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[Antitrust and Competition] In the case concerning the alleged bid-rigging in the Gyeongin Canal project, Barun Law, representing SK E&C, successfully proved the nonexistence of bid-rigging and th 9/6/2016

[Antitrust and Competition] In the case concerning the alleged bid-rigging in the Gyeongin Canal project, Barun Law, representing SK E&C, successfully proved the nonexistence of bid-rigging and thereby cancelled all disposition issued by the Korea Fair Trade Commission

 

1. Summary of Case

 

● Construction orders for the Gyeongin Canal project were made after the project site was divided into six (6) construction zones on January 23, 2009. According to the Korea Fair Trade Commission (KFTC), Hyundai E&C, Samsung Engineering, and GS E&C had already taken hold of zones 1, 2, and 3, respectively, and SK E&C, Daelim Industrial, Daewoo E&C agreed to only compete for zone 6 and not seek to take over the zones already taken by other construction companies, which led the KFTC to believe that construction companies had made a bid-rigging agreement concerning the construction zones. Accordingly, the KFTC issued corrective orders to the 11 construction companies, including SK E&C, as well as an order imposing fines thereto, which amounted to a total of KRW 99.1 billion. The KFTC also brought criminal charges against the companies through the prosecutors’ office.

 

● The antitrust and competition team at Barun Law LLC represented SK E&C in carrying out this administrative action.

 

 

2. Court Judgment

 

● The Seoul High Court judged that bid-rigging, which was argued to exist concerning zone 6 by the KFTC, did not exist and thereby cancelled all corrective orders and orders imposing fines issued to SK E&C (Seoul High Court, Judgment No. 2014Nu57616 delivered on July 21, 2016).

 

 

3. Details of Judgment

 

● Regarding the primary argument, the court accepted Barun Law’s position that there were no exchanges of information and agreement on dividing the construction zones among six (6) construction companies.

 

- The KFTC argued that an agreement was actually made at a meeting attended by the managing directors of six (6) construction companies on January 7, 2009 with regard to the division of the construction zones, but such argument was dismissed due to lack of evidence.

 

- KFTC argued that the managing director only known as K of SK E&C attended the above meeting. However, K was employed at another company until December 31, 2008 and joined SK E&C on January 28, 2009, which shows that he was not yet working for SK E&C on January 7, 2009 (the date of the meeting) and thereby was not in a position to attend the meeting.

 

- Furthermore, K has an alibi that he was at another location on January 7, 2009.

 

- According to the testimony given by one of the attendees from GS E&C, it is possible that the above meeting may have actually taken place at the end of 2008 rather than on January 9, 2009.

 

● The court also accepted Barun Law’s alternative argument that no agreement was made on dividing the construction zones, assuming that the meeting did take place but the exchange of information did take place.

 

- Even if Managing Director K of SK E&C were to have attended the meeting attended by other managing directors from five (5) other construction companies, such a meeting is believed to be a networking meeting rather than a meeting to divide the construction zones.

 

- Even before the bidding for the Gyeonggin Canal project was announced, it was widely known through the media that Hyundai E&C and GS E&C got to take zones 1 and 3, respectively, as they asserted their preemptive rights thereto due to their involvement in the Gulpocheon Flood Canal construction project and that Samsung Engineering was able to occupy zone 2 because zone 2 included construction work for the Incheon Port Floodgate.

 

- Under such circumstances, it is only natural that the managing directors from the six (6) construction companies talked about which zones they hoped to occupy. One cannot simply conclude there was a bid rigging just because a meeting took place where the managing directors simply discussed the construction zones.

 

- All attendees of the above meeting gave consistent testimonies that the meeting was for networking, rather than a meeting to divide the construction zones.

 

- In the Gyeongin Canal project, a rule was in place under which a party can only bid for only one construction zone. Therefore, it was natural for SK E&C to avoid bidding for zones 1 through 3, which were already preoccupied by other competitors, and therefore taking part in the bid for zone 6 cannot be deemed to be an act of bid-rigging.

 

- SK E&C made its decision to take part in the bid for zone 6 only after confirming the requirements that were announced in the public bid notice. Therefore, SK E&C was not in a situation where it could discuss with other bid participants of the construction zones or decide with other companies on which zones to bid for.

 

- One of the most decisive evidences demonstrating that an agreement for the division of the construction zones did not exist was that no promise was made by the successful bidder to provide compensation for the companies who failed to win the bid.

 

 

4. Implications

 

● This case is similar to the Daegu Metropolitan Transit bid-rigging case, the judgment of which was delivered recently, as it involves a large-scale construction project where the construction site was divided into several construction zones, and each of such zones were to be taken by a construction company through a bid. An allegation was made that the construction companies made an agreement regarding the division of the zones.

 

● In the Daegu Metropolitan Transit bid-rigging case, the construction companies could not reach an agreement regarding some of the construction zones and thereby multiple construction companies competed to occupy one of the zones. In delivering its ruling, the Seoul High Court took the Daegu Metropolitan Transit bid-rigging case as one of the major bases in judging that there was no bid-rigging in the Gyeongin Canal project (Seoul High Court, Judgment No. 2014Nu48919 delivered on June 2, 2016).

 

● Due to the rulings delivered in this case and the Daegu Metropolitan Transit case, if any arguments are to be made in the future regarding bid riggings in similar cases, most of them are expected to be dismissed as long as no agreement is made among companies to have the successful bidder compensate the losing bidders.

 

- The Seoul High Court ruled that the intense competition to occupy a certain construction zone does not comply with the purpose of having an agreement among companies to divide the construction zones in order to obtain economic benefits from occupying the construction zone more easily.

 

● Furthermore, the court found that it was natural for companies to seek information on which of the construction zones other companies were interested as means to reduce losses that may arise in future biddings, and added that even if the six (6) construction companies, including SK E&C had a meeting to exchange information around the time of the bidding, such exchange of information cannot be deemed as an agreement unreasonably limiting competition. The court reconfirmed the existing legal principles that a decision on whether such an agreement exists should be made after considering all relevant circumstances, including the structure and characteristics of the market, the nature and content of the information exchanged, the parties and time of the information exchange, the exchange method, the purpose and intent of the information exchange, the changes in price/production after the information exchange, the decision-making process, the details thereof, and the effect of the information exchange had on the market (Supreme Court of Korea, Judgment No. 2014Du3853 delivered on July 24, 2014).

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