Hello, I am Attorney Bae Ki-hyung of Cheongchul Law Firm.

At construction sites, it is commonplace for work to fall behind the original schedule because of unforeseen external factors such as abrupt changes in weather, material supply shocks, or economic crises. When the project owner (the client) then claims enormous liquidated damages for delay on the ground that the agreed deadline was missed, the contractor (the builder) often protests: "This is not my fault — it was the weather or a national economic crisis, so it is force majeure."

Because the amounts in dispute snowball from hundreds of millions to tens of billions of won, contractors assert a full "exemption," denying all liability for liquidated damages on the ground that there is no attributable cause under the proviso to Civil Act Article 390 (민법 제390조 단서), while owners demand payment in full — leading to fierce legal battles.

Today, I will explain, together with the relevant statutes and precedents, the Supreme Court's clear standard for whether the "IMF foreign exchange crisis" or "frequent rainfall" asserted by contractors legally amounts to a ground for exemption (force majeure) in liquidated-damages disputes arising from construction delay.

Are the IMF Crisis and Rainfall Force Majeure? The Supreme Court's Standard for Exemption from Delay Damages

[Question] Where there is an abrupt change in economic conditions such as the IMF crisis, or where work could not proceed because it rained heavily during the construction period, can these be treated as grounds of force majeure so that liquidated damages are waived in full?

[Answer] To state the conclusion first, our Supreme Court does not readily recognize such grounds as "grounds of force majeure" that fully exempt a contractor from liability for liquidated damages.

The Supreme Court sets out the general principle that where completion of the work is delayed by force majeure — a natural disaster or an abrupt change in economic conditions equivalent thereto — the contractor is under no obligation to pay liquidated damages. However, examining the concrete case of Supreme Court Decision of September 4, 2002, Case No. 2001 Da 1386, one can see that an extremely strict standard is applied in practice.

1. The IMF Crisis and Disruptions in Material Supply

The Supreme Court expressly held that "the so-called IMF crisis and the resulting disruptions in material supply cannot be regarded as such force majeure circumstances." In other words, even where there was a national economic crisis or a resulting shortage of materials, it is not recognized as force majeure of a natural-disaster grade that would fully release the contractor from its completion obligation under the construction contract.

2. Construction Delay Caused by Rainfall

The Supreme Court is equally firm regarding a contractor's argument that periods when work was impossible due to rain should be deducted from the days of delay. The Court points out that "generally, when a contractor agrees on a construction period under a construction contract, it ordinarily takes into account that work cannot proceed normally because of rain and reflects this in the contract." Accordingly, unless there is "exceptional rainfall equivalent to a natural disaster" that exceeds average historical meteorological data, the mere fact that it rained frequently cannot fully release the contractor from liability for liquidated damages.

3. Limits Where the Contractor's Own Fault Concurs

Furthermore, the Supreme Court Decision of November 25, 2005, Case No. 2003 Da 60136 held that a "cause not attributable to the contractor" for which days of delay are deducted requires proof that the delay in construction was "unavoidable" because of that circumstance. If a given cause merely concurred with the contractor's own fault and did no more than create the possibility that the construction period would be extended, it cannot become a ground for exemption (deduction) that escapes liability altogether; it can only be taken into account in the "reduction" of the pre-estimated damages.

Most importantly, however, one must also consider that even where such ordinary rainfall or economic hardship does not qualify as a "ground for exemption" from liability itself, it can well be taken into account as a "ground for reduction on the court's own authority" — under which, pursuant to Civil Act Article 398(2) (민법 제398조 제2항), a court reduces an unreasonably excessive total of liquidated damages.

The Need for a Dual Strategy of "Exemption" and "Reduction"

In actual litigation, a contractor defending against liquidated damages must not become fixated on arguing only that "this is force majeure, so I bear no liability (exemption)."

Rather, in the course of litigation, one must analyze the Korea Meteorological Administration's rainfall data for the past ten years to objectively prove that the rainfall in the relevant year was "exceptional" to a degree equivalent to a natural disaster, or identify other attributable causes such as the owner's delay in issuing instructions. If it is judged that the various circumstances fall short of the level of "force majeure," they should instead be used as factors for drawing a substantial "reduction of liquidated damages on the court's own authority" from the court.

Disputes over exemption from and reduction of liquidated damages lie at the intersection of meticulous schedule analysis of the causes attributable for construction delay and accurate application of Supreme Court precedent, so specific legal review is necessary from the outset.

Drawing on a deep understanding of schedule-delay issues at construction sites and of the doctrine of reducing liquidated damages, Cheongchul Law Firm provides optimal defense solutions for contractors facing the crisis of excessive liquidated damages. If you are struggling with an unjust liquidated-damages claim or with proving grounds for exemption, please consult with the experts at Cheongchul Law Firm.

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Attorney Bae Ki-hyung previously served at the Defense Installations Agency and in the construction/real estate teams of major law firms, where he provided legal advice across the full lifecycle of large-scale construction projects — including public-procurement construction, defense facility projects, and SOC construction projects — and resolved related litigation. He brings extensive experience and capability to public-procurement construction, private construction, public procurement contracts, and matters involving state property, local government property, and other public assets. Please contact him whenever you need assistance.

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Cheongchul Law Firm is composed exclusively of attorneys from Korea's top 5 major law firms, the prosecution service, and corporate legal teams. Rather than relying on a single attorney, we assemble teams of specialists in fields relevant to each case. Cheongchul goes beyond resolving isolated legal issues to provide comprehensive solutions across the client's entire business — legal consulting focused on helping clients achieve what they ultimately want. If you need help reaching your goals, please do not hesitate to contact Cheongchul.