Hello, this is Attorney Park Jong-han from Cheongchul Law Firm.

In the case of public enterprises or public institutions, they often have their own guidelines. Among these guidelines, there are regulations that restrict transactions with the respective public enterprises or public institutions when acts of breach of contract or collusion are detected.

In such cases, it is necessary to examine whether a public institution can take trading restriction measures, such as cancellation of supplier registration and restrictions on supplier registration, based on its administrative rules, and if such measures are possible, what the requirements are.

[Question]

Whether the cancellation of registration and trading restriction measures taken by a public enterprise according to its own guidelines constitute an administrative disposition and the criteria for its legality.

[Answer]

The public enterprise's cancellation of registration and trading restriction measures based on its own guidelines constitute an exercise of public power as a ‘disposition’. However, since the guidelines serving as the basis for such dispositions are merely administrative rules, if the content of the disposition contradicts superior laws or general principles of law, it is deemed null and void under the principle of the rule of law, according to the principles of unity in the legal order and prohibition of contradiction (refer to Supreme Court Decision 2017Du66541 dated May 28, 2020).

Article 39 of the Act on the Management of Public Institutions (hereinafter referred to as the “Public Institution Management Act”) states that public enterprises and quasi-government agencies can restrict the eligibility of bidders for a certain period of up to 2 years if it is plainly judged that they will harm fair competition or proper execution of contracts (Paragraph 2). Necessary matters regarding the standards for restricting bidder eligibility are stipulated by the Decree of the Ministry of Economy and Finance (Paragraph 3). The 'Contract Rules for Public Enterprises and Quasi-Government Agencies' as delegated specifies in Article 15 that the head of the institution may restrict the bidder’s eligibility under Article 27 of the Act on Contracts to which the State is a party for those it clearly deems to harm fair competition or proper execution of contracts.

Thus, the bidder eligibility restriction measures under Article 39 Paragraph 2 of the Public Institution Management Act and subordinate laws count as the ‘exercise of public power as law enforcement concerning specific facts’ and constitute an administrative disposition. The Public Institution Management Act classifies public institutions into public enterprises, quasi-government agencies, and other public institutions (Article 5), assigning the authority to impose eligibility restrictions for bidders specifically on public enterprises and quasi-government agencies. Therefore, in the case of such public enterprises and quasi-government agencies, they correspond to administrative authorities as ‘public institutions delegated with the administrative disposition authority under the law’.

Therefore, the public enterprise’s ‘cancellation of registration and consequent trading restriction measures’ it applies against registered suppliers based on its own ‘guidelines’ correspond to an exercise of public power in law enforcement concerning specific facts and constitute ‘disposition’.

Administrative guidelines set detailed processing procedures or criteria for interpreting and applying laws for subordinate public officials or lower administrative agencies, and do not have external binding force on citizens or courts unless there is a specific delegation in superior laws. When the administrative rules pertain to matters within the discretion of the administrative authority that stipulated them, it is generally advisable for courts to respect them unless there are special circumstances lacking objective rationality in their provisions. However, if the content of the administrative rules contradicts superior laws or general principles of law, it is considered null and void under the principles of unity in the legal order and prohibition of contradiction, and no internal effect can be recognised. In such cases, courts must treat the relevant administrative rules as non-existent in the legal order and judge the appropriateness of the measures taken by the administrative agency based on the provisions of superior laws and legislative purpose (refer to Supreme Court Decision 2013Du20011 dated October 31, 2019).

However, the Public Institution Management Act or its subordinate laws have not delegated public enterprises to impose additional punitive measures beyond the range specified under Article 39 Paragraph 2 of the Public Institution Management Act and Article 15 of the Contract Rules for Public Enterprises and Quasi-Government Agencies against their counterparties. Thus, the regulations regarding cancellation of registration and subsequent trading restriction measures established by the public enterprise without specific delegation from superior laws are administrative rules with no external binding force.

Therefore, if a public enterprise imposes additional trading restrictions for 10 years far exceeding the 2-year maximum limit set for bidder eligibility restrictive dispositions in Article 39 Paragraph 2 of the Public Institution Management Act based on its own administrative rules without legal grounds, it contradicts the superior law that stipulates the upper limit for such punitive measures, and its defect is grave and clear, rendering it unlawful.

Meanwhile, while agreeing on punitive measures for breach of contractual obligations differs legally from the exercise of public power as punitive measures based on laws, it is permitted only within the limits that do not violate superior laws and general principles of law.

Thus, we have briefly examined whether the cancellation of supplier registration and trading restriction measures taken by public enterprises based on their own guidelines constitute administrative dispositions and the criteria for their legality. In disputes related to national contracts and public procurement, the related laws are very complex and frequently amended; therefore, one must be well-informed and experienced about such matters, and familiarity with the judicial decisions and administrative rulings as well as interpretations of the administrative agency is crucial. Therefore, it is recommended to seek assistance from lawyers with expertise in national contract laws and a wealth of experience in resolving disputes related to various national contracts and procurements.

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