Hello, I am Attorney Park Jong-han from Chungchul Law Firm.

If there are illegal collusive acts, the colluding parties will compensate for the resulting damages. However, the concept of a collusive act does not immediately reveal economic damage in itself, so the question arises as to what damage is caused by the collusive act, that is, how to assess the damage. Furthermore, to hold someone liable for damages, the occurrence of such damage and the causal relationship between the tort and the damage must be recognized, and the burden of proof regarding this lies fundamentally with the claimant. Likewise, it is necessary to examine who bears the burden of proof for the scope of damages caused by collusive acts and how the causal relationship between collusive acts and damage is recognized.

[Question]

The method of assessing damage in the case of illegal collusive acts, the location of the burden of proof, and the possibility of offsetting with penalties.

[Answer]

The damages caused by illegal bid-rigging are the difference between the winning bid price formed due to the collusion and the price that would have been formed without the collusion (hypothetical competitive price). In other words, when there is an illegal collusive act, the basic method of assessing damage is to estimate the hypothetical competitive price based on the transaction price after the collusive act if there are no other economic fluctuations besides the collusion; however, if there are other economic fluctuations, the impacts of those fluctuations on the price formation after the collusive act must be excluded to assess the hypothetical competitive price (refer to the Supreme Court ruling on July 28, 2011, 2010Da18850).

When the factors influencing price formation after the end of the collusive act have significantly changed, the characteristics of price formation for the goods, economic conditions, market structure, trading conditions, and the details and extent of fluctuations in other economic factors should be analyzed to exclude the impact of such fluctuations on price formation after the collusion, ensuring that price variations due to factors unrelated to the collusive act are not included in the scope of damages.

For example, when the Supreme Court estimated damages due to collusion in oil transactions, it stated that the domestic military supply oil market, which is in an oligopoly form, and the competitive oil market in Singapore have different structures and conditions, so it cannot simply determine that the hypothetical competitive price is the price obtained by adding domestic ancillary costs according to government accounting standards to Singapore's spot market trading prices during the collusion period (refer to the Supreme Court ruling on July 28, 2011, 2010Da18850).

The location of the burden of proof regarding the maintenance of price influencing factors before and after the collusive acts is, in light of the principle that the victim has the burden of proof regarding the scope of damage in tort claims arising from illegal acts, that when the maintenance of the price-influencing factors for a specific product is disputed, the victim who alleges that those factors have remained unchanged bears the burden of proof for estimating the hypothetical competitive price based on the price after the collusive act. In other words, the burden of proof lies with the relevant authority alleging that there are no fluctuating factors.

As a criterion for judging whether there is a significant causal relationship between the collusive act and the resulting damage, the Supreme Court examines whether (i) even if the relevant authorities determined the contractual conditions due to the collusive acts, such conditions were not directly determined by the collusions alone and went through internal review and decision-making processes of the bidding authorities, that is, whether it was a decision based on internal review processes and judgments on acceptability; and (ii) whether the cause of the damage occurred due to external circumstances such as a sharp decline in exchange rates, that is, whether external factors had an impact.

As mentioned above, regarding whether penalties imposed by the state on the unlawful acts of the state as a victim can be subject to offsetting with damages for illegal acts, the penalties imposed under the Monopoly Regulation and Fair Trade Act for unfair joint acts due to bid-rigging have a dual nature of sanctions aimed at deterring collusion and depriving illegal economic benefits and differ entirely from the liability for damages resulting from illegal acts aimed at compensating the victim, so in cases where the state is the victim of illegal acts due to bid-rigging, even if there are circumstances where the offender is required to pay penalties for unfair joint acts due to bid-rigging, it cannot be regarded as having obtained benefits subject to offsetting. That is, damages for bid-rigging and penalties should be regarded as separate matters.

Thus, we have briefly examined the method of assessing damage in cases of illegal collusive acts, the location of the burden of proof, and the possibility of offsetting with penalties. In disputes related to national contracts and public procurement, the relevant laws are very complex, and frequent amendments require knowledge and experience in these areas; therefore, it is essential to be well aware of the court's rulings as well as administrative interpretations and case law. Therefore, I strongly recommend seeking the assistance of a lawyer who has expertise in national contract laws and experience in resolving disputes related to various national contracts and procurement.

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