Korea-U.S. Railroad and one other (Attorney Strict-hoon, Counsel for the defendant-appellant)

Korea Rail Network Authority (Law Firm Han & Yang LLC, Attorneys Park Ge-hwan et al., Counsel for the plaintiff-appellant)

April 3, 2015

1. The plaintiffs' claims against the defendant are all dismissed.

2. The costs of lawsuit are assessed against the plaintiffs.

The defendant shall pay to the plaintiffs 781,893,513 won with 20% interest per annum from the day following the delivery of a copy of the complaint of this case to the day of complete payment.

1. Basic facts

A. Conclusion of the instant contract, etc.

1) The Plaintiffs formed a joint supply and demand organization and concluded each contract for construction works and modification as described below in the form of a long-term contract with the Defendant, a quasi-government agency with a type of entrusted execution under Article 5(3)2(a) of the Act on the Management of Public Institutions (hereinafter “instant construction works”), in the form of a long-term contract under a long-term contract (hereinafter “the instant contract for construction works, etc.”). The instant contract for construction works, etc. are collectively referred to as “the instant entire contract,” each of the contracts for construction works, etc., and each of the following contracts is specified in the manner, “the instant contract for construction works, etc.,” and each of the following contracts for construction works, as “the instant three-time contract for construction works,” and each of the following contracts is specified in the same manner as “the instant three-time amendment contract”

본문내 포함된 표 계약 구분 계약일 차수 계약금액(원) 총 공사 부기금액(원) 차수 착공일 총체 준공기한 비고 차수 준공일 총체 및 1차 2004. 11. 18. 150,000,000 24,333,000,000 2004. 12. 9. 2008. 12. 1. 2004. 12. 31. 2차 2005. 3. 7. 805,400,000 상동 2005. 3. 7. 상동 2005. 12. 31. 3차 2006. 4. 3. 1,300,000,000 상동 2006. 4. 3. 상동 2006. 12. 20. 2006. 12. 18. 상동 23,923,000,000 상동 상동 총공사 부기금액 감액(1회 변경) 4차 2007. 2. 27. 6,193,000,000 상동 2007. 2. 28. 상동 2007. 12. 20. 2007. 12. 18. 5,521,000,000 25,088,000,000 상동 상동 차수 계약금액 감액, 총공사 부기금액 증액(1회 변경) 5차 2008. 3. 28. 6,000,000,000 상동 2008. 3. 31. 상동 2008. 12. 1. 2008. 11. 27. 상동 상동 상동 2009. 12. 31. 차수 및 총체 준공기한 연장(1회 변경) 2008. 12. 20. 2008. 12. 10. 7,000,000,000 25,091,000,000 상동 상동 차수 및 총체 계약금액 증액(2회 변경) 6차 2008. 12. 31. 3,377,000,000 상동 2009. 1. 5. 상동 2009. 12. 20. 2009. 1. 14. 6,377,000,000 상동 상동 상동 차수 계약금액 증액(1회 변경) 2009. 12. 15. 6,439,212,000 26,530,000,000 상동 2011. 12. 30. 차수, 총체 계약금액 증액, 총체 준공기한 연장(2회 변경) 2011. 3. 8. 상동 상동 상동 2012. 12. 31. 총체 준공기한 연장(3회 변경)

Note 2)

2) On February 22, 2012, the Plaintiffs entered into a contract under which the instant contract was entered into with the Defendant as the previous long-term continuing contract (C) to the continuing expenditure contract (hereinafter “instant amendment contract”).

3) With respect to the instant contract in accordance with the form of continuing expenditure contract, the Plaintiffs and the Defendant changed the execution amount to KRW 1,530,00,000 on February 28, 2012 to the total amount of KRW 150,000,000, the performance amount in 2005 to KRW 805,400,000, the performance amount in 2006 to KRW 1,300,000, the performance amount in 207 to KRW 5,521,00,00,000, KRW 208,000, KRW 7,000,000, KRW 200,000, KRW 6,439,000, KRW 200, KRW 208, KRW 206, KRW 208, KRW 2005, KRW 208, KRW 2005, KRW 208, 2005, KRW 208,3816,5,2865,25,206.

