Hyundai Steel won on appeal in an administrative suit seeking to overturn the Public Procurement Service's bid participation restriction, reversing the first-instance ruling. The court did not deny the collusion itself, but said that to impose a sanction such as a bid ban, it must examine more strictly each corporation's leadership role, level of involvement, and the ordering agency's management responsibility.
The ruling could be used as a defensive argument for corporations in lawsuits over bid rigging involving Korea Electric Power Corporation (KEPCO), where the issues are similar.
According to legal sources on the 18th, the Seoul High Court's Administrative Division 8-1 (High Court Judges Choi Bong-hee, Kim Bong-won, and Lee Young-chang) ruled for the plaintiff on the 8th in Hyundai Steel's suit to cancel the disposition restricting bid participation for unscrupulous business operators against the head of the Public Procurement Service. It overturned the decision about a year after Hyundai Steel lost at first instance in May last year.
◇ First trial: "Large fiscal loss makes sanction justified"… Second trial: "Insufficient proof of leadership"
The case arose from bid rigging in the annual unit price contract for rebar ordered by the Public Procurement Service. Seven steelmakers, including Hyundai Steel and Dongkuk Steel Mill, and 22 executives and employees were brought to trial on charges of agreeing in advance on the winning quantities by company and bid prices in Public Procurement Service rebar tenders from 2012 to 2018.
The Seoul High Court's Criminal Division 6-1 found most of the charges against them guilty. The scale of the collusion was found to be over 6.8 trillion won. As the steelmakers and their executives and employees did not appeal to the Supreme Court, the criminal rulings were finalized as is.
On the basis of the finalized rulings, the Public Procurement Service in January 2023 imposed a disposition restricting Hyundai Steel's bid participation. Hyundai Steel filed an administrative suit claiming the disposition was unjust, but the first-instance court sided with the Public Procurement Service.
The first-instance bench held that "the total scale of the bids reached about 7 trillion won, causing significant fiscal losses," and that "the blame is great in that such damage ultimately falls on the public." It placed weight on the view that public procurement order was undermined by the collusion and that the damage could translate into a burden on the public.
The appellate court saw it differently. It cited as its main reason the lack of sufficient evidence that Hyundai Steel unilaterally led the collusion.
The appellate bench found that "there is no material to acknowledge that Hyundai Steel took the lead in presenting concrete details such as proposing the range of bid prices or designating the successful bidder." Separate from the fact of participation in the collusion, it viewed that to justify a bid participation restriction, specific proof is needed of the extent to which the corporation led the collusion.
The bench also took issue with the Public Procurement Service's management approach. It found that although the service could have sufficiently suspected collusion by companies during its process of surveying actual transaction prices, it set the base price based on materials submitted by the businesses without additional investigation.
The bench concluded that by setting the base price in this way, the Public Procurement Service effectively created an environment conducive to collusion. It also means that when judging the legitimacy of a sanction, consideration should be given to whether the ordering agency sufficiently reviewed market prices and the bid structure.
◇ "Ordering agency's management responsibility must also be weighed"… A variable in KEPCO collusion suits
Observers say the ruling could affect ongoing administrative suits over KEPCO bid rigging. This is because, separate from the collusion itself, a key issue may be how strictly to examine each corporation's leadership role, level of involvement, and the ordering agency's management responsibility when imposing a bid participation restriction.
The Seoul Administrative Court's Administrative Division 6 (Presiding Judge Na Jin-yi, chief judge) on the 8th held the first hearing date in a suit by HD Hyundai Electric seeking to nullify KEPCO's disposition restricting bid participation, among other measures.
Major power equipment companies, including HD Hyundai Electric, Hyosung Heavy Industries, LS Electric, and Iljin Electric, are suspected of leading 670 billion won worth of collusion in tenders for equipment ordered by KEPCO. On the 6th, the first trial session was held under the Seoul Central District Court's Criminal Division 32 (Presiding Judge Ryu Kyung-jin, chief judge). At a preparatory hearing in March, all four corporations denied the charges.
Attorney Hong Jeong-seok of Yoon & Yang LLC said, "The core of this ruling is that determining whether a party led the collusion requires a rigorous process of proof," adding, "Going forward, corporations will be able to argue as a defense whether the ordering party faithfully fulfilled its management duties."
Hong added, "From a corporation's perspective, it is necessary to actively argue that the ordering party left information asymmetries in the market unaddressed or failed to improve structural factors that could induce collusion."
Attorney Ko Jeong-pyo of Law Firm One also said, "In the KEPCO collusion case, if it is proven that a particular corporation was a mere participant rather than a ringleader, it could expect a favorable outcome." He further explained, "When the Public Procurement Service imposes a sanction, it may need a detailed review beyond merely referring to the Korea Fair Trade Commission (FTC)'s decision."