International Arbitration 2021

Last Updated August 17, 2021

South Korea

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 routinely been touted as one of Korea's most innovative law firms. 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.

Arbitration in South Korea

The Republic of Korea ("South Korea") ratified the New York Convention in 1973. Until the late 1990s, however, there was very little arbitration activity in South Korea due to its efficient court system, non-litigious culture, and relatively insulated economy.

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

Enacting an arbitration act

With the sudden and rapid growth of arbitration, 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 consistently upholding arbitration agreements and enforcing arbitral awards.

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

Trends in South Korean Arbitration

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

In recent years, interim relief in arbitral proceedings has garnered great interest in Korean arbitration industry 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 South 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 South 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 recent years. Three notable cases are summarised below. 

Daily monetary penalty

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 contrary to Korean law or public policy. This case set an important precedent as the first Supreme Court decision to allow the enforcement of a foreign arbitral 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 normally enforceable under the Civil Execution Act of Korea (Supreme Court Decision No 2016Da18753, rendered on 29 November 2018).

Validity dispute

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).

Foreign arbitral award related to land

The Supreme Court once again addressed arbitration in a case involving 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 the 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).

Seoul Protocol on Videoconferencing in International Arbitration

Since the COVID-19 pandemic, which arose during the first half of 2020, the international arbitration community in South Korea has swiftly adapted to the uncertainty surrounding arbitral proceedings. Prior to the pandemic, the Seoul Protocol on Video Conference in International Arbitration (the “Seoul Protocol”) was first prepared by KCAB in November 2018, and in March 2020, within mere months of the COVID-19 outbreak, KCAB released a revised and upgraded version of the Seoul Protocol.

The Seoul Protocol is designed to be a comprehensive guideline instructing parties on navigating tricky issues which may arise during virtual hearings and addresses indispensable matters including a witness’s accessibility to documents during examination and securing efficient interpretation services. It further allows parties to pick and choose certain provisions while customising others, and is accompanied by the technical specifications for technical matters such as video, audio, and channels/bandwidth. There are growing expectations that the Seoul Protocol will serve as a useful tool for parties to cut down on arbitration costs even after COVID-19.

Key industries in Korea have undoubtedly been affected by the COVID-19 pandemic. Nevertheless, certain industries – such as construction – are continuing to experience growth in terms of international arbitration activities.

In particular, investment treaty arbitrations involving the South Korean government have experienced rapid growth since 2019. The following investment treaty arbitrations were filed in the year of 2019 alone.

  • On 20 June 2019, Gale Investments Co, a US real estate development company that has separately 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.
  • On 10 July 2019, a Malaysian corporation, Berjaya, submitted a notice of intent to bring an expropriation claim against South Korea under the Malaysia-Korea BIT. The dispute related to Berjaya’s real estate development project, which allegedly failed due to a Korean Supreme Court’s ruling that directed the return of land purchased by Berjaya from a Korean government agency. Berjaya sought damages for the alleged breach of land sale and purchase agreement and has filed the notice of intent after losing its lawsuit against the government in Seoul Central District Court. Berjaya and the South Korean government eventually agreed to settle their dispute during the summer of 2020.
  • On 28 October 2019, KTurbo, a Korean manufacturer specialising in environmentally friendly turbo compressors, blowers, and generators, filed a notice of intent to file a claim against the US government under the US-KOR Free Trade Agreement. KTurbo claims that the US government wrongfully indicted him and misappropriated assets of its American subsidiary company when it indicted KTurbo for wire fraud allegations and forfeited KTurbo’s assets. KTurbo is seeking damages for the forfeited assets on this basis.
  • On 22 December 2019, respondent South Korea’s preliminary objections filed against Claimant Mason Capital LP, a US hedge fund, were rejected by the PCA tribunal. Filed on 13 September 2018 under the US-KOR FTA, Mason Capital LP’s investment arbitration claim arises from its allegations that the Korean government improperly intervened in the merger of C&T and Cheil Industries, to which it holds a 35% share.
  • Mr Fengzhen Min, a Chinese national, submitted a request for arbitration against the South Korean government under the China-Korea BIT to ICSID on 18 July 2020. In connection with the Grand Central Plaza building in Beijing, Mr Min is claiming that the South Korean government failed to provide fair and equitable treatment to and unlawfully expropriated his investment. This case is especially notable because Mr Min is currently incarcerated in Korea and is further asking the tribunal to order the South Korean government to release him.

