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Dispute ResolutionVolume 2: ArbitrationThe law in key jurisdictions worldwide 2008/09

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Dispute Resolution 2008/09 Volume 2: Arbitration Country Q&A South Korea

PLCCROSS-BORDER HANDBOOKS www.practicallaw.com/arbitrationhandbook 177

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South Korea

Byung-Chol (BC) Yoon, Eun-Young Park and Jun Hee Kim, Kim & Chang

www.practicallaw.com/8-381-2907

GenerAl

1. Please give a brief overview of the use of commercial arbitra-tion in your jurisdiction, including any recent trends. What are the general advantages and disadvantages of arbitration compared to court litigation in your jurisdiction?

South Korea is generally considered to be an arbitration friendly jurisdiction and has seen increasing use of arbitration in recent years, particularly in the context of international transactions. The ongoing trend with South Korean courts has been to encour-age the enforcement of arbitration awards by adopting a narrow interpretation of the grounds for refusing enforcement.

While South Korean courts are generally considered to be impar-tial and efficient, some of the main advantages of arbitration in South Korea include confidentiality, flexibility of procedures, and wider enforceability of the award in foreign jurisdictions.

2. Which arbitration organisations are commonly used to resolve large commercial disputes in your jurisdiction? Please give details of both arbitral institutions and professional/industry bodies, including the website address of each organisation.

The Korean Commercial Arbitration Board (KCAB) is the most prominent and widely used arbitral institution in South Korea (see box, Main arbitration organisation).

Numerous other international arbitrations are regularly conduct-ed in South Korea under the rules of other major international arbitration organisations, including the:

International Chamber of Commerce (ICC).

London Court of International Arbitration.

American Arbitration Association.

Singapore International Arbitration Centre.

3. What legislation applies to arbitration in your jurisdiction? To what extent has your jurisdiction adopted the UnCITrAl Model law on International Commercial Arbitration 1985 (UnCITrAl Model law)?

The main source of law for arbitral proceedings in South Korea is the Arbitration Act of Korea (Arbitration Act). This governs both

domestic arbitrations and international arbitrations taking place in South Korea.

The Arbitration Act is based largely on the UNCITRAL Model Law, with some minor variations. For example, Article 27(3) of the Arbi-tration Act permits the parties to challenge the experts appointed by the arbitral tribunal on the same grounds and through the same procedures used to challenge an arbitrator. In addition, the Arbi-tration Act omits the provision in Article 34(4) of the UNCITRAL Model Law which states that, on the request of a party, the court can suspend its proceedings in an action challenging the award to allow the tribunal to resume its proceedings or take other action which may eliminate the grounds for setting aside the award.

If parties choose the KCAB to conduct arbitration, the Arbitration Rules of the Korean Commercial Arbitration Board (KCAB Rules) apply to the procedure.

4. Are there any mandatory legislative provisions (for example, relating to removal of arbitrators, challenge of awards and arbitrability)? If yes, please summarise their effect.

The procedural provisions of the Arbitration Act are generally de-fault provisions, most of which apply if the parties have not made an agreement on such matters.

While the parties can agree on the procedures for challenging the appointment of an arbitrator, without such an agreement if a party intends to challenge an arbitrator, they must do so within 15 days after becoming aware of the constitution of the tribunal or its grounds for challenging an arbitrator’s appointment (Article 14, Arbitration Act). In addition, the Supreme Court has held that the parties cannot waive the provisions of Article 13 of the Arbitration Act, which require potential arbitrators to disclose all circumstances likely to give rise to justifiable doubts about their impartiality or independence.

There is no clear court precedent to date about whether claims related to economic regulatory laws (such as anti-trust, compe-tition, securities, environmental or intellectual property regula-tions), are arbitrable. However, legal commentators recognise the recent trend in international arbitration favouring the arbitrability of these areas of the law, and there is at least one South Ko-rean court decision enforcing a foreign arbitral award based on a licence agreement that was alleged to violate South Korean fair trade laws. As part of its reasoning, the enforcing court em-phasised the need to promote international trade relations. As in most other jurisdictions, matters of criminal law, family law and administrative law are not arbitrable in Korea.

