International Arbitration 2019 Comparisons

Last Updated August 19, 2019

Contributed By Yulchon LLC

Law and Practice

Authors



Yulchon LLC is a full-service international law firm headquartered in Seoul with a broad client base comprising major domestic and foreign companies. It employs nearly 500 professionals, including more than 60 licensed in jurisdictions outside Korea, and has offices in Shanghai, Hanoi, Ho Chi Minh City, Moscow, Jakarta and Yangon. An acknowledged market leader in the development and practice of law, it has three times been named as “The Most Innovative Law Firm in Korea” by the Financial Times. It is frequently retained to negotiate complex transactions, help draft new legislation and regulations, and represent clients in high-stakes adversarial proceedings. As one of Korea’s premier law firms, Yulchon maintains its high standards of excellence by valuing a culture of collaborative problem-solving.

The Republic of Korea (Korea) ratified the New York Convention in 1973. Yet, before the late 1990s, there was very little arbitration activity in Korea due to its non-litigious culture and relatively insulated economy.

The Asian financial crisis in 1998 was a watershed moment for international arbitration in Korea. As foreign investors flooded the market and bought Korean companies in fire sales, arbitration clauses were introduced in M&A transactions. With the increase in these types of transactions, international arbitration became a well-known mechanism for dispute resolution for Korean practitioners and members of the business community.

With the sudden and rapid growth of arbitration activity, institutional support and the legal infrastructure for international arbitration also began to grow in parallel. The Arbitration Act of Korea (the Korean Arbitration Act, or the Act), which was first enacted in 1966, was completely revised in 1999 to adopt the 1985 United Nations Commission on International Trade Law Model Law (the UNCITRAL Model Law). In 2016, further amendments to the Korean Arbitration Act were made, incorporating the 2006 amendments to UNCITRAL Model Law into domestic law. In the same year, the Korean Commercial Arbitration Board (KCAB) adopted significant revisions to both its International Arbitration Rules and Domestic Arbitration Rules (collectively, the KCAB Arbitration Rules). In 2017, the Arbitration Industry Promotion Act came into effect, providing for long-term planning and government financial support for the promotion of international arbitration in Korea. In line with these legislative initiatives to foster an arbitration-friendly environment, Korean courts have also become increasingly supportive of arbitration by upholding arbitration agreements and enforcing arbitral awards.

Today, arbitration is not merely an alternative to traditional court litigation, but a primary dispute-resolution mechanism for cross-border disputes in Korea.

Since the amendments to the Korean Arbitration Act and the KCAB Arbitration Rules came into effect in 2016, Korea has seen substantial development in various legal issues related to arbitration.

In recent years, interim relief in arbitral proceedings has become an issue of great interest in Korean arbitration due to the KCAB’s adoption of the emergency arbitrator system, as well as the 2016 amendments to the Korean Arbitration Act which permit Korean courts to enforce interim measures ordered by an arbitral tribunal seated in Korea. 

In addition, with the growth in acceptance and use of third-party funding in international arbitration around the globe, many third-party funders have also begun to express their interest in entering the Korean market. While third-party funding remains an issue of increased interest in Korea, no legislation has been introduced so far in order to directly address this issue.

There have also been a number of court cases dealing with arbitration jurisprudence in 2018. Three notable cases are summarised below:

  • in an enforcement proceeding for a foreign arbitral award, the Supreme Court held that an arbitral award ordering the respondent to pay a daily monetary penalty for failure to assign the patent in dispute to the prevailing party was not against Korean law or public policy. This case has set an important precedent as the first Supreme Court decision to allow the enforcement of a foreign award ordering indirect compulsory execution in relation to the respondent’s obligation to declare its intent to effect certain changes in a legal relationship, which is not a type of relief normally enforceable under the Civil Execution Act (Supreme Court Decision No 2016Da18753 rendered on 29 November 2018);
  • in a case where the validity of an arbitration agreement was in dispute, the Supreme Court held that the validity of an arbitration agreement shall be determined by the substantive governing law of the underlying contract if the parties have designated one, or by the law of the seat of arbitration if the parties have not designated the governing law in the contract, pursuant to Article 5(1) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Supreme Court Decision No 2017Da255084 rendered on 26 July 2018); and
  • another Supreme Court case involved a foreign arbitral award ordering the respondent to pay the claimant an amount equal to 50% of the claimant’s total costs incurred upon the sale of land. This amount included half of the total corporate tax borne by the claimant, which accounted for one third of the awarded amount. However, as a result of the claimant’s subsequent lawsuit against the pertinent tax authorities, the amount of corporate tax was ultimately significantly reduced, thereby also reducing the respondent’s share of the amount. In an ensuing enforcement proceeding, the Supreme Court acknowledged the need to recalculate the amount that can be enforced against a respondent, which should properly reflect the reduction in corporate tax to be borne by the respondent, if, considering the substantive legal relationship of the parties, developments leading up to the rendering and enforcement of an arbitral award, and the impact on a party upon permission of enforcement, the enforcement would result in abuse of rights or transgression of public order (Supreme Court Decision No 2016Da49931, rendered on 13 December 2018).

In 2018/19, international arbitration activity in Korea has increased throughout various industries, including project finance, sports, construction, shipbuilding and IT. 

