[Column] Court Dismisses HD Hyundai Heavy Industries' Injunction Over 'Security Penalty' in KDDX Bidding War

Effectively Disqualified from KDDX Contract Competition

HD Hyundai Heavy Industries’ injunction request to prevent the extension of the penalty period for a security incident involving the company has been dismissed in relation to the bidding for the detailed design and construction of the lead ship for the Korean next-generation destroyer (KDDX) project. As the application of this security penalty is expected to be a decisive factor in the ongoing competition for the KDDX contract between HD Hyundai Heavy Industries and Hanwha Ocean, there is growing speculation that HD Hyundai Heavy Industries may have effectively lost its chance to win the order.

Yonhap News

According to legal sources on June 6, the Civil Agreement Division 50 of the Seoul Central District Court (Presiding Judge Lee Sanghoon) dismissed the injunction request filed by HD Hyundai Heavy Industries against the state the previous day, seeking to prohibit the application of the penalty.

Previously, several employees of HD Hyundai Heavy Industries were found guilty in 2022 for illegally obtaining and sharing 12 classified Navy documents, including the KDDX conceptual design from Daewoo Shipbuilding & Marine Engineering, via the company’s internal network in 2013. As a result, the company was initially set to be penalized until November 2025, three years after the 2022 verdict.

However, after the prosecution appealed the partial acquittal of one defendant in the first trial, a guilty verdict was finalized for that individual in the second trial in December 2023. Accordingly, the Defense Acquisition Program Administration (DAPA) announced that the security penalty would be extended and applied until December this year, three years from the new verdict in December 2023.

HD Hyundai Heavy Industries filed the injunction, arguing that in a recent basic design project for an ocean information vessel, DAPA unfairly extended the security penalty without legal grounds. According to the contract criteria for defense capability improvement projects negotiated by DAPA, a penalty is applied if, as of the day before the bid registration deadline, there has been a criminal conviction finalized within the previous three years.

HD Hyundai Heavy Industries asserted that for cases prosecuted together, the three-year penalty period should be calculated from the date of the first finalized verdict, regardless of when each verdict was finalized.

At the hearing held on June 1, a representative of HD Hyundai Heavy Industries stated, "According to the regulations, for cases indicted on the same date, both the indictment penalty and the sentence confirmation penalty are to be applied for three years from the date of indictment. If you look at it based on the criminal ruling, it should be considered the same case."

The representative added, "The revised regulations standardize the penalty period to three years, so if only HD Hyundai Heavy Industries is subject to an additional three-year extension, it violates the principle of fairness and the constitutional principle of equality."

Meanwhile, the application of the security penalty has affected the selection of the contractor for the detailed design and construction of the lead ship for the Korean next-generation destroyer (KDDX) project. There was significant conflict between HD Hyundai Heavy Industries, which argued that a negotiated contract should be awarded based on established practices due to their role in the basic design, and Hanwha Ocean, which insisted on competitive bidding. In the end, DAPA decided to proceed with a competitive bidding process.

This content was produced with the assistance of AI translation services.