HD Hyundai Heavy Industries lost a lawsuit seeking to overturn the Korea Fair Trade Commission (FTC)'s sanctions for violating the Fair Transactions in Subcontracting Act. The court upheld the FTC's recalculated penalty surcharge and corrective order. The ruling recognizes the legality of the FTC's sanctions against the shipbuilding prime contractor's practice of failing to timely provide written contracts to partner firms and demanding unit price cuts.
The Administrative Division 7 of the Seoul High Court (Presiding Judge Kwon Soon-hyung, senior judge) on the 14th ruled against the plaintiff in a suit filed by HD Hyundai Heavy Industries to void the FTC's corrective order and penalty surcharge payment order. The court also ordered the plaintiff to bear litigation costs.
The case began when the FTC in 2019 issued a corrective order and imposed a 20.87 billion won penalty surcharge on HD Hyundai Heavy Industries for unfair subcontracting practices. The FTC found that from Oct. 2014 to Sept. 2018, while assigning 48,467 shipbuilding and offshore plant manufacturing tasks to 202 in-house partner firms, HD Hyundai Heavy Industries failed to issue, before work began, written documents specifying the subcontract price, scope of work, and payment methods.
The Fair Transactions in Subcontracting Act requires a prime contractor to provide in advance a written document specifying the price and scope of work when assigning tasks to a partner firm. The rule aims to prevent situations where a partner performs work without knowing how much it will be paid and later has to accept an amount set by the prime contractor.
The FTC also took issue with HD Hyundai Heavy Industries' demand for unit price cuts. The company demanded uniform unit price reductions from outside partner firms that supply ship engine parts and other items, and the FTC concluded that applying the same reduction rate despite differences in items and transaction scale by partner lacked justifiable grounds.
HD Hyundai Heavy Industries has argued that the grounds for disposition and the calculation of the penalty surcharge were excessive. In an earlier administrative suit, much of the subcontracting law violation itself was acknowledged, but the court found problems with how the penalty surcharge was calculated. The court held that the FTC departed from and abused its discretion by misapplying certain criteria when setting the surcharge, and the Supreme Court affirmed that ruling.
In response, the FTC reduced the previous 20.87 billion won by 8.073 billion won and recalculated the penalty surcharge at 12.734 billion won. The key question in this suit was whether the recalculated 12.734 billion won sanction could also be overturned. HD Hyundai Heavy Industries argued that the surcharge remained excessive compared with the degree of violation, but the court did not accept the claim.
However, because the calculation method for the penalty surcharge was previously at issue, if HD Hyundai Heavy Industries appeals, the Supreme Court could again review the FTC's recalculation method.