Plaintiff 1 and 31 others (Law Firm Ham, Attorneys Jeong Sung-chul et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 201Na1448 delivered on May 2, 2012

NAS Construction Co., Ltd. (Attorneys Lee White-chul et al., Counsel for the plaintiff-appellant)

July 10, 2014

Seoul Western District Court Decision 2012Kahap12146 Decided June 14, 2013

1. The defendant's appeal is dismissed.

2. Of the appeal costs, the part arising between the plaintiffs and the defendant is assessed against the defendant, and the part arising from the supplementary participation is assessed against the defendant.

1. Purport of claim

On May 15, 2010, at the general meeting of the Defendant’s May 15, 2010, the resolution that the Defendant selected KS Construction Co., Ltd. as the executor of the housing redevelopment improvement project, and at the general meeting on May 26, 2012, the resolution that approved the draft construction contract between the Defendant and NA Construction Co.

2. Purport of appeal

The judgment of the first instance is revoked. All the plaintiffs' claims are dismissed.

1. Basic facts

A. The Defendant is a redevelopment and consolidation project association (hereinafter “Defendant partnership”) which completed the establishment registration on July 28, 2009 after obtaining authorization on July 28, 2009 pursuant to the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (hereinafter “Urban Improvement Act”) with the total area of 78,920 square meters in Eunpyeong-gu Seoul Metropolitan Government as a project implementation district, and is 827 members, and the Plaintiffs are the members of the Defendant partnership.

B. On March 18, 2010, the Defendant Cooperative announced a bid for the selection of a contractor. On March 26, 2010, the 14 construction companies, including NAS Construction Co., Ltd. (hereinafter “NS Construction”) and Hyundai Construction Co., Ltd. (hereinafter “NS Construction”) participated in the bidding. After the bidding, only NAS Construction and Hyundai Construction participated in the bidding.

C. After that, the board of representatives of the Defendant’s association presented to the general meeting for the selection of a contractor with the participation in the tender on April 27, 2010 and for the selection of a contractor. After that, at the general meeting held on May 15, 2010 through a joint presentation on May 8, 2010 and May 15, 2010, Hyundai Construction was selected as the contractor with 331 votes (in writing, 67 votes, 264 votes), and 402 votes (in writing, 200 votes, 202 votes) at the general meeting of the Defendant’s association held on May 15, 2010 (hereinafter “instant resolution for the selection of the contractor”).

D. The written voting for the above resolution was carried out in a written resolution form by which the seal imprint is sealed and sealed in an envelope, and then the seal imprint is affixed on the sealed seal imprint and submitted.

E. After that, on April 2, 2012, the Defendant Union prepared a draft contract after consultation with NA Construction, and on May 3, 2012, after resolution by the board of directors of the Defendant Union, on May 26, 2012, following resolution by the board of representatives of the Defendant Union, the Defendant Union resolved on May 26, 2012, 431 votes (in writing voting 399, on-site voting 65), 32 marks (in writing voting 6, on-site voting 25), and 32 marks (in writing voting 6, on-site voting 25 marks) with GaS Construction (hereinafter “instant contract agreement resolution”).

F. On July 13, 2013, the Defendant Union held a general meeting of 15:00, and presented a proposal to confirm the resolution of selection of the instant contractor, and passed a resolution with the affirmative votes of 393 votes (in writing voting 326 marks, on-site voting 213 marks) from among the 539 votes (in writing voting 287 marks, on-site voting 106 marks) (hereinafter “instant ratification resolution”).

G. The relevant provisions applicable to the procedure for the selection of the contractor by the Defendant Union are as follows:

(1) Article 11 (Selection, etc. of Constructors) (1) of the former Urban Improvement Act (amended by Act No. 11690, Mar. 23, 2013) (1) No association shall select a constructor or registered business operator as an contractor by means of competitive bidding determined by the Minister of Land, Transport and Maritime Affairs after obtaining authorization for the establishment of the association under Article 16: Provided, That in cases of an improvement project smaller than the scale prescribed by Presidential Decree, the association may select at the general meeting of the association, as prescribed by the articles of association, as the standards for selecting constructors of the ○ rearrangement project (No. 2009-50, announced by the Ministry of Land, Transport and Maritime Affairs; hereinafter referred to as the “Standards for selecting constructors, etc.”) (1) No association shall immediately notify its members of the standards for selecting constructors, etc. to be present at the general meeting under Article 12, and no association shall directly provide its members with an opportunity to participate in bidding or other matters, such as bidding guidelines, to be held by its members or its agents:

[Ground of recognition] Facts without dispute, Gap evidence Nos. 2, 5, 10, 17 (including branch numbers, hereinafter the same shall apply), Eul evidence Nos. 3 and 21, and the purport of the whole pleadings

2. Determination on this safety defense

Defendant Union ratified the resolution of the selection of the work executor of the instant case that the plaintiffs selected as the work executor of the Defendant Union on the instant case’s construction that the plaintiffs had defects through the resolution of the instant contract agreement. Thus, even if there were defects in the resolution of the selection of the work executor, it is nothing more than seeking confirmation of the previous legal relations and thus, it should be dismissed as there is no interest in the protection of rights. Thus, as seen below, the instant contract agreement resolution has no validity as a resolution of ratification of the resolution of the selection of the work executor of the instant case’s construction. Thus, the above principal safety defense of the Defendant Union is without merit, without further review.