The KCAB remains 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 all types of commercial disputes 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 of 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 often also opt for the rules of other leading international arbitral institutions, such as the International Chamber of Commerce (ICC). The Singapore International Arbitration Centre (SIAC), the 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 Korean judicial system does not have any specific courts that are designated to hear disputes related to international or domestic arbitration. Still, Korean judges are generally well-versed in international or domestic arbitration.

The primary legislation governing international arbitrations in South 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 included:

  • 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 the 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.

The Korean Arbitration Act has not been amended since then.

It should be noted that the Korean Arbitration Act, as amended in 2016, and UNCITRAL Model Law are not completely identical. In particular, the Act does not incorporate Article 34(4) of the UNCITRAL Model Law, which allows a court to suspend its set-aside proceedings at the request of a party in order to give the arbitral tribunal an opportunity to resume arbitration or to eliminate grounds for set-aside grounds. Further, 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 by challenging the tribunal’s jurisdiction to the Korean district court within 30 days.

Once again, the Korean Arbitration Act was last amended in 2016.

Furthermore, 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. Notably, 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, but is still pending examination by the Legislation and Judiciary Committee of the National Assembly.

Article 8 of the Korean Arbitration Act, in line with Article 7 of the UNCITRAL Model Law, requires an arbitration agreement to be in writing either as an arbitration clause included 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
  • one 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; likewise, 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 is the case in many other jurisdictions, matters of criminal law, family law, and administrative law are not arbitrable in South 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.

The Korean Arbitration Act does not provide specific rules for determining the arbitrability of claims. However, the 2016 amendments to the Act extended the definition of “arbitration” to mean a procedure to settle a dispute over “non-property rights” (non-monetary) which can be resolved by settlement of the parties as well as “property rights” (monetary). Based on this revision, commentators are of the opinion that certain disputes arising out of public law may be arbitrated in South 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. They are also deemed to be generally friendly toward arbitration. 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 a valid agreement to arbitrate by the Korean courts.

Regarding the question of the governing law of arbitration agreements, the Korean 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). Korean academics and practitioners are also noting recent developments on this issue outside of Korea such as the UK Supreme Court’s decision in Enka v Chubb.

Article 17(1) of the Korean Arbitration Act provides that when an arbitral tribunal is ruling on its own jurisdiction, the tribunal is required to treat the arbitration clause as separate and independent of the main contract to which the arbitration clause is included. In essence, the Act adopts the principle of separability by allowing the tribunal to exercise jurisdiction over the dispute regarding the validity of the arbitration agreement. The Korean courts, however, can review the decision of an arbitral tribunal on its own jurisdiction upon the request of a party within 30 days from the date of the decision pursuant to Article 17(6) of the Korean Arbitration Act. 

The Korean Arbitration Act places no restrictions on who may serve as an arbitrator. Parties are free to agree on the specific qualifications of potential arbitrators and the procedure for appointing them. While the KCAB maintains an active 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.

Parties are free to agree on the procedure for selecting arbitrators. When their chosen method fails, or in the absence of such an agreement, Articles 11 and 12 of the Korean Arbitration Act provide default mechanisms for the constitution of arbitral tribunal to arbitrations seated in Korea.

For instance, 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.

  • Sole arbitrator arbitration – if the arbitrator is not appointed within 30 days after a party has received the counterparty’s request to appoint the arbitrator, the competent court or arbitral institution designated by the competent court shall appoint the arbitrator upon a party’s request.
  • Three-arbitrator arbitration – each party shall appoint one arbitrator, and the two party-appointed arbitrators shall agree on the third arbitrator. If one party fails to appoint its party-appointed arbitrator within 30 days of the counter-party’s request or if the two party-appointed 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 a party’s request.

Article 12(4) of the Act applies where the parties have agreed on the procedure for selecting arbitrators but the method fails. A court’s decision on the appointment of an arbitrator is not subject to appeal.

The international arbitration community in South Korea has recently witnessed increased interest in multi-party arbitrations. To date, the Korean Arbitration Act does not provide default mechanisms for selecting arbitrators in multi-party arbitrations. However, the 2016 amendments to KCAB’s International Arbitration Rules does include such default procedures for multi-party arbitrations under Rule 12(3). 

The Korean court may intervene at the request of a party in the following matters prescribed under the Korean Arbitration Act:

  • appointing arbitrators under Articles 12(3) and (4);
  • challenging the appointment of arbitrators under Article 14(3);
  • terminating the mandate of an arbitrator, if there is a dispute between the parties, under Article 15(2); and
  • reviewing the jurisdiction of the arbitral tribunal under Article 17(6).