In particular, investment treaty arbitrations have shown particularly rapid growth in 2018/19. Some of these cases have received wide public attention, such as the cases described below:

  • on 19 March 2018, a Korean investor brought an investment treaty claim against the Vietnamese government under the Korea-Vietnam bilateral investment treaty. Notably, this is the first ICSID-administered case to be filed against Vietnam. The case is being heard under the ICSID Additional Facility Rules, as Vietnam has yet to sign the ICSID Convention;
  • on 12 July 2018, US-based hedge fund Elliott Management filed an investment treaty claim against the Korean government based on the Korea-US FTA. Elliott Management claimed that it suffered damages due to the Korean government’s improper intervention in the merger of Samsung C&T and Cheil Industries, when Elliott Management was a shareholder of Samsung C&T; 
  • in a similar dispute, on 13 September 2018, US-based Mason Capital Management filed an investment treaty claim against the Korean government under the Korea-US FTA, again alleging that the state’s actions in the merger of the two Samsung affiliates were motivated by bribery, favouritism to the Lee family, which owns Samsung, and hostility to foreign investors;
  • on 11 October 2018, Schindler, a Swiss-based elevator maker, filed an investment treaty claim against the Korean government based on the EFTA-Korea FTA, alleging that the state’s financial regulators unlawfully approved capital increases in Hyundai Elevator, in which Schindler holds a stake. As a result of the approval, Schindler claims that its original portion of 35% stake in the Hyundai affiliate has been substantially reduced, thereby causing financial damages to the investor; and
  • on 20 June 2019, Gale Investments Co, a US real estate development company that has initiated an ICC arbitration against POSCO Engineering & Construction over the Songdo International City development project in Incheon, submitted a notice of intent to submit a claim to arbitration to the Korean government based on the Korea-US FTA, claiming that the state had unlawfully expropriated a substantial portion of Gale’s investment in the project.

The KCAB is the only officially recognised arbitral institution in South Korea and is often selected by parties in arbitrations seated in Korea. It is statutorily empowered to settle any kind of commercial dispute under the Korean Arbitration Act. It also conducts and administers mediation.

The KCAB has adopted separate rules applicable to domestic and international arbitrations. Arbitrations between Korean parties are conducted pursuant to the Domestic Arbitration Rules of the KCAB, in the absence of a specific agreement to the contrary. For international arbitrations in which at least one of the parties has its principal place of business outside Korea, the International Arbitration Rules of the KCAB apply as the default rules. In April 2018, the KCAB established a separate division, KCAB International, which exclusively manages international arbitration.

Parties choosing Korea as an arbitral seat also sometimes choose to arbitrate under the rules of other leading international arbitral institutions, such as the International Chamber of Commerce (ICC), while Singapore International Arbitration Centre (SIAC), Hong Kong International Arbitration Centre (HKIAC) and the London Court of International Arbitration (LCIA) are more frequently used for arbitrations seated outside Korea. While less common, there are also ad hoc arbitrations under the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules.

The primary legislation governing international arbitrations in Korea is the Korean Arbitration Act, which is based on the UNCITRAL Model Law. The Act governs both domestic and international arbitrations that take place in Korea.

The latest major revisions to the Korean Arbitration Act came into effect on 30 November 2016, when many provisions of the 2006 amendments to the 1985 UNCITRAL Model Law were adopted. The primary changes to the Korean Arbitration Act in 2016 include, among others:

  • expansion of the scope of arbitration to non-property/non-monetary disputes, which may be resolved by the parties’ settlement;
  • relaxation of the requirements regarding the written form of arbitration agreement;
  • detailed provisions regarding interim measures ordered by an arbitral tribunal and the Korean court’s enforcement of such tribunal-ordered interim measures;
  • simplified procedures for recognition and enforcement of arbitral awards in Korean courts; and
  • provisions regarding co-operation by the Korean courts in arbitral proceedings regarding collection of evidence.

However, not all features of the amended UNCITRAL Model Law were incorporated into the 2016 revisions to the Korean Arbitration Act. For instance, the Act does not incorporate Article 34(4) of the UNCITRAL Model Law, which allows a court, at the request of a party to suspend its proceedings in a set-aside action, to allow the tribunal to resume its proceedings or take other actions to eliminate the grounds for setting aside the award. Article 17 of the Act also deviates from the UNCITRAL Model Law by providing that, where an arbitral tribunal rules on its jurisdiction or scope of authority as a preliminary matter, either party may appeal the decision to the Korean district court within 30 days.

The Korean Arbitration Act was amended in 2016. There have not been significant changes to the Act since then.

Korea’s Act on Private International Law is facing comprehensive revisions for the first time in 17 years, after it was completely amended in 2001. Among other notable changes, the revised Bill includes new provisions on the general and special jurisdiction of Korean courts and the jurisdiction clause in a contract. The Bill was submitted to the National Assembly after it was approved by the State Council in November 2018, and is now pending examination by the Legislation and Judiciary Committee.

Article 8 of the Korean Arbitration Act, in line with Article 7 of the UNCITRAL Model Law, requires that an arbitration agreement be in writing, either as an arbitration clause in a contract or as a separate agreement. An arbitration agreement shall be deemed to be 'in writing' when:

  • the terms and conditions of an arbitration agreement have been recorded, regardless of whether such agreement was made orally, by conduct, or by any other means;
  • an arbitration agreement is evidenced by electronic communication; or
  • either party asserts that an application or a written answer exchanged between the parties contains an arbitration agreement, and the other party does not deny such assertion. Relatedly, a reference in a contract to a document containing an arbitration clause such as general terms and conditions can constitute a valid arbitration agreement.

