Contractor cancellation boomerang… Bank Jugong enters litigation with GS and HDC

The Banking Owners' Association responds by selecting a large law firm.
GS and HDC claim approximately KRW 54 billion in loans and damages
If a union member loses, tens of millions of won will be charged.

Bank Jugong Apartments in Seongnam-si, Gyeonggi-do, which completed selecting a construction company last month, has entered into a lawsuit this time. Last year, the existing construction company, GS E&C and HDC Hyundai Development Company consortium, began responding to a lawsuit filed for damages due to termination of the contract. Union members are paying close attention to the amount of additional contributions that will be determined based on the outcome of future litigation.

According to the maintenance industry on the 24th, the Bank Jugong Reconstruction Association held a meeting of delegates to select a law firm to respond to the existing construction company's lawsuit on the 21st and selected Daeryun Law Firm. It is known that Daeryun is forming a team dedicated to banking, mainly composed of lawyers from large law firms and large construction companies.

This lawsuit battle arose in April last year when the bank's main construction union terminated the construction contract with the GS Engineering & Construction and HDC Hyundai Development Company consortium. The union and the construction group were unable to reach an agreement on increasing construction costs and extending the construction period, leading to termination. Accordingly, the construction team requested the return of the bid deposit (loan money) and compensation for damages for construction profits. The construction group appointed Yulchon Law Firm.

A member of the bank owner's union said, "Proposals were received from six law firms, and Daeryun has the largest number of lawyers, and there are also former construction and reconstruction lawyers." He added, "This lawsuit is important as it involves tens of millions of won in additional contributions per household."

The construction group claimed approximately 27.2 billion won in return for rental principal and interest, approximately 27.3 billion won in compensation for performance profits, and delayed damages. The union sees late interest and compensation for damages as issues rather than the return of the loan. In particular, it is pointed out that at the construction company selection general meeting in December 2018, the construction group promised to build a 35-story building, but did not keep it, thereby deceiving the union and selecting it as the construction company. The loan can be repaid with POSCO E&C’s bid deposit (KRW 35 billion).

Daeryun emphasized that the important reason for selecting the construction company for the union was the other party's unreasonable promise, and proposed a response strategy to dismiss all of the other party's claims by acknowledging that the contract was terminated due to the other party's fault. If the union loses this lawsuit, it is expected that an additional contribution of 10 to 20 million won per household will be made depending on the amount of damages.

In addition to bank construction, the number of reconstruction and redevelopment sites that have recently replaced construction companies due to a surge in construction costs is increasing. The Seoul High Court is scheduled to issue a ruling in April on the lawsuit claiming damages filed by DL E&C against the redevelopment association in Sindang District 8, Jung-gu, Seoul. In June of last year, both DL E&C and the union objected to the results of the first trial, and the trial was transferred to the High Court. In the first trial, a ruling was issued requiring the union to compensate DL E&C about 8 billion won. Some of the land owned by the cooperative was also put up for auction.

The 3rd block reconstruction association of Banpo Jugong Complex 1, Seocho-gu, is continuing a lawsuit against HDC Hyundai Development Company, the previous construction company, for damages. Here too, due to a conflict between specialized design and construction costs, the main contract was not concluded and Samsung C&T was selected as the new construction company. The second trial is currently in progress, and the union lost in the first trial. Last month, the Bangbae District 5 Reconstruction Association, where Hyundai Engineering & Construction is the construction company, paid compensation of 52.5 billion won to the previous construction company, the GS Engineering & Construction Consortium (GS Engineering & Construction, POSCO E&C, and Lotte Engineering & Construction). It has been 7 years since the construction contract was terminated in 2017.

An industry official said, "If the union reflects the burden and compensation due to litigation costs in the sale price, the sale price will inevitably rise, and the damage will go to union members and general sellers."

Reporter Hwang Jun-ik (plusik@tf.co.kr)

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Construction company cancellation boomerang... Bank Jugong enters litigation with GS and HDC (Shortcut)