In addition, the defendant association also seeks to confirm the invalidity of the resolution of this case by the plaintiffs, not to continuously implement the redevelopment project, but to block the implementation of the redevelopment project itself. However, there is no ground to view that the lawsuit seeking confirmation of invalidity of the resolution of the contractor is permitted only for the purpose of selecting a new contractor on the premise of the continuous implementation of the redevelopment project, and there is no evidence suggesting that the purpose of the lawsuit of this case is to prevent the implementation of the redevelopment project. Therefore, this part of the defendant's defense of safety is without merit.

3. Judgment on the merits

A. Summary of the parties' assertion

1) Summary of the plaintiffs' assertion

In the process of the resolution on the selection of the contractor of this case, SP Construction caused fraudulent acts, such as offering money and entertainment to the members of the Defendant Union. This is naturally null and void as to the resolution on the instant contract of this case, which is premised on the fact that SP construction was effective and lawful, as long as the resolution on the selection of the contractor of this case is null and void. This is also null and void as a matter of course, since it violates Article 11(1)1 of the Urban Improvement Act, Article 13(3) of the criteria for selecting the contractor, and Articles 12 and 20 of the guidelines for selecting the contractor of the Defendant Union’s participation in bidding, thereby affecting the result of the selection of the contractor.

2) Summary of the assertion by the defendant union and assistant intervenor

① Even if KS Construction violated the guidelines for participation in the tender of the Defendant Union, the tender of KS Construction or the resolution for the selection of the contractor in this case does not automatically become null and void. ② Even if Article 11(1) of the Urban Improvement Act and Article 13(3) of the Act on the Criteria for Selection of Constructors do not constitute a mandatory provision, the resolution for the selection of the contractor in this case cannot be deemed null and void on the sole basis of the fact that there was a fraudulent act by some employees, and even if there was a fraudulent act by certain employees, such an act does not result in the significant infringement of the voting rights or the selection of the contractor by the members of the Defendant Union, and thus, the decision for the selection of the contractor in this case cannot be deemed null and void. ③ Even if there was a defect in the resolution for the selection of the contractor in this case, the resolution for the selection of the contractor in this case was adopted with the intent of the members of the Defendant Union to select the subcontractor as the contractor of the Defendant Union on July 13, 2013.

B. Determination

1) The nature of Article 11(1) of the Urban Improvement Act and the criteria for selecting constructors

Article 11(1) of the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents provides that redevelopment and rearrangement projects shall select a contractor by means of competitive bidding. This is to prevent damage to the public nature of rearrangement projects caused by the acts of an executive officer or a construction company participating in a tendering procedure in the process of selecting a contractor and the occurrence of burial expenses to be transferred to the association members. The criteria for selecting a contractor established by delegation of Article 11(1) of the Act include the methods and procedures for selecting a contractor in order to ensure procedural fairness in the tendering process, to prevent the distortion of the intent of the association members by the tendering company, and to ensure effectiveness of the resolution function of the general meeting of the association with regard to the selection of a contractor.

In light of the above legislative purpose and purport of Article 11(1) of the Urban Improvement Act and Article 11(1) of the Act, the importance of selecting a contractor in the course of redevelopment project, and Article 84-3 subparag. 1 and subparag. 2 of the Urban Improvement Act provide that a cooperative that selects a contractor in violation of Article 11(1) of the same Act and a contractor who selects a contractor shall be subject to criminal punishment. Article 11(1) of the Urban Improvement Act is a mandatory provision, and a resolution of selecting a contractor and a bidder by means other than competitive bidding is naturally null and void. Furthermore, even if a resolution of selecting a contractor by competitive bidding has been adopted formally, an association or a participant violates the procedures or prohibition set forth in the selection criteria in the process of selecting a contractor, and if it is recognized that such an act is likely to undermine the fairness of bidding and infringe on the free choice of a contractor, the resolution of selecting a contractor shall be deemed null and void as a resolution of Article 11(1)1 of the Urban Improvement Act regardless of whether such an act has influenced the result of the resolution of selecting the contractor.

2) A resolution to select the instant contractor and whether such resolution becomes invalid

In light of the purport of Gap evidence No. 21 and the whole argument, it can be acknowledged that Gap's employees were sentenced to the judgment of conviction due to interference with business (Seoul Western District Court Decision 201Da2638 delivered on September 20, 2012). The above act of offering cash and entertainment to the members of the defendant's association by offering money, valuables, or entertainment to the members of the defendant's association prior to the resolution of selecting the work executor, provided the members of the association with cash one million won in return for advance polling for s.S. construction, or offered them with special-class hotel meals and lodging, public performances with life-sustaining, Busan tourism, etc., and some employees of s.S. construction caused by such act are reasonable to view that the above act of offering cash and entertainment was invalid as an act of violating Article 13 (3) of the Act on the Selection of Constructors and Maintenance of Constructors, and thus, it is also reasonable to view that the above act of selecting the work executor or the act of selecting the work executor as invalid under the agreement of this case.

