 (HunGong153, 820)

See Attached List of Plaintiffs (Law Firm Bree, Attorneys Jeong Sung-sung et al., Counsel for the plaintiff-appellant)

Busan 2. Urban Renewal Promotion Zone Housing Redevelopment and Improvement Project Association

NAS Construction Co., Ltd. (Attorneys Kim Jong-hwan et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2013Na42511 decided July 31, 2014

All appeals are dismissed. The costs of appeal are assessed against the defendant supplementary intervenor.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. Factual basis

The facts found by the court below are as follows.

A. The Defendant Cooperative, as a redevelopment and rearrangement project partnership with the authorization of establishment on July 28, 2009 and with the registration of incorporation on August 4, 2009, is 827 members. The Defendant Cooperative held a general meeting on May 15, 2010 and selected as the executor of the instant redevelopment project (hereinafter referred to as “the resolution to select the executor of the instant redevelopment project”) a number of intervenors (in writing voting 67 marks, on-the-spot voting 200 marks, on-site voting 202 marks, and on-the-spot voting 202 marks), who participated in the tender of the executor of the instant redevelopment project (hereinafter referred to as “the resolution to select the executor of the instant redevelopment project”).

B. On the resolution of selecting the instant contractor, the Intervenor conspireds to purchase the Plaintiff’s members by offering money, goods, or entertainment to the Plaintiff’s members so that some employees of the Intervenor may be selected as the contractor. Before the decision of selecting the contractor, the Intervenor offered 100,000 won in cash to the Intervenor as the advance payment to the Intervenor, or offered the members with special-class hotel meals, lodging, performances by the scams, and other entertainments such as Busan Tourism. Some employees of the Intervenor were indicted for interference with the said act and was convicted of the conviction (Seoul Western District Court Decision 2015No26, Apr. 10, 2015). The conviction became final and conclusive as it is.

C. On May 26, 2012, the Defendant Union: (a) held a general meeting of shareholders on May 26, 2012; (b) passed a resolution of 431 votes (in writing voting 366 votes, on-site voting 65 votes; and (c) 23 votes (in writing voting 6 votes, on-site voting 17 votes; (d) the judgment of the court below’s “Dissenting 32 votes”; and (e) “on-site voting 25 votes” of the court below appears to be written in writing); (c) the Defendant Union and the Intervenor’s “on-site construction contract draft(s)” (hereinafter “instant contract draft resolution”). On June 14, 2013, the first instance court sentenced the instant decision to confirm that the resolution of selecting the contractor and the contract draft is invalid. After that, the Defendant Union held a general meeting of shareholders on July 13, 2013, approved the instant resolution of the selection of the contractor by 539 votes (in writing voting 326, on-site voting 21373936 votes).

2. Ground of appeal Nos. 4 and 5

A. The main text of Article 11(1) of the former Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (amended by Act No. 11690, Mar. 23, 2013; hereinafter “former Act”) provides that “A housing redevelopment project cooperative shall select a constructor or a registered business operator as a contractor by means of competitive bidding as determined by the Minister of Land, Transport and Maritime Affairs at a general meeting of cooperatives after obtaining authorization to establish the association.” The foregoing provision aims to enhance the transparency in the process of selecting a contractor, to prevent confusion and overhetor in the market for redevelopment and reconstruction, and to prevent disputes among its members, and specifically define the content and scope of the delegation as “tender method” for the selection of a contractor.

The main text of Article 11(1) of the former Act provides that the method of selecting contracting parties shall be directly restricted by the Act and the details of restriction are specified by the Act, by prescribing the procedures for the implementation of competitive bidding at a partnership general meeting. Provided, That the said provision does not entirely stipulate the standards for the selection of successful bidders, inasmuch as the said provision covers the participation of bidders who are the most favorable to the bidder among bidders while maintaining the fairness of competition, and the said provision does not violate the principle of statutory reservation (see, e.g., Constitutional Court en banc Decision 2014Hun-Ba382, Mar. 31, 2016).

