[비즈한국] The Supreme Court has finalized a ruling to cancel 36.5 billion won, or 60% of the 60.8 billion won penalty imposed by the Korea Fair Trade Commission (KFTC) on Hoban Construction for allegations of "work dumping" (unfair internal trading) for the benefit of the owner family's companies. The total penalty for Hoban Construction was significantly reduced as the court overturned the fines related to the resale of public housing land and the interest-free lending of bid application deposits—the two areas that carried the largest penalties among the unfair internal trading practices identified by the KFTC.
However, as the court still recognized the illegality of providing free loan guarantees and transferring existing construction contracts, Hoban Construction is expected to continue facing social criticism and the burden of the remaining penalties.
On the 20th, the Third Division of the Supreme Court upheld the second-instance ruling that canceled 36.5 billion won of the 60.8 billion won penalty in the appeal trial of a lawsuit filed by Hoban Construction and its eight affiliates against the KFTC’s corrective order and penalty payment order. Hoban Construction and its eight affiliates had filed the suit in September 2023, after the KFTC imposed the 60.8 billion won penalty that June for "work dumping" for the owner family's companies. Prior to this, the Seoul High Court had ruled partially in favor of the plaintiffs, ordering the cancellation of 36.5 billion won, which accounts for 60% of the 60.8 billion won penalty. Both sides appealed the ruling, but the Supreme Court dismissed both appeals.
In June 2023, the KFTC determined that Hoban Construction and its eight affiliates had unfairly supported companies owned by special relations, including the second generation of the owner family, for the purpose of management succession. Consequently, it issued a corrective order and a 60.8 billion won penalty for violations of the "Monopoly Regulation and Fair Trade Act (Fair Trade Act)." The KFTC concluded that Hoban Construction, then controlled by former Chairman Kim Sang-yeol, had engaged in unfair internal trading between 2013 and 2015 by supporting Hoban Construction Housing, owned by eldest son Kim Dae-heon, and Hoban Industry, owned by second son Kim Min-sung.
The unfair internal trading identified by the KFTC involves four main categories: interest-free lending of bid application deposits for public housing land 414 times; reselling 23 public housing plots won by affiliates; providing free project financing (PF) loan guarantees for 40 public housing projects; and transferring previously won construction contracts after contract termination. The KFTC judged that these support activities allowed second-generation companies, such as Hoban Construction Housing and Hoban Industry, to grow rapidly and gain a dominant position in the residential real estate development and construction industry, thereby undermining fair trade order.
In particular, Hoban Construction Housing, controlled by President Kim Dae-heon, expanded its business scale during the period of unfair support identified by the KFTC and eventually merged with Hoban Construction. According to the KFTC, Hoban Construction Housing's presale revenue increased from approximately 155.9 billion won in 2014 to 2.579 trillion won in 2017, and its construction capacity evaluation rose from 50.6 billion won in 2014 to 2.1619 trillion won in 2018, making it the 13th largest construction firm in Korea. In December 2018, Hoban Construction absorbed the grown Hoban Construction Housing. With a merger ratio of 1 to 5.89, President Kim Dae-heon secured a 54.73% stake in the group's flagship company, Hoban Construction, effectively completing the management succession.
Hoban Construction and its eight affiliates filed the lawsuit in September 2023 to cancel the administrative order, which carries the same weight as the first-instance ruling. In March, the Seoul High Court ruled partially in favor of the plaintiffs. The court canceled 36.461 billion won of the 60.8 billion won penalty, specifically the amounts related to the interest-free lending of bid deposits (461 million won) and the resale of public housing land (36 billion won). However, it upheld the 24.341 billion won in penalties for the remaining charges: free PF loan guarantees (14.974 billion won) and the transfer of existing construction projects (9.367 billion won).
Regarding the resale of public housing land, the Seoul High Court reasoned: "Trading public housing land at a price exceeding the supply price is not permitted under the Housing Site Development Promotion Act; therefore, it is difficult to evaluate the act of Hoban Construction reselling the land at the supply price itself as providing excessive economic benefits to the nine companies. It is difficult to conclude that by reselling this land to the nine entities, Hoban Construction provided excessive economic benefits through a significant or substantial transaction."
Hoban Construction stated, "The controversy over supporting second-generation succession through name changes (resales) of public housing land, which was the core issue of the lawsuit, has been resolved following the Supreme Court's final ruling to cancel the KFTC penalty. Regarding the multi-bid (swarm bidding) issue, the investigation was closed with no charges by the prosecution last May, effectively clearing suspicions of 'work dumping' among affiliates. We will continue to grow alongside society through management activities based on fairness and principles, and we intend to suggest necessary institutional improvements after discussing industry-wide criticisms regarding common business practices."