As in most other jurisdictions, matters of criminal law, family law and administrative law are not arbitrable in Korea.

To date, there is no clear Korean court precedent on whether claims related to economic regulatory laws, such as antitrust and insolvency regulations, or intellectual property rights, are arbitrable. Legal commentators, however, have noted the trend in international arbitration favouring the arbitrability of disputes in such areas, and at least one Korean court has enforced a foreign arbitral award (in 1995) based on a licensing agreement which allegedly violated Korean fair trade laws.

As part of the 2016 revisions to the Korean Arbitration Act, the scope of arbitration was extended to disputes over non-property/non-monetary rights, as well as property/monetary rights, which the parties can resolve through a settlement. Based on this revision, commentators are of the opinion that certain disputes arising out of public law may be arbitrated in Korea as long as the nature of the dispute allows the parties to settle. 

The Act on Private International Law, which provides for certain jurisdictional protections in the case of international consumer and employment disputes, is silent on whether such disputes can be referred to arbitration or not.

Korean courts generally respect the parties’ agreement to arbitrate. Pursuant to Article 9 of the Korean Arbitration Act, if one party brings an action in court against another party, when they are bound by an arbitration agreement and the other party moves to compel arbitration, the court is required to dismiss the action, unless it finds the arbitration agreement to be null and void, inoperative or incapable of being performed.

Korean courts tend to interpret arbitration agreements broadly. However, what is commonly referred to as an 'optional' arbitration clause, which merely gives parties an option to pursue arbitration in lieu of court litigation, will not be deemed as a valid agreement to arbitrate.

Article 17(1) of the Korean Arbitration Act provides that when an arbitral tribunal is ruling on its own jurisdiction, it is required to treat an arbitration clause which forms part of a contract as an agreement independent of the other clauses of the contract. Thus, the Act adopts the rule of separability by acknowledging the tribunal’s authority to rule on whether the contract in which the arbitration clause is found is invalid or non-existent, without affecting the validity of the arbitration clause.

The Korean Arbitration Act places no restrictions on who may serve as an arbitrator. Parties are free to agree on the specific qualifications of the arbitrators and the procedure for appointing them. While the KCAB maintains a roster of domestic and international arbitrators for the purpose of facilitating arbitrations, the parties are free to appoint other arbitrators who are not listed in the roster.

In a case where no nomination is made by a party, or the parties’ chosen method for selecting arbitrators fails, the Korean Arbitration Act provides for a default appointment mechanism for arbitrations seated in Korea.

Article 11 provides that where the parties fail to determine the number of arbitrators, the number shall be three. Article 12(3) provides that where the parties fail to agree on the procedure for appointing arbitrators, the arbitrators shall be appointed as follows:

  • in an arbitration with a sole arbitrator, where the parties have not agreed on the arbitrator within 30 days after one party has received a request from the other party to appoint the arbitrator, the competent court or arbitral institution designated by the competent court shall appoint the arbitrator upon either party’s request; and
  • in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two arbitrators thus appointed shall agree on the third arbitrator. If one party fails to appoint its arbitrator within 30 days of a request to do so by the other party, or if the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment, the competent court or arbitral institution designated by the competent court shall appoint the third arbitrator upon either party’s request.

Article 12(4) provides that where the parties have agreed on the procedure for appointing arbitrators but have failed to nominate the arbitrators, the competent court or an arbitral institution designated by the court shall appoint the arbitrators upon either party’s request.

A court’s decision on the appointment of an arbitrator is not subject to appeal.

As a general rule, the selection of arbitrators is a matter for the parties to decide. However, if the parties are unable to agree on the method of selection and there is no applicable set of institutional arbitration rules, then the Korean Arbitration Act applies to allow the courts to intervene. 

Under Article 7 of the Act, a court may intervene in the following matters relating to the selection of arbitrators:

  • the appointment of arbitrators and designation of an arbitral institution under Articles 12(3) and (4);
  • the court's decision on the acceptance of a request for challenging an arbitrator under Article 14(3); and
  • the court's decision on the acceptance of a request for terminating an arbitrator's authority under Article 15(2).

Article 13 of the Korean Arbitration Act provides that an arbitrator may be challenged if there are circumstances that are likely to give rise to justifiable doubts as to the arbitrator’s impartiality or independence, or if the arbitrator does not possess qualifications agreed by the parties. Under Article 14 of the Act, the parties are free to agree on a procedure for challenging an arbitrator. Failing such an agreement, the party challenging an arbitrator shall send a written statement of the grounds for challenge to the arbitral tribunal within 15 days of becoming aware of:

  • the constitution of the arbitral tribunal; or
  • the grounds for the challenge.

If the challenged arbitrator does not withdraw, or the other party does not agree to the challenge, the arbitral tribunal shall decide on the challenge. If the arbitral tribunal does not uphold the challenge, the challenging party may file an objection with the competent court within 30 days of receipt of the tribunal’s decision. The court’s decision on the challenge is not subject to appeal.

Concerning the deadline for challenging arbitrators, the Korean Supreme Court has held that even if circumstances existed during the arbitration proceeding that would likely have given rise to justifiable doubts as to an arbitrator’s impartiality or independence, such circumstances do not constitute grounds for setting aside an arbitral award if they were not timely raised as a challenge. Therefore, any challenge against an arbitrator must be raised during the period set forth in Article 14.

Article 14 of the KCAB International Arbitration Rules also sets forth similar grounds for the challenge of arbitrators.

