Court sides with DAPA on penalty extension; hearing held June 1

The Seoul Courts Complex, which houses the Seoul Central District Court and the Seoul High Court. [Yonhap]
The Seoul Courts Complex, which houses the Seoul Central District Court and the Seoul High Court. [Yonhap]

By Choi Eui-jong, The Herald Business

A Seoul court has rejected HD Hyundai Heavy Industries' request for an injunction to block the application of a security-related scoring penalty, amid intensifying competition over South Korea's next-generation destroyer program.

The Seoul Central District Court's Civil Division 50, presided over by Judge Lee Sang-hoon, dismissed HD Hyundai Heavy's injunction request Thursday. The shipbuilder had filed the motion on May 27 against the Defense Acquisition Program Administration, seeking to halt the penalty's application. The court held a single hearing on June 1 before issuing its ruling.

The case stems from a 2013 incident in which nine HD Hyundai Heavy employees were indicted on charges of illegally obtaining military secrets through unauthorized filming at a Navy headquarters facility. Eight of the nine were convicted in a first-instance ruling in November 2022. The remaining employee's conviction was upheld on appeal in December 2023.

DAPA subsequently imposed a security scoring deduction on HD Hyundai Heavy, with a three-year application period. Under rules DAPA announced before December 2021, the deduction period runs for three years from the date a sentence is first finalized to the bid registration deadline. Calculated from the November 2022 conviction, the penalty period would have expired last November.

In September last year, however, shortly before that expiration, DAPA abruptly changed its interpretation. The agency said it had initially planned to treat the security incident as a single case and apply the deduction through November, but a legal review concluded the cases should be treated separately — extending the penalty period through December 2026.

Because the appeal-stage conviction was finalized in December 2023, DAPA reasoned the deduction should run through December 2026 as well. Under the revised interpretation, a 1.8-point deduction applied for three years from November 2022, while a 1.2-point deduction applies through December 2026.

The extended penalty directly affects the contractor selection process for the Korea next-generation destroyer, or KDDX, detailed design and lead-ship construction project. The competition has already been contentious: HD Hyundai Heavy argued it should receive a negotiated contract as the firm that conducted the basic design, in line with established practice, while Hanwha Ocean pushed for a competitive tender. DAPA ultimately decided to proceed with competitive bidding.

HD Hyundai Heavy registered for the bid on May 27 and simultaneously filed the injunction request with the Seoul Central District Court, arguing that results from a separate naval information ship proposal evaluation confirmed the security deduction had been "unlawfully extended without legal basis."

At the June 1 hearing, HD Hyundai Heavy's legal team told the court it could not understand the rationale for changing the interpretation of the penalty rules and urged the court to grant the injunction. DAPA countered that treating the conviction of the eight employees and the later conviction of the ninth as separate cases was appropriate for the purpose of applying the deduction, and asked the court to dismiss the motion.

Meanwhile, HD Hyundai Heavy filed a separate injunction request in March asking the court to block DAPA from disclosing certain portions of the request for proposals in the KDDX contractor selection process, claiming they contained trade secrets. The Seoul Central District Court's Civil Division 60, presided over by Judge Kim Mi-kyung, rejected that motion on May 8. HD Hyundai Heavy has since filed an appeal against that dismissal.


bell@heraldcorp.com