Hello, this is Attorney Bae Gi-hyeong from Law Firm Cheongchul.

In public contracts, regardless of the type of contract such as construction contracts, supply contracts, or service contracts, liquidated damages are specified. Article 75 of the Enforcement Rules of the Act on Contracts to which the State is a party specifically establishes a rate for liquidated damages.

Generally, if the delay in construction or supply of goods has no responsibility on the part of the counterparty, then liquidated damages do not occur. Conversely, if the responsibility of the supplier is recognized in the fact of the delay, even if the negligence of the ordering party's officer contributed to it, liquidated damages will still occur.

Then, is it possible to apply contributory negligence to liquidated damages citing the negligence of the ordering party's officer?

[Question]

Can contributory negligence be applied to liquidated damages due to the negligence of the public institution's officer?

[Answer]

The Supreme Court stated, “In cases where the amount of damages caused by the debtor's breach of contract is predetermined in the contract between the parties, even if the creditor has any negligence contributing to the occurrence and expansion of the damages from the breach of contract, according to Paragraph 2 of Article 398 of the Civil Code, while the creditor's negligence can be taken into account to reduce the predetermined amount of damages, it cannot be used to invoke contributory negligence.” (Supreme Court Decision 2016. 6. 10, 2014 Da200763 (Main Case), 2014 Da200770 (Counterclaim)).

In the second trial of the above case, it was established that a defect occurred in the goods supplied by the counterparty, and by refusing the request for defect repair or replacement from the Army Logistics Command, they were deemed liable to pay the predetermined amount of damages to the state due to non-performance of their obligation. It could not be considered excessively high, and thus could not be reduced under Paragraph 2 of Article 398 of the Civil Code. However, they limited the responsibility of the counterparty to 70% by citing that the negligence of the Army Logistics Command's inspector contributed to the occurrence and expansion of damage from the counterparty's breach of contract. The Supreme Court judged that this contributory negligence was erroneous.

However, as clarified by the Supreme Court ruling, it is not impossible to reduce liquidated damages due to the negligence of public institutions. Liquidated damages are treated as the predetermined amount of damages under Paragraph 1 of Article 398 of the Civil Code, and Paragraph 2 states that “If the predetermined amount of damages is excessively high, the court may appropriately reduce it,” so in conclusion, the ordering party’s negligence can be argued to be considered.

The larger the scale of the public contract, the more likely delays will occur, and since the ordering party is reluctant to arbitrarily exempt the penalty for delays, issues surrounding liquidated damages tend to arise more frequently than expected.

In cases where liquidated damages are an issue, please note that first, one should assert that the delay was not the responsibility of the counterparty and second, argue the involvement of the ordering agency's negligence to try to reduce the overall amount of liquidated damages.

Attorney Bae Gi-hyeong works at the construction/real estate team of the Defense Facilities Administration and a major law firm, specializing in tasks related to public property, including bidding and usage approvals, lease agreements, and imposition of penalties. He has rich experience and skills in resolving many disputes including administrative appeals and administrative litigation, representing both the state and the affected parties. If you need assistance related to national property, local property, or public property, feel free to contact us at any time.

Law Firm Cheongchul consists solely of attorneys from Korea’s top four large law firms, including Kim & Chang, Gwangjang, Taepyeongyang, and Sejong, forming teams of specialized attorneys related to each case rather than relying on a single attorney. Cheongchul provides comprehensive legal consulting that goes beyond merely resolving specific issues, focusing instead on delivering comprehensive solutions for business overall, ultimately achieving what clients desire. If you need help in achieving your goals, please don’t hesitate to contact Cheongchul.