Appeal Filed Against CJ OliveNetworks and KCC Information & Communication
Risk of Over 50 Billion Won in Compensation Including Delayed Interest if Dismissed
The legal dispute between the Ministry of National Defense and CJ OliveNetworks and KCC Information & Communication is intensifying. The lawsuit in which the Ministry of National Defense imposed liquidated damages on CJ OliveNetworks and KCC Information & Communication, who won the contract for the 'Army, Navy, and Air Force Logistics Information System Integration Project,' has now reached the final appeal. Previously, these companies filed a lawsuit claiming the imposition of liquidated damages was unfair, and they won both the first and second trials. However, the Ministry of National Defense decided to proceed with an appeal to the Supreme Court instead of paying the amount, which is close to 45 billion won. If the appeal is also dismissed, the Ministry of National Defense will have to pay more than 50 billion won, including delayed interest.
According to a government official on October 10, the Ministry of National Defense submitted its statement of appeal to the Supreme Court on September 29. The ministry believes that the 45 billion won in compensation is excessive and is seeking to overturn the previous rulings in the third trial.
The lawsuit between the two sides originated in 2015, when the Ministry of National Defense issued a 25 billion won contract for the 'Army, Navy, and Air Force Logistics Information System Integration Project.' The project aimed to convert the separate logistics information systems operated by the Army, Navy, and Air Force into a single unified system. It was scheduled to run for 35 months, from December 2015 to November 2018. CJ OliveNetworks, KCC Information & Communication, and Pentacreed formed a consortium and won the contract, with ten related small and medium-sized software companies participating.
However, according to the companies, the scope of work nearly doubled compared to the original contract because each branch of the military requested system development that reflected their unique characteristics. The companies demanded additional compensation from the Ministry of National Defense for the increased workload, but their request was denied. Instead, the ministry imposed liquidated damages on the companies, citing project delays.
Due to the liquidated damages, some companies faced financial difficulties. Pentacreed, the lead company in the consortium, withdrew from the project in 2017. It has also been reported that the software company Datacore recently decided to withdraw from the project as well.
Ultimately, CJ OliveNetworks and KCC Information & Communication filed a lawsuit against the Ministry of National Defense five years ago, arguing that the ministry added extra work during the project without providing additional compensation and instead imposed liquidated damages. Three years after the lawsuit was filed, in January last year, the court of first instance ruled in favor of the plaintiffs. This was followed by the same outcome in the second trial, which concluded in August this year after a year and six months. As a result, there are growing concerns that if the Ministry of National Defense loses the final appeal, it will have to pay an additional 5 billion won in delayed interest, all from taxpayers' money.
At the time, the court of first instance stated, "The defendant (the Ministry of National Defense) enjoyed functions in excess of those stipulated in the original contract without any compensation, and therefore must return the unjust enrichment to the contractors. Furthermore, the liquidated damages were imposed for delays not attributable to the plaintiffs, making the imposition unjustified." The court ordered the ministry to pay 45.6 billion won (including additional work and liquidated damages) to the contractors. The appellate court delivered the same verdict.
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