Supreme Court of Korea Upholds 24.3 Billion Won Fine on Hoban Construction for 'Swarm Bidding'

[Financial News] Hoban Construction was initially fined 60.8 billion won by the Korea Fair Trade Commission (KFTC) for allegedly favoring its subsidiaries with business opportunities. However, after a series of legal challenges, the final penalty was reduced to the 20 billion won range. The Supreme Court of Korea confirmed that the resale of public housing sites and the interest-free loan of bid deposits, which were issues raised by the KFTC, do not constitute unfair support.
On the 20th, the Supreme Court of Korea’s third division, presided over by Justice Lee Heung-gu, upheld a lower court ruling that partially favored the plaintiffs in the appeal filed by Hoban Construction and eight affiliated companies against the KFTC’s corrective order and penalty payment order.
Previously, in June 2023, the KFTC imposed a corrective order and a 60.8 billion won fine on Hoban Construction, claiming that the company unfairly supported related parties such as Hoban Housing Construction and Hoban Industries, owned by the second-generation owner.
Between 2013 and 2015, Hoban Construction allegedly secured public housing sites through so-called 'swarm bidding,' mobilizing multiple affiliates and non-affiliated partners to participate in public housing lotteries. The company then transferred 23 winning public housing sites to the second-generation owner’s company. Swarm bidding refers to the practice where multiple companies appear to compete in a bid, but in reality, the process is manipulated to increase the chances of a specific company winning.
The KFTC also pointed out that Hoban Construction provided interest-free loans for bid deposits 414 times to support the second-generation owner’s company’s participation in bids. These bid deposits amounted to billions of won, effectively serving as financial support.
Investigations revealed that the subsidiaries earned 5.8575 trillion won in sales and 1.3587 trillion won in profits from 23 public housing site projects in Uijeongbu, Gimpo, Hwaseong, and other locations. The KFTC argued that this allowed Hoban Housing Construction to expand its influence within the group and lay the groundwork for succession of management rights.
In response to the penalty, Hoban Construction filed an administrative lawsuit in September 2023, and the KFTC’s decision was contested in the appellate court.
In March, the Seoul High Court ruled to cancel 36.5 billion won of the 60.8 billion won fine, stating that the resale of public housing sites and the interest-free loan of bid deposits could not be sanctioned.
The court cited the Housing Site Development Promotion Act, which prohibits public housing sites from being traded at prices exceeding the supply price, and stated, "It is difficult to view the mere resale of public housing sites by Hoban Construction at the supply price as providing excessive economic benefits."
Furthermore, the court found that the Fair Trade Act does not define the provision of business opportunities as a type of unfair support, so providing project opportunities through the resale of public housing sites could not be sanctioned. The interest-free loan of bid deposits was also deemed insignificant, with support per company ranging from 8.2 million to 43.5 million won.
On the other hand, the court upheld the penalty for the Project Financing Loan Payment Guarantee and the transfer of ongoing construction projects.
The court recognized unfair support, noting that Hoban Construction assumed credit risk by providing payment guarantees free of charge and did not receive any guarantee fees. The court also acknowledged the intent to provide benefits, considering that project opportunities were given without compensation and the subsidiaries benefited.
Both Hoban Construction and the KFTC appealed, but the Supreme Court of Korea dismissed the appeals, stating that the lower court’s decision was appropriate.
Immediately after the Supreme Court of Korea’s ruling, Hoban Construction stated, "We respect the court’s decision," and added, "With the various suspicions raised by the KFTC’s 2019 investigation now resolved, we will strive to become a company that grows together with society through fair and principled management."
scottchoi15@fnnews.com Choi Eun-sol Reporter