Claim for Return of Unjust Enrichment | Supreme Court Judgment Holding That a Contract Violating the Disposal Restriction Under the Industrial Cluster Act Cannot Be Deemed Void

The starting point of this claim for return of unjust enrichment was a sales contract concerning an industrial site within an industrial complex.

The defendant transferred the industrial site to a third party in violation of the disposal restriction set forth in Article 40-2(1) of the Act on the Promotion of Industrial Cluster Development and Factory Establishment (hereinafter the "Industrial Cluster Act"), and the plaintiff, on this basis, asserted that the sales contract was void and sought the return of unjust enrichment.

Industrial Cluster Act, Article 40-2 (Disposal of Industrial Sites and the Like for Which No Occupancy Contract Has Been Concluded)

The lower court regarded the disposal restriction as a mandatory provision, held this sales contract to be void, and rendered a judgment recognizing the return of unjust enrichment.

In response, the defendant contended on final appeal that the provision was merely a regulatory provision and that the private-law validity of the contract therefore remained intact.

The Supreme Court stated that it could not accept the lower court's determination and reaffirmed the following legal principle.

The Court further noted that Article 40-2(1) of the Industrial Cluster Act merely provides for administrative and criminal sanctions and does not expressly deny the private-law validity of the contract.

The Supreme Court determined the provision to be a regulatory provision for the following reasons.

• The purpose of the Industrial Cluster Act can also be achieved through administrative management and criminal punishment.
• The statute is not structured so as to prohibit transactions of industrial sites between private parties altogether.
• Treating such contracts uniformly as void could seriously undermine legal stability.
• It is difficult to conclude that a violation of the disposal restriction in itself carries a marked anti-social or immoral character.

Accordingly, the Court held that the mere fact of a violation of the disposal restriction does not render the sales contract automatically void, and that the lower judgment, which proceeded on the contrary premise, contained an error in its understanding of the applicable legal principles.

In the end, the Supreme Court reversed the part of the lower judgment against the defendant and remanded the case.

This judgment in the claim for return of unjust enrichment carries the following significance.

• A violation of an administrative statute does not directly result in the invalidity of a contract.
• The distinction between a mandatory provision and a regulatory provision must be determined according to the specific circumstances.
• Whether a contract is void has a direct bearing on whether unjust enrichment arises.
• The protection of legal stability is important in transactions of industrial sites.

In particular, the Court made clear that in transactions of land and factories within an industrial complex, the return of unjust enrichment is not recognized on the basis of a statutory violation alone.