How to File Deposit Withdrawal Lawsuit in South Korea? Winning Case

1. What Is a Lawsuit for Confirmation of Right to Withdraw Deposit Money?

Key Answer

A lawsuit for confirmation of right to withdraw deposit money is a legal action to obtain court confirmation of who has the right to claim deposited funds when multiple provisional seizures or seizures compete against a claim and the debtor deposits funds pursuant to the Korean Civil Execution Act. Through this lawsuit, each creditor can establish the amount attributable to them from the deposited funds.

Legal Basis for Execution Deposit

Article 291 of the Korean Civil Execution Act applies Article 248 to provisional seizures on claims. Article 248(1) provides that “a third-party debtor may deposit the full amount of the seized claim.” Therefore, when multiple provisional seizures compete, the third-party debtor (in this case, the local government as project owner) can be discharged from payment obligations by depositing the full amount of the claim.

Requirement of Interest in Confirmation

For a lawsuit for confirmation of right to withdraw deposit money to be proper, there must be an interest in confirmation. According to the Supreme Court of Korea Judgment 2009Da93299 (February 25, 2010), an interest in confirmation is recognized when there is a dispute between parties regarding the subject legal relationship, when the plaintiff’s legal status is uncertain or at risk due to that dispute, and when a declaratory judgment is the most effective and appropriate means to eliminate that uncertainty or risk. In this case, since the other defendants were disputing the plaintiff’s right to withdraw the portion of the deposit claimed, an interest in confirmation was recognized.

2. Is an Assignment of Claim Valid Despite a Non-Assignment Clause?

Key Answer

Even if there is a non-assignment clause, the assignment of claim is valid if the assignee did not know or had no gross negligence in not knowing about the clause. The debtor bears the burden of proving the assignee’s bad faith or gross negligence.

Position of the Supreme Court of Korea

According to the Supreme Court of Korea Judgment 2000Da5336, 5343 (January 24, 2003), a debtor may assert a non-assignment clause against an assignee who knew of its existence or had gross negligence in not knowing. “Gross negligence” here means that even without exercising the degree of due care ordinarily required, the existence of the clause could easily have been discovered with minimal attention, yet such minimal attention was not given to discover it.

Application in This Case

In this case, it was alleged that there was a non-assignment clause regarding the construction payment claim between the prime contractor and subcontractors. However, there was no argument or proof that the claim assignees knew of such non-assignment clause or failed to know due to gross negligence. Therefore, the court determined that the claim assignment agreements could not be deemed invalid.

3. What Is the Effect of a Direct Payment Agreement Under the Subcontracting Act?

Key Answer

Under Article 14 of the Fair Transactions in Subcontracting Act of Korea, when the project owner, prime contractor, and subcontractor agree on direct payment of subcontract fees, the prime contractor’s obligation to pay the subcontractor is extinguished to the extent of the agreed amount.

Legal Effect of Direct Payment Agreement

According to Article 14(1)(2) and (2) of the Fair Transactions in Subcontracting Act in effect at the time of this case, when the project owner, prime contractor, and subcontractor agree to pay subcontract fees directly to the subcontractor, the project owner must pay the subcontractor directly regardless of whether the subcontractor requests it. When such grounds arise, the project owner’s payment obligation to the prime contractor and the prime contractor’s subcontract fee payment obligation to the subcontractor are deemed extinguished within that scope.

Application in This Case

In this case, around October 2019, Company A (prime contractor), Company C (subcontractor), and Company E Steel (sub-subcontractor) reached a direct payment agreement for sub-subcontract payment of approximately KRW 36 million. According to Supreme Court of Korea Judgment 2007Da50717 (November 29, 2007), once a direct payment agreement is established, the project owner’s payment obligation to the prime contractor and the prime contractor’s subcontract fee payment obligation to the subcontractor are extinguished to the extent of the agreed amount, even before the subcontractor requests direct payment. Therefore, in this case, the portion of approximately KRW 36 million under the direct payment agreement was extinguished around October 2019, which was before the claim assignment notice arrived. Thus, the prime contractor could assert this debt extinguishment effect against the claim assignee.

