The Arbitration Act was enacted in 1966 and amended in 1999 to adopt the UNCITRAL Model Law. It has been amended five times since then, with the most recent amendments being made in 2016. The 2016 amendments to the Arbitration Act were made to incorporate the 2006 amendments to the UNCITRAL Model Law. 2016 also marked the 50th anniversary of the founding of the Korean Commercial Arbitration Board (KCAB). The KCAB marked its anniversary by enacting significant revisions to its rules.
Korea has gained a strong reputation as an arbitration-friendly jurisdiction through its adoption of the UNCITRAL Model Law and the track record of Korean courts in enforcing international arbitration awards.
i Structure of Korea's arbitration law
The primary source of arbitration law is the Korean Arbitration 1999 Act (Arbitration Act), which was adopted in 1999 based on the UNCITRAL Model Law on International Commercial Arbitration (1985). In 2016, Korea enacted major revisions to the Arbitration Act, which came into force on 30 November 2016, to adopt certain provisions of the 2006 amendments to the 1985 UNCITRAL Model Law (Arbitration Act (2016)).
However, the Arbitration Act (2016) does not incorporate Article 34(4) of the 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.2 Article 17 of the Arbitration Act (2016) 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 Arbitration Act (2016) applies to arbitrations seated in Korea, regardless of the nationalities of the parties. There are some notable provisions in the Arbitration Act (2016) that may also apply to arbitrations seated outside of Korea, namely Article 9 (denial of court jurisdiction if an arbitration agreement exists), Article 10 (court-ordered interim measures), Article 37 (recognition and enforcement of arbitral awards) and Article 39 (recognition and enforcement of foreign arbitral awards).
Among the changes adopted in the Arbitration Act (2016) were a clarification that the 'in writing' requirement is met wherever terms and conditions of an agreement have been recorded, regardless of whether such agreement was made orally, by conduct, or by any other means, and the expansion of the scope of arbitrable disputes to include any dispute relating to a property right or any dispute relating to a non-property right that can be settled by compromise between the parties. The Arbitration Act (2016) also adopted the more specific provisions of the 2006 UNCITRAL Model Law regarding the categories of interim measures available and the test to be applied by a tribunal considering an application for interim measures, and permits Korean courts to enforce interim measures ordered by an arbitral tribunal seated in Korea. However, interim measures ordered by a foreign-seated tribunal remain unenforceable in Korea.
The Arbitration Act (2016) has also been amended to include more effective provisions for the assistance of Korean courts in taking evidence upon the request of an arbitral tribunal, including ordering the production of documents and the appearance of witnesses before the arbitral tribunal. However, we are not aware of any case to date in which the Korean courts have been asked to utilise these provisions to assist in the taking of evidence in support of evidence. It is still not clear whether these measures will be available in practice, as Korean courts have not traditionally played a significant role in the collection of evidence in arbitrations seated in Korea. In addition, Korean courts have limited tools to compel production of documents or witnesses for examination; for example, they do not have the ability to hold parties in contempt of court in the way that common law courts can.
The Arbitration Act (2016) was also amended to allow enforcement of an arbitral award based on a decision of the district court rather than a judgment, which is understood as an effort to expedite enforcement proceedings. A number of applications to Korean courts for recognition or enforcement of arbitral awards have been filed after this amendment became effective, but it remains to be seen how much faster enforcement decisions will be rendered under the new proceedings in practice.
In addition, the Arbitration Facilitation Act came into force on 27 June 2017, providing for long-term planning and financial support by the government for the promotion of arbitration and of Korea as a seat of arbitration with the intent of attracting international arbitration cases to Korea.
ii Structure of the Korean courts
Korea has a three-tiered court system. Commercial cases are generally first heard by a district court. Depending on the amount in dispute, cases in the district court are heard by either a panel of three judges or by a sole judge.3 Either party may appeal a final judgment of the district court to the appropriate regional high court, which will conduct a de novo review of the case.4 The high court is not required to give deference to the findings of fact in the district court's judgment, and will conduct a full review of the facts based on the evidence submitted by the parties to the district and high courts.5 In this process, both parties are permitted to submit new evidence and new factual and legal arguments. Finally, the Korean Supreme Court is the highest level of appeal-as-of-right.6 The review of a case before the Korean Supreme Court is limited to arguments alleging errors of law affecting a high court judgment, and new evidence and factual arguments may not be raised.7
Korea does not have a specialised arbitration court. Instead, an action to enforce or set aside an arbitral award must be filed with the court having jurisdiction over the seat of the arbitration, at the location of the assets against which enforcement is sought or the domicile of the party against whom enforcement is sought. While provisional enforcement of a district court's enforcement decision may be possible, either party may appeal the district court judgment in an enforcement or set aside action first to the high court and then to the Supreme Court.