The Korean court may also provide assistance for evidence gathering pursuant to Article 28.

Article 13 of the Korean Arbitration Act provides that an arbitrator may be challenged if there are circumstances 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:

  • from the day of the constitution of the arbitral tribunal; or
  • from when the party becomes aware of 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 pursuant to Article 14(3) of the Act. The court’s decision on the challenge cannot be appealed.

Regarding 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, which are not as severe as grounds for challenging judges under Korean Civil Procedure Act, such circumstances do not constitute grounds for setting aside an arbitral award if they were not timely raised (Supreme Court Decision No. 2005Da47901, rendered on 29 April 2005). Therefore, any challenge against an arbitrator must be raised within the period set forth in Article 14 of the Act.

Article 14 of the KCAB International Arbitration Rules also sets forth similar grounds for the challenge of arbitrators, and Article 15 of the Rule deals with the replacement and removal 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 (Article 19) that parties must receive equal treatment during arbitral proceedings, the failure of which can result in a set-aside of the final award under Article 36 of the Act.

Similarly, the KCAB International Arbitration Rules provide that all arbitrators must be and remain at all times 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 that all arbitrators appointed to hear arbitrations administered by the KCAB must accept.

The Korean Arbitration Act does not address subject-matter arbitrability. Article 3(1) of the Act nonetheless 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 that 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 principle of competence-competence is recognised under Article 17(1) of the Korean Arbitration Act, under which an arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.

Pursuant to Article 17(1), the challenging party must raise its jurisdictional objections to the tribunal no later than its submission of the statement of defence on the merits, unless the party’s jurisdictional objection is that the tribunal exceeded the scope of its authority, in which case the objection must be raised as soon as it occurs. The arbitral tribunal may rule on the jurisdictional challenge either as a preliminary matter or as a final award on the merits.

However, Article 17(6) of the Act authorises Korean courts to make a final determination as to a tribunal’s jurisdiction when an arbitral tribunal rules on its jurisdiction as a preliminary matter, regardless of whether the tribunal accepts or declines jurisdiction, by allowing a party to appeal a tribunal’s decision on its own jurisdiction within 30 days after having received the notice of such decision. The 2016 amendments of the Act now explicitly allow the court to review the arbitral tribunal’s decision even denying its own jurisdiction.

While the arbitral tribunal may rule on its own jurisdiction under the competence-competence rule, Article 17(6) of the Korean Arbitration Act bestows the final decision-making authority onto the Korean courts by allowing a party to appeal a tribunal’s jurisdictional ruling. Prior to 2016 amendments to the Act, only affirmative decisions (eg, a tribunal’s decision that jurisdiction exists) were appealable. However, Article 17(6) has been amended to allow parties to challenge not only affirmative jurisdictional decisions but also a tribunal’s negative decision (eg, refusal to find jurisdiction).The provision, however, is not often invoked in practice, and courts are generally reluctant to intervene and overturn the decision of the arbitral tribunal on its jurisdiction.

Pursuant to Article 17(2) of the Arbitration Act, a challenge to the jurisdiction of the arbitral tribunal must be raised to the tribunal by no later than the submission of the statement of defence on the merits. A party disputing the jurisdiction of the arbitral tribunals can raise such objection even after the party has participated in the process of constituting the arbitral tribunal.

An appeal against the tribunal’s jurisdictional ruling before the national court under Article 17(6) of the Act must be filed within 30 days after having received notice of such ruling of the arbitral tribunal.

Korean courts conduct a de novo review of an arbitral tribunal’s jurisdiction. Therefore, courts are not bound by the tribunal’s decision on its own jurisdiction.

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

Korean courts will not review 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. That is because these matters concern the merits of the case.

When a party commences court proceedings in breach of an arbitration agreement, the defendant may raise a defence on the existence of an arbitration agreement and request the court to dismiss the lawsuit pursuant to Article 9(1) of the Korean Arbitration Act. This must be done before the first submission on the merits to the court is filed.

Under Article 9(1), a court must dismiss the legal action brought in violation of the arbitration agreement unless the court finds the arbitration agreement to be null and void, inoperable, or incapable of being performed.

The Korean Arbitration Act does not address whether a tribunal may exercise jurisdiction over a third-party that is a non-signatory to the arbitration agreement.