© This chapter was first published in the PLC Cross-border Dispute Resolution Handbook 2008/09 Volume 2: Arbitration Handbook and is reproduced with the permission of the publisher, Practical Law Company. For further information or to obtain copies please contact [email protected], or visit www.practicallaw.com/disputehandbook.

178 PLCCROSS-BORDER HANDBOOKS www.practicallaw.com/arbitrationhandbook

Country Q&A South Korea Dispute Resolution 2008/09 Volume 2: Arbitration

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Arbitral awards can only be challenged by applying to a court to set aside the award (Article 36, Arbitration Act). The grounds for setting aside an award are mainly based on Article 36 of UNCI-TRAL Model Law (see Question 22).

5. Are there any requirements relating to independence or im-partiality?

An arbitrator can be challenged if there are circumstances likely to give rise to reasonable doubts about their impartiality or inde-pendence, or if they do not possess the qualifications agreed by the parties (Article 13, Arbitration Act).

Article 13 also requires arbitrators to disclose any circumstances that may give rise to justifiable doubts about their impartiality or independence.

6. Does the law of limitation apply to arbitration proceedings? If yes, briefly state the usual length of limitation period(s) and what triggers or interrupts it in the context of commercial arbitration.

Claims asserted in arbitration proceedings are subject to the same statute of limitations that applies in court actions.

The limitation period for a claim right arising out of most con-tracts between merchants is five years (Article 64, Commercial Code). Other claims of a specific nature have shorter limitation periods prescribed by law.

Parties can agree to shorten the limitation period for certain claims by a contractual arrangement, but not to exclude or extend it (Article 184, Civil Code).

In the commercial context, the limitation period begins to run from the date of accrual of the cause of action (for example, the time of the breach of contract). The limitation period for tort claims is ten years from the date of the occurrence of the tortious conduct or three years of the discovery of such conduct (Article 766, Civil Code).

ArbITrATIon AGreeMenTs

7. For an arbitration agreement to be enforceable:

What substantive and/or formal requirements must be satisfied?

Is a separate arbitration agreement required or is a clause in the main contract sufficient?

Like the UNCITRAL Model Law, the Arbitration Act requires an arbitration agreement to be in writing and it can be included as an arbitration clause in a contract or as a separate agreement.

An arbitration agreement can be contained in a document signed by the parties, an exchange of written communications, or in an exchange of statements of claim and defence if the existence of an arbitration agreement is alleged by one party and not denied by the other.

A reference in a contract to a document containing an arbitration clause constitutes a binding arbitration agreement, provided that the contract is in writing and the reference is such as to make that clause a part of the contract.

An arbitration agreement can be general in its terms and may ap-pear under the general terms and conditions of the contract.

The New York Convention (see Question 25) does not allow the finding of an agreement to arbitrate on the basis of an exchange of statements of claim and defence in which the existence of an arbitration agreement is alleged by one party and not denied by the other. The Supreme Court has held that this cannot be the basis for a finding that the parties have agreed to arbitra-tion where the Convention applies, despite the provisions of the Arbitration Act.

8. Do statutory rules apply to the arbitration agreement? For example, are there restrictions on the number, qualifications/characteristics or selection of arbitrators?

There are no restrictions in the Arbitration Act regarding who may serve as an arbitrator, and no specific qualifications are required. The parties are free to agree on the qualifications of the arbi-trators and a procedure for selecting them. Although the KCAB maintains a roster of arbitrators, the parties are free to choose arbitrators who are not on the roster if they so agree.

No person can be precluded from serving because of their nationality, unless otherwise agreed by the parties (Article 12, Arbitration Act).

South Korean court judges cannot serve as arbitrators because of their judicial duty not to engage in profit-making activities.

9. In what circumstances can a third party be joined to an ar-bitration, or otherwise be bound by an arbitration award? Please give brief details.