The Seoul Central District Court has a panel specialised in international transactions such as shipping, letters of credit, marine insurance and securities, which deals with international arbitration matters to ensure more efficient and consistent judgments. However, the practical benefit of this system is limited by the Korean courts' system of rotating judicial assignments, whereby Korean court judges, including those on specialised panels, are periodically rotated to new judicial assignments.
iii Local institutions
The KCAB is the largest arbitral institution in Korea and has a significant caseload of international arbitrations. The statistics regarding cases handled by the KCAB from 2015 to 2017 are as follows:
|Unit: cases, billion won|
|Category||Number in dispute||Amount in dispute||Number in dispute||Amount in dispute||Number in dispute||Amount in dispute|
The KCAB has separate Domestic Arbitration Rules and International Arbitration Rules, and adopted significant amendments to both in 2016: the amended International Arbitration Rules came into force on 1 June 2016 and the amended Domestic Arbitration Rules came into force on 30 November 2016. The KCAB INTERNATIONAL Arbitration Rules apply to arbitrations initiated after 1 June 2016, and are now the default rules for arbitrations administered by the KCAB that are international in character. The KCAB Domestic Arbitration Rules now only apply to international arbitrations if the parties specifically agree to apply them instead of the International Arbitration Rules.
Under the amended rules, the KCAB may exercise more control over the constitution of a tribunal by requiring that arbitrators may be nominated by parties, subject to confirmation of the nomination by the KCAB Secretariat. The amended International Arbitration Rules also provide that a tribunal may (or may refuse to) join an additional party in an ongoing arbitration at the request of a party if all parties, including the party to be joined, agree in writing; or if the additional party agrees in writing when all of the claims are made under the same arbitration agreement. In addition, the amended International Rules also include new provisions permitting claims under multiple contracts to be filed in a single request for arbitration. Where such claims are filed in a single request, the Secretariat has discretion to accept or reject the inclusion of the separate claims in a single arbitration, but if the Secretariat refuses the request, the claimant may file the claims separately and seek consolidation after formation of a tribunal.
Under the expedited procedures in the amended International Arbitration Rules, the award must be issued within three months from the constitution of the tribunal unless the KCAB Secretariat extends this deadline. These procedures apply if the total claims and counterclaims are valued at 500 million won or less or if the parties agree to apply the expedited procedures. The amended rules also introduced emergency arbitrator provisions that allow for the appointment of an emergency arbitrator before formation of a tribunal for the sole purpose of hearing an application for emergency interim relief that cannot await the formation of the tribunal.
Under the International Rules, the International Arbitration Committee,8 currently composed of prominent leaders in arbitration including Gary Born, Neil Kaplan, Lucy Reed, Michael Hwang, Michael Moser and Jan Paulsson, will assist with making decisions on matters relating to the tribunal, including challenges, or the replacement or removal of arbitrators.
The Seoul International Dispute Resolution Center (Seoul IDRC) provides a dedicated multi-purpose hearing centre and sponsors regular events for the promotion of arbitration in Korea. Currently, the institutions with offices at Seoul IDRC are as follows:
- the Singapore International Arbitration Centre;
- the International Bar Association
- the Hong Kong International Arbitration Centre;
- the Korean Arbitrators Association;
- the Korean Council for International Arbitration;
- the American Arbitration Association and the International Centre for Dispute Resolution;
- the International Chamber of Commerce;
- the Singapore International Mediation Centre; and
- the Korean Society of Mediation Studies.
II THE YEAR IN REVIEW
i Developments affecting international arbitration
Since amendments to the Arbitration Act and the KCAB's Arbitration Rules came into effect in 2016, there were no significant statutory developments or changes to the rules relating to international arbitration in Korea in 2018. In 2016, Korea adopted significant amendments to incorporate the 2006 UNCITRAL Model Law in the Arbitration Act, as discussed above. Korea also enacted a new act on the promotion of international arbitration to expand the government's support for initiatives enhancing the environment for international arbitration, known as the Arbitration Facilitation Act. The KCAB also adopted significant revisions to both its International and Domestic Arbitration Rules in 2016, as explained above.
There were significant developments at the KCAB and Seoul IDRC in 2018, as explained below.
Establishment of KCAB INTERNATIONAL
The most significant KCAB development in 2018 was the establishment of KCAB INTERNATIONAL on 20 April 2018 as an independent division of the KCAB to meet the growing demand for cross-border commercial dispute resolution. KCAB INTERNATIONAL specialises in international arbitration to ensure that disputes are resolved in a cost-effective and time-efficient manner with streamlined process.9 Professor Hi-Taek Shin is the first chair of KCAB INTERNATIONAL.
