Lost 100 Billion Won Over Chuseok Gifts... Redevelopment Ruling Draws Attention [Invest&Law]

First Trial Court Points Out "Competition Undermined by Pre-Selection"
All Claims for Approximately 97.4 Billion Won Dismissed... Appeal Trial Begins Next Month

Construction companies that were selected as contractors for redevelopment projects but later replaced are now suing the redevelopment associations, demanding approximately 100 billion won in damages and the return of bid deposits. The main issues are allegations of pre-selection of contractors and the provision of gifts, including Chuseok holiday gifts.

According to legal sources on September 23, the Seoul High Court Civil Division 13-2 (Presiding Judge Lee Kyuheng) will hold the first appellate trial on October 16 for a lawsuit filed by four domestic construction companies against a redevelopment association in Busan. The companies are seeking damages and the return of unjust enrichment.

Contractor Selected by Overwhelming Majority... Lawsuit Follows Notice of Replacement

Previously, these construction companies formed a consortium and participated in the bid in 2018. During this process, regardless of whether it was before or after the selection of the contractor, they submitted a letter of commitment and a written pledge not to provide money or any form of hospitality to union executives, representatives, or members. They also agreed not to object if the contractor status was revoked or the bid deposit was forfeited in the event of a violation.

The consortium won the general meeting of the union in November of that year, securing 1,229 votes compared to 55 votes for a competing group. The project, which involved building twenty-six apartment buildings with forty-nine floors above ground and a total of 4,568 households, was reported to be worth about 900 billion won. Subsequently, the construction companies paid a bid deposit of 6 billion won.

Disputes between the construction companies and the association began when issues related to the provision of gifts emerged. In 2021, the association notified the consortium of the contract termination and selected a different contractor. The bid deposit paid by the original consortium was not returned. The construction companies filed a lawsuit, claiming that the contractor was replaced without legitimate cause, demanding both compensation for lost profits they would have gained by completing the project and the return of the bid deposit.

The first trial court dismissed all claims from the construction companies, ruling that "the bid itself is invalid" because the fairness of the bid was compromised due to pre-selection of the contractor and the offering of gifts.

One of the main grounds cited was that the former union president allegedly indicated a particular construction company would be chosen even before the bid announcement and provided internal information and the list of executives and representatives. In fact, the original bid deposit was 20 billion won, but it was lowered to 6 billion won following opposition from the construction companies. The court saw the companies’ attempts to influence bid conditions even before the official announcement as a sign of pre-selection.

The court noted that despite the consortium’s overwhelming victory, "it appears that the defendant union members were unaware that fair competition was not possible," and pointed out that "the union members’ free decision-making and right of choice regarding the selection of the contractor was substantially infringed."

Was It Acceptable Because the Gifts Were Given Before the Pledge? Responsibility for Actions by External PR Personnel

Giving Chuseok holiday gifts was cited as one of the reasons for rejecting the claim for return of the bid deposit. The first trial court found that the construction companies provided refreshments and supplies to the council of representatives between August and September 2018, and around that time, gave fruit and meat as Chuseok gifts to employees and executives of the association. The court also mentioned that a PR representative paid a meeting meal expense of 1.37 million won on behalf of the former union president.

The construction companies argued that "these events occurred before the pledge was submitted and the amounts were not significant enough to influence the selection result." However, the court highlighted that under the agreement, provision of any gifts was prohibited both before and after the contractor selection. If the gifts were given with the intent to win the contract, liability could not be avoided simply because it was before the pledge was submitted.

The court also rejected the argument that the PR staff responsible for paying the meal expense was from an external service provider. The court noted that the PR staff used business cards of the construction company, was instructed to contact representatives, and reported work at internal meetings, emphasizing that there was objectively a relationship of direction and supervision.

Additionally, the court concluded that, given the violation of the agreement prohibiting provision of money and gifts as well as the undermining of fairness in the bid, the entire deposit was to be forfeited to the association.

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