Supreme Court: "Interest on Overdue Construction Payments Must Be Calculated According to Commercial Law"

[Asia Economy Reporter Baek Kyunghwan] The Supreme Court has ruled that delayed damages on construction payments arising from subcontracting contracts between companies should be calculated under commercial law, not civil law.

On the 15th, the Supreme Court's Second Division (Presiding Justice Ahn Cheolsang) announced that it overturned and ruled in favor of the plaintiff in the appeal trial of a construction payment claim lawsuit filed by construction company A against manufacturer B, through a ruling without remand.

Company A completed the construction of company B's office building and factory in September 2016 as per the contract and claimed the remaining payment of 590 million KRW, excluding the advance payment received. However, company B argued that about 270 million KRW should be deducted for defect repair costs and construction costs for unperformed parts, leading company A to file a lawsuit.

The first trial court ruled that the construction payment company B had to pay to company A was 409 million KRW, excluding safety management fees and delay penalties, and ordered payment. However, for the approximately three years from the payment due date stipulated in the contract to the judgment date, interest was ordered to be paid at an annual rate of 5% as prescribed by civil law.

Both company A and B appealed, but the second trial court dismissed both appeals.

On the other hand, the Supreme Court judged that commercial law, not civil law, should be applied in this case. While civil law generally applies to construction subcontracting contracts, in this case, since the contracting parties A and B are companies, the contract between them is considered an act regulated by commercial law. In this case, the delayed damages calculation rate is 6% annually, unlike civil law, explained the Supreme Court.

The court stated, "The part of the delayed damages calculated at an annual rate of 1% on the remaining construction payment is overturned in favor of the plaintiff, and since the Supreme Court is competent to adjudicate this, additional payment is ordered."

This content was produced with the assistance of AI translation services.