Hanwha Ocean Wins Second Trial Over Penalties for Delayed Submarine Delivery

High Court Orders Payment of 22.7 Billion Won Plus Delayed Interest
Slightly Reduced from 28.8 Billion Won in First Trial

Hanwha Ocean (formerly Daewoo Shipbuilding & Marine Engineering) has won the second trial in a lawsuit contesting hundreds of billions of won in penalties imposed by the Defense Acquisition Program Administration (DAPA) over delayed submarine delivery.

On January 14, the Seoul High Court’s Civil Division 19-2 (Presiding Judges Moon Juhyung, Son Cheolwoo, and Hwang Seungtae) ruled partially in favor of Hanwha Ocean in its lawsuit against the state for unjust enrichment, ordering the government to pay 22,673,420,000 won plus delayed interest. This amount is somewhat less than the 28,805,410,000 won in unjust enrichment recognized by the first trial.

Hanwha Ocean Headquarters in Geoje, Gyeongnam. Yonhap News

In 2010, Hanwha Ocean signed a contract with DAPA to deliver the sixth Jangbogo-II submarine by November 2016 for a contract amount of 118.8 billion won. However, the actual delivery was completed 237 days later, in July 2017. As a result, Hanwha Ocean was required to pay approximately 30.8 billion won to the government-this figure reflects the 42.8 billion won in liquidated damages for delay, minus the government’s outstanding payment claim of about 12 billion won.

Hanwha Ocean requested an exemption from the liquidated damages, arguing that the delivery delay was due to poor weather conditions, DAPA’s failure to provide support vessels, and defects in government-supplied equipment, rather than any fault on the company's part.

DAPA partially accepted these arguments, returning only 8.1 billion won in liquidated damages for 45 days of delay and about 200 million won in interest. However, Hanwha Ocean filed a lawsuit, maintaining that DAPA was responsible for the delivery delay.

The first trial determined that Hanwha Ocean was only responsible for liquidated damages for 63 days, amounting to 8.5 billion won. Considering DAPA’s outstanding payment claim of 12 billion won, the calculation showed that the government actually owed Hanwha Ocean 3.5 billion won. However, since DAPA had initially collected an additional 30.8 billion won, the total unjust enrichment amounted to 34.3 billion won. Adding 2.8 billion won in delayed interest brought the total to 37.1 billion won. After deducting the previously returned 8.1 billion won and interest, the court concluded that DAPA’s unjust enrichment amounted to 28.8 billion won.