Establishment of KCAB Next
In 2018, KCAB Next, a new professional development and networking group, was established with the support of KCAB INTERNATIONAL. KCAB Next aims to 'usher in much-needed changes in the field' by offering a platform for 'the next generation of leading arbitrators and leading international advocates in Korea'.10 The basic role of this group is to organise and support events at which young arbitration practitioners can network, learn and collaborate on long-term arbitration projects.
KCAB plan to set up an education institution
KCAB also plans to set up an educational institution for the development of experts as part of its plan to facilitate the arbitration industry pursuant to the Arbitration Facilitation Act. This institution is planned to be located in Samsung.11
Relocation of Seoul IDRC
Seoul IDRC relocated on 20 April 2018 from the Jongno area of Seoul to Samsung-dong in the Gangnam area of Seoul.12 As part of this move, Seoul IDRC has expanded its scope to cover not only international arbitration but also other domestic alternative dispute resolution systems.
ii Arbitration developments in local courts
In two cases in 2018 the Korean courts clarified issues relating to enforcement of an arbitration award and applications to cancel or suspend the arbitration procedure.
The first case dealt with the recognition and enforcement of an arbitral award. The court accepted an application for the recognition and enforcement of a foreign arbitral award even though the respondent had paid the claimant part of the damages awarded after the foreign arbitral award was made.13 The claimant in this case was a limited liability company from France, and the respondents, Keunbae Kim, et al., were majority shareholders of Keum-Ah Flow Corporation and Keum-Han Corporation (collectively, the corporations), which were both established in Korea under Korean law.
On 9 February 2011, the claimant and respondents executed a share purchase agreement pursuant to which the claimant purchased from the respondents all shares of the corporations. On 7 July 2013, the claimant filed for arbitration proceedings against the respondents based on their alleged breach of obligations under the share purchase agreement. On 12 June 2015, the arbitral tribunal issued an arbitral award ordering the respondents to pay the claimant damages totalling 5,549,570,447 won. On 15 June 2016, after the award was issued, the respondents paid the claimant 719,995,434 won.14
The claimant filed an application for the recognition and enforcement of the award with the Korean court pursuant to Article 37 (1), (2) of the Arbitration Act. The respondents argued that the recognition and enforcement of the award should be refused pursuant to Article V (2)(b) of the New York Convention, as enforcement is contrary to the public policy of Korea since part of the amount awarded (i.e., 719,995,434 won) had already been paid to the claimant.15 However, the court held that the award for the remaining part of the damages should be recognised and enforced, holding that that recognition and enforcement of the award did not become contrary to public policy just because the claimant had already been compensated for part of the damages ordered in the award.16
The second case dealt with a party's application to suspend arbitral proceedings. The court held that a party may not apply to the court for a preliminary injunction to suspend arbitral proceedings for the absence, invalidity, nullity or unenforceability of an arbitration agreement.17 The court held that, because Articles 6, 9 and 17 of the Arbitration Act strictly limit the court's involvement in arbitration proceedings to situations specifically 'provided in this Act' and do not include provisions allowing a preliminary injunction to suspend an arbitration, the court does not have authority to issue a preliminary injunction to suspend arbitration proceedings for the lack, invalidity, nullity or unenforceability of an arbitration agreement.18 The court also held that Article 10 of the Arbitration Act, which states that 'a party to an arbitration agreement may request to the court, before the commencement of or during arbitration proceedings, an interim measure of protection' is meant to ensure the effectiveness of an arbitral award based on the premise that an arbitration agreement exists. Thus, the purpose of this provision is to allow parties to apply for interim measures to avoid changes to the state of the object of the dispute, or substantial losses or imminent threats to the disputed rights before an arbitral award is made.19 As such, the court found that Article 10 of the Arbitration Act could not be seen as grounds to allow an application for a preliminary injunction to suspend arbitral proceedings based on the non-existence or nullity of an arbitration agreement.20
iii Investment treaty cases involving Korea or Korean parties
Korea is party to more than 90 bilateral investment treaties and numerous free trade agreements, many of which include investor–state arbitration as a dispute resolution mechanism. Recently, three investment arbitration claims have been brought by foreign investors against Korea. There have been five publicly disclosed investment arbitration cases brought against foreign states by five Korean parties, three of which have been concluded.