4. What Is the Procedure for a Deposit Withdrawal Right Confirmation Lawsuit?

Key Answer

A lawsuit for confirmation of right to withdraw deposit money is filed against all creditors disputing rights to the deposit to confirm the scope of one’s withdrawal right. The court comprehensively examines the existence and scope of each secured claim, the validity of claim assignments, and grounds for debt extinguishment.

Standing to Sue

In a lawsuit for confirmation of right to withdraw deposit money, the plaintiff is the party claiming the right to withdraw the deposit, and the defendants are other creditors claiming rights to that deposit. In this case, the plaintiff was the bankruptcy trustee, and the defendants were six creditors who had provisionally seized the deposit (Company B Engineering, Mr. Kim, Company F Aggregates, Company E Steel, Company C Construction, and Company D Construction).

Determination of Proper Lawsuit

In this case, the court dismissed the claims against some defendants (Company C Construction and Company D Construction). The reason was that these defendants were not disputing the plaintiff’s right to withdraw the deposit. In a declaratory action, an interest in confirmation is recognized when there is a dispute between parties regarding the subject legal relationship and the plaintiff’s legal status is uncertain or at risk. Requests for confirmation against parties with whom there is no dispute are improper due to lack of interest in confirmation.

Calculation of Claim Amount

To determine the scope of the right to withdraw deposit money, one must accurately calculate the scope of claims transferred under each claim assignment agreement, the scope of debts extinguished by direct payment agreements, and other grounds for payment or deduction. From practical experience handling numerous similar cases, in complex construction disputes, it is crucial to organize the flow of construction payments in diagrams and clearly identify the timing of each claim assignment and direct payment agreement.

5. What Are the Key Strategies for Winning This Type of Case?

Key Answer

To win a lawsuit for confirmation of right to withdraw deposit money, one must prove the validity of the claim assignment agreement, identify the exact scope of the assigned claim, and accurately calculate the claim amount after deducting portions extinguished by direct payment agreements or other reasons.

Interpretation of Claim Assignment Agreement

In this case, the claims subject to the assignment agreement were “claims for a certain amount of the HVAC, sanitary, and fire protection equipment material supply payments to be generated currently or in the future.” The court interpreted “HVAC, sanitary, and fire protection equipment material supply payments” as meaning the portion with the character of payment for materials that the subcontractor procured and supplied to the construction site. Therefore, the amount that the prime contractor paid by subrogating the subcontractor’s wage obligations (which has the character of labor costs) was determined not to be included in the assigned claims.

Identifying the Timing of Debt Extinguishment

The conclusion differs depending on whether the debt extinguishment effect from the direct payment agreement occurred before or after the arrival of the claim assignment notice. In this case, the direct payment agreement was made around October 2019, and the claim assignment notice arrived on November 2, 2019. Therefore, the debt extinguishment effect from the direct payment agreement had already occurred before the arrival of the claim assignment notice, so the prime contractor could assert this against the claim assignee.

Final Claim Amount Calculation

In this case, our legal team calculated the claim amount as follows. First, from the total amount of the first subcontract payment, we deducted the amounts already paid, the amounts extinguished through the direct payment agreement, and the labor cost portions excluded from the scope of the claim assignment. As a result, we determined the remaining balance as approximately KRW 25 million for Company B Engineering, approximately KRW 72 million for Mr. Kim and Company F Aggregates, and approximately KRW 34 million for Company E Steel. After deducting these from the total deposit amount, we obtained confirmation of the plaintiff’s right to withdraw approximately KRW 55 million of the deposit.

6. FAQ

Atlas Legal, based in Songdo, Incheon, provides legal services in construction disputes, debt recovery, and deposit-related litigation. Drawing on our extensive experience handling numerous construction payment disputes, we systematically analyze even complex multi-party credit relationships to effectively protect our clients’ rights.

※ The case introduced in this article is based on an actual winning case. Some facts have been modified for clarity, and the client’s personal information has been protected.