A third party can be bound to an arbitration agreement as a successor (for example, as heir, transferee, assignee, trustee) to a contracting party that is so bound. Third parties can also be bound by their subsequent consent to an arbitration agreement, whether by affirmative consent in writing, or failure to object to the jurisdiction of the arbitral tribunal. A plea that the arbitral tribunal does not have jurisdiction over a party must be raised no later than the submission of a statement of defence on the substance of the dispute (Article 17, Arbitration Act).

ProCeDUre

10. Does the applicable legislation provide default rules govern-ing the appointment and removal of arbitrators, and the start of arbitral proceedings?

Under the Arbitration Act, if there is no agreement between the parties the default number of arbitrators is three.




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If the parties agree to have a sole arbitrator but cannot agree on an arbitrator within 30 days after a party receives a request to start the procedure to appoint the arbitrator, the competent court can, at either party’s request, appoint the sole arbitrator.

If the parties agree to three arbitrators (or fail to agree on a number of arbitrators), but have not agreed to a procedure for ap-pointing such arbitrators, each party appoints one arbitrator, and these two appointed arbitrators then appoint the third arbitrator.

If a party fails to appoint an arbitrator within 30 days of a re-quest to do so by the other party, or if the two party-appointed arbitrators fail to appoint a third arbitrator within 30 days of their appointment, a competent court appoints the arbitrator on the request of either party.

If the parties agree on a procedure to appoint the arbitrators, the competent court can intervene to appoint the arbitrator(s) at the request of a party if:

A party fails to act according to the agreement.

The parties (or party-appointed arbitrators) are unable to reach an agreement expected of them under such procedure.

A third party entrusted to appoint the arbitrator(s) fails to do so.

The method of default appointment under the KCAB Rules is for the KCAB’s Secretariat to provide the parties with a list of ten candidates from the its roster of arbitrators, and the parties to rank the arbitrators in order of preference. The Secretariat then appoints three arbitrators in the order of the combined ranking of the parties.

In addition, the KCAB has recently enacted a new set of rules for international arbitrations (KCAB International Rules) that the parties can choose to apply by agreement. If the parties agree to apply the KCAB International Rules then the default rule is that the parties can agree on a sole arbitrator and, if no agreement is reached, the Secretariat appoints the sole arbitrator. When a panel of three arbitrators serves as the tribunal the default rule is that each party nominates one arbitrator and such party-nomi-nated arbitrators agree on a third arbitrator who serves as the chair. If the two arbitrators cannot agree on a third arbitrator, the Secretariat appoints the third, who again, serves as the chair of the tribunal.

Parties are free to agree on the procedures for removing an ar-bitrator. The Arbitration Act also provides default procedures for challenging an arbitrator (see Question 4).

11. What procedural rules are arbitrators likely to follow? Can the parties determine the procedural rules that apply? Does the legislation provide any default rules governing procedure?

The procedural provisions of the Arbitration Act are generally de-fault provisions, most of which apply if the parties have not made an agreement on such matters.

The parties have significant freedom to agree on particular proce-dural rules, and the arbitrators also have wide discretion to deter-mine how the arbitration proceeds. However, there are some ex-

ceptions. For example, Article 19 of the Arbitration Act requires that the parties receive equal treatment and that each party is given a full opportunity to present its case.

12. What procedural powers does the arbitrator have? If there is no express agreement, can the arbitrator order disclosure of documents and attendance of witnesses (factual or expert)?

Without an express agreement by the parties as to a particular arbitral rule to apply to an arbitration, arbitrators have broad dis-cretion in establishing procedural rules. An arbitrator may have the authority to order document disclosure or the attendance of witnesses for an evidentiary hearing. While an arbitrator does not have the authority to compel document production or witness at-tendance, if necessary an order to do so can be pursued with the assistance of a district court.

evIDenCe

13. What documents must the parties disclose to the other par-ties and/or the arbitrator(s)? Can the parties determine the rules on disclosure? How, in practice, does the scope of dis-closure compare with disclosure in litigation?

The arbitral tribunal can order the production of documents or ex-amination of witnesses, and may seek the assistance of the courts in obtaining or examining such evidence (see Question 12).

Parties can reach an agreement on the rules of disclosure but otherwise, the scope of discovery is generally much more limited than in US style litigation, and the tribunal does not have the authority to compel the production of documents.

