"Not Force Majeure Like COVID-19" Construction Company Loses Liability Completion Lawsuit

A construction company that failed to meet the responsibility completion deadline applied for a provisional injunction to suspend the effect, claiming the delay was due to force majeure after assuming the debt of a real estate project financing (PF), but the court dismissed the request. Amid an increasing number of projects struggling with responsibility completion due to the recent economic downturn, the construction industry expressed concerns about the repercussions of this first related ruling.

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According to the construction and legal sectors on the 25th, the Seoul Central District Court recently dismissed a provisional injunction application filed by Woobang, a construction company in Daegu, against the main lenders including Gyeongnam Bank, claiming that the start of construction was delayed and the construction period extended due to force majeure.

The responsibility completion commitment refers to the contractor's promise to complete the building's usage approval within a certain period. It serves as collateral when the developer raises real estate PF loans. Woobang pledged in 2021, when the main lenders provided loans for the Daegu 'Suseong Lake Woobang IU Shell' project, to assume the developer's loan debt if it failed to fulfill the responsibility completion obligation. The responsibility completion deadline was until February this year. However, Woobang exceeded this by 67 days and had to assume the debt (142.5 billion KRW) according to the commitment.

Woobang argued that the start of construction and construction period were delayed due to the outbreak and spread of COVID-19 and the Cargo Solidarity general strike. They claimed these reasons fall under 'force majeure' that can extend the responsibility completion deadline and thus did not violate their obligations. The lenders emphasized that the responsibility completion commitment functions as a guarantee and that none of the reasons presented by Woobang were truly force majeure. They also argued that even if force majeure occurred, it does not automatically extend the deadline.

The court sided with the lenders. It ruled that the meaning of force majeure must be interpreted strictly and that Woobang failed to fully prove that the circumstances qualified as such. The court also found no grounds to recognize that Woobang was in a particularly economically weak position during contract formation or was unfairly forced into the responsibility completion commitment.

The law firm representing the lenders stated, "The court has put a brake on the contractor's attempt to retrospectively deny the binding force of the responsibility completion commitment," adding, "This is a precedent-setting case."

With growing concerns over real estate PF defaults, the construction industry is paying close attention to this ruling. The prevailing view in the industry is that the responsibility completion commitment is an unfair clause, and when the real estate market declines, the profitability of development projects worsens, leading to construction company bankruptcies. A construction industry official said, "Woobang is well-known in Daegu," adding, "While rulings may vary depending on the specific contract details and reasons for construction delays for each company, since responsibility completion commitments are common, this ruling cannot be overlooked."