The Korean 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 made in 2016. The 2016 amendments to the Korean 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 (the Korean 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 Korean Arbitration Act, which came into force on 30 November 2016, to adopt certain provisions of the 2006 amendments to the 1985 UNCITRAL Model Law (Korean Arbitration Act (2016)).
However, the Korean 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 Korean 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 Korean Arbitration Act (2016) applies to arbitrations seated in Korea, regardless of the nationalities of the parties. There are some notable provisions in the Korean 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).
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 the 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 arbitration, 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, that 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 KCAB has separate Domestic Arbitration Rules and International Arbitration Rules. The KCAB International Rules were amended in 2011 and again in 2016. For contracts entered into before the adoption of the 2011 amendments to the International Arbitration Rules, the default rules are the Domestic Arbitration Rules, and the International Arbitration Rules apply on an opt-in basis, either by specific reference in the applicable arbitration agreement or be later agreement of the parties. However, for contracts entered into after 2011 the International Arbitration Rules apply where the parties specifically adopt the International Arbitration Rules or where the place of business of either party or the seat of the arbitration is located outside of Korea.
Under the KCAB International Rules, the International Arbitration Committee, currently composed of prominent leaders in arbitration including Gary Born, Neil Kaplan, Lucy Reed, Michal Hwang, Michael Moser, Jan Paulsson, will assist with making decisions for matters relating to the tribunal, including challenges, replacement or removal of arbitrators.
The Seoul International Dispute Resolution Center (SIDRC) provides a dedicated multi-purpose hearing centre and sponsors regular events for the promotion of arbitration in Korea. There were significant developments for SIDRC in 2017. It entered into an MOU with Korean In-house Counsel Association (KICA) and the Singapore International Mediation Center (SIMC) to promote cooperation and joint development of mediation in Korea. Notably, to promote interest in mediation, the SIMC hosted its first international training programme for mediation at the SIDRC in Seoul for attorneys, law professors and other legal professionals who received certification at the conclusion of the programme as specialist mediators.
In 2017, the SIDRC also obtained official membership in the Asian Pacific Regional Arbitration Group. In 2017, the KCAB expanded its international promotion by hosting a series of overseas events including in Dubai, Kuala Lumpur, Jakarta, Singapore, Vietnam and Vienna. In April 2018, the SIDRC and the KCAB merged to launch KCAB International at the Trade Towers in Samsung dong, Seoul.
II THE YEAR IN REVIEW
i Developments affecting international arbitration
There were no significant developments relating to international arbitration in Korea in 2017 since the amendments to the Korean Arbitration Act and the KCAB's arbitration rules came into effect in the previous year 2016. In 2016, Korea adopted significant amendments to incorporate the 2006 UNCITRAL Model Law in the Korean Arbitration Act. 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. The KCAB also adopted significant revisions to both its International and Domestic Arbitration Rules in 2016.
Amendments to the Korean Arbitration Act
As noted above, the 2016 amendments to the Korean Arbitration Act were largely based on the 2006 UNICITRAL Model Law. The Korean Arbitration Act (2016) clarified 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'8 and expanded 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.9 The Korean 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 measures10 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 Korean Arbitration Act 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 this will be an available measure in practice as Korean courts have not traditionally played a significant role in the collection of evidence in arbitrations seated in Korea. In addition, there is no contempt of court in Korea and Korean courts have limited tools to compel production of documents or witnesses for examination.11 The Korean Arbitration Act (2016) was also amended to allow enforcement based on a 'decision' of the district court rather than a judgment, which is understood as an effort to expedite enforcement proceedings. There has been a number of applications to Korean courts for recognition or enforcement of arbitral awards after the amendment became effective, but it remains to be seen how much faster in actual practice the new proceedings will be compared to the old method.
Adoption of the Arbitration Facilitation Act
The Arbitration Facilitation Act12 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.13 The most significant anticipated initiative under the Arbitration Facilitation Act is the construction of a comprehensive dispute resolution facility in Kangnam Seoul.14
Amendments to the KCAB International Arbitration Rules
The KCAB adopted significant amendments to the KCAB International Arbitration Rules that came into force on 1 June 2016 and apply to arbitrations initiated after that date.
Under the amended rules, the KCAB may exercise more control over the constitution of a tribunal by requiring that arbitrators may be 'nominated' by the parties, subject to confirmation of the nomination by the KCAB Secretariat.15 The amended International Arbitration Rules also provide 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.16 In addition, the amended International Rules also include new provisions permitting claims under multiple contracts to be filed in a single request for arbitration, and where the Secretariat refuses the request, the claimant may file the claims separately and seek consolidation after formation of the tribunal.17
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.18 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.19 The amended rules also introduced emergency arbitrator provisions which allow for the appointment of an emergency arbitrator before formation of the tribunal for the sole purpose of hearing an application for emergency interim relief that cannot await the formation of the tribunal.
Amendments to the KCAB Domestic Arbitration Rules
The KCAB also adopted major revisions to the KCAB Domestic Arbitration Rules in 2016. The KCAB International Arbitration Rules are now the default rules for international arbitrations administered by the KCAB and the KCAB Domestic Arbitration Rules will only apply to international arbitrations if the parties specifically agree to apply them instead of the International Arbitration Rules.
ii Arbitration developments in local courts
In two cases in 2017 the Korean courts clarified issues relating to applications to cancel an arbitration award that were previously unclear or subject to dispute.
