This article was displayed on the ChosunBiz RM Report site at 4 p.m. on Apr. 7, 2025.
The Fair Trade Commission suffered a setback in the second trial ruling of the 'Hoban Construction' case, which had the largest penalty surcharge among past unfair support incidents. A total of 608 billion won in penalty surcharges was imposed on Hoban Construction and 8 other companies related to this case, but the Seoul High Court ruled that 365 billion won, or 60% of that amount, was an unfair penalty surcharge.
The Fair Trade Commission appears to have suffered significant damage, as a ruling stated that the most critical of the four acts cited by the commission, as well as the largest penalty surcharge, regarding the 'resale of public land' was deemed 'unfair.' Both the Fair Trade Commission and Hoban Construction, which challenged even the remaining recognized penalty surcharge, plan to appeal to the Supreme Court, indicating that the legal battle will be prolonged.
According to the legal community and the Fair Trade Commission on the 8th, the 7th Administrative Division of the Seoul High Court ruled on the 27th of last month to cancel 60% (about 365 billion won) of the penalty surcharge (about 608 billion won) imposed by the Fair Trade Commission in the correction order and penalty surcharge payment order filed by Hoban Construction.
This case involves Hoban Construction and 8 companies, including the wholly-owned subsidiary of the chairman of Hoban Construction, Kim Sang-yeol, who owns the company. Of these, the penalty surcharge imposed only on Hoban Construction was about 393 billion won, and the High Court ruled that only the 170 billion won recognized as illegal should be paid.
◇ Fair Trade Commission finds the resale of public land 'unjust' among the 4 actions with the largest penalty surcharge
The actions cited by the Fair Trade Commission two years ago as problematic included ① resale of public land ② interest-free lending ③ free provision of project financing (PF) loan guarantees ④ provision of business opportunities. Among these, the sanctions by the Fair Trade Commission regarding the 'resale of public land' and 'interest-free lending' were not upheld by the court.
To summarize, the resale of public land, which had the largest penalty surcharge (360 billion won) among the four actions, was characterized by the judgment that Hoban Construction 'acquired the rights to a desirable public land project and transferred them free of charge to a second-generation company to illegitimately inherit management rights.' Between 2013 and 2015, Hoban Construction transferred 23 public lands (buyer status in public land sales contracts) to second-generation companies and related firms (9 companies) free of charge, resulting in those related companies generating tens of trillions in sales and profits from the implementation projects. The Fair Trade Commission raised concerns that although public lands had been transferred, Hoban Construction did not receive any benefits while the second-generation companies could grow rapidly.
The Fair Trade Commission viewed these actions as having 'serious unfairness' and set the standard for penalty surcharges at a flat rate of 20 billion won for the 9 companies targeted in the support. It also concluded that Hoban Construction had provided 180 billion won (20 billion × 9 companies) in unfair support and thus imposed that amount as a penalty surcharge. The total amount of penalty surcharge imposed for this action was 360 billion won.
◇ Court: 'Significant scale transaction' and 'excessive economic benefit' conditions for unfair support not established
According to the judgment obtained by ChosunBiz, the High Court concluded that 'it is difficult to view that Hoban Construction provided significant or excessive economic benefits to the 9 companies through the resale of public land.'
In order for the 'unfair support act' (Article 23 of the former Fair Trade Act) to be established, it must be recognized whether 'there was a significant or substantial scale transaction' and 'whether excessive economic benefits were provided', but the High Court scrutinized the legal principles to make this determination.
First, the High Court determined that 'it is difficult to view that there was a significant or substantial scale transaction.' Each of the 9 companies that received support from Hoban Construction only acquired 1 to 5 cases of public land for resale. The Fair Trade Commission viewed the transfer of the 23 public lands as a large-scale transfer when considering expected profits, but the High Court assessed the scale of the transaction based on the number of transfers each company received.
Regarding the Fair Trade Commission's assessment that 'the land that was resold was desirable and thus had substantial economic value,' the High Court ruled that 'this cannot be seen that way.' The High Court reasoned that the profits from the implementation of public land projects arose from the subsequent sale contracts between the 9 companies and buyers, not from Hoban Construction's act of resale of public land itself. In other words, the support nature or effect of the support act should be evaluated based on the time of the support action, and the High Court viewed that the Fair Trade Commission had considered too distant a future value.
Regarding the intent of the support, the Fair Trade Commission suspected second-generation succession, but Hoban Construction claimed that it was due to 'the need to spread the business risks due to the downturn in the real estate market or to maintain financial soundness and improve creditworthiness.' The High Court did not make a significant ruling on this matter.
In relation to the remaining 'interest-free lending' act, the High Court did not view it as unfair support, citing the points that 'the scale of interest lent was very small and the period was also very short.' However, it recognized 'free provision of PF guarantees' and 'provision of business opportunities in apartment construction projects' as problematic actions, thus supporting the Fair Trade Commission.
◇ Fair Trade Commission: 'The uniqueness of public land must be considered… we will contest the final judgment of the Supreme Court'
The Fair Trade Commission seems to be in a state of confusion as it did not recognize the resale of public land, which carried the largest sanction scale. A Fair Trade Commission official noted, 'The Fair Trade Commission has not lost 100%,' adding, 'It is only natural that we should appeal to the Supreme Court.' Hoban Construction has also indicated plans to appeal right after the High Court's ruling.
In the Supreme Court, the Fair Trade Commission is expected to focus on how to assess the economic value of the act of reselling public land. A Fair Trade Commission official stated, 'This case is a sanction case that has no precedent and must consider the specificity of public land,' adding, 'There is room for debate on whether we should view this as simple land or whether it should be connected to the benefits of future ripple effects from housing implementation projects.'