The Korean Arbitration Act requires potential arbitrators to disclose all circumstances likely to give rise to justifiable doubts as to their impartiality or independence. The Korean Supreme Court has ruled that the disclosure requirement is a mandatory provision, meaning that it cannot be waived by the parties. The Act also includes a mandatory provision that parties must receive equal treatment during arbitral proceedings.

Similarly, the KCAB International Arbitration Rules provide that all arbitrators must be, and remain at all times, impartial and independent. In case of failure to be impartial and independent, arbitrators can be challenged, or precluded from serving on a case, for lack of independence or lack of impartiality. The KCAB has also issued a Code of Ethics for Arbitrators, which must be accepted by all arbitrators appointed to hear arbitration administered by the KCAB.

The Korean Arbitration Act does not explicitly exclude certain subject matter from being referred to arbitration. However, Article 3(1) of the Act sheds some light on the scope of arbitration by defining the term 'arbitration' as a procedure to resolve property/monetary or non-property/non-monetary disputes, which can be settled between parties. Therefore, as in most other jurisdictions, it is generally viewed that matters that are not capable of being settled by agreement between the parties, such as matters of criminal law, family law and administrative law, are non-arbitrable.

On the other hand, the arbitrability of matters relating to intellectual property, insolvency, and antitrust remains unclear under Korean law. For instance, while intellectual property licensing disputes are generally considered arbitrable, there are conflicting views on whether validity claims of registered intellectual property rights, such as patents, can be referred to arbitration.

The Korean Arbitration Act recognises the principle of competence-competence. Pursuant to Article 17 of the Act, an arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. A challenge to the jurisdiction of the arbitral tribunal must be raised by no later than the submission of the statement of defence on the merits, except that a plea that the arbitral tribunal is exceeding the scope of its authority must be raised as soon as the matter alleged to be beyond the scope of its authority is raised during arbitral proceedings. The arbitral tribunal may rule on a challenge to its jurisdiction as a preliminary question or in its award on the merits.

However, Article 17 of the Act authorises the courts to make a final determination as to a tribunal’s jurisdiction, by allowing a party to appeal a tribunal’s decision as to its own jurisdiction. Specifically, if an arbitral tribunal rules on its own jurisdiction as a preliminary matter, then regardless of whether the tribunal accepts or declines jurisdiction, a party may appeal such ruling to the competent court within 30 days after having received notice of the tribunal’s ruling. This is different from the previous wording of the Act, which only allowed a party to appeal an affirmative jurisdiction ruling. On the other hand, if the court finds that the tribunal has no jurisdiction after an award on the merits has been issued by the tribunal, such fact will constitute a basis for setting aside the award, or may limit the award’s enforceability.

The decision of the court regarding the arbitral tribunal’s jurisdiction may not be appealed.

The Korean Arbitration Act provides that a court may address issues of jurisdiction of an arbitral tribunal when a party appeals the tribunal’s decision on its own jurisdiction. The provision is rarely invoked in practice and courts are generally reluctant to intervene.

The court may also address issues of jurisdiction when a party brings an action for setting aside an arbitral award on jurisdictional grounds, or an action seeking enforcement of an arbitral award. 

A challenge to the jurisdiction of the arbitral tribunal must be raised by no later than the submission of the statement of defence on the merits. However, a plea that the arbitral tribunal is exceeding the scope of its authority must be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

The standard for a court’s review of an arbitral tribunal’s jurisdiction is de novo. Therefore, the court will not be bound by the tribunal’s decision on its own jurisdiction.

Whether a claim is arbitrable, or whether the claim is within the scope of the arbitration agreement between parties, will be reviewed de novo by the court in the case of any challenge to the arbitral award or award enforcement proceedings.

Questions about the nature of the claim and its admissibility in the arbitration (other than questions about arbitrability or scope) or questions about the admissibility of evidence are related to the merits of the case which the court will not revisit.

Pursuant to Article 9 of the Korean Arbitration Act, courts are required to dismiss any court proceeding which is brought in violation of an arbitration agreement. An exception exists where the court finds the arbitration agreement to be null and void, inoperative or incapable of being performed.

A party that plans to move for dismissal of a court proceeding on the basis of an arbitration agreement must do so by no later than its first oral submission to the court on the merits of the dispute at a hearing.

The Korean Arbitration Act does not expressly allow an arbitral tribunal to assume jurisdiction over a third party who is not a party to the arbitration agreement. There is also no clear court precedent on whether an arbitration agreement can be extended to a non-signatory parent or subsidiary of one of the signatory companies based on, among others, the 'group of companies' doctrine.

In a similar vein, the application of corporate veil-piercing in arbitration remains unclear under Korean law. While the concept of corporate veil-piercing is generally recognised in Korea, Korean courts have yet to rule on whether this doctrine applies to non-parties to an arbitration agreement. Some commentators have argued that, where the corporate veil is lifted with regard to a party to an arbitration agreement, an arbitral tribunal may assume jurisdiction over the individual or entity behind the corporate veil who is not party to the agreement, particularly if that entity is the parent of a company without substantial business activities of its own.

In some cases, a third party may be bound to an arbitration agreement as a successor, for example, as a contracting party’s heir or assignee, or as a trustee of a contracting party that is so bound. In one lower court decision, the court held that the assignee of receivables under a contract containing an arbitration clause is entitled to raise the existence of an arbitration agreement as a defence to a civil action in accordance with Article 9(1) of the Korean Arbitration Act (Seoul Western District Court Judgment 2001GaHap6107, rendered on 5 July 2002).

