Legal issues of development projects with termination payment clauses: Focusing on the Masan Robot Land Development Project

The Masan Robot Land Development Project (hereinafter, “the Project”), promoted as a flagship initiative of Gyeongsangnam-do Province and Changwon City, resulted in the imposition of joint liability on Gyeongsangnam-do, Changwon City, and the Gyeongnam Robot Foundation for KRW 166.2 billion in termination compensation, following the government’s loss in litigation over a termination payment claim arising from public sector fault. In this case, the termination payment originated from the project agreement’s inclusion of a modified version of a termination payment clause typically employed under the Act on Public-Private Partnerships in Infrastructure (hereinafter, “PPP Act”), despite the fact that the Project did not fall within its scope. This paper analyzes the legal issues that arise when a project not based on the PPP Act adopts, in a so-called “analogous application,” certain contractual structures and conditions developed under the PPP Act. The review reveals the following: The Intelligent Robots Act is insufficient as a legal basis for development projects involving private sector participation. Despite the project implementation agreement, in this case, not being directly grounded in statute, it may be recognized as having a public law character insofar as it was concluded as part of an administrative act performed by the local government in its capacity as the project operator. Applying only part of the termination payment provisions risks overlooking their necessity and appropriateness; therefore, such provisions should ideally be included on the basis of statutory authority. Furthermore, from the public law nature of the implementation agreement; the long-term, continuous nature of a 30-year contract; the function of termination payments; and the procedural rules for termination payment agreements under the Act on Private Participation in Infrastructure, a duty of cooperation between the contracting parties can be derived. Such a duty of cooperation must be sufficiently reflected in the contract. Moreover, institutional mechanisms are required within the administrative process to adequately review the necessity and appropriateness of termination payment provisions. In addition, when interpreting an agreement once concluded, actively considering the characteristics of long-term and continuous contracts—which are entered into for public purposes and conducted under a close cooperative relationship—is essential.