Article 40 of the Constitution stipulates the legislative principles of the National Assembly: Provided, That Articles 75 and 95 of the Constitution lists Presidential Decrees, Ordinances of the Prime Ministers, and Ordinances of Ministries, etc. as statutory orders that can be issued upon delegation of statutes. The form of delegated legislation recognized by the Constitution ought to be deemed an example. Even if a law delegates certain matters to administrative rules, administrative rules can only regulate delegated matters, and thus, do not go against the legislative principles of the National Assembly: Provided, That delegation of administrative rules, such as notification, such as special and technical matters or minor matters, are limited to matters of which delegation is inevitable due to their nature (see the en banc Decision 2014Hun-Ba382, supra).

The main text of Article 11(1) of the former Act delegates to the Minister of Land, Transport and Maritime Affairs with regard to the procedures to ensure fair competition in the process of selecting a contractor of a rearrangement project, the evaluation of the procedures to ensure fair competition, and the methods of decision-making, etc. This constitutes a case where delegation is inevitable in light of the nature of the project, which is a minor matter of professional and technical matters. Furthermore, considering the concept of tender or the procedures, etc. according to the general principles of civil law, the contents to be regulated by the Minister of Land, Transport and Maritime Affairs pursuant to the said provision can be sufficiently predicted that the restriction on the specific types of competitive bidding, tender announcement, bidding, bidding, successful bid, and the method of decision-making, etc. leading to the successful bidding, and thus, the method of securing fair competition is not contrary to the principle of prohibition of comprehensive delegation (see, e.g., Constitutional Court en banc Decision 2007Hun-Ba39, Jun. 25, 2009; Constitutional Court en banc Decision 2014Hun-Ba382, supra.

In addition, the above provision aims to enhance transparency and fairness in the process of selecting a contractor for a rearrangement project, and it is difficult to find a way to restrict the freedom of partnership or contracting party while ensuring fairness in the selection of a contractor, and accordingly, it cannot be said that there is a violation of the freedom of contract contrary to the principle of excessive prohibition (see, e.g., Constitutional Court en banc Decision 2014Hun-Ba382, supra).

In conclusion, we cannot accept the argument that the main text of Article 11 (1) of the former Act violates the principle of clarity, the principle of prohibition of comprehensive delegation, or violates the freedom of contract against the excessive prohibition principle and violates the Constitution.

B. Article 14 of the former Act provides that “The standards for the selection of a contractor for a rearrangement project (Article 2009-550 of the Ministry of Land, Transport and Maritime Affairs’s notification; hereinafter “standards for the selection of a contractor”) established by the Minister of Land, Transport and Maritime Affairs pursuant to delegation of Article 11(1) shall be that “the general meeting may proceed where a majority of the members are present at the meeting directly. In this case, a member shall be deemed as a direct participation.” Paragraph (2) of the same Article provides that “The member may exercise his/her voting right in writing in accordance with the articles of association. In this case, the number of direct participants under paragraph (1) shall not be included, and a related person, including a constructor, shall not be required

The lower court determined that Article 14(1) and (2) of the standards for the selection of a contractor cannot be deemed as infringing on fundamental rights, such as freedom of contract, contrary to the principle of excessive prohibition, even though the said provisions may be deemed as restricting the freedom of association by requiring an aggravated requirement regarding the decision-making process of a cooperative that intends to select a contractor. In other words, the said provisions have a legitimate legislative purpose to ensure transparency and fairness in the selection process of a contractor that accounts for a significant portion in the rearrangement project. The resolution of a union general meeting is a principle that members directly attend the meeting and exercise their voting rights, and the resolution is likely to be made in a distorted state or lacking information rather than directly attending the written resolution. Even if it is not easy to expect a majority of the union members to directly attend, it is not an aggravated requirement to the extent that it is impossible to expect a direct attendance, but it is recognized that a union member

In light of the aforementioned legal principles and the records, the lower court is justifiable to have determined that Article 14(1) and (2) of the standards for the selection of a work executor do not constitute unconstitutionality. In so doing, the lower court did not err by misapprehending the legal doctrine on the determination of a work executor

3. Ground of appeal Nos. 1 and 2

A. As seen above, the main text of Article 11(1) of the former Act provides that a housing redevelopment association shall select a contractor by means of competitive bidding to enhance transparency in the process of selecting a contractor and prevent disputes among its members (Article 13(3) of the same Act provides that “Any related person, such as a constructor, etc., may not conduct individual public relations with its members, and shall not provide or promise to provide members, or a specialized management contractor, with or promise to provide, goods, money, or property interests, such as personal goods, etc. for the purpose of publicity). In addition, Article 84-3 subparag. 1 of the former Act provides that a person selected as a contractor in violation of Article 11 of the former Act shall be punished by imprisonment for not more than three years or by a fine not exceeding 30 million won.

