Kim & Chang represented a company (the “Plaintiff”) that entered into an agreement with Seoul Metro (the “Defendant”) in relation to a “project to install a real-time information system in Seoul Metro’s Line 2 subway stations” (the “Agreement”). The Plaintiff filed a claim for damages against the Defendant for the Defendant’s refusal to comply with its obligations to maintain operational conditions for the Plaintiff’s advertising business, which were agreed upon when the Agreement was executed. The claim was appealed to the Supreme Court, and we successfully obtained the Supreme Court’s decision reversing and remanding the case for reconsideration.
The district court and appellate court had rejected the Plaintiff’s claim that “the Defendant is obligated to maintain the environment to allow the Plaintiff to install the passenger information display system (the “PIDS”) in the middle of the ceiling of each subway cabin, in line with the operational conditions agreed upon between the parties at the time of executing the Agreement.” The Supreme Court overturned the lower courts’ decisions, ruling that the installation of the PIDS constitutes a fundamental part of the Agreement and thus, one of the operational conditions of the advertising business that were agreed upon between the parties, and that the Defendant is liable for damages.
Under the Agreement entered into in June 2009, the Defendant was required to grant the Plaintiff the right to conduct advertising business for 16 years by using the PIDS installed in subway cabins and stations. In return for the right to conduct advertising business, the Plaintiff was required to install various facilities necessary for the business, operate and maintain the facilities installed, and pay the Defendant an advertising fee of KRW 25 billion in the course of operating the advertising business.
In December 2013, the Defendant established a plan to replace a total of 50 subway trains (500 cabins) reaching the end of their service life. In October 2015, the Plaintiff started to discuss where to install the PIDS for the new subway trains with the Defendant.
The Plaintiff continued to request that the PIDS be installed in the middle of the ceiling of each subway cabin, in the same location as before. However, the Defendant rejected this request, stating that (i) the PIDS would be side-mounted on the wall above the train’s sliding door, and (ii) as CCTVs must be installed pursuant to Article 41 of the Urban Railroad Act, mounting the PIDS in the middle of the ceiling would restrict the installation location and block the viewing angle of the CCTVs.
In response, the Plaintiff filed a civil lawsuit against the Defendant, seeking damages arising from “the Defendant’s refusal to comply with its obligation to give approval for, and cooperate with, the Plaintiff’s installation of the PIDS in the middle of the ceiling of each subway cabin in order for the Plaintiff to operate its advertising business as agreed upon between the parties.” However, the district court and appellate court rejected the Plaintiff’s claim, reasoning that the Agreement had no provision binding the Defendant to comply with the obligation alleged by the Plaintiff.
However, the Supreme Court reversed and remanded the case to the Seoul High Court for reconsideration on the following grounds, noting that the Defendant was liable for damages resulting from its refusal to comply with its obligations:
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(1) |
In the Agreement, the considerations for each party are meticulously structured based on the unit sales price per page of advertising. The Agreement is based on the premise that, during the period of the long-term contract, the Plaintiff should be able to generate a sales margin calculated based on the unit sales price. The operational conditions of the advertising business are the most essential part of the Agreement because they are directly related to the Plaintiff’s sales margin. In this respect, the Defendant has the obligation to maintain the operational conditions of the advertising business during the term of the Agreement; |
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(2) |
The installation of the PIDS in the middle of the ceiling is one of the operational conditions of the advertising business that had been agreed upon between the parties at the time of executing the Agreement by taking into account various circumstances, including the status of the PIDS installed at the time of executing the Agreement and the details stated in the Request for Business Proposal. Yet, the Defendant refused to comply with its obligation to maintain the operational conditions; and |
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(3) |
The Defendant cannot change or avoid its obligation due to amendments to the Urban Railroad Act. |
As counsel for the Plaintiff, we argued that, even if the Agreement does not explicitly specify the Defendant’s “obligation to maintain the operational conditions of the advertising business by allowing the PIDS to be installed in the middle of the ceiling”:
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(1) |
The Agreement intended to outsource the implementation of a project to a private business entity (i.e., the Plaintiff) to install a real-time information system even though the project is supposed to be implemented by the Government or a public institution (i.e., the Defendant) via its own efforts and cost; |
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(2) |
In the Agreement, the relation between the Plaintiff’s capital investment and return on investment is meticulously structured to ensure that the Plaintiff (i.e., private business entity) can make a return on investment during a certain period of time (i.e., 16 years) after bearing the cost of installing necessary facilities for the advertising business and paying the advertising fee to the Defendant, on the premise that the PIDS is to be installed in the middle of the ceiling as agreed upon at the onset of the project; and |
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(3) |
That the Defendant unilaterally changed the installation location of the PIDS or disagreed to install the PIDS in the middle of the ceiling is no different from arbitrarily changing the method agreed upon in the Agreement to allow the Plaintiff to make a return on investment. |
The Supreme Court overturned the lower courts’ decisions based on these arguments.
This case is meaningful in that the Supreme Court explicitly acknowledged the following: (i) a Government or public institution has the obligation to maintain the operational conditions that are contemplated in the project by taking into account the structure of the project and financial interests related thereto, even though the agreement or any other binding document between the Government or public institution and a private business entity does not contain a provision explicitly placing a specific obligation on the Government or public institution, and (ii) an obligation cannot be changed or avoided as a result of a provision in the applicable laws and regulations.