Third parties may also be bound to an arbitration agreement by their subsequent consent, whether by affirmative consent in writing at the request of a party or by failure to object to the jurisdiction of the arbitral tribunal. The Korean Arbitration Act provides that any objection to the tribunal’s jurisdiction over a party must be raised no later than the submission of its answer to the claim on the substance of the dispute.

These rules apply equally to foreign third parties.

The Korean Arbitration Act allows the tribunal to award preliminary or interim relief, as considered necessary, at the request of either party.

The 2016 amendments to the Act incorporated more detailed provisions on the types of interim relief that can be awarded by an arbitral tribunal. Article 18 of the Act provides that a tribunal may take an interim measure to order either party to perform any of the following actions:

  • maintain or restore the status quo until an arbitral award is made on the merits of the case;
  • adopt measures to prevent an existing or imminent danger or impact to the arbitral proceeding itself, or prohibit measures that are likely to endanger or impact the arbitral proceeding; 
  • provide methods for preserving assets subject to the enforcement of an arbitral award; and
  • preserve evidence relevant and essential to the resolution of the dispute.

An interim measure issued by an arbitral tribunal is binding and can be enforced upon application to the competent court if the arbitration is seated in Korea.

Article 10 of the Korean Arbitration Act provides that any party to an arbitration agreement may, before or during the arbitral proceedings, request interim relief from a court. The types of interim relief available from the courts include provisional attachment of the respondents’ assets and preliminary injunctions.

Korean courts may also play a role when preliminary or interim relief is granted by an arbitral tribunal. The party that wishes to obtain recognition of the interim measure taken by the arbitral tribunal may file a petition with a court to seek a decision to approve the measure, and the party that intends to enforce a writ of execution issued according to an interim measure may file a petition with a court to seek a decision that authorises the execution. However, interim measures will only be enforced by a Korean court if the arbitration is seated in Korea and the order that is made by the arbitral tribunal is compatible with Korean law.

The court must enforce the award unless one of the cases described in Article 18-8 of the Act applies:

  • where the court finds that any of the following grounds exist upon the other party's objection to the interim measure:
    1. the other party to the interim measure proves any of the following facts:
      1. a fact that falls within Article 36(2)1(a) or (d);
      2. the fact that the other party to the interim measure was not able to present their case because the party was not given proper notice of the appointment of an arbitrator or of the arbitral proceeding or due to any other cause or event;
      3. the fact that the dispute subject to the interim measure is not eligible for an arbitration agreement or that the interim measure is beyond the scope of the arbitration agreement: provided that the recognition or execution of the interim measure only for the part not eligible for an arbitration agreement may be denied, if the part eligible for the arbitration agreement is separable from the part ineligible for the arbitration agreement;
    2. an asset has not been provided as security for the interim measure according to an order issued by the court or the arbitral tribunal; or
    3. the interim measure has been revoked or suspended by the arbitral tribunal;
  • where the court, ex officio, finds that either of the following grounds exists:
    1. where the court has no authority to execute the interim measure: provided that the foregoing shall not apply where the court makes a decision to alter the measure to the necessary extent, without altering the substance of the measure, in order to execute the interim measure; or
    2. where any of the grounds referred to in Article 36(2)2(a) or (b) exists.

While the Korean Arbitration Act is silent on the use of emergency arbitrators, the 2016 revisions to the KCAB International Arbitration Rules introduced emergency arbitrator proceedings. Appendix 3 of the Rules provides that a party seeking interim measures may apply in writing to the secretariat for interim measures through an emergency arbitrator. The types of relief that can be granted by an emergency arbitrator are the same as the types of relief that an arbitral tribunal may grant under the Korean Arbitration Act.

The parties are bound by the decision of the emergency arbitrator until the main arbitral tribunal, once constituted, modifies, suspends, or terminates such decision. The decision of the emergency arbitrator is not binding on the arbitral tribunal.

Article 18-4 of the Korean Arbitration Act provides that an arbitral tribunal may order the party that requests an interim measure to provide an asset of reasonable value as security for costs.

In addition, under Article 18-7 of the Act, if a tribunal has not ordered a party to provide security, a court in receipt of a petition for recognition or enforcement of an interim measure may order the party that has filed such petition to provide an adequate asset as security.

The procedural provisions of the Korean Arbitration Act are generally default provisions, applicable in the absence of an agreement between the parties. The parties have significant freedom to agree upon particular procedural rules, and arbitrators also have wide discretion to determine how the arbitration should proceed.

However, certain provisions in the Act are considered to be mandatory: 

  • Article 19, which provides that the parties shall receive equal treatment in the arbitral proceedings and that each party shall be given a full opportunity to present its case; 
  • Article 13, which requires potential arbitrators to disclose all circumstances likely to give rise to justifiable doubts as to their impartiality or independence; and
  • Article 7, which confers jurisdiction on Korean courts to set aside domestic awards and to hear applications for recognition or enforcement of international arbitral awards.

Arbitral proceedings are conducted in accordance with the agreement between the parties. Failing such an agreement, the Korean Arbitration Act provides for a general arbitration process.

In the absence of any agreement between the parties, arbitration proceedings will commence on the date on which the respondent receives the request for arbitration. The parties will then submit their respective written submissions, laying out their claims and defences to the other party’s claims within the timeframe agreed by the parties or decided by the tribunal. The parties may submit, along with their statements of claim or defence, all documents they consider to be relevant or which may indicate other evidence they will use in the documents. The tribunal has discretion to determine the admissibility and weight of the evidence.

