Hoban Construction funneled public housing sites secured through so-called "swarm bidding" to corporations owned by the owner's two sons, enabling them to earn over 1 trillion won, and was ordered to pay a 24.3 billion won penalty surcharge. Hoban Construction is a mid-sized builder ranked in the low 10s in construction capability evaluations.
The Supreme Court's Third Division (presiding Justice Lee Heung-gu) on the 20th upheld the lower court's decision ordering Hoban Construction to pay a 24.3 billion won penalty surcharge in a suit Hoban Construction filed against the Fair Trade Commission seeking to cancel a corrective order and a penalty surcharge payment order.
According to the Fair Trade Commission and the courts, Hoban Construction created multiple affiliates to take part in bids for public housing sites. The affiliates did not conduct real business and were close to "paper companies," but they participated in public housing site lotteries through the "swarm bidding" method to raise the odds of winning.
However, from 2010 to 2015, Hoban Construction did not build apartments itself on the 23 public housing sites it won through this method. Instead, it transferred them to Hoban Construction Housing, owned by the owner Kim Sang-yeol (64)'s eldest son, Kim Dae-hyun (36), head of group planning at Hoban Group, and to Hoban Industry, owned by the second son, Kim Min-seong (30), an executive in charge of planning at Hoban Group.
The Fair Trade Commission said apartment sales on the 23 public housing sites generated 585.75 billion won in revenue and 135.87 billion won in profit. That means the owner family took profits that should have gone to Hoban Construction.
In addition, Hoban Construction provided, free of charge, 414 instances of lending application deposits that the two sons' companies were required to pay when participating in public bids. It also provided free payment guarantees for 2.6393 trillion won in project financing (PF) loans for 40 public housing site projects those companies carried out. Hoban Construction even transferred apartment projects already under construction to the two sons' companies midway.
During this "favoring with internal deals," Hoban Construction Housing, led by the eldest son, President Kim Dae-heon, grew larger than Hoban Construction. It was merged into Hoban Construction in 2018, and with the merger ratio assessed favorably, President Kim Dae-heon secured 54.7% equity in Hoban Construction, effectively completing the succession of control.
The Fair Trade Commission viewed these acts by Hoban Construction as unfair support and unfair provision of benefits to related parties under the Fair Trade Act and issued a corrective order in Jun. 2023. It also imposed a 60.8 billion won penalty surcharge on Hoban Construction and eight affiliates.
Hoban Construction objected to the FTC's disposition and in Sep. of the same year filed a suit with the Seoul High Court to cancel the corrective order and the penalty surcharge payment order. In fair trade cases, the FTC's decision serves as the first instance, and the second instance is heard by the Seoul High Court.
The appellate court canceled 36.5 billion won of the 60.8 billion won penalty surcharge the FTC imposed on Hoban Construction and others, ruling that only 24.3 billion won had to be paid. The court found the penalty surcharge over the resale of public housing sites and the free lending of bid application deposits to be unjustified. It upheld the FTC's disposition regarding free payment guarantees for PF loans on 40 public housing site projects carried out by the owner's second-generation companies and the transfer of construction work.
Both Hoban Construction and the FTC appealed. The Supreme Court dismissed all appeals by Hoban Construction and the FTC, saying the lower court did not misunderstand the law.
Hoban Construction said, "The controversy over supporting second-generation succession through changes of title (resale) of public housing sites, the core issue of the lawsuit, has been resolved by the Supreme Court ruling," adding, "Multiple applications ('swarm bidding') also concluded with the prosecution's decision of no charges in May, ending the investigation." It added, "Going forward, we will become corporations that grow together with society through management activities based on fairness and principle."