3) Whether to cure any defect

In light of the above, it is reasonable to view that the agreement resolution of this case and the ratification resolution of this case did not meet the quorum of the general meeting for the selection of work executor, and that the agreement of this case can only proceed with the general meeting for the selection of work executor if a majority of the members directly attend the general meeting for the selection of work executor. According to the evidence Nos. 3 and 21 of this case, it is clear that 94 members directly attend the general meeting for the association which has adopted the agreement of this case, and 344 members directly attend the general meeting for the association which has adopted the ratification resolution of this case. Thus, since the agreement of this case and the ratification resolution of this case failed to meet the quorum of the general meeting for the selection of work executor, it is reasonable to deem that the act which was invalidated in violation of the mandatory provisions is invalid even if it is not ratified without removal of the grounds for invalidation, and it is not reasonable to deem the legislative purpose of this case to be invalid even if the decision of this case was not followed by the new tender procedure for the selection of work executor.

With regard to this, the Intervenor asserts that Article 14(1) and (2) of the Act on the Criteria for Selection of Constructors who demanded a majority of the members to directly attend a general meeting for the selection of the business operators violates the Constitution as well as the freedom of contract with the Defendant Union, the right to know and property of the Defendant Union members, and the freedom of business of the Intervenor

However, Article 11(1) of the Urban Improvement Act stipulates that a constructor of a rearrangement project shall be selected through competitive bidding at the association’s general meeting, and the specific methods shall be delegated to subordinate laws and regulations prescribed by the Minister of Land, Transport and Maritime Affairs. To ensure transparency and fairness in the selection process, it cannot be deemed that the provision on the quorum of the general meeting of the association for the resolution to select a contractor goes beyond the delegation scope of the above statutory provisions. In addition, setting a quorum of the general meeting of association for the resolution to select a contractor does not seem to restrict the association members’ right to know or property rights, and there is no direct relation to the

However, the above provision has a legitimate legislative purpose to ensure transparency and fairness in the process of selecting a contractor, i.e., ensuring transparency and fairness in the process of selecting a contractor. The following circumstances are as follows: ① the proportion or importance of selecting a contractor in a rearrangement project; ② the resolution at a general meeting is a matter of principle to directly attend a meeting and exercise voting rights; ③ the members are not sufficiently enough time to seek specific information on the contents of proposals made by each company participating in a tender; ④ In the case of a written resolution, rather than directly attend a meeting, there is a high possibility of having a proxy attend a meeting; ⑤ in the case of a cooperative member who is difficult to attend a meeting, it is difficult to readily conclude that the above provision is an effect that it is difficult to achieve the legislative purpose of a written resolution and to realize the legislative purpose of a cooperative; ② The above provision is an effect that it is difficult to directly distort and distort the substance of a contract.

4) Defenses against abuse of litigation rights

The defendant union is seeking confirmation of invalidity of the decision of selecting the contractor and the decision of the contract of this case for the purpose of preventing the redevelopment project of the defendant union from exercising the burden of additional charges. This is against the majority of the members of the defendant union and causing pain and damage to them. Thus, the plaintiffs' claim should not be allowed as it is an abuse of right against the good faith principle. However, the circumstance asserted by the defendant union is merely the purpose of the plaintiffs' claim for confirmation of invalidity of this case to cause pain and damage to other members, and it is difficult to conclude that the plaintiffs' claim for confirmation of invalidity of this case is an abuse of right by exercising the right of lawsuit against social order, and there is no other evidence to acknowledge that the plaintiffs' exercise of right of lawsuit is abuse of right. Thus, the above defense by the defendant union is without merit

4. Conclusion

Therefore, the plaintiffs' claims are justified, and the judgment of the court of first instance is just, and the defendant's appeal is dismissed. It is so decided as per Disposition.

Judges Han Chang-hun (Presiding Judge)

(1) Although this provision was amended by Act No. 11690 on March 23, 2013, the Ministry of Land, Transport and Maritime Affairs following an alteration of organization does not change the text or content of the law, except for the change to “the Minister of Land, Transport and Maritime Affairs” to “the Minister of Land, Transport and Maritime Affairs.” Therefore, Article 11(1) of the Urban Improvement Act is not limited to “Article 1

2) A person who falls under any of the following subparagraphs shall be punished by imprisonment for not more than 3 years or by a fine not exceeding 30 million won:

3) In the appellate judgment (Seoul Western District Court Decision 2012No1131 Decided July 4, 2013), unlike the first instance court, the crime of offering a bribe is judged not guilty, but the crime of interference with business is deemed not guilty.