In the first recent investor–state case, Korea faced claims brought by a Belgium incorporated investment company owned by Texas-based Lone Star Funds in an ICSID arbitration pursuant to Korea's bilateral investment treaty with the Belgium–Luxembourg Economic Union.21 In its US$4.6 billion claim, Lone Star Funds argued that Korea breached its treaty obligations by refusing to approve the sale of Korea Exchange Bank by Lone Star Funds' subsidiary in a timely manner and imposing capital gains tax on the sale of its investments.22 Final oral arguments in this case were held in June 2016, and the case remains pending.23
The second investor–state arbitration brought against Korea, Hanocal Holding BV and IPIC International BV v. Republic of Korea, involved claims brought by a Dutch investment vehicle of a United Arab Emirates (UAE) sovereign wealth fund under the Korea–Netherlands bilateral investment treaty.24 The investor claimed the return of withholding tax levied by the Korean government regarding the investor's sales of shares in Hyundai Oilbank, arguing that the wrong tax treaty was applied when calculating the tax rate. The Korean government had levied the withholding tax without applying the tax treaty between Korea and the Netherlands, holding that the Dutch investment vehicle was a mere paper company owned by the UAE company, and this position had been upheld in the Korean courts when the investor had filed for claim in the Korean courts.25 In the course of the ICSID proceedings, after formation of the tribunal, the investors withdrew their claims, resulting in an order of the tribunal on 5 October 2016 taking note of the discontinuation of the proceedings.26
The third recent investor–state arbitration filed against Korea, Dayyani v. Republic of Korea, was brought under the UNCITRAL Rules pursuant to the Iran, Islamic Republic–Korea bilateral investment treaty. Dayyani's claims, which were filed in September 2015, relate to the failure of the bid by Dayyani's subsidiary, Entekhab Industrial Group, to acquire the Korean electronics company Daewoo Electronics in a privatisation sale by Korea Asset Management Corp (KAMCO).27 The investor had been chosen as the preferred bidder to acquire a controlling stake in Daewoo Electronics, and had paid 10 per cent of the purchase price, but the deal was later cancelled by KAMCO. The investor claims the Korean government transgressed the principle of fair and equitable treatment during the deal process.28 This case is ongoing; the claimant filed its most recent memorial on the merits on 29 October 2018.
In addition, the government recently notified the public that a US investor has submitted a notice of intent based on the Korea–US free trade agreement on 7 September 2017.29 The investor has claimed that its real estate in Korea was wrongfully expropriated with inadequate compensation for a redevelopment project, but this has not yet filed for arbitration.
An investor–state arbitration was also filed against Korea by Elliott Associates, LP, a US-based hedge fund, in Elliott Associates, LP v. Republic of Korea, seeking US$770 million in compensation for the merger between two Samsung Group affiliates. Elliott submitted its application for arbitration claiming it has suffered the loss of US$770 million due to 'unfair' mediation by the Korean government in the process of approving the merger between Samsung C&T and Cheil Industries in 2015.30 The Korean government submitted its response to the notice of arbitration on 13 August 2018.
Another investor–state arbitration filed against Korea is Mason Capital LP and Mason Management LLC v. Republic of Korea. Mason Capital Management, a US hedge fund, has notified the South Korean government that it has filed for arbitration seeking US$200 million in compensation for losses incurred from a controversial merger between two Samsung companies.31 It submitted its notice of intent on 7 June 2018, and a notice of arbitration and statement of claim on 13 September 2018.
The first investor–state arbitration brought by a Korean party was filed by a Mr Lee John Beck against the Kyrgyz Republic, based on the CIS Convention for the Protection of Investors Rights (1997), regarding termination of a contract to run a theme park in the Kyrgyz capital.32 The arbitration was under the arbitration rules of the Moscow Chamber of Commerce and Industry. The decision was rendered in 13 November 2013, in favour of the investor.33
The second investor–state arbitration filed by a Korean investor involved a Korean real property company, Ansung Housing Co, Ltd, which filed an ICSID case against China in 2014 under the Korea–China bilateral investment treaty.34 This arbitration concluded with a 9 March 2017 award holding that the claimant's claims were time-barred due to the claimant's failure to file its arbitration claims within three years of first becoming aware of the claims.
The third investor–state arbitration brought by a Korean party was filed in 2015 with ICSID by Samsung Engineering Company Ltd against the state of Oman.35 This case was settled between the parties, and the tribunal concluded this case on 17 January 2018.36
The remaining two investor–state arbitrations are still pending. Samsung Engineering Company Ltd filed an ICSID arbitration against the Kingdom of Saudi Arabia. The case was registered at ICSID on 10 November 2017. On 19 March 2018, a Korean individual, Mr Shin, filed an ICSID arbitration against the Socialist Republic of Vietnam.