(b) Application for the adjustment of contract amount;

1) On December 11, 2009, the Plaintiffs sent an official document to the Defendant via the Supervisory Board to the effect that “The period from January 1, 2010 to February 28, 2011, during which the instant construction was temporarily suspended, the Plaintiffs promised not to separately claim general management expenses, profits, etc. incurred therefrom, by reflecting the design change of the total of KRW 21,50,000,000,000, including the office rent of KRW 18,000,000,000,000 and the security enterprise’s expense, etc., during the period from January 1 to February 28, 2011.”

2) On February 22, 2011, the Plaintiffs sent a public notice to the Defendant to the effect that “for the period from March 1, 2011 to February 28, 2012 during which the instant construction was temporarily suspended due to the delay in advance, the Plaintiffs promised not to separately claim general management expenses, profits, etc. incurred therefrom, by reflecting the design change in total of KRW 21 million including KRW 18 million in office rent for the period from March 1, 2011 to February 28, 2012.”

3) On December 27, 2012, the Plaintiffs sent an official document to the Defendant to the effect that “The Defendant shall claim for the cost of air extension (contract amount adjustment) based on Article 22 of the General Conditions relating to the instant construction work.”

C. Payment of the construction price of this case

The Plaintiffs received KRW 728,020,00 from the Defendant on December 28, 2006, 382,50,000 for the completion of the instant third contract, and KRW 847,035,00 for the completion of the instant fourth contract on December 31, 2007, and KRW 1,050,030,00 for the completion of the instant fifth contract on December 29, 2008, and KRW 728,020,80 for the completion of the instant sixth contract on December 23, 209, respectively, and received KRW 1,265,438,700 for the entire completion of the instant contract on January 3, 2013.

D. Terms and conditions of the instant contract

The main contents of the general terms of the contract for construction (hereinafter “general terms”) applicable to the instant contract are as follows.

(4) The ratio of increase in the contract amount under paragraphs (1) and (2) of this Article, including indirect labor expenses, industrial accident insurance premiums, occupational safety and health management expenses, etc., to an increase in the contract amount under paragraphs (1) and (2) of this Article, and general management expenses and profits, shall not exceed the ratio of indirect labor indicated in the calculation sheets, such as industrial accident and occupational safety and health management expenses, general management expenses and profit rates, but shall not exceed the ratio determined by the Minister of Finance and Economy, within 30 days from the date on which the request for adjustment of contract amount is made.

【Ground for recognition】 The fact that there has been no dispute, Gap's evidence Nos. 1, 2, 4, 5, 14, 16, Eul's evidence Nos. 4 and 5 (including the number; hereinafter the same shall apply), the purport of the whole pleading

2. The parties' assertion

A. Summary of the plaintiffs' assertion

1) Claim for indirect costs due to the extension of the construction period

A) On February 22, 2012, the instant contract concluded by the initial method of a long-term continuing contract was modified into a single continuing expenditure contract, including the parts of the instant revised contract, which was concluded and completed before and performed as a whole, and thus, the indirect cost arising from the extension of the construction period ought to be determined by deeming the entire contract as one of the entire contracts.

B) However, the deadline for completion of the instant contract was December 1, 2008. However, due to the Defendant’s circumstances, up to December 31, 2009 at the time of the instant 5th alteration contract, until December 30, 201 at the time of the instant 6th alteration contract, and up to December 31, 201 at the time of the instant 6th alteration contract, the respective deadline for completion was extended until December 31, 2012 at the time of the instant 6th alteration. The said Plaintiffs filed an application for the adjustment of the contract amount prior to the extension of the deadline for completion and the date of receipt of the final payment of the instant contract. Accordingly, the Defendant should pay indirect costs to the Plaintiffs from December 2, 2008, which was the date following the original deadline for completion to December 31, 2012, which was the date of final extension.

