Hyundai Heavy Industries Wins Lawsuit Restricting Bidding for Ulsan-class Batch-II Follow-up Ships

[Asia Economy Reporter Seongpil Cho] The construction project for the 7th and 8th ships of the Ulsan-class Batch-II frigates, the next-generation frigates of the Republic of Korea Navy, is expected to resume normally. In a legal dispute over bidding qualifications, the court ruled in favor of Hyundai Heavy Industries, which was selected as the successful bidder for the project. The project had been effectively halted since July 2019, when the court accepted the government’s request for a filing order related to the case.

According to the legal community on the 7th, the Seoul Central District Court Civil Division 20 (Presiding Judge Hyungseok Kim) ruled in favor of Hyundai Heavy Industries in a lawsuit filed against the government to confirm its status as a qualified bidder. The court stated, "It is confirmed that the plaintiff holds the status of a qualified bidder for the Ulsan-class Batch-II follow-up ships (7th and 8th ships) construction project announced by the defendant." The court ordered the government to bear all litigation costs.

Previously, Hyundai Heavy Industries was involved in a corruption scandal related to Korea Hydro & Nuclear Power’s (KHNP) nuclear power plant project in the United Arab Emirates, which led to a restriction on its eligibility to participate in national projects from December 2017 to November 2019. Despite this, Hyundai Heavy Industries applied to participate in the Ulsan-class Batch-II follow-up ships construction project in 2018 and filed for a provisional injunction against the government to confirm its bidding qualification. The argument was that the nuclear power industry and defense industry should be judged on different grounds. As the court accepted this application, Hyundai Heavy Industries participated in the bidding for the Ulsan-class Batch-II follow-up ships construction project, was selected as the successful bidder in November of that year, and signed a contract worth 633.5 billion KRW. The contract period was until August 2023.

However, the government filed a request for a filing order regarding the previous provisional injunction decision in July of the following year. A filing order is a court directive requiring the parties to file a main lawsuit. It is also called a "main filing order." When the court accepted the government’s request in August 2019, the Ulsan-class Batch-II follow-up ships construction project was ultimately suspended, and Hyundai Heavy Industries filed the current lawsuit in response to the filing order.

During the trial, Hyundai Heavy Industries argued that "the right to participate in this project’s bidding cannot be restricted by an enforcement ordinance." The logic was that matters restricting citizens’ rights or imposing obligations must be stipulated by laws passed by the National Assembly (the principle of legal reservation). The court found Hyundai Heavy Industries’ argument to be valid. The court stated, "There is no formal legal provision that can serve as the basis for the enforcement ordinance (Article 76, Paragraph 11) of the Act on Contracts to Which the State is a Party, which restricts bidding qualifications," and ruled that "Article 76, Paragraph 11 of the enforcement ordinance violates the principle of legal reservation and is invalid." The court further explained, "The restriction on bidding qualification due to the UAE nuclear power plant corruption case does not automatically disqualify Hyundai Heavy Industries from participating in this bidding," and added, "The government must take separate punitive measures to prevent Hyundai Heavy Industries from participating in this bidding."

The court dismissed the government’s claim that it "has the freedom not to contract with Hyundai Heavy Industries" as groundless. The court pointed out, "Even if Hyundai Heavy Industries has the qualification to participate in the bidding, the government may argue that it has the freedom not to conclude a contract," and noted that "this claim is compatible with the assertion that Hyundai Heavy Industries has the qualification to participate in this bidding."