[Column] Court Dismisses HD Hyundai Heavy Industries’ Injunction Over ‘Security Penalty’ in KDDX Bidding War

Effectively Disqualified from KDDX Contract Competition

HD Hyundai Heavy Industries’ request for a court injunction to prevent the extension of the penalty period related to security incidents against the company has been dismissed in connection with the bidding for the detailed design and construction of the first ship for the Korean Destroyer Next Generation (KDDX) project. As the application of this security penalty is expected to be a key variable in the competition between HD Hyundai Heavy Industries and Hanwha Ocean for the KDDX contract, there is growing speculation that HD Hyundai Heavy Industries may have effectively lost its chance to win the bid.

According to legal sources on June 6, the Seoul Central District Court’s Civil Agreement Division 50 (Presiding Judge Lee Sanghoon) dismissed the injunction request filed by HD Hyundai Heavy Industries against the state the previous day to prevent the application of the penalty.

Previously, several employees of HD Hyundai Heavy Industries were found to have illegally obtained 12 classified Navy documents, including KDDX conceptual designs from Daewoo Shipbuilding & Marine Engineering, and shared them through the company’s internal network. In November 2022, eight individuals received a final guilty verdict. As a result, a security penalty was scheduled to be applied for three years, until November 2025.

However, after the prosecution appealed a partial acquittal for one individual at the first trial, a guilty verdict was finalized at the appellate court in December 2023. Consequently, the Defense Acquisition Program Administration (DAPA) announced that the security penalty would be applied for three years from December 2023, extending the penalty period until December of this year.

HD Hyundai Heavy Industries argued through this injunction that DAPA unfairly extended the security penalty without legal grounds in a recent bid for the basic design of a maritime information ship. According to the contract conclusion standards for defense capability improvement projects by negotiation, if an incident results in a confirmed guilty verdict within three years from the bid registration deadline, the penalty for criminal conviction is applied.

HD Hyundai Heavy Industries insisted that for incidents prosecuted at the same time, the three-year penalty period should be counted from the date of the first finalized verdict, regardless of when individual verdicts were finalized.

During the hearing held on June 1, HD Hyundai Heavy Industries stated, “According to the regulations, for cases prosecuted on the same date, both the prosecution penalty and the conviction penalty are to be applied for three years from the indictment date,” and further argued, “If we look at the criminal verdicts, these should be considered as the same case.”

They added, “The revised regulation stipulates a uniform three-year penalty period, but if an additional three-year extension is imposed only on HD Hyundai Heavy Industries, it would be unfair and contradict the principle of equality set forth in the Constitution.”

Meanwhile, the application of the security penalty has affected the selection of the contractor for the detailed design and construction of the lead ship for the Korean Destroyer Next Generation (KDDX) project. There was significant conflict over the selection method, with HD Hyundai Heavy Industries insisting on a negotiated contract based on industry practice after undertaking the basic design, while Hanwha Ocean argued for open competitive bidding. Ultimately, DAPA decided to proceed with a competitive bidding process.

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