Further, there are no clear precedents on whether the "group of companies" or "corporate veil-piercing" can be used to exercise jurisdiction over non-signatories to the arbitration agreement.

  • Group of companies doctrine – there is no clear court precedent which allows tribunals to exercise jurisdiction over a third party on the ground that the third party is an affiliate company of the contracting party (eg, parent or subsidiary).
  • Corporate veil-piercing doctrine – while Korean courts generally recognise the application of corporate veil-piercing, courts have yet to rule on whether this doctrine allows a tribunal to exercise jurisdiction over third parties. 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 third party (individual or entity) behind the corporate veil, particularly if that third party is without substantial business activities of its own and is the parent of a contracting party.

However, a third party may be bound to an arbitration agreement as a successor, heir, or assignee to the contracting party. There is at least one lower court decision in which 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 pursuant to Article 9(1) of the Korean Arbitration Act (Seoul Western District Court Judgment 2001GaHap6107, rendered on 5 July 2002).

Furthermore, third parties may definitively 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. These rules apply equally to foreign third parties.

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

The 2016 amendments to the Act incorporated more detailed provisions on the types of interim relief that an arbitral tribunal can order. Article 18(2) of the Act provides that a tribunal may order interim measures requiring either party to perform any of the following actions:

  • maintain or restore the status quo until an arbitral award on the merits of the case is rendered;
  • 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 upon the parties and can be enforced upon application to the competent court if the arbitration is seated in Korea (Article 18-7 of the Act).

Korean courts play two major roles in interim relief procedures in arbitration:

  • granting interim measures; and
  • recognising and enforcing the interim measures issued by the tribunal.

First, in accordance with Article 10 of the Korean Arbitration Act, courts are permitted to issue interim measures upon a party’s request made before or during the arbitral proceedings. While Article 10 is silent on the type of interim measures that courts may grant, interim measures issued by the courts have commonly included preliminary injunctions and orders to provisionally attach the respondent’s assets. A court may issue interim measures regardless of whether the arbitration seated in Korea or another jurisdiction.

Second, in accordance with Article 18-7 of the Act, upon the request of the parties, courts may assist with the recognition and/or enforcement (eg, compulsory execution) of interim awards issued by the tribunal.

Korean courts may issue an interim measure under Article 10 of the Korean Arbitration Act regardless of the place of arbitration, or even when the place of arbitration is yet to be decided as Article 10 may apply to the arbitration where it is seated outside Korea or even when its seat is yet to be decided (Article 2 of the Act). However, Korean courts may recognise and enforce the interim relief issued by the arbitral tribunal under Article 18-7 of the Act only if the arbitration is seated in Korea.

Emergency Arbitrator

Recently, the notion of the "emergency arbitrator" in the context of expedited proceedings for parties to obtain interim measures has gained much attention. To date, the Korean Arbitration Act is silent on whether an emergency arbitrator may be nominated. However, the 2016 revisions to the KCAB International Arbitration Rules (“Rules”) introduced proceedings for an emergency arbitrator in Appendix 3 to the Rules, under which a party may seek interim measures through an emergency arbitrator.

The appeal arises from the fact that, once appointed, emergency arbitrators must make a decision with 15 days from its appointment

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 Article 18 of 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.

Courts and arbitral tribunals are both authorised to order security for costs with respect to the parties’ requests to obtain, recognise, or enforce interim measures under the Korean Arbitration Act. 

Under Article 18-4 of the Act, an arbitral tribunal may order the party requesting interim measures to provide security. Similarly, under Article 18-7(3) of the Act, if deemed necessary, Korean courts are empowered to order security against the party requesting recognition or enforcement of interim measures issued by the tribunal when the arbitral tribunal has not ordered to provide security, or when there is a risk of infringing the rights of a third party.   

Generally, parties are free to choose their own procedural rules either by agreement or by the rules of the chosen arbitral institution.

Where parties fail to agree on certain procedural terms (eg, place of arbitration, language to govern arbitration), arbitral tribunals have wide discretion to determine how the arbitration should proceed under Article 20(2) of the Korean Arbitration Act. 

In tandem with the parties’ agreement and arbitrators’ discretion, the Korean Arbitration Act also provides applicable procedural rules. For example, the Act provides certain default procedural rules, such as formality requirements for arbitration agreements under Article 8 of the Act. Further, the Act authorises courts to help facilitate arbitration (eg, taking evidence or enforcing arbitration agreements). Lastly, the Act also provides mandatory procedural rules to ensure that arbitrations conducted in Korea comply with notions of fair due process, such as Article 19 of the Act’s requirement that all parties must receive equal treatment during the proceedings.

