After the explosion at Hanwha Aerospace's Daejeon business site, the Supreme Court found that the government's six-month order to halt work across the entire business site was excessive. The court said Hanwha cannot be held fully responsible for delivery delays, noting that operations were suspended for a long period even at workplaces not directly related to the accident.
The Supreme Court's Third Division, presided over by Justice Noh Kyung-pil, said on May 8 that it effectively upheld the lower court's ruling on Apr. 30 in the final appeal of Hanwha Aerospace's lawsuit against the state for payment for goods, which found the state must pay Hanwha Aerospace about 1.9 billion won. However, it sent the case back to the Seoul High Court to reconsider how to calculate delay damages.
Earlier, Hanwha signed five contracts with the Defense Acquisition Program Administration from December 2017 to December 2018 to supply military goods, including missile fuzes and 155 mm high-explosive warhead charges, totaling 1.1222 trillion won.
Hanwha signed five contracts with the Defense Acquisition Program Administration from December 2017 to December 2018 to supply military goods, including missile fuzes and 155 mm high-explosive warhead charges, totaling 1.1222 trillion won. The suit was initially filed by Hanwha, but after a physical spin-off and merger of the defense institutional sector, Hanwha Aerospace became the plaintiff.
Hanwha manufactured the military goods for delivery at its business site in Yuseong District, Daejeon. On Feb. 14, 2019, an explosion occurred at this business site, killing three workers. The Daejeon Regional Employment and Labor Office deemed the accident a serious disaster and, finding an imminent risk of an industrial accident, ordered a suspension of work across the entire business site under the Occupational Safety and Health Act.
Hanwha subsequently asked five times for the work-stoppage order to be lifted. The Daejeon labor office gradually allowed some work within the business site and lifted the order on Aug. 14 of the same year. The work-stoppage period was 181 days.
With work halted due to the explosion, Hanwha failed to meet delivery deadlines to the Defense Acquisition Program Administration. The agency paid Hanwha the remaining amount after deducting a penalty for delay of 9,876,470,000 won specified in the contract. A penalty for delay is a liquidated penalty that must be paid to the other party when the contractor fails to fulfill obligations such as delivering goods by the agreed deadline without justifiable reason.
Hanwha said the delay in delivering the military goods was due to an excessively broad work-stoppage order that covered other workplaces unrelated to the accident, and that it was not responsible. It sued to have the government pay about 9.8 billion won in penalty for delay that had not been paid. It also sought delay damages for the late payment of the penalty for delay.
The court of first instance found Hanwha responsible for the delay but ruled that "the penalty for delay of 9.8 billion won is excessive and should be reduced to 80%." The amount the government must pay Hanwha is 1,975,340,000 won, which is 20% of the penalty for delay.
The first trial panel said, "From late 2017 to early 2018, the average work-stoppage period for six automakers that received work-stoppage orders was 21 days," adding, "The business site spans 1,152,120 square meters (about 348,516 pyeong) with 65 buildings scattered throughout, and only one building, the molding room, was directly affected by the accident."
The appeals court found the government must pay Hanwha 20% of the penalty for delay. It slightly changed the amount to 1,975,290,000 won.
The Supreme Court dismissed the government's appeal, finding the lower court did not misunderstand the legal principles. However, it reversed the lower ruling on delay damages.
The appeals court ordered the government to pay Hanwha Aerospace delay damages on 1,975,290,000 won at interest rates of 6% or 12%, depending on the period. The Supreme Court found that the contract between Hanwha and the Defense Acquisition Program Administration included an agreement on delay damages, so the average lending rate of financial institutions, not the statutory interest rate, should apply.
Meanwhile, an explosion at Hanwha Aerospace's Daejeon business site on the 1st killed five people and left two with serious to critical injuries. An accident also occurred at this business site in 2018, killing five. This is the third explosion after 2018 and 2019.