Supreme Court Confirms Joint Liability of Chengdu ENG in 'SK Hynix China Plant Fire' Case

Partial Reversal and Remand on Delayed Damages

The Supreme Court has recognized the joint liability of Chengdu ENG, the parent company of Chengdu Construction, a local Chinese contractor, in relation to the 2013 fire at SK Hynix's semiconductor plant in Wuxi, China. However, the court overturned the lower court's decision to dismiss the claim for delayed damages.

Supreme Court, Seocho-gu, Seoul.

According to the legal community on August 6, the First Division of the Supreme Court (Presiding Justice Shin Sookhee) overturned the portion of the lower court ruling that dismissed the claim for delayed damages in a subrogation lawsuit filed by five Chinese insurance companies against Chengdu ENG, and remanded the case to the Seoul High Court.

In July 2013, SK Hynix signed a contract with Chengdu Construction, a subsidiary of Chengdu ENG, for the installation of gas supply facilities at its semiconductor plant in Wuxi, China. However, in September of the same year, a fire broke out in a gas pipeline, burning 2,500 square meters of the plant. SK Hynix filed an insurance claim with Chinese insurers, and the insurance companies paid SK Hynix a total of $860 million in property and business interruption insurance for losses caused by the fire.

Subsequently, the insurers filed a lawsuit against Chengdu Construction in a Chinese court, arguing that the fire was caused by the plant's gas supply facilities. They also filed a subrogation lawsuit in a Korean court against Chengdu ENG, claiming that employees of Chengdu Construction were in fact under the direction and supervision of Chengdu ENG.

The first trial recognized Chengdu ENG's employer liability and ordered it to pay approximately 122.7 billion won in compensation to the Chinese insurers. However, the amount was reduced to 12.9 billion won in the second trial. The appellate court found that Chengdu ENG was jointly liable for Chengdu Construction's compensation obligations, but dismissed the claim for delayed damages.

The Supreme Court upheld the lower court's decision that Chengdu ENG was jointly liable for the debts of its subsidiary, Chengdu Construction. The court stated, "Chengdu ENG abused its authority as the sole shareholder of Chengdu Construction by causing Chengdu Construction to pay a large dividend immediately after the fire, thereby helping it evade compensation obligations related to the fire and seriously infringing upon the interests of the plaintiffs as creditors," adding, "There was no error in the lower court's judgment that Chengdu ENG is jointly liable for Chengdu Construction's debts under Chinese company law, nor any misunderstanding of the scope of shareholder joint liability that would have affected the outcome of the case."

However, regarding the delayed damages, the court stated, "The lower court should have examined the content of the Chinese judgment and the relevant provisions of Chinese law to determine whether, in this case where the plaintiffs are claiming joint liability from the defendant for Chengdu Construction's subrogation debt, the defendant is also obligated to pay delayed damages equivalent to 'double the statutory interest' from the date of judgment," adding, "The lower court dismissed all claims for delayed damages without such examination, thereby failing to fully review the necessary issues regarding the application of delayed damages under Chinese law, which affected the outcome of the case."