In line with the principle that arbitration is a creature of "consent," procedural steps are generally implemented by the agreement of the parties or rules of the applicable arbitral institution.

In the absence of such agreement, the Korean Arbitration Act provides for a general arbitration process for an arbitration seated in Korea as below.

  • Commencement of Arbitration (Article 22) – arbitration proceedings shall commence on the date on which the respondent receives the request for arbitration.
  • Submissions (Article 24) – the parties shall 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.
  • Hearings (Article 25) – subject to any contrary agreement by the parties, the arbitral tribunal shall decide whether to hold oral hearings or to render an award solely based on written submissions and documents. 
  • Failure of Parties (Article 26) – subject to any contrary agreement by the parties, 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.

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. Legal representatives appearing in arbitration seated in Korea are not required to be members of the Korean Bar.

In principle, the agreement between the parties shall prevail over default provisions and be recognised as the dominant rules of the arbitration. 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 specific procedures 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);
  • 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)).

Parties are free to agree on the scope and procedure for “discovery” during the arbitral proceedings. It is common practice in international arbitrations seated in Korea or involving Korean parties to include some form of document production. In such cases, the scope of production would be much broader than the scope allowed in Korean court 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 and submit expert reports, if necessary, during the pleading stage. These witnesses and experts may be cross-examined at the hearing.

With regard to experts, Article 27 of the Act allows the arbitral tribunal to appoint one or more experts for consultation on specific issues, unless agreed otherwise 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.

South Korea does not have specific rules of evidence that apply to arbitrations for either domestic or international 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 automatically binding, the IBA Rules on the Taking of Evidence in International Commercial Arbitration are commonly adopted in international arbitrations seated in Korea.

Article 28 of the Korean Arbitration Act, as amended in 2016, provides that an arbitral tribunal may, either on its own initiative or at the request of a party, request the Korean court to examine evidence or co-operate in examining evidence.

When a tribunal requests a court to directly examine evidence, 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, or 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 by, for instance, entering into a separate confidentiality agreement or by adopting institutional rules that 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.

For its part, Article 57 of the KCAB International Arbitration 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, or required by law or court proceedings.

Article 32(1) 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 become effective with the signature of the majority of the arbitrators, with the reason for the failure or refusal to sign stated in the award. In accordance with Article 32(2) of the Act, the award shall state the reasons upon which it is based unless the parties have agreed otherwise or the award is a consent award on agreed terms of a settlement between the parties under Article 31. The award shall also state its date and place of arbitration (Article 32(3) of the Act). The Act, however, does not specify any time limit for rendering the award.

For KCAB arbitrations, Article 38 of the KCAB International Arbitration Rules provides a time limit for a final award (eg, within 45 days from the date on which the final submissions are made or the hearings are closed, whichever is later), which may be extended.

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, the tribunal must take into consideration the enforceability of its award in Korea, as it may be challenged if the award is in violation of the public policy of Korea.

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, an arbitral award ordering punitive damages for breach of contract or tort liability 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 in specifying the relief in sufficient detail to allow enforcement under applicable laws (eg, specifying the exact asset to be transferred, the monetary amount to be paid, 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 (Seoul High Court Judgment 2013Na13506). 

With respect to interest, claimants generally seek 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 Korean Arbitration Act, unless the parties have agreed otherwise, the tribunal may order either party to pay pre and/or post award interest after considering all the circumstances of the relevant arbitration case if deemed appropriate.

As for arbitration costs, under Article 34-2 of the Act, unless the parties have agreed otherwise, an arbitral tribunal has explicit authority to allocate arbitration costs between the parties, taking into consideration all pertinent 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.

A arbitral award has the same effect on the parties as a “final and conclusive judgment of the court” under Article 35 of the Korean Arbitration Act, unless the court refuses to recognise or enforce the award under either Article 38 (awards made in Korea) or Article 39 (awards made in foreign jurisdictions). This means that parties may not appeal an award per se. Nevertheless, parties may file a lawsuit to set aside the award under Article 36 of the Act, which closely mirrors Article V(1) of the New York Convention.