C) Even if the instant contract still remains in the form of a long-term continuing contract even after the instant change contract entered into by continuing expenditure contract, as long as the total contract period of the said contract is extended as above without any cause attributable to the Plaintiffs, the additional indirect cost incurred therefrom shall be borne by the Defendant.

D) Meanwhile, since the amount of indirect costs due to the extension of the above construction period is KRW 781,893,513 as listed below, the Defendant is obligated to pay the Plaintiffs the above KRW 781,893,513 and delay damages.

On December 2, 2008, 201 to December 31, 2009, from February 29, 2012 to December 31, 2012, the indirect labor cost of 451,170,328 direct labor cost of 2,90,87,280 and other expenses 6,170,550, 394,747, 389,580 and 13,389,580 and 580, 201 to December 31, 2009, 208, 201 to December 31, 2012, 201 to 205, 208, 201 to 30,50,50 or more of industrial accident insurance premiums, 30,550,39,57, 380,57, 2619, 297, 2967, 2967

2) Claim for an agreed amount (elective Claim)

The Defendant agreed to pay to the Plaintiffs an indirect cost of KRW 42.5 million, which was incurred from January 1, 2010 to February 28, 2012. As such, the Defendant is liable to pay the Plaintiffs at least the above KRW 42.5 million and delay damages therefrom.

B. The defendant's argument

1) Whether the instant contract was concluded by the initial method of long-term continuing contract, and the conclusion of the instant contract was modified by the method of continuing expenditure contract. However, since the extension of the construction period claimed by the Plaintiffs was made before it was modified by the method of continuing expenditure contract, the specific rights and obligations, such as indirect costs, due to the extension of the contract period by each number of vehicles of the instant contract that was concluded by the method of continuing expenditure contract, should be based on each number of vehicles. In addition, as long as the instant contract was modified by the method of continuing expenditure contract from the method of a long-term continuing contract to the extent that the instant contract was modified by the method of continuing expenditure contract, there is no room for the occurrence

2) Ultimately, the date of completion of the instant 5th amendment contract among the contracts under a long-term continuing contract, which was concluded by the method of a long-term continuing contract, was extended from December 1, 2008 to December 20, 208. As such, the obligation to pay indirect costs arises only for the extended period. As long as the Plaintiffs did not file a legitimate application for the adjustment of the contract amount prior to the receipt of the completed cost of the relevant number of contracts for the extended period, the Plaintiffs cannot seek indirect costs even for the extended period.

3) Meanwhile, as alleged by the Plaintiffs, the Defendant did not agree to pay to the Plaintiffs an indirect cost of KRW 42.5 million, which occurred from January 1, 2010 to February 28, 2012.

3. Determination

A. As to the claim for indirect costs upon extension of the construction period

1) The plaintiffs' assertion on this part is based on the premise that the contract of this case, which was entered into by the original contract of this case, was retroactively modified by the continuing expenditure contract method, including each and several contracts already completed, or the contract of this case remains in existence by the previous contract of this case despite the conclusion of the revised contract of this case, this part is first examined.

2) Considering the above basic facts, adopted evidence, and the overall purport of oral arguments, it is reasonable to view that the previous contract of this case concluded by the method of a long-term continuing contract was modified by the method of a "long-term continuing expenditure contract" as the conclusion of the instant revised contract. Thus, it is reasonable to view that the rights and obligations regarding each type of contract already completed prior to the amendment by the method of continuing expenditure contract are still prescribed by the terms and legal principles of each type of contract of a long-term continuing contract.

① In the case of continuing expenditure contracts, since the total budget for construction costs is determined by the resolution of the National Assembly in a lump sum, only a comprehensive contract is concluded and an annual installment amount is additionally added thereto. On the other hand, a long-term continuing contract is concluded by the budget for construction costs on a yearly basis. As such, in the case of a long-term continuing contract, the independence of each type of contract is strongly recognized. In addition, Article 26(5) of the General Conditions applicable to a contract for construction works under the State Contracts Act provides that an application for the adjustment of the contract amount due to the extension of the contract period shall be made before the completion of each unit of contract is received, and the legal relationship such as indirect cost payment due to the extension of the contract period shall also be concluded at the same time

