Seongnam-si Signed a Special Agreement Banning Private Companies in the Daejang-dong Project from Filing Lawsuits to Recover over 300 Billion Won in Infrastructure Costs

[경향신문]

The Seongnam City Government signed a special agreement with private companies involved in the Daejang-dong development project and even received a letter of comfort from the companies indicating that they would not seek litigation, to prepare for any possible civil or criminal lawsuit by companies seeking to evade infrastructure costs of 379.7 billion won, which they promised to pay in exchange for the city’s authorization and permission.

According to the coverage by the Kyunghyang Shinmun on October 24, Seongnamui-ddeul (Seongnam Park Co.), the special purpose corporation (SPC) that led the Daejang-dong development project, sent a comfort letter indicating that the firm would not seek litigation to the Seongnam City Government in December 2019. Seongnam Park stated in the letter, “We pledge not to file any civil or criminal lawsuits demanding a refund of project costs or seeking compensation or cancellation/nullification of designation due to the infrastructure costs incurred by donating urban development facilities to the city of Seongnam.”

The infrastructure cost mentioned in the comfort letter was 379.7 billion won. This included 256.1 billion won for creating a park in Industrial Complex 1 finalized in 2016 and 123.6 billion won necessary for expanding roads and constructing a water-supply reservoir, which the company pledged to further donate in 2017, when Lee Jae-myung served as the mayor of Seongnam. Reportedly, the 123.6 billion won was added for the purpose of recovering excessive profits earned by the private companies after the real estate prices in Daejang-dong jumped.

In 2017, when Lee Jae-myung was the city’s mayor, the Seongnam City Government signed this special agreement prohibiting litigation. Two years later, in December 2019, the city of Seongnam, now under the leadership of Mayor Eun Soo-mi, requested letters of comfort asking the companies to adhere to the special agreement, probably to avoid a precedent from February that same year, in which the city lost a lawsuit filed by private companies that had taken part in the Industrial Complex 1 project.

After Lee Jae-myung was elected mayor in the 2010 local elections, he scrapped the urban development project, which his predecessor had promised to build in the Industrial Complex 1 site and decided to build a park. Private companies filed a lawsuit seeking compensation and in February 2019, the Suwon District Court ordered the city to pay compensations of 32.5 billion won. The city could lose in a court battle if a similar suit was filed concerning the infrastructure costs, which the city demanded from Seongnam Park Co., so the city appears to have signed a special agreement against litigation as a safeguard.

Reportedly, some companies complained about the city’s demand for additional costs. For instance, the construction of an underground parking lot, for which the city demanded 20 billion won in 2017, was an item that never appeared in the business plan and the bidding guidelines distributed by the city. This has been the grounds on which the city of Seongnam emphasized that the Daejang-dong project was intended to “recover public interest.”

Despite these circumstances, Seongnam Park Co. accepted the special agreement because it deemed that the profit from future development would be larger than the costs it would have to shoulder. Some experts argue that designing a project for private companies to reap immense development profits and then collecting additional costs and signing a special contract banning litigation is like calling the doctor after the patient has died. They argue that the city ultimately acknowledged that, from the start, the project was designed to give private companies excessive profits.