One Law Partners, LLC successfully represented a trustee in litigation seeking confirmation of the invalidity of a notice terminating a National Property Management Entrustment Agreement.
In this case, the court carefully examined both the legal nature of the entrustment agreement and the legitimacy of the asserted grounds for termination, ultimately concluding that the administrative authority's immediate termination notice was invalid.
1. Case Overview
The client had entered into an entrustment agreement with an administrative authority to operate a welfare facility owned as national property.
During a regular audit, certain operational issues were identified. Based on those audit findings, the administrative authority notified the client that the management entrustment agreement was being immediately terminated on the ground that the conduct fell within the contractual provisions permitting immediate termination.
The client maintained that the audit findings did not constitute sufficiently serious misconduct to justify immediate termination and therefore filed an action seeking confirmation that the termination notice was invalid.
2. Key Issues
The principal issues in dispute were:
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The legal nature of a National Property Management Entrustment Agreement
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Whether the termination notice constituted an administrative disposition or the termination of a public-law contract
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Whether the audit findings constituted valid grounds for immediate termination under the agreement
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Whether intentional misconduct or serious accounting irregularities existed
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Whether the principles of proportionality and protection of legitimate expectations under the Framework Act on Administrative Affairs applied
3. Legal Strategy
Recognizing that three prior applications for suspension of effectiveness had already been denied before the merits judgment, Attorneys Jung-Woo Kang and Cham-Seul Kim of One Law Partners, LLC developed a comprehensive legal strategy focused on the following arguments.
· Reframing the Relationship as a Public-Law Contract
The attorneys emphasized that the management of national property pursuant to an entrustment agreement is based on a contractual relationship rather than a unilateral administrative act.
Accordingly, they reframed the dispute as an action between parties concerning a public-law contract rather than a traditional challenge to an administrative disposition, allowing the court to examine the legality and reasonableness of the termination in substance.
· Application of the Principle of Proportionality
The attorneys argued that, because the management entrustment agreement constituted a public-law contract with significant public-interest characteristics, any termination of the agreement must comply with the principles of proportionality and protection of legitimate expectations under the Framework Act on Administrative Affairs.
They stressed that the mere existence of audit findings could not justify the immediate termination of a contractual relationship and that termination required sufficiently serious wrongdoing.
· Strict Interpretation of Immediate Termination Clauses
The defense argued that the contractual provisions allowing immediate termination contemplated only serious events such as insolvency, bankruptcy, criminal convictions, or intentional misconduct warranting immediate dissolution of the contractual relationship.
Accordingly, contractual references to “intentional misconduct” or “serious accounting defects” should be interpreted narrowly, and ordinary audit findings could not justify immediate termination.
· Demonstrating the Absence of Intentional Misconduct
The attorneys established that the structure of the operating expense system provided no incentive for overbilling because higher claimed operating expenses would actually reduce the client's share of revenue.
They further demonstrated that the disputed accounting items were distinguishable from discounts and allowances under applicable supply arrangements and that amounts several times larger than the disputed sums had been returned to employees through welfare expenditures during the same period.
In addition, they established that the occupancy of cooperating businesses fell within the scope of the entrusted property and argued that the termination was motivated not by concerns regarding proper management of the property but rather by an attempt to remove the client from the project.
4. Significance of the Decision
The court accepted the arguments presented by Attorneys Jeong-woo Kang and Chamsle Kim and entered judgment entirely in favor of the client.
The court rejected all grounds for termination asserted by the administrative authority and concluded that the termination notice could not be justified.
In particular, the court held that a National Property Management Entrustment Agreement constitutes a public-law contract and that its termination must be assessed strictly in accordance with the principles of proportionality and protection of legitimate expectations under administrative law.
The court further confirmed that the mere existence of deficiencies identified during an audit does not automatically justify termination of a management entrustment agreement and that contractual provisions permitting immediate termination must be interpreted narrowly.
As a result, the decision serves as an important precedent protecting the rights of trustees in disputes involving the termination of national property management entrustment agreements and other public-law contractual relationships with administrative authorities.
Attorney Jung-woo Kang | jwkang@onelawpartners.com
Attorney Cham-Seul Kim | cskim@onelawpartners.com
Public Relations Team, One Law Partners, LLC | pr@onelawpartners.com