② According to Article 22 of the General Conditions of this case, even if the cause for the adjustment of the contract amount occurred due to the extension of the construction period, the contract amount adjustment is not automatically made, but is made by the legitimate application for the adjustment of the contract amount against the other party to the contract. At least, the contract amount adjustment is not subject to the contract amount adjustment in terms of the party’s trust protection (see Supreme Court Decision 2004Da28825, Sept. 14, 2006). Thus, the other party to the contract shall complete the application for the adjustment of the contract amount due to the modification of the terms of the contract, such as extension of the construction period, etc.,

③ As can be seen, in the case of a long-term continuing contract, the contractual relationship is terminated as the performance is completed along with the receipt of the completion cost by each type of vehicle. As such, the contractual relationship cannot be claimed when the contracting party fails to undergo the procedure for filing a contract application by the time the completion cost by each type of vehicle is received.

④ However, it is unreasonable to interpret that the instant contract (the instant overall contract) was modified by the method of continuing expenditure contract from the initial method of a long-term continuing contract, and that the legal relationship on each of the following contracts prior to the year in which the initial claim was not available would be able to recover indirect expenses by restoring the legal relationship. In addition, in cases of concluding a contract by the method of continuing expenditure contract which requires several years for executing the contract, only one annual installments shall be executed, and the budget execution and performance only within the limit of the annual installments of the relevant year shall be resolved at the National Assembly, and even in such a case, the budget for the part of which the previous implementation has been completed cannot be retroactively compiled, and thus, the project owner cannot secure the budget to pay indirect expenses.

⑤ Each construction name is stated in the instant contract. The instant contract and the instant modified contract, which was amended to the continuing expenditure contract, are indicated as the name of the construction work, and the instant changed contract and the latter are indicated as “the instant construction work (sixth).” Hence, the subject of the change to the continuing expenditure contract are limited to the subsequent construction work after the instant 65th changed contract. In the instant 65th changed contract, the entry of the amount of the annual performance by the previous annual performance is expected to be made by clarifying the amount of the annual performance in the event of the continuing expenditure contract, and it seems to be merely a statement of the construction cost by each number of the following contracts, the execution of which

3) Therefore, the above part of the plaintiffs' assertion on a different premise cannot be accepted without further need.

B. As to the claim for the agreed amount

First of all, the facts that the plaintiffs sent to the defendant, ① on December 11, 2009, the amount of KRW 21,500,000 to be reflected in the design modification (Evidence A 4) and ② sent a letter of merit (Evidence A 5) to be reflected in the design modification.

However, it is difficult to find that the above documents merely requested the defendant to adjust the contract amount unilaterally, and it is hard to find that the above facts and the evidence alone agreed to pay the plaintiffs the sum of KRW 41.5 million as an additional indirect cost, and there is no other evidence to acknowledge this otherwise.

Therefore, the above part of the plaintiffs' assertion is without merit.

4. Conclusion

Therefore, the plaintiffs' claims against the defendant are dismissed in entirety as it is without merit. It is so decided as per Disposition.

Judges Cho Jae-dae (Presiding Judge)

1) An additional note of the total construction amount determined by the award, etc., and a contract is entered into within the budget of the pertinent year with the view to concluding the contract within the scope of the amount calculated by deducting the amount already contracted from the amount of additional total construction amount (Article 69(2) of the Enforcement Decree of the Act on Contracts to which the State is a Party (hereinafter “State Contract Act”)).

2) The third contract (A evidence 1-3) provides that the total completion period prior to the amendment is specified as December 8, 2008. However, in light of the fact that the third contract modification contract (A evidence 1-4), the total completion period prior to the amendment is specified as December 1, 2008, and the plaintiff states that the total completion period is December 1, 2008, and that the total completion period is stated as December 1, 2008, it appears that the total completion period as stated in A evidence 1-3 is a clerical error.

Note 3) Contracts that clearly state matters concerning the total construction and annual construction (Article 69(5) of the Enforcement Decree of the State Contract Act).