Waterproofing Contractor Split Contract into 10 Cases to Avoid Criminal Punishment... Supreme Court Overturns and Remands with Guilty Intent

[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] A waterproofing contractor who split a single construction contract into 10 separate contracts to evade laws punishing unregistered construction businesses can no longer avoid punishment.

The Supreme Court's 2nd Division (Presiding Justice Cheon Dae-yeop) announced on the 23rd that it overturned the lower court's acquittal in the appeal trial of waterproofing contractor A, who was indicted for violating the Framework Act on the Construction Industry, and remanded the case to the Changwon District Court with a verdict of guilt.

A, who holds a waterproofing technician qualification, operated waterproofing company B from May 2013 without registering as a construction business under the Framework Act on the Construction Industry.

At the time of the incident, Article 9(1) of the Framework Act on the Construction Industry imposed a registration obligation by stating, "A person who intends to engage in construction business must register with the Minister of Land, Infrastructure and Transport according to the business type prescribed by Presidential Decree," but provided an exception in the proviso: "However, if one intends to engage in minor construction work as prescribed by Presidential Decree, registration is not required to conduct construction business."

Article 8(1) of the Enforcement Decree specifically defined "minor construction work prescribed by Presidential Decree" in the proviso of Article 9(1) of the Act. For specialized construction work such as waterproofing, "construction work with an estimated contract amount of less than 15 million KRW" was designated as minor construction work.

For general construction work, construction projects with an estimated contract amount of less than 50 million KRW per contract were defined as minor construction work, and it was stipulated that "if the same construction work is divided and ordered through two or more contracts, the estimated contract amounts of each shall be summed."

If construction work that does not fall under the exception is conducted without registering as a construction business, the same law's Article 95-2(1) prescribes punishment of "imprisonment for up to 5 years or a fine of up to 50 million KRW."

A was indicted for receiving and performing waterproofing work worth 28.95 million KRW at an apartment in April 2015 and then receiving and performing waterproofing work worth 50.4 million KRW at the same apartment in May of the same year without registering as a construction business.

A signed contracts with C, the chairman of the apartment residents' representative meeting. For the first project, three contracts were made, each with a contract amount of 9.65 million KRW, and for the second project, 10 contracts were made with contract amounts ranging from 3.5 to 6.6 million KRW.

The first trial court found that A split the same construction contract into multiple contracts to evade the legal registration obligation and sentenced him to a fine of 5 million KRW.

In court, A argued that the projects were separate works conducted by building and by unit, and since each individual contract amount was less than 15 million KRW, it did not violate the law, but this was not accepted.

The court reasoned, "It can be sufficiently seen that A and C separated the contracts to pretend that the construction work fell under minor construction work exempt from registration under the Framework Act on the Construction Industry, which undermines the purpose of the registration system designed to prevent poor-quality construction and protect public life and safety, and such conduct should not be permitted."

The court based its view that the multiple contracts signed for the first and second projects were the same contract on the following: ▲The three contracts for the first project, written on different dates, all listed the same contract amount (9.65 million KRW) despite covering different scopes and contents such as exterior wall crack repair and rooftop waterproofing ▲In the second contracts, the contract amount for eight buildings except one was uniformly 5.1 million KRW, and the construction periods were sequential ▲The construction was not for individual leaking units but for the apartment's exterior and rooftop common areas, and the apartment management office issued a bid notice for waterproofing the entire apartment's rooftop and exterior walls without separating by building ▲The bidding process selected a single contractor for all buildings rather than different contractors per building ▲The construction fees were paid from the overall apartment management account ▲There appeared to be no differences in the scope and content of construction per building.

However, the second trial court's judgment differed.

The court first noted that although the law and enforcement decree define minor construction work as projects with estimated contract amounts below a certain threshold considering their relatively low difficulty, they do not set limits on the total number of such minor construction works or the sum of their contract amounts that can be conducted without registration.

The court stated, "If each estimated contract amount is below a certain threshold and the construction itself is considered minor, the frequency or quantity of such projects is not subject to regulation."

Based on the principle of freedom of contract, the court held that multiple contracts can be concluded for several construction projects, and whether they constitute the "same construction work" should be determined by objectively examining whether the final product is completed by the entire set of projects or if each project individually completes its own final product.

Even if the final product is completed by the entire set of projects, if the projects are conducted independently separated in time or location, they cannot be considered the same construction work. The court also pointed out that this conclusion can be inferred from interpretations of the Industrial Accident Compensation Insurance Act and the Employment Insurance Act.

The court stated, "The 10 buildings of the apartment are separated by driveways and parking lots allowing vehicle passage, and the exterior wall and rooftop waterproofing of each building are constructed independently from those of other buildings. Therefore, the final product is not completed by the entire construction but by each building's construction."

It added, "Based solely on the evidence submitted by the prosecution, it is insufficient to recognize that the construction conducted by the defendant is not minor construction work, and there is no other evidence to support this, so the defendant's claim is valid," and acquitted A.

The Supreme Court overturned this second trial judgment again. The court found that the second trial court misinterpreted the law regarding "minor construction work."

The court stated, "Considering the purpose of the construction business registration system and the content of related regulations, whether multiple divided contracts constitute the 'same construction work' subject to summing the estimated contract amounts should be judged comprehensively by considering all circumstances such as the parties to each contract, the construction object, construction period, content and method of construction, and the reasons for dividing the contracts, based on whether the contracts are substantially identical as one contract."

It continued, "Although the defendant divided the first project into three contracts and the second project into ten contracts, the construction work stipulated in these contracts involves the same parties, construction objects, content, and methods, and thus substantially constitutes the same construction work. Furthermore, there is a strong possibility that the defendant divided the same construction work into multiple contracts to evade or circumvent the registration system under the Framework Act on the Construction Industry."

The court also found the second trial court's inference from the Industrial Accident Compensation Insurance Act and the Employment Insurance Act to be incorrect, stating that these laws have different legislative purposes and "the criteria for determining 'total contract amount' under these laws cannot be analogously applied to interpret 'same construction work' under the Enforcement Decree of the former Framework Act on the Construction Industry."

Finally, the court concluded, "Therefore, both the first and second projects are specialized construction works with estimated contract amounts exceeding 15 million KRW and do not fall under 'minor construction work' as defined in the proviso of Article 9(1) of the former Framework Act on the Construction Industry. The lower court's acquittal based on the view that each project was minor construction work not requiring registration misinterpreted the law concerning 'minor construction work' under Article 9(1) proviso of the former Framework Act on the Construction Industry, which affected the judgment."

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