In a bid for the construction of 13 sections in the Honam Express Railroad, POSCO E&C (“Petitioner”) and other construction companies conspired to engage in the so-called “dummy bidding,” where the construction companies would determine the winning bidder among themselves before submitting the bid and the rest of the companies would participate in the bid as “dummies.” 

The KFTC imposed an administrative fine of KRW 20 billion on POSCO E&C for participating in the bid-rigging.

Case Details:

POSCO E&C challenged the amount of administrative fine in court, but the Seoul High Court rejected POSCO E&C’s claim.  However, on petition, the Supreme Court overruled the High Court’s decision and held that the amount of fine was excessive in light of the nature of the violation and the amount of profit that the company earned from the bid-rigging scheme. 

In addition, the Supreme Court noted that the amount of fine lost balance between two policy rationales— penalizing the company that engaged in wrongful act and disgorging unjust profits from the wrongdoer.  The Supreme Court was of the view that considering the amount of fine, the KFTC put unreasonable emphasis on the former as opposed to the latter.

Overview of Supreme Court’s Rationale:

The amount of fine overly exceeds the profit enjoyed by the Petitioner through dummy bidding, resulting in the forfeiture of the entire amount of construction fees that were distributed to the Petitioner.

The Petitioner merely participated in the bid as a dummy and did not take a leading role in the scheme.  The Petitioner also did not participate in the discussions to determine the winning bidder.  Therefore, although the Petitioner did engage in wrongful acts, the Petitioner’s wrongful acts were not so egregious as to justify the amount of fine. 

By comparison, Company A, which participated in the conspiracy of dummy bidding from the onset of the scheme, was fined in the amount that is about eight times less than the amount imposed on POSCO E&C.  Although Company A did not actually participate in the bids as often as the Petitioner, the Supreme Court held that such a fact does not justify the significant difference between the amounts of fine imposed on POSCO E&C and those imposed on Company A.

Our Representation & Significance:

Kim & Chang’s Antitrust & Competition Law experts represented POSCO E&C before the Supreme Court and won a favorable judgment on April 27, 2017.¹

This Supreme Court case confirmed the principle that there must be a reasonable balance between the unjust profits earned by bid-riggers and the amount of fine imposed for bid-rigging.