Pursuant to Article 26 of the Act, the arbitral tribunal shall terminate arbitral proceedings if the claimant fails to submit its statement of claim. If the respondent fails to submit its statement of defence, the arbitral tribunal shall continue the proceedings without treating such failure in itself as an admission of the claimant's allegations.

Unless otherwise agreed between the parties, the tribunal decides whether to hold an oral hearing, but if requested to hold an oral hearing by one of the parties, the tribunal is required to do so at an appropriate stage.

The Korean Arbitration Act grants powers to an arbitral tribunal to decide on matters of its jurisdiction, order interim relief, determine the admissibility and weight of the evidence, and issue awards on the dispute referred to arbitration.

Under the Act, arbitrators are required to provide equal treatment to the parties during the proceedings and the parties must be allowed sufficient opportunity to argue their case. Arbitrators are also required to disclose any circumstances which may raise doubts as to their fairness or independence. 

The Korean Arbitration Act does not prescribe particular qualifications or other requirements for legal representatives appearing in arbitrations seated in Korea.

In principle, the agreement between the parties shall prevail over default provisions and be recognised as the dominant rules of the case. Parties are free to agree on the specific procedures for the submission and collection of evidence, and the Korean Arbitration Act operates as a default rule where there is no agreement between the parties.

The Act does not provide for a specific procedure for the collection and submission of evidence at the pleading or hearing stage. It does, however, provide that:

  • parties may submit evidence together with their written submissions – Article 24(2);
  • the tribunal should give sufficient advance notice to the parties of any oral hearing and of any meeting for the purpose of inspection of other evidence – Article 25(2);
  • all statements, documents, or other materials submitted by either party to the arbitral tribunal should be conveyed to the other party without delay – Article 25(3); and
  • any expert report or evidentiary document on which the arbitral tribunal intends to rely in making its decision should be conveyed to both parties – Article 25(4).

It is common practice in international arbitrations seated in Korea or involving Korean parties to include some form of document production as part of the arbitral proceedings. In such cases, the scope of production would be much broader than the scope allowed in Korean litigations. Parties are free to agree on the scope and procedure for discovery during the arbitral proceedings. The IBA Rules on the Taking of Evidence in International Commercial Arbitration, while not binding, are generally taken into account in international arbitrations seated in Korea.

It is also common for parties to arbitrations in Korea to submit witness statements as part of the pleading stage. Parties may also appoint their own experts if necessary and submit expert reports during the pleading stage. These witnesses and experts may be cross-examined at the hearing.

With regard to the experts, Article 27 of the Act allows the arbitral tribunal to appoint one or more experts for consultation on specific issues, unless otherwise agreed by the parties. In such cases, the arbitral tribunal may require a party to provide the expert with any relevant information or to produce, or provide access to, any relevant documents, goods or other articles for inspection. A challenge to the expert appointed by the tribunal can be made on the same grounds and through the same process as a challenge to the appointment of an arbitrator.

Korea does not have specific rules of evidence that apply to arbitrations. Rules of evidence in arbitration are generally determined in accordance with the rules under which the arbitration is being conducted, and at the discretion of the arbitral tribunal. While not binding, the IBA Rules on the Taking of Evidence in International Commercial Arbitration are generally taken into account in international arbitrations seated in Korea.

The 2016 amendments to the Korean Arbitration Act incorporated provisions allowing for a more efficient means of examining evidence.

Article 28 of the Act provides that a tribunal may, either on its own initiative or at the request of a party, request a court to examine evidence or to co-operate in examining evidence.

When a tribunal requests a court to examine evidence directly, the arbitrators or the parties involved may attend the examination of evidence with the permission of the presiding judge. When a court is requested to co-operate in the examination of evidence, the court may order witnesses, holders of documents, and others, including non-parties to the arbitration, to make an appearance before the arbitral tribunal or may order them to submit the necessary documents to the arbitral tribunal.

The Korean Arbitration Act does not contain any provisions relating to the confidentiality of arbitral proceedings. In addition, there is no Korean Supreme Court precedent addressing this issue. Thus, there is no automatic requirement of confidentiality in arbitrations seated in Korea, unless the parties agree otherwise, for instance, by a separate confidentiality agreement or by adopting institutional rules which require confidentiality of arbitral proceedings. Despite the absence of a specific provision in the Act, arbitration proceedings in Korea have generally been treated in strict confidence.

Article 57 of the KCAB International Rules provides that the arbitral procedure and records are confidential and that the tribunal, the secretariat, the parties and their representatives and assistants are prohibited from disclosing facts related to the arbitration or facts learned through the arbitration, except where disclosure is consented to by the parties, required by law, or required in court proceedings.

Article 32 of the Korean Arbitration Act provides that the award shall be made in writing and signed by all the arbitrators. Where a minority of the tribunal has any reason not to sign the award, the award shall be effective with the signature of the majority of the arbitrators, with the reason for the failure or refusal to sign stated in the award. The award shall state the reasons upon which it is based, unless the parties have agreed otherwise or the award is an award on agreed terms of a settlement between the parties under Article 31. The award shall also state its date and place of arbitration. The tribunal shall deliver authenticated copies to each party, and, at the request of a party, the tribunal may send and deposit the original award with the competent court, along with a document verifying such delivery. The Act, however, does not specify any time limit for delivering the award.

