Supreme Court Rules No Obligation to Pay Delay Damages for Suspended Construction Start

The Supreme Court has ruled that even if a contractor suffers losses due to a project being delayed for years due to the client's fault, there is no obligation to pay compensation for construction suspension as stipulated in the contract.

The First Division of the Supreme Court (Justice Seo Gyeong-hwan presiding) ruled in favor of the defendant, Korea Land and Housing Corporation (LH), in a lawsuit filed by Company A and other plaintiffs seeking payment for construction costs, upholding the lower court's decision.

The plaintiffs signed a contract with LH in December 2009 for the expansion and paving of a national highway and the construction of an underpass in Hwaseong, Gyeonggi Province. However, as the project was delayed due to issues such as LH's failure to secure the project site, the plaintiffs filed a lawsuit claiming compensation for the delay.

The plaintiffs argued that because they suspended construction in July 2010 at the direction of LH and did not resume until August 2015, they were entitled to compensation for the 1,875-day period based on the contract's provision regarding delay damages for construction suspension.

The contract stated that LH could order a suspension of construction and that if the suspension was due to reasons attributable to LH and exceeded 60 days, a certain amount of compensation would be paid.

The core issue of the lawsuit was the interpretation of the term construction suspension.

The first trial court ruled that even if the project had not yet reached the stage of actual construction, the provision for delay damages could be applied if the work had been halted.

The court reasoned that since both a delay in starting construction and a suspension after construction has begun result in the same damage—the contractor receiving payment late—it would be unfair to apply the provision to only one of those scenarios.

In contrast, the second trial court held that the literal meaning of the contract must be interpreted more strictly.

The court stated that for delay damages to be claimed, the construction that LH ordered to be suspended must have already been in progress.

The appellate court noted, "It is reasonable to view the delay damages provision as one that imposes significant liability on one of the contracting parties, and therefore, a strict interpretation is required in defining its scope of application."

The court also based its decision on the fact that the provision appears to be intended to provide a basis for taking emergency measures once construction has progressed to a certain extent, and that a delay in starting construction and a suspension after starting are clearly distinguishable concepts.

The Supreme Court dismissed the appeal, stating that the appellate court did not err in its legal interpretation.

The ruling implies that the provision clearly presupposes that construction has already commenced and is underway.

(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.