Supreme Court: Construction Company That Lost Bid but Received 'Design Compensation' Through Collusion Must Pay Damages

Court: "If Collusion Had Been Known, Design Compensation Would Not Have Been Paid"

[Asia Economy Reporter Heo Kyung-jun] The Supreme Court has ruled that if a construction company that lost a bid received design compensation fees and then colluded to intentionally lose, it must compensate for the damages.

The Supreme Court's First Division (Presiding Justice Park Jeong-hwa) announced on the 29th that it overturned the lower court ruling, which had ruled against the plaintiff in the appeal trial of the design compensation refund lawsuit filed by Busan Transportation Corporation against Daewoo Construction, Kumho Industrial, SK Ecoplant (formerly SK Construction), and others, and sent the case back to the Seoul High Court.

In 2008, Busan Transportation Corporation announced a design and construction lump-sum bid for sections 1, 2, and 4 of the Busan Subway Line 1 extension (Dadae Line) through the Public Procurement Service. The announcement also included a clause stating that "a portion of the design fee will be compensated to those who lose the bid."

Construction companies, mainly large corporations, formed consortia (joint ventures) to apply for each section. The Hyundai Construction consortium, Hanjin Heavy Industries consortium, and Kolon Global consortium each won one section, signing contracts worth 80 to 100 billion KRW per section. The losing consortia representatives?Daewoo Construction, Kumho Industrial, and SK Construction?received design compensation fees of approximately 400 to 500 million KRW.

The problem arose when the Fair Trade Commission uncovered unfair collusive acts during the bidding process and imposed corrective orders and fines totaling about 12.2 billion KRW on six representative companies involved in the collusion. It was revealed that the construction companies had predetermined the winners and that the so-called "dummy" consortia had formally bid to collect design compensation fees.

Accordingly, Busan Transportation Corporation filed a lawsuit demanding the return of the design compensation fees from the losing companies Daewoo, Kumho, SK, and the companies participating in their consortia.

The first trial judged that there was a significant causal relationship between the collusion and the payment of design compensation fees and ruled that the dummy companies must return all the money received from Busan Transportation Corporation. However, the second trial held that since the bidding entity was the Republic of Korea, to which the Public Procurement Service belongs, Busan Transportation Corporation could not claim the return of the compensation fees.

However, the Supreme Court's judgment was different. Since the corporation paid the design compensation fees to the losing bidders according to the agreement with the Public Procurement Service, although the corporation was not a contracting party, it was the entity that paid the design compensation fees and thus could claim damages.

The court stated, "If Busan Transportation Corporation had known about the defendants' collusive acts, it would not have paid the design compensation fees," and ruled, "The defendants, as joint tortfeasors, have an obligation to compensate Busan Transportation Corporation for damages equivalent to the design compensation fees."

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