III OUTLOOK AND CONCLUSIONS
The use of arbitration as a form of dispute resolution by Korean parties has continued to increase. Korean companies are becoming more and more aggressive in pursuing arbitration to protect their contractual rights, and this trend is expected to continue for the next few years. The Korean arbitration community and the Korean courts have continued to support the promotion of Korea as an efficient and effective arbitral seat for arbitrations related to the Asia-Pacific region, and the number of international arbitrations seated in Korea is expected to continue to increase.
With the introduction of Arbitration Facilitation Act and the amendment of the Arbitration Act, Korea is pursuing efforts to earn recognition as an arbitral hub in Asia. In addition, many international arbitration conferences are planned to be held in Seoul in 2019, and the exposure and use of arbitration as a dispute resolution form is expected to continue to increase in the coming years.
1 Joel E Richardson and Byung-Woo Im are partners at Kim & Chang. The authors acknowledge with appreciation the invaluable assistance of Kim & Chang associate Hyemin Park.
2 See UNCITRAL Model Law 2016, Article 34(4).
3 Korean Court Organization Act Article 32(1)(2); Rules on Subject Matter Jurisdiction of Civil and Family Lawsuits Article 2. Cases with an amount in dispute of 200 million won or less are heard by a single judge at the district court level.
4 Annotations to the Civil Procedure Act (Volume VI), p. 69. For cases initially heard by a single judge in a district court, the intermediate-level appeal goes to a three judge panel in the appellate division of the district court.
5 Supreme Court Judgment No. 4292 Minsang805 dated 3 June 1960.
6 Korean Court Organization Act Article 14.
7 Korean Civil Procedure Act Article 423.
8 The New International Rules (Article 1) require the KCAB to run an International Arbitration Committee. The Committee is comprised of 18 arbitration experts including distinguished foreign arbitrators residing outside Korea. The KCAB consults with these experts on issues relating to the appointment, challenge, replacement and removal of arbitrators (http://www.kcab.or.kr/jsp/kcab_eng/kcab/kcab_14_ex.jsp ).
10 Jack Ballantyne, 'Korean centre launches networking group', GAR Article, 26 March 2019, available at https://globalarbitrationreview.com/article/1189111/korean-centre-launches-networking-group.
11 Address: 24F, Trade Tower 511 Yeongdong-daero (Samseong-dong), Gangnam-gu, Seoul 06164.
12 Address: 18F, Trade Tower, 511 Yeongdong-daero (Samseong-dong), Gangnam-gu, Seoul 06164.
13 Seoul East District Court Decision case No. 2017KaGi1375 dated 24 May 2018.
17 Supreme Court Judgment case No. 2017Ma6087 dated 2 February 2018.
21 LSF-KEB Holdings SCA and others v. Republic of Korea (ICSID case No. ARB/12/37).
24 Hanocal Holding BV and IPIC International BV v. Republic of Korea (ICSID case No. ARB/15/17).
25 Lacey Yong, 'New ICSID claim against South Korea', 22 May 2015, Global Arbitration Review, available at http://globalarbitrationreview.com/news/article/33825/new-icsid-claim-against-south-korea/.
27 Jae-Won Kim, 'Iranian firm files claim against Korea over failed deal', The Korea Times, 22 September 2015, available at koreatimes.co.kr/www/news/biz/2015/11/488_187345.html.
28 Michael Herh, 'Iranian Company Files ISD Lawsuit against Korean Gov't', Business Korea, 22 September 2015, available at http://www.businesskorea.co.kr/news/articleView.html?idxno=12185.
29 Ministry of Justice official press release dated 24 October 2017 available at http://www.moj.go.kr/HP/COM/bbs_03/ListShowData.do.
30 'Elliott starts ISD suit against Korea, claiming $770m in damage', Korea Herald, 13 July 2018, available at http://www.koreaherald.com/view.php?ud=20180713000681.
32 Kyriaki Karadelis, 'Global Arbitration Review reports on CIS Economic Court case in which Satarov, Askarov & Partners act for Kyrgyz government', Global Arbitration Review, 4 July 2014, available at http://en.sap.kg/in-the-press/inthe-press-globalabrivation/.
34 Ansung Housing Co, Ltd. v. People's Republic of China (ICSID case No. ARB/14/25).
35 Samsung Engineering Co, Ltd v. Sultanate of Oman (ICSID case No. ARB/15/30).
36 Lina Jang, 'Samsung Engineering Settles Dispute with Oman, ISDS Withdrawn,' KoreaBizwire, 29 January 2018, available at http://koreabizwire.com/samsung-engineering-settles-dispute-with-oman-isds-withdrawn/109298; https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?CaseNo=ARB/15/30.