Hello, this is Attorney Bae Gi-hyung of Cheongchul Law Firm.

On Korean construction sites, prime contractors (principal contractors) routinely attach so-called 'special conditions' to the back of contracts or site-specification documents when subcontracting work to subcontractors (suppliers). They often impose unfair clauses such as: "Any additional construction cost arising from changes in site conditions or handling of civil complaints shall be borne entirely by the subcontractor."

Subcontractors who have unfairly absorbed hundreds of millions of won in costs because of these unfair clauses typically argue in litigation: "This is an unfair contract prohibited by the Subcontract Act, so it must be automatically void in civil law as well." The most confusing point in practice is precisely whether a clause that violates a statutory prohibition is automatically void in civil litigation.

Today, I will explain how the courts treat the validity of 'unfair clauses' commonly found in construction subcontracts — an analysis that varies dramatically depending on which statute applies — along with practical countermeasures, grounded in the relevant legislation.

Statutory Provisions Voiding Unfair Clauses and Their Practical Limits

Currently, major construction-related statutes contain express provisions declaring unfair clauses 'void'. First, Article 22(5) of the Framework Act on the Construction Industry (건설산업기본법 제22조 제5항) provides that where a contract is markedly unfair to one party (an unfair clause), only that portion shall be void. Article 5-2 of the Act on Contracts to Which the State Is a Party (국가계약법 제5조의2) was also revised in 2019 to newly establish a provision voiding any special terms that unfairly restrict the counterparty's interests (see Supreme Court en banc Decision 2012Da74076, December 21, 2017). Furthermore, Article 3-4(3) of the Fair Subcontract Transactions Act (하도급법 제3조의4 제3항) was recently amended to include void provisions for unfair clauses: unfair clauses falling under subparagraphs 1 through 3 of paragraph (2) are void only to that extent, while unfair clauses falling under subparagraph 4 are void only to that extent when markedly unfair to one party.

However, the existence of these voiding provisions does not mean unfair clauses are always treated as void in civil litigation. The Supreme Court has traditionally interpreted the Subcontract Act's prohibition on unfair clauses as a so-called 'regulatory rule' (단속규정), meaning the clauses may be subject to administrative sanctions but their private-law effect is not automatically denied (see Supreme Court Decision 2010Da53457, January 27, 2011). Even where voiding provisions exist in the Framework Act on the Construction Industry or the State Contracts Act, courts in actual trials tend to strictly assess whether a clause is 'markedly unfair,' so the scope within which a void argument is accepted remains fairly limited. The Act on Contracts to Which a Local Government Is a Party (지방계약법) lacks any express voiding provision at all, making civil-law void arguments even more difficult.

Practical Key — A Strategy of Shifting From the Regulatory-Rule Doctrine to a Tort Damages Claim

In practice, subcontractors (suppliers) must, from the very beginning of contracting, carefully review whether unfair clauses are subtly embedded in the contract or site-specification documents and defend against them.

If you have already agreed to an unfair clause in a case primarily governed by the Subcontract Act and have absorbed massive additional cost losses, simply arguing in civil court that "the unfair clause is void" carries a high risk of losing. In that case, a multi-layered, strategic response is essential: file a complaint with the Korea Fair Trade Commission for a Subcontract Act violation (imposition of an unfair clause) to obtain a corrective order or surcharge against the prime contractor, while simultaneously constructing the Subcontract Act violation itself as a 'tort' and claiming damages.

Disputes involving unfair clauses can lead to very different outcomes depending on which statute applies (the Framework Act on the Construction Industry, the Subcontract Act, the State Contracts Act, etc.) and the specific wording of the clause, so a case-by-case review is essential.

Cheongchul Law Firm provides optimal legal solutions to protect the rightful interests of clients who suffer from unfair clauses, drawing on a deep understanding of unfair practices on construction sites and subcontract law. If you are facing problems involving the shifting of additional costs or unfair subcontract clauses, please consult the experts at Cheongchul Law Firm.

-------

Attorney Bae Gi-hyung has accumulated extensive experience and expertise providing legal advice and resolving litigation across the entire process of state contracts and construction projects — including large-scale construction, defense facility projects, and SOC construction such as public-procurement projects — through his work at the Defense Installations Agency and at major law firms' construction/real estate teams. Please feel free to contact him whenever you need assistance with public-procurement construction, private construction, public-procurement contracts, or state, local, and public property matters.

* * *

Cheongchul Law Firm is composed exclusively of attorneys from Korea's top five major law firms, the prosecution service, and major corporate legal teams. Rather than relying on a single attorney, we form teams of specialist attorneys tailored to the relevant fields of each case. Beyond resolving specific issues, Cheongchul provides comprehensive solutions across the client's entire business, delivering legal consulting focused on ultimately achieving what the client wants. If you need help reaching your goals, please do not hesitate to contact Cheongchul.