Article 11(1) main text of the former Urban Improvement Act and its legislative purport, if the act of violating this provision is valid, it would seriously infringe upon the interests of partners by inducing disputes among the association members regarding the selection of a contractor, which is the core procedure of an improvement project, and infringing on the transparency and fairness of the selection process. In the event of a violation of the above provision under Article 84-3 subparag. 1 of the former Urban Improvement Act, the main text of Article 11(1) of the former Urban Improvement Act is a mandatory provision, and a bid and a resolution of selecting a contractor by means of competitive bidding, which are not the method of competitive bidding, should be deemed null and void as a matter of course. Furthermore, even if a union passed a resolution to select a contractor through competitive bidding, it may be deemed a violation of the above provision even if the association or a participant company formally deviatess from the intent of designating a contractor through competitive bidding under the main sentence of Article 11(1) of the former Urban Improvement Act. The criteria for selecting a contractor by offering money and valuables to the association members in the process of selection, and the general assembly’s resolution of unlawful acts.

B. The lower court determined that the instant decision on the selection of a contractor was null and void as it violates Article 11(1) of the former Act, which is a mandatory provision, and that, insofar as the said decision on the selection of a contractor is null and void, the said decision on the instant contract agreement was also null and void. For that reason, the Intervenor committed an act in violation of Article 13(3) of the standards for the selection of a contractor, such as offering money and valuables to union members and entertainment, during the process of selecting a contractor for the instant redevelopment project, and that the Intervenor’s act in violation of Article 13(3) of the standards for the selection of a contractor, such as offering money and valuables to union members, and the degree and degree of the act of violation

In light of the aforementioned legal principles and the record, the above determination by the lower court is justifiable. In so determining, the lower court did not err by misapprehending the legal doctrine on the lawful requirements for the selection of a contractor and the grounds for invalidation, etc.

4. Ground of appeal Nos. 3 and 7

For the following reasons, the lower court determined that the resolution of ratification of this case was null and void. Article 14 of the standards for the selection of a contractor is invalid. Article 14 of the standards for the selection of a contractor is that a general meeting may proceed in cases where a majority of partners directly attend the meeting, and where an agent as prescribed by the articles of incorporation attends the meeting (paragraph (1)), it is deemed that a cooperative member may exercise voting rights in writing pursuant to the articles of incorporation, but in such cases, it is not included in the number of persons directly present under paragraph (1) and related persons, including constructors, cannot be subject to a written resolution regarding the selection of a contractor (Paragraph (2). However, since a cooperative member directly present at the Defendant’s general meeting where the resolution of ratification of this case was adopted did not reach a majority of 344, a cooperative member directly present at the general meeting where the resolution of ratification of this case did not meet the quorum of the general meeting for the selection of a contractor under Article 14(1) and (2) of the standards for the selection of a contractor, and thus, it cannot be deemed null and void merely by the legislative resolution of this case.

Examining the relevant legal principles and records, the above determination by the lower court is justifiable. In so determining, the lower court did not err by misapprehending the legal doctrine on ratification, etc. of the resolution of the union general meeting.

5. Ground of appeal No. 6

The lower court determined that even if the instant lawsuit was brought for the purpose of preventing the redevelopment project itself due to the lack of sufficient funds for the Plaintiffs to bear additional charges, such circumstance alone alone only aims to inflict pains and damages on other members of the Defendant Union, and it cannot be deemed an abuse of the right against the good faith principle because there is no particular interest on the Plaintiffs.

In light of the record, the above determination by the lower court is justifiable. In so determining, the lower court did not err by misapprehending the legal doctrine on the good faith principle or abuse of authority, contrary to what is alleged

6. Conclusion

The appeal by the Defendant’s Intervenor is dismissed as it is without merit, and all 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.

[Attachment] List of Plaintiffs: Omitted

Justices Park Poe-young (Presiding Justice)