• Whether the construction agreement entered into between the plaintiff and the third-party company constituted a re-subcontract under the Framework Act on the Construction Industry;

• Whether a violation of the prohibition against unauthorized re-subcontracting may be established even if the agreement is terminated before actual construction work begins; and

• Whether the two-month business suspension order constituted an abuse or excess of administrative discretion.

3. Legal Strategy

Attorney Eun-young Jung of One Law Partners, LLC represented the administrative authority and successfully demonstrated that the construction agreement was, in substance, a re-subcontracting agreement.

The plaintiff argued that the agreement merely delegated site management responsibilities.
However, the defense relied on the agreement's express language, including references to the contractor, subcontractor, and comprehensive subcontracting arrangement.

The defense further emphasized that:

• The agreement covered construction work valued at approximately KRW 9.6 billion out of a total subcontract value of approximately KRW 13 billion;

• The agreement imposed defect warranty obligations on the third party; and

• The overall structure of the agreement transferred substantial responsibility for the entire construction project.

Based on these factors, the defense established that the agreement constituted a re-subcontract in substance.

At the same time, the defense argued that the violation was complete upon execution of the unauthorized agreement itself.
Relying on Supreme Court precedent, Attorney Jung argued that entering into a re-subcontract without the written consent of the project owner constitutes a completed violation irrespective of whether construction work has actually commenced.

The defense also emphasized that uncontrolled re-subcontracting may increase the risk of defective construction and threaten public safety.
Moreover, the statutory standard sanction was a four-month suspension, yet the authority had reduced the penalty to two months.
Accordingly, the suspension order could not be regarded as an abuse of discretion.

4. Significance of the Decision

The court accepted all of the defendant's arguments.
The court held that, in light of the wording of the construction agreement, the amount of construction work involved, and the warranty provisions contained in the agreement, the arrangement clearly constituted a prohibited re-subcontract.

The court further confirmed that a violation of the statutory prohibition against unauthorized re-subcontracting is established upon execution of the agreement itself and does not depend on whether the subcontracted work has actually begun.

In addition, considering the public-interest purposes underlying the prohibition on unauthorized re-subcontracting, the court concluded that the business suspension order did not constitute an abuse or excess of administrative discretion.
Accordingly, the court dismissed all of the plaintiff's claims.

This decision is significant because it reaffirms that the legal characterization of a transaction depends on its substance rather than its label and confirms that unauthorized re-subcontracting may be sanctioned even before actual construction performance begins.

The ruling also provides important guidance regarding the scope of administrative discretion in enforcing construction industry regulations designed to protect construction quality and public safety.
 

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Attorney Eun-young Jung | eyjung@onelawpartners.com
 

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Public Relations Team, One Law Partners, LLC | pr@onelawpartners.com