In order to set aside an award, parties must file a lawsuit with the court within three months after its receipt of the duly authenticated copy of the award (Article 36(1) and (3) of the Act), and state the grounds upon which the party seeks to set aside the award. Grounds for setting aside an award are limited to the following which needs to be proven by the party seeking a set aside decision:

  • 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 the parties or not 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 is not arbitrable under Korean law, or that the award is in conflict with the public policy of Korea. Korean courts tend to interpret such setting aside grounds narrowly.

An application to set aside an arbitral award is filed at a district court of first instance. Thereafter, an appeal of the district court’s judgment may be pursued at the applicable appellate court, followed by the Supreme Court. Generally, however, an enforcement order issued by the district court will be provisionally enforceable even if any appeal is pending.

The grounds for setting aside an arbitral award are limited to the grounds explicitly provided in Article 36 of the Korean Arbitration Act. To date, no precedent exists as to whether the parties may agree to expand or limit such a scope.

The merits of the final award are not reviewable by the courts since they cannot review tribunals’ findings of law and facts. This means that errors of law or fact generally do not qualify as grounds for setting aside an arbitral award.

South Korea signed the New York Convention on 8 February 1973, which came into effect on 9 May 1973.

South Korea is also a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) on 21 February 1967, which came into effect on 23 March 1967.

Article 37

Under Article 37 of 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 also be provided if the award is in a foreign language.

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

The 2016 amendments to the Korean Arbitration Act allowed enforcement based on a "decision" of the district court rather than a "judgment." The purpose of this amendment was to further expedite enforcement proceedings.

Under Article 37(1) of the Act, courts must recognise an arbitral award unless any of the grounds of refusal under Article 38 or Article 39 exist. 

Article 38

Article 38 of the Act provides that an arbitral award made in Korea must be recognised and enforced unless a party proves that

  • there are grounds for setting aside the award;
  • the award is yet to be effective and binding upon the parties; or
  • the award has already been set aside by a national court. 

The court can also, at its own discretion, refuse to recognise and enforce the arbitral award made in Korea if 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. 

Article 39

Article 39(1) of the Act provides that 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. And 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 regarding the recognition and enforcement of a foreign court judgment (Article 39(2) of the Act).

As state immunity is not a ground for resisting enforcement of arbitral awards under the New York 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 an arbitral award in Korea.

Finally, there is no clear indication of whether Korean courts would enforce an award that is subject to ongoing set-aside proceedings at the seat of arbitration. Presumably, however, the concerned court would adjourn enforcement proceedings per Article 6 of the New York Convention.

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

The Korean Arbitration Act is silent on the issue of whether class-action arbitration is permitted. There is also no precedent from the Korean courts on this issue.

Under the Korean Arbitration Act, there are no mandatory ethical codes or professional standards applicable to either counsels or arbitrators. The Act does, however, require arbitrators conducting proceedings in Korea to disclose whether there are any circumstances likely to give rise to justifiable doubt as to their impartiality or independence in advance. 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 arbitrations 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.

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

Nevertheless, Article 23 of the KCAB International Arbitration Rules provides for "consolidation of claims," under which an arbitral tribunal may, at a party’s request, consolidate claims brought in separate but pending, arbitrations if such arbitrations are all:

  • under KCAB Rules;
  • between the same parties; and
  • no arbitrator has been appointed in any of the arbitrations.

Article 22 of KCAB Rules also allows a "single arbitration under multiple contracts." This means claims arising under multiple contracts may proceed as one single arbitration. Under Article 22, claims arising under multiple contracts will be conducted in one single arbitration if all multiple contracts – to the satisfaction of the Secretariat – provide for KCAB Rules, contain arbitration agreements that are compatible with one another and the claims arise out of the same transaction or series of transactions. 

The Act is silent on the issue of whether an arbitral tribunal may assume jurisdiction over a non-signatory to the arbitration agreement, regardless of the non-signatory’s nationality. To date, there is no clear instruction from the courts on the type of doctrines a court may adopt in exercising jurisdiction over third parties. More information on this topic may be found in 5.7 Third Parties

Regarding a similar issue involving third parties, there have been recent discussions on whether the arbitral award may be enforced against non-signatories to the arbitration agreement. However, Korean courts have yet to rule on this issue.

