Who Should Pay the Subcontract Dispute 'Settlement'?... Court: "Consortium Partners Must Share the Burden"

"Lead Company Not Solely Liable"
Responsibility Must Be Divided Based on Project Scope and Circumstances

The court has ruled that in cases where a construction project is jointly awarded and a dispute arises with a subcontractor, the lead company is not obligated to cover the entirety of the settlement payment.

According to the legal community on October 7, the 18th Civil Division of the Seoul Central District Court (Presiding Judge Ryu Seungwoo) partially sided with Daewoo Engineering & Construction Co., Ltd. in a lawsuit seeking cost-sharing from Construction Company B, concerning the Pyeongtaek Port project. Of the claimed amount—approximately 131.15 million won—around 60 million won was recognized.

Seoul Central District Court. The Asia Business Daily Database

In 2015, Daewoo Engineering & Construction Co., Ltd., Company B, and a third construction firm jointly won a bid for an exterior reinforcement project at the inner port of Pyeongtaek·Dangjin Port. Daewoo Engineering & Construction Co., Ltd., as the lead company, held a 70% stake, while Company B had a 20% stake. During the construction process, Daewoo Engineering & Construction Co., Ltd. became involved in a dispute with its subcontractor, Company C, over additional payment claims. Company C demanded unpaid fees for the revetment reinforcement and supplementary dredged sand work, which had been carried out under instructions from Daewoo Engineering & Construction Co., Ltd. They also claimed payment for the wages of four employees hired at Daewoo’s request, as well as equipment and fuel costs undertaken on Daewoo’s behalf.

Daewoo Engineering & Construction Co., Ltd. argued that the additional work constituted warranty repairs necessitated by Company C’s own faults. Eventually, Company C reported the matter to the Fair Trade Commission in 2020, and through dispute mediation, the parties agreed that Company C would receive 600 million won and waive the remainder of its claims. Afterwards, Daewoo Engineering & Construction Co., Ltd. asked its joint venture partners to share the settlement, but when Company B refused, Daewoo Engineering & Construction Co., Ltd. filed a lawsuit.

The main issue was which portion of the 600 million won settlement should be borne jointly by the consortium partners. The court determined that the costs for revetment reinforcement and supplementary dredged sand—additional works—were expenses incurred from the joint project as a whole. Given the details and context of the project, the court found it difficult to place responsibility solely on Daewoo Engineering & Construction Co., Ltd. However, regarding damages related to the hiring of four employees, equipment, and fuel costs, the court concluded that these were costs resulting solely from Daewoo Engineering & Construction Co., Ltd.’s independent actions, so the company must bear them alone.

Company C’s claim comprised approximately 1.1 billion won in unpaid construction costs, and about 470 million won in damages related to the hiring of employees, as well as equipment and fuel expenses. After reviewing the claims and the mediation process, the court recognized half of the settlement—300 million won—as a joint project expense. Consequently, Company B’s share was set at 60 million won, corresponding to its 20% stake.

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