For KCAB arbitrations, Article 38 of the KCAB International Rules requires the arbitral tribunal to make its award within 45 days from the date on which the final submissions are made or the hearings are closed, whichever is later, unless all parties agree otherwise. This time limit for the final award may be extended, however, by the secretariat pursuant to a reasoned request from the arbitral tribunal, or on its own initiative if it decides it is necessary to do so.

The Korean Arbitration Act does not place any restrictions upon an arbitral tribunal in terms of the types of remedies that may be granted. In practice, however, the tribunal needs to take into consideration the enforceability of its award in Korea, as the recognition and enforcement of the award may be challenged. For instance, Korean courts do not allow punitive damages as a matter of public policy, unless expressly allowed under applicable laws such as the Korean Product Liability Act. Therefore, the tribunal’s award allowing for punitive damages for contract breaches or tort would not be enforced in Korean courts.

In addition, if the award is to be enforced in Korea, the parties and the tribunal should be careful to specify the relief in sufficient detail to allow enforcement under Korean enforcement laws (eg, specify the exact asset to be transferred, specify the monetary amount to be paid, specify the actual action a party must perform, etc). In one case, the Seoul High Court found that, although an award was enforceable, the decision of the arbitral tribunal was not specific enough to be executed by the execution officer. 

Under Article 34-2 of the Korean Arbitration Act, unless the parties have agreed otherwise, an arbitral tribunal has explicit authority to allocate arbitration costs between parties, taking into consideration all circumstances of the case. The 'loser pays' rule generally applies to arbitrations in Korea, but the tribunal has discretion to decide otherwise in light of relevant factors.

With respect to interest, the claimant generally seeks interest on the principal claims and related costs from the respondent, and the arbitral tribunal must decide on such claims. Pursuant to Article 34-3 of the Act, unless the parties have agreed otherwise, the tribunal may order either party to pay delayed interest, if it finds it appropriate in making an arbitral award, considering all the circumstances of the relevant arbitration case.

Pursuant to Article 35 of the Korean Arbitration Act, an arbitral award shall have the same effect on the parties as a final and conclusive judgment of a court, unless the court refuses to recognise or enforce the award under Article 38 of the Act. This means that one cannot appeal an arbitral award to the courts.

Instead, recourse against an arbitral award can only be made by filing a lawsuit, to set aside the award, with a court at the seat of arbitration. An application to set aside an arbitral award must be made within three months after receipt of a duly authenticated copy of the award.

The grounds for setting aside an award are limited, and Korean courts tend to interpret such grounds narrowly. Article 36 of the Act provides that an arbitral award may be set aside by the court only if the party making the application proves that:

  • a party to the arbitration agreement was incapacitated when the agreement was entered into, or the arbitration agreement is not valid under the law selected by the parties to govern the agreement (or, failing any such indication, under Korean law);
  • the party making the application was not given proper notice of the appointment of arbitrators, or of the arbitral proceeding, or was otherwise unable to present its case;
  • the award deals with a dispute not contemplated by or subject to the arbitration agreement, or contains decisions on matters beyond the scope of the arbitration agreement; or
  • the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or the Act.

The court may also set aside the award if it finds on its own initiative that the subject matter of the dispute cannot be settled by arbitration under Korean law, or that the award is in conflict with the good morals and other forms of social order (ie, public policy) of Korea. 

An application to set aside an arbitral award is filed at a district court. Thereafter, an appeal of the district court’s judgment may be pursued at a regional high court, followed by the Supreme Court. Generally, however, an enforcement order issued by the district court will be provisionally enforceable during the pendency of any appeals.

The grounds for setting aside an arbitral award are limited to the grounds provided in the Korean Arbitration Act. To date, no precedent exists as to whether the parties may agree to expand or limit such scope.

The merits of the case in arbitration are not reviewed by the courts. Under the Korean Arbitration Act, the court only has power to review the arbitral proceedings and award upon a party’s application to set aside the award. As errors of law or of fact generally do not qualify as grounds for setting aside an arbitral award, the courts do not review the merits of the case.

Korea signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) on 8 February 1973, and this came into effect on 9 May 1973. Korea has declared that it will apply the New York Convention only to arbitral awards made in the territory of states that are also parties to the Convention, and only to 'commercial disputes' (contractual or otherwise) under Korean law.

Korea also ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States on 21 February 1967, which came into effect in Korea on 23 March 1967. The Convention provides for its own enforcement procedure.

Under the Korean Arbitration Act, an arbitral award may be enforced only by a court's decision to enforce it upon the request of the parties. The party applying for recognition or enforcement of an arbitral award must submit the authentic award or a copy of the award. A Korean translation must be provided if the award is written in a foreign language.

Once the application for recognition or enforcement of an award is made to the court, the court will set a hearing date for both parties to present their case. The court’s decision as to the recognition or enforcement of an award must contain the reasons for the decision. 

The 2016 amendments to the Act allowed enforcement based on a 'decision' of the district court rather than a judgment, which is understood as an effort to expedite enforcement proceedings.

Arbitral awards made in Korea must be recognised or enforced, unless:

  • a party proves that:
    1. there are grounds for setting aside the award;
    2. the arbitral award is not yet effective upon the parties; or
    3. the award has been set aside by the court; or
  • the dispute which has been the subject of the award is a dispute not arbitrable under Korean law, or the recognition or enforcement of the award is in violation of public policy.