Written statements are frequently used instead of direct witness testimony at the hearings, and there are no restrictions about who can be called as a witness. As such, officers of the parties to the arbitration can testify at the hearings or submit written witness statements.

ConFIDenTIAlITy

14. Is arbitration confidential?

Arbitrations under the KCAB Rules are confidential. Only the parties are entitled to attend the hearings, although the tribunal can allow a non-party who has an interest in the outcome of the arbitration to attend (Rule 31, KCAB Rules).

All documents, evidence and information submitted or disclosed during the arbitral proceedings are kept confidential.

The arbitral awards are not published or made public.




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CoUrTs AnD ArbITrATIon

15. Will the local courts intervene to assist arbitration proceed-ings? For example, by granting an injunction or compelling witnesses to attend?

An arbitral tribunal can seek assistance from the court in taking evidence under Article 28 of the Arbitration Act. In addition, the Arbitration Act permits the court to perform the following func-tions during the arbitration:

Appoint an arbitrator(s) under Article 12 of the Arbitration Act (where the parties or party-appointed arbitrators cannot agree) (see Question 12).

Decide on a challenge to an arbitrator under Article 14 (on appeal from the decision of the tribunal).

Decide on a request to terminate the mandate of an arbitra-tor under Article 15.

Rule on the jurisdiction of the arbitral tribunal under Article 17 (on appeal from a preliminary ruling by the tribunal).

Decide on a challenge to an expert appointed by the tribunal under Article 27 (on appeal from the decision of the tribunal).

A party can request an interim measure for protection from the court, before or during the arbitral proceedings (Article 10, Arbi-tration Act). The courts grant injunctive relief, such as prelimi-nary injunctions, to preserve the status quo or preliminary attach-ments on assets subject to dispute in the arbitration.

16. What is the risk of a local court intervening to frustrate the arbitration? Can a party delay proceedings by frequent court applications?

A court cannot intervene in arbitral proceedings except as pro-vided in the Arbitration Act (Article 6, Arbitration Act).

Although a respondent in an ongoing arbitration can file a lawsuit with a district court seeking a declaration that there is no valid arbitration agreement, the arbitration can proceed while the issue is pending before the court (Article 9, Arbitration Act).

In addition, courts generally respect a private agreement to resolve a dispute through binding arbitration. Accordingly, it is not likely that a court would intervene to frustrate arbitration proceedings or be recep-tive to a party’s attempt to delay such proceedings by court filings.

17. What remedies are available where proceedings are started in the local court in breach of an arbitration agreement?

If court proceedings are initiated despite the existence of an ar-bitration agreement, the court should dismiss the case unless it finds that the arbitration agreement is “null and void, inoperative or incapable of being performed” (Article 9, Arbitration Act). A party moving for dismissal on these grounds must do so no later than its first submission to the court on the substance of the

dispute. Arbitral proceedings can proceed and an award be given while the issue is pending before the court.

18. Will the local courts grant an injunction to restrain proceed-ings started overseas in breach of an arbitration agreement?

It is unlikely that a court would consider that it has the authority to issue an injunction against a party to restrain ongoing litigation in a foreign court.

19. What remedies are available where one party denies that the tribunal has jurisdiction to determine the dispute(s)? Does your jurisdiction accept the concepts of separability and/or kompetenz-kompetenz? Does the tribunal or the local court determine issues of jurisdiction?

An arbitral tribunal can rule on its own jurisdiction, including any objections about the existence or validity of the arbitration agree-ment (Article 17, Arbitration Act). A challenge to the jurisdiction of the arbitral tribunal must be raised no later than the statement of defence on the substance of the dispute. The arbitral tribunal can rule on a challenge to its jurisdiction as a preliminary question or in its award on the merits. If the arbitral tribunal rules as a preliminary matter that it has jurisdiction, a dissatisfied party can request, with-in 30 days of receiving notice of the ruling, that the competent court decide on the jurisdiction of the arbitral tribunal. Such a decision by the court is binding on the parties and is not subject to appeal.

reMeDIes

20. What interim remedies are available from the tribunal? Can the tribunal award:

security for costs?

security or other interim measures?

