[Exclusive] Repeated HDC Poor Construction... Gimpo Apartment Residents Lose 2.7 Billion Won in First Trial Over 'External Cracks' and Other Defects Lawsuit

Court: "Liable for damages in lieu of apartment defect repairs"
Democratic Party: "Will pass the Construction Act in February National Assembly to prevent recurrence"

The scene of the newly constructed apartment building site in Hwajeong-dong, Seo-gu, Gwangju, on the fifth day since the collapse accident on the 15th. (Photo by Yonhap News)

[Asia Economy Reporters Kim Dong-pyo, Ryu Tae-min, Jeon Jin-young] It has been confirmed that defects have occurred in an apartment complex in Gimpo City constructed by HDC Hyundai Development Company (HDC), which caused the exterior wall collapse accident at Gwangju Hwajeong I-Park new apartment, and that residents are engaged in legal disputes over these issues. The defects appeared as cracks and leakage problems in the exterior walls and between floors.

HDC is facing an administrative suspension of business due to the collapse accident at the construction site, and the revelation of disputes caused by defects in the Gimpo apartments has led to uncontrollable public sentiment deterioration and a loss of trust. As a result, concerns are growing about the possibility of being pushed out of the housing market.

According to a comprehensive investigation by this paper on the 20th, in November last year, the Civil Division 19 of the Seoul Central District Court (Presiding Judge Lee Min-soo) partially ruled in favor of the plaintiff in a defect repair cost claim lawsuit filed by the residents' representative meeting of Apartment A located in Gimpo City, Gyeonggi Province, against the constructor HDC and the Housing and Urban Guarantee Corporation. The court stated, "Within the scope of the claim, there is a responsibility to compensate for damages in lieu of defect repairs," and ordered "HDC Hyundai Development Company to pay approximately 2.724 billion KRW, and the Housing and Urban Guarantee Corporation to jointly pay about 123 million KRW of this amount."

Defects such as water leakage from the ceiling occurred just about a month after move-in began in this complex. Despite repairs being carried out, leaks recurred and additional defects such as cracks in the interior and exterior walls were found, prompting residents to file a lawsuit in April 2020.

The court accepted about 85% of the approximately 3.2 billion KRW in damages initially claimed by the residents' association. This is a relatively high rate compared to typical apartment defect lawsuits, which usually do not exceed 60%. However, the residents have expressed their intention to appeal, and the second trial is currently underway.

Representatives of the Safe Society Citizens' Coalition held a performance showing red cards during a press conference condemning the Gwangju apartment collapse disaster in front of the Hyundai Development Company headquarters in Yongsan-gu, Seoul, on the afternoon of the 17th. (Photo by Yonhap News)

Is Market Expulsion Becoming a Reality? Up to 1 Year and 8 Months Business Suspension Possible

In addition to the lawsuit with residents, Hyundai Development Company is also facing administrative risks due to the collapse accident. A business suspension of up to 1 year and 8 months is anticipated. This is effectively a severe penalty equivalent to market expulsion.

First, regarding the Gwangju Hakdong tragedy that occurred in June last year, it has been confirmed that Seoul City issued a preliminary notice of an 8-month business suspension to Hyundai Development Company and requested submission of opinions. After going through a hearing process, Seoul City is expected to decide on the first administrative penalty as early as next month.

Furthermore, Hyundai Development Company is highly likely to receive an additional business suspension penalty due to the Gwangju Hwajeong I-Park exterior wall collapse accident that occurred on the 12th. In this case, the responsibility for construction and management negligence by HDC is clear, making a severe penalty almost certain. The highest level of punishment under the Framework Act on the Construction Industry, 'registration cancellation,' is even being discussed.

If Hyundai Development Company receives an 8-month suspension for the Hakdong tragedy and a 1-year suspension for the Hwajeong accident, it will be unable to secure new projects for 1 year and 8 months. An industry insider said, "Even an 8-month suspension in the first quarter would cause most small and medium construction companies to go out of business, and even large companies would find it difficult to cope with a 1-year suspension. If a 1 year and 8 months suspension is confirmed, it is effectively a notice of expulsion from the housing market."

If the business suspension becomes a reality, the entire HDC Group could be shaken. Last year, HDC Group's total sales amounted to 5.2 trillion KRW, with Hyundai Development Company accounting for 70% (3.65 trillion KRW) of that.

Ruling Party: "Construction Safety Special Act to Prevent Gwangju Accident Recurrence to Pass in February National Assembly"

The Democratic Party of Korea has promised to pass the Construction Safety Special Act (CSSA) and the Framework Act on the Construction Industry (FACI) during the February extraordinary session of the National Assembly. As calls for the enactment of the Construction Safety Special Act have increased as part of measures to prevent recurrence of the Gwangju apartment exterior wall collapse accident, the party has expressed a strong will to actively legislate.

Park Wan-joo, the Policy Committee Chair, said at the party's policy coordination meeting on the 20th, "Among the 190 companies subject to punishment under the Serious Accident Punishment Act last year, 99 were construction companies. The reality of losing lives during work is why the enactment of the CSSA and the passage of the FACI are urgent and essential."

Chair Park emphasized the necessity of the CSSA, saying, "Construction companies involve various participants such as clients, constructors, designers, and supervisors, and the construction objects are diverse. Workers and machinery frequently change, which is very different from other industries and work environments. Considering the unique characteristics of construction sites, the act aims to assign safety management responsibilities commensurate with authority to each participant and ensure appropriate accountability in case of accidents to create a safe working environment."

Regarding the FACI, he explained, "Chronic problems at construction sites such as illegal subcontracting, underbidding, and low-price bidding are causes of poor construction and major factors in safety accidents. The act aims to block these malpractices by strengthening the responsibilities and penalties for construction companies that direct or conspire in such acts."

The Democratic Party aims to pass these bills along with the supplementary budget during the February National Assembly session. Shin Hyun-young, the party's floor spokesperson, told reporters after the meeting, "In the February National Assembly, we will focus not only on discussing the supplementary budget but also on passing bills related to people's livelihoods. Due to the Gwangju apartment exterior wall collapse accident, it is necessary to pass laws that block illegal subcontracting and strengthen the responsibilities and penalties of construction companies."

Currently, the Construction Safety Special Act bill proposed by Democratic Party lawmaker Kim Gyo-heung in September 2020 is pending in the National Assembly. If clients, designers, constructors, or supervisors neglect their duties and a fatal accident occurs at the worksite, they face imprisonment of up to 7 years or fines up to 100 million KRW. Construction companies may face business suspension of up to 1 year or fines proportional to their sales. Several amendments to the Framework Act on the Construction Industry, including provisions for cancellation of business registration in case of fatal accidents, are also pending.