Yulchon LLC

Parnas Tower, 38F
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Gangnam-gu
Seoul 06164
Korea

+82 2 528 5200

+82 2 528 5228

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Trends and Developments


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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 routinely been touted as one of Korea's most innovative law firms. 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 Strength of Arbitration in South Korea

Boasting a vibrant economy, South Korea is one of the most dynamic countries in the world. With its strong industrial sectors, especially in the fields of technology, shipping, construction, and banking, Korea is a renowned centre for international business. Korea is also well equipped with modern infrastructure and is conveniently located as a Northeast Asian hub, close to the world’s largest economies, which is in an optimal geographical location to serve as a neutral forum for international arbitration. With a rich history of international arbitration, world-leading legal experts, supportive government, and arbitration-friendly courts, Korea is thriving and ascending as the global next hub for international arbitration.

South Korea ratified the New York Convention in 1973 and arbitral awards are enforceable in over 150 jurisdictions. 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.

Legal Framework of Arbitration

South Korea is one of the first countries in Asia to adopt the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (the UNCITRAL Model Law) and it has been keen to adopt any global developments. The Arbitration Act of Korea (the Korean Arbitration Act, or the Act), which was first enacted in 1966, was completely amended in 1999 to adopt the 1985 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. Korean courts, which are well known for their efficiency as Korea ranked second place for “Enforcing Contracts” in the World Bank’s 2020 Doing Business Report, have also become increasingly supportive of arbitration by upholding arbitration agreements and enforcing arbitral awards in line with these legislative initiatives to foster an arbitration-friendly environment. Today, arbitration is not merely an alternative to traditional court litigation, but a primary dispute-resolution mechanism for cross-border disputes in Korea.

Recent Trends and Developments

Since the amendments to the Korean Arbitration Act and the revisions to the KCAB Arbitration Rules came into effect in 2016, South 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.

There have also been a number of court cases dealing with arbitration jurisprudence. Some of the notable court cases are summarised below:

Seoul Central District Court Decision No 2020Kagi418 rendered on 4 September 2020

In a case where the plaintiff filed a petition pursuant to Article 17 (6) of the Korean Arbitration Act, asking the Korean court to review an arbitral tribunal’s decision that an arbitration agreement was valid and thus the arbitral tribunal had jurisdiction over a dispute, the Seoul Central District Court held that it would be reasonable to construe the arbitration agreement drafted by the parties to be valid to the extent possible, rather than to simply nullify it. The Seoul Central District Court then concluded the arbitration agreement stating that the dispute shall be referred to the decision of a non-existing institution was still valid because the word “Arbitration” was contained in the name of the non-existing institution. This case became final as the court’s decision on the jurisdiction of an arbitral tribunal cannot be subject to an appeal pursuant to Article 17 (8) of the Korean Arbitration Act.

Seoul Central District Court Decision No 2018Bihap30171 rendered on 11 June 2019

In a case case where the plaintiff, who had sent a notice of arbitration, filed a petition pursuant to Article 12 of the Korean Arbitration Act, asking the Korean court to appoint an arbitrator on behalf of the defendant while the defendant argued the arbitration agreement was invalid, the Seoul Central District Court held that the Korean Arbitration Act would be applicable even when the arbitration agreement was silent on the seat of arbitration. The Seoul Central District Court moved on to hold that the case had substantial relation with Korea and the Korean court had jurisdiction over this case. The Seoul Central District Court then appointed an arbitrator on behalf of the defendant pursuant to the Korean Arbitration Act. This case became final as the court’s decision appointing an arbitrator cannot be subject to an appeal pursuant to Article 12 (5) of the Korean Arbitration Act.

Supreme Court Decision No 2017Ma6087 rendered on 2 February 2018

In a case in which the plaintiff had applied for an injunction asking the court to block the commencement of an arbitration, the Supreme Court held that there are no legal grounds under the Arbitration Act to grant such injunction based on the claim that the arbitration agreement was null, void, or incapable of being performed. Significantly, the Supreme Court reasoned that a court could not be involved in an arbitral proceeding in the manner requested by the plaintiff unless the Arbitration Act explicitly permitted it, which it did not, and that the plaintiff’s secondary argument based on Article 10 regarding interim measures was also inapplicable to this situation since that particular provision only pertains to requests to preserve the status quo between the parties and/or prevent urgent circumstances from occurring. 

Supreme Court Decision No 2017Da225084 rendered on 26 July 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 New York Convention.

Supreme Court Decision No 2016Da18753 rendered on 29 November 2018

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 2018Da240387 rendered on 13 December 2018

In a case in which the plaintiff had asked for the annulment of an arbitral award, the Supreme Court examined the grounds for annulling an arbitral award under Article 36(2) of the Arbitration Act, which mirrors Article 34 of the UNCITRAL Model Law. Here, the parties had submitted their dispute to the KCAB and one of the parties amended its claim before the award was rendered. Subsequently, the plaintiff of this case, citing Article 36(2) of the Arbitration Act, asked a lower court to annul the award because it purportedly did not have an opportunity to respond to the amended claim, and the award contravened public policy.

