SEOUL, Nov. 17 (Yonhap) -- A Seoul court on Thursday ruled in favor of the government in a case that underscored the economic hardship risked by South Korean companies that have business ties with North Korea.

NFN, a small local company that had produced clothing made by North Korean workers in Pyongyang since 2007, filed a suit demanding compensation of about 2.1 billion won (US$1.8 million) from the government for the economic damage the company suffered following the South's sanctions on the North.

South Korea slapped sanctions on the North last year following the sinking of a South Korean warship that was blamed on the North.

The attack killed 46 South Korean sailors.

The punitive measures suspended all trade and exchange programs with the North, except for those at South Korea's joint industrial complex in the North's border city of Kaesong.

Kim Chan-ung, who once headed the small garment company with annual sales of 6 billion won, said the sanctions cost his company as it was not allowed to bring in clothing from North Korea.

He said all of about 25 of his employees in Seoul left the company and he now works as a day laborer on construction sites.

However, the Seoul Central District Court ruled that the government did not cause the economic loss to Kim's company through an illegal execution of official duty.

Kim said after the ruling that he will appeal to the high court.

The Unification Ministry, which handles inter-Korean affairs, said it respected the judgment of the court and said it will take appropriate steps.