The arbitral tribunal can grant interim measures of protection that it considers necessary for the subject matter of the dispute un-less the parties agree otherwise (Article 18, Arbitration Act). Al-ternatively, the tribunal can determine an amount of security to be provided in place of such measure. The tribunal can also require the party requesting the interim measure to provide appropriate security. Rule 41 of the KCAB Rules provides similar rules.

As a practical matter, however, interim measures by arbitral tribu-nals are not common, partly because the tribunal does not have the authority to enforce such orders, and interim orders by arbitral tribunals would not generally be enforced by South Korean courts.

21. What final remedies are available from the tribunal? For ex-ample, can the tribunal award damages, injunctions, decla-rations, costs and interest?

The types of award available include:

A final award.




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Interim awards.

Consent orders.

Since there are no grounds for partial awards under the Arbitration Act, partial awards may be available if authorised by the parties.

Under Rule 52 of the KCAB Rules, the arbitral tribunal has broad powers to render its awards, including not only awards for dam-ages, but also in some cases specific performance of a contract, within the scope of the arbitration agreement.

Article 29 of the Arbitration Act provides that the arbitral tribunal can decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it to do so.

APPeAls

22. Can arbitration proceedings and awards be appealed or chal-lenged in the local courts? If yes, please briefly outline the grounds and procedure. Can the parties effectively exclude any rights of appeal?

Arbitral awards can only be challenged by applying to a court to set aside the award (Article 36, Arbitration Act) (see Question 4).

The grounds for setting aside an award as set out in Article 36 are mainly based on Article 36 of the UNCITRAL Model Law. The main grounds for setting aside an award include:

The arbitration agreement is deemed to be invalid

Improper notice.

The award falls outside the scope of the arbitration agreement.

The composition of the arbitral tribunal is not in accordance with the parties’ agreement.

An application for setting aside an award must be made within three months on receipt of an authenticated award. It cannot be made after the judgment for recognition or enforcement of the award given by a South Korean court becomes final and conclusive.

In addition, an application for setting aside an arbitral award can-not be made after a South Korean court gives a final decision recognising and/or enforcing the award.

CosTs

23. What legal fee structures can be used? For example, hourly rates and task based billing? Are fees fixed by law?

There are no mandatory legal fee structures under South Korean law. Most law firms in South Korea bill on a time charge basis but parties are free to reach alternative arrangements for representa-tion in an arbitration proceeding.

24. Does the unsuccessful party have to pay the successful party’s costs? How does the tribunal usually calculate any costs award and what factors does it consider when awarding costs?

There are no provisions in the Arbitration Act about the specific allocation of the costs of arbitral proceedings.

However, in a KCAB arbitration, the costs of the arbitration are allocated in the award (Rule 61, KCAB International Rules).

The costs are borne equally by the parties unless ordered other-wise in the award. Further, unless otherwise agreed by the par-ties, attorneys’ fees incurred in connection with the arbitration are not considered part of the arbitration costs and are generally not recoverable.

In contrast, under Rule 61 of the KCAB International Rules, the arbitration costs are, in principle, paid by the unsuccessful party, but can be apportioned at the discretion of the tribunal according to the circumstances of the case.

enForCeMenT

25. To what extent is an arbitration award made in your jurisdic-tion enforceable in the local courts? Please briefly outline the enforcement procedure.

The recognition and enforcement of foreign awards varies depend-ing on whether the New York Convention applies (Article 39, Ar-bitration Act) (see Question 26). If it does apply, recognition and enforcement of the foreign arbitral award is granted according to its provisions. If it does not apply, foreign arbitral awards are reviewed in the same manner as foreign court judgments, accord-ing to Article 217 of the Korean Civil Procedure Act and Articles 26(1) and 27 of the Korean Civil Execution Act. Under these pro-visions, a South Korean court will recognise and enforce a foreign award not subject to the New York Convention if the:

Award is final and conclusive.

Korean Commercial Arbitration board

W www.kcab.or.kr

Main