After the lower court had rejected its request, the plaintiff then appealed to the Supreme Court. However, the Supreme Court pointed out that the tribunal had in fact offered ample time for the plaintiff to respond to the amended claim, rejected both arguments and upheld the award.

Supreme Court Decision No 2016Da49931, rendered on 13 December 2018

Another Supreme Court case involved a foreign arbitral award ordering respondent to pay claimant an amount equal to 50% of claimant’s total costs incurred upon the sale of land. This amount included half of the total corporate tax borne by claimant, which accounted for one third of the awarded amount.

However, as a result of claimant’s subsequent lawsuit against the pertinent tax authorities, the amount of corporate tax was ultimately significantly reduced, thereby also reducing 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 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.

Key Industries of Arbitration

International arbitration activities in Korea had been increasing every year throughout various industries, including project finance, sports, construction, shipbuilding and IT. However, due to the COVID-19 pandemic, international arbitration activity slightly decreased in 2020 compared to past years.

Investment treaty arbitrations have shown particularly rapid growth over the recent years. 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.
  • 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.
  • On 29 November 2019, the Korea Western Power Co., a Korean government owned corporation, filed its notice of arbitration against the Indian government based on India-Korea BIT and India-Korea CEPA, arguing that its operation of a gas power plant in India was interrupted by the Indian government’s failure to supply the promised gas. This case is the first investment arbitration case initiated by a Korean government owned corporation.
  • on 17 July 2019, Berjaya Land Berhad, a Malaysian company and shareholder of Berjaya Jeju Resorts, filed its notice of intent to submit a claim to arbitration to the Korean government based on the Korea-Malaysia BIT - this dispute stemmed from the economic harm purportedly suffered by Berjaya Jeju Resorts, and the principal claims are directed at the Jeju Free International City Development Centre as well as Korean courts.in both January and February of 2020, certain US citizens initiated two separate investment treaty arbitration claims against the Korean government based on claims pertaining to land expropriation - the land at issue was either owned by former Korean nationals or inherited from Korean nationals.
  • On 18 July 2020, Fengzhen Min, a Chinese national, submitted a request for arbitration against the South Korean government under the China-Korea BIT to ICSID.  In connection with the Grand Central Plaza building in Beijing, Mr Min is claiming that the South Korean government failed to provide fair and equitable treatment to and unlawfully expropriated his investment. This case is especially notable because Mr Min is currently incarcerated in Korea and is further asking the tribunal to order the South Korean government to release him.

Arbitral Institutions

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, including but not limited to, disputes stemming from construction, trade, maritime, M&A, finance, intellectual property, entertainment, labour, real estate, and information technology. 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.

The KCAB has seen a remarkable spike in its caseload in recent years. Although there was slight decrease in the caseload to 405 cases in 2020 due to the pandemic, during the year of 2019, the KCAB handled a total of 443 cases, which was a significant jump from the caseload of 393 cases for the year of 2018. In addition, while the total number of international arbitration cases was almost the same as that in 2019, the combined claim amount of international arbitration cases increased by 44.1% compared to 2019. Out of 69 international arbitration cases the KCAB handled in 2020, 31 cases of them were conducted under the KCAB’s rules for Expedited Procedures, and 38 of them involved trade disputes.

The KCAB is also renowned for its efficiency. Including both regular and Expedited Procedures, the KCAB rendered an impressive 77 international awards after an average of procedural length of merely 398 days. This fact shows that the KCAB is well-equipped to handle larger caseloads in the years to come.

Finally, the diversification of the nationality of non-Korean parties resolving their disputes through the KCAB is also continuing. Indeed, parties from all parts of the world were involved in KCAB-administered arbitrations, with the USA, China, and Japan ranked first, second and third in 2020, in terms of the country of origin for such non-Korean parties.

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.

Yulchon LLC

Parnas Tower, 38F
521 Teheran-ro
Gangnam-gu
Seoul 06164
Korea

+82 2 528 5200

+82 2 528 5228

yjbaek@yulchon.com www.yulchon.com
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Law and Practice

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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 routinely been touted as one of Korea's most innovative law firms. 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.

Trends and Development

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 routinely been touted as one of Korea's most innovative law firms. 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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