Amid a legal battle with the government over who was responsible for delays in delivering division-reconnaissance unmanned aerial vehicles (UAVs), Korean Air Lines(003490) also partially won on appeal. The Defense Acquisition Program Administration's (DAPA) counterclaim seeking 156.3 billion won in damages from Korean Air Lines was likewise rejected.
The Seoul High Court's Civil Division 22-2 (Presiding Judge Nam Seong-min, Director General judge) on the 20th upheld the lower court that partially ruled for the plaintiff in Korean Air Lines' appeal in a suit to confirm the nonexistence of debt against the Republic of Korea.
The court said, "The appeals of the plaintiff and counterclaim defendant and the defendant and counterclaim plaintiff are all dismissed," and "Each party shall bear its own appeal expense."
Accordingly, the first-instance ruling ordering the government to pay about 40.45266 billion won to Korean Air Lines was also left intact.
The dispute began when Korean Air Lines and DAPA signed a contract in Dec. 2015 to purchase items for the initial mass production program of division-reconnaissance UAVs. Korean Air Lines was to deliver 16 UAV sets for military operation, but delivery was delayed as specification and design changes continued.
DAPA said Korean Air Lines was responsible for the delivery delays and demanded about 208.1 billion won as a penalty for delay. A penalty for delay is a predetermined amount of damages imposed when a contracting party fails to fulfill obligations within the set period.
Korean Air Lines filed a lawsuit in Apr. 2021 to confirm the nonexistence of debt, arguing that its company was not at fault because delivery was delayed due to DAPA's specification changes. While the case was pending, in Apr. 2023 DAPA filed a counterclaim seeking about 156.3 billion won in damages from Korean Air Lines.
The Seoul Central District Court's Civil Agreement Division 23, the court of first instance, largely accepted Korean Air Lines' claims in Feb. last year. The court ruled, "It is confirmed that there is no debt for the penalty for delay owed by the plaintiff to the defendant under the Dec. 31, 2015 contract to purchase items for the initial mass production program of division-reconnaissance UAVs."
The first-instance court found that the delivery delay could not be attributed solely to Korean Air Lines. It determined that DAPA's specification changes, COVID-19, and adverse weather affected the project delay.
However, it ruled that reasons to exempt the penalty for delay did not apply to about 25.4 billion won, equivalent to 10% of the contract amount. Previously, DAPA had withheld about 65.8 billion won in contract payments to Korean Air Lines by offsetting it against the penalty for delay; the first-instance court found that, excluding about 25.4 billion won from this, roughly 40.45266 billion won should be paid by the government to Korean Air Lines.
It also dismissed the government's counterclaim for damages of 156.3 billion won against Korean Air Lines.
Although both Korean Air Lines and the government appealed the first-instance ruling, the Seoul High Court on this day dismissed both appeals, leaving intact the first-instance conclusions on the debt for the penalty for delay, the payment of about 40.4 billion won, and the counterclaim for damages.