The first case dealt with the enforceability of an optional arbitration clause. In that case, a petition was filed seeking set-aside of an arbitration award on the grounds that the arbitration had been filed under an optional arbitration clause included in the general terms and conditions of the contract, which allowed the parties to resolve any disputes (1) by arbitration or mediation or (2) in the event that mediation is objected to in the court with jurisdiction.20 The claimant filed a request for arbitration under the optional arbitration clause and the respondent did not raise an objection regarding the validity of the arbitration agreement until it submitted its response on the merits.21 The Supreme Court held that, by failing to dispute the validity of the arbitration agreement in its answer, the respondent in effect presented the respondent's intent not to dispute the existence of the arbitration agreement.22 This decision is understood to clarify that an optional arbitration clause, which allows claims to be heard either in arbitration or in court, might not be enforceable if objected to at the outset, but may become a binding arbitration agreement if not objected to by the respondent in its first responsive pleading.
The second case dealt with the enforceability of an arbitration agreement contained in standard terms and conditions regulated under the Standardized Contract Regulations Act (SCRA). In this case, the respondent had raised a jurisdictional objection in its answer, alleging that the contract containing the arbitration agreement was a standardised contract governed by the SCRA and that the dispute resolution clause was unenforceable because it unreasonably limited the plaintiff's right to trial.23 When the respondent lost in the arbitration, it filed a set-aside action in the Seoul Central District Court, which accepted the respondent's arguments and ordered the award to be set aside. However, the Seoul High Court overruled the Seoul Central District Court decision and found that the arbitration agreement was valid because (1) the contract did not meet the criteria of standardised contracts subject to the Standard Contract Regulations Act and (2) the dispute resolution clause was not unreasonably disadvantageous.24
iii Investment treaty cases involving Korea or Korean parties
Korea is a 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 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.25 In its US$4.6 billion claim, Lone Star Funds argued that Korea breached its treaty obligation by refusing to approve the sale of Korea Exchange Bank (KEB) by Lone Star Funds' subsidiary in a timely manner and imposing capital gains tax on the sales of its investments.26 Final oral arguments in this case were held in June 2016, and the case remains pending.27
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 UAE sovereign wealth fund under the Korea–Netherlands bilateral investment treaty.28 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.29 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.30
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).31 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.32 This case is ongoing.
In addition, the Korean government has recently notified the public that a US investor has submitted to the government a notice of intent based on the Korea–US free trade agreement on 7 September 2017.33 The investor has claimed that its real estate in Korea was wrongfully expropriated, with inadequate compensation for a redevelopment project but has not yet filed for arbitration.
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.34 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.35
The second investor–state arbitration filed by a Korean investor involves 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.36 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.37 This case settled between the parties and the tribunal concluded this case on 17 January 2018.38
The remaining two investor–state arbitration 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. Earlier this year on 19 March 2018, 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 in the next few years. The Korean arbitration community and the Korean courts have been supporting promoting 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.
1 Joel E Richardson and Byung-Woo Im are partners at Kim & Chang. The authors acknowledge with appreciation the invaluable assistance of Kim & Chang associates Wonyoung (Karyn) Yoo and Boram Hong.
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 Korean Arbitration Act (2016) Article 8(3)(1).
9 Id. at Article 3(1).
10 Korean Arbitration Act (2016) Article 18 and 18-2.
11 Korean courts may impose non-criminal administrative fines to witnesses who do not appear in court; however, in practice this is not common.
12 Arbitration Facilitation Act, Article 1.
13 Arbitration Facilitation Act, Article 7.
14 Arbitration Facilitation Act, Article 5. While Seoul is already home to the Seoul International Dispute Resolution Center, which houses hearing facilities and offices for several major international arbitration institutions, the Arbitration Facilitation Act is expected to support the construction of larger facilities that can accommodate multiple simultaneous hearings.
15 Id. at Article 13. To protect party autonomy, the KCAB International Rules only permit the KCAB Secretariat to refuse to confirm an arbitrator nominated by one or more of the parties if the candidate is 'clearly inappropriate'.
16 Id. at Article 21. In either case, the written arbitration agreement requirement must be met with regard to the party to be joined.
17 Id. at Article 23.
18 Id. at Article 48.1.
19 Id. at Article 44.
20 Supreme Court Judgment Case No. 2005Dal12452 dated 27 May 2005.
23 Seoul High Court Judgment Case No. 2017 Na2022139 dated 20 October 2017.
25 LSF-KEB Holdings SCA and others v. Republic of Korea (ICSID Case No. ARB/12/37).
28 Hanocal Holding BV and IPIC International BV v. Republic of Korea (ICSID Case No. ARB/15/17).
29 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/.
31 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.
32 Matthew, 'Iraning 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.
33 Ministry of Justice official press release dated 24 October 2017 available at http://www.moj.go.kr/HP/COM/bbs_03/ListShowData.do.
34 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/.
36 Ansung Housing Co, Ltd. v. People's Republic of China (ICSID Case No. ARB/14/25).
37 Samsung Engineering Co, Ltd v. Sultanate of Oman (ICSID Case No. ARB/15/30).
38 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.