Background
Our client, an investment and financial services company, agreed to pursue a redevelopment project jointly and paid the counterparty KRW 385 million as service fees. It then emerged that the core structure of the contract — establishing a special purpose company (SPC) that would lead and implement the redevelopment project — was impossible in the first place under the Urban Improvement Act. Changchun represented the investing client (the plaintiff).
The Issue — Was the Contract Impossible to Perform From the Outset?
Where performance was legally impossible from the time of contracting, the contract is void for initial impossibility, and money paid can be recovered as unjust enrichment. The heart of this case was whether an SPC can be a (joint) implementer of a redevelopment project under the Urban Improvement Act.
How Changchun Helped
Changchun (attorneys Jaesun Yoon, Younghoon Jung and Joonsup Lee) established from the statutory text (Urban Improvement Act arts. 25 and 27; Enforcement Decree arts. 19 and 21) that an SPC does not fall within the categories eligible to serve as a joint implementer or designated developer of a redevelopment project (mayors and county governors, the Korea Land and Housing Corporation, construction businesses, trust businesses and the like), showing that the project structure contemplated by the contract was legally impossible.
Outcome
The court held the contract void for initial impossibility and ordered the counterparty to return the KRW 385 million in service fees, together with default interest, as unjust enrichment (judgment for our client).
However plausible a business proposal may look, the contract can be void if its core structure is legally impossible. Identifying the relevant statutes precisely allows funds committed to a failed project to be recovered as unjust enrichment. (Outcomes may differ depending on the facts of each matter.)