Pursuant to Article 39 of the Korean Arbitration Act, arbitral awards made outside Korea where the New York Convention applies shall be recognised or enforced according to the requirements under the New York Convention. Article V(1)(e) of the NY Convention states that the recognition and enforcement of an arbitral award may be refused, at the request of the party against whom it was invoked, if that party furnishes proof that the award has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. Therefore, Korean courts are unlikely to recognise or enforce a foreign award that has been set aside by the courts in the seat of arbitration, although there is no clear court precedent on this issue.

Arbitral awards made outside Korea where the New York Convention does not apply, shall be recognised or enforced in accordance with the criteria set forth in the applicable Korean law, such as the Civil Procedure Act and the Civil Execution Act. For instance, the criteria set out in the Civil Procedure Act are as follows:

  • the judgment is final and conclusive;
  • the court issuing the judgment has jurisdiction under the principles of international jurisdiction laid down in Korean law or treaties;
  • the defendant was properly served with the complaint or summons in advance, to allow sufficient time for preparation of their defence, or the defendant responded to the suit without having been served;
  • the effect of the judgment is not contrary to Korean public policy; and
  • there is a guarantee of reciprocity.

Finally, as state immunity is not a ground for resisting enforcement of arbitral awards under the NY Convention or under Korean law, a state or state entity is unlikely to successfully raise a defence of sovereign immunity to prevent the enforcement of a foreign arbitral award in Korea.

Korean courts will generally recognise and enforce arbitral awards unless there are clear grounds for setting aside the award under the Korean Arbitration Act. The courts tend to interpret the grounds for setting aside very narrowly. The courts are also generally reluctant to refuse enforcement of foreign arbitral awards based on public policy grounds.

Korean law neither expressly permits nor prohibits class-action arbitration or group arbitration. There is also no precedent from the Korean courts on this issue.

Counsel conducting arbitrations in Korea may be members of the Korean Bar or qualified as attorneys in their home jurisdiction. There are no established professional standards or qualifications that apply to arbitrators in Korea. The Korean Arbitration Act does, however, require arbitrators conducting proceedings in Korea to disclose in advance if there are any circumstances likely to give rise to justifiable doubt as to their impartiality or independence. Arbitrators are subject to challenge if any such circumstances exist. The KCAB has also issued a Code of Ethics for Arbitrators, which must be accepted by all arbitrators appointed to hear arbitration administered by the KCAB.

There is currently no express rule or restriction on third-party funders in Korea, nor is there a law that specifically allows for it. Despite the growing interest in third-party funding in Korea, there are also no notable precedents on this issue.

However, financial regulations may be applicable to third-party funders conducting business in Korea. On the other hand, contingency fees and success fees are commonly used in practice by lawyers in Korea, although the Supreme Court recently prohibited the use of such fees in criminal cases.

The Korean Arbitration Act does not expressly preclude or permit the consolidation of separate arbitral proceedings by an arbitral tribunal.

For KCAB arbitrations, Article 23 of the KCAB International Arbitration Rules provides that an arbitral tribunal may, at a party’s request, consolidate claims brought in separate but pending arbitrations if such arbitration is also under the Rules and between the same parties, and no common arbitrator has been appointed in the separate proceeding.

KCAB International Arbitration Rules also provide that the secretariat may allow for the submission of claims arising under multiple contracts within a single request for arbitration, if the secretariat is satisfied that all the contracts provide for arbitration under the Rules, the arbitration agreements’ compatibility is recognised, and the claims arise out of the same transaction or series of transactions.

There is no provision in the Korean Arbitration Act that expressly allows an arbitral tribunal to assume jurisdiction over a third party, regardless of nationality, who is not a party to the arbitration agreement.

In some cases, however, a third party may be bound to an arbitration agreement as a successor, such as a contracting party’s heir or assignee, or as a trustee of a contracting party that is so bound. There is at least one lower court case in which the assignee of receivables under a contract containing an arbitration clause successfully raised the existence of an arbitration agreement as a defence to a civil action in accordance with Article 9(1) of the Korean Arbitration Act (Seoul Western District Court Judgment 2001GaHap6107, rendered on 5 July 2002).

Third parties may also be bound to an arbitration agreement by their subsequent consent, whether by affirmative consent in writing at the request of a party, or by failure to object to the jurisdiction of the arbitral tribunal.

The law on the application of the 'group of companies' doctrine and the concept of corporate-veil piercing in international arbitration remain unclear. Some commentators have argued that, where the corporate veil is lifted with regard to a party to an arbitration agreement, an arbitral tribunal may assume jurisdiction over the individual or entity behind the corporate veil who is not a party to the agreement, particularly if that entity is the parent of a special purpose company (SPC).

Similar discussions have taken place regarding whether the effect of an arbitral award can be extended to a third party, particularly in the context of enforcement of awards. However, Korean courts have yet to rule on this issue. 

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Yulchon LLC is a full-service international law firm headquartered in Seoul with a broad client base comprising major domestic and foreign companies. It employs nearly 500 professionals, including more than 60 licensed in jurisdictions outside Korea, and has offices in Shanghai, Hanoi, Ho Chi Minh City, Moscow, Jakarta and Yangon. An acknowledged market leader in the development and practice of law, it has three times been named as “The Most Innovative Law Firm in Korea” by the Financial Times. It is frequently retained to negotiate complex transactions, help draft new legislation and regulations, and represent clients in high-stakes adversarial proceedings. As one of Korea’s premier law firms, Yulchon maintains its high standards of excellence by valuing a culture of collaborative problem-solving.

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