Vietnamese court fines Lotte, Posco E&C $8.2 million for 'defective' highway

A Vietnamese court ordered Lotte Engineering & Construction and Posco E&C to pay $8.2 million for alleged defects in a highway project.

A construction site of an apartment complex in downtown Seoul [NEWS1]

A Vietnamese court ruled Korean builders Lotte Engineering & Construction (E&C) and Posco E&C to pay 10.9 billion won ($8.2 million) to the state-owned Vietnam Expressway Corporation (VEC) for alleged defects in a highway construction project.

The matter is part of a complex web of disputes that the two companies, still awaiting unpaid dues for the project that was completed in 2018, have been tangled in for years.

The Hanoi People’s Court ruled in favor of the state-owned corporation, upholding a previous verdict from October 2023 that had required Lotte to pay 7 billion won and Posco 3.9 billion won, proportionate to their respective sizes.

The initial size of the deal for each builder was $62 million for Lotte and $48.69 million for Posco back in 2013.

The case involves five builders from Korea, China and Vietnam who participated in constructing the Da Nang-Quang Ngai Expressway. Led by VEC, the five-year project was completed and opened for operation in September 2018.

However, the highway reported degradations such as cracks and potholes, leading to the Vietnamese government set up another project for repair on the anniversary of its opening.

In turn, the VEC filed lawsuit against the five bidders for the poor quality of the construction while several VEC officials were found guilty of construction violations and negligence as a result of the government-led probe.

In the first trial, both companies denied they had breached their contracts. Lotte stated that its work was passed by the state-led inspection and that it had not received any complaints during the two-year warranty period. Posco also claimed that an independent supervisor had confirmed their quality standards.

Amid the dispute, the two Korean companies have yet to receive full payment for their work, with Lotte’s unpaid balance estimated to be 8.6 billion won and Posco's 9.9 billion won without interest.

In 2021, the two companies separately filed for arbitration with the Singapore-based International Chamber of Commerce (ICC) against the VEC. Both rulings came out in favor of the plaintiffs.

Despite the rulings, VEC continued to delay payments. Lotte and Posco proceeded to receive consular verification of the arbitration award from the Vietnamese Embassy in Singapore, which was granted this April after facing delays.

Without the verification, the ICC’s ruling is ineffective in Vietnam.

Discussions are underway between the two companies, and the VEC may settle the matter by offsetting each party’s claims.

“It is a possibility that we are considering,” a Lotte E&C spokesperson told the Korea JoongAng Daily on Friday.

Major construction companies in Korea are under financial strain due to an increase in unbilled construction costs, with projects remaining unpaid amid rising construction expenses and sluggish sales. The unpaid balance from the top 10 builders in the first half of this year rose 6.96 percent on year to reach 17.5 trillion won, according to data from the Financial Supervisory Service.

Amid the top 10 builders, Posco E&C ranked seventh in terms of unpaid balance at 1.6 trillion won, while Lotte E&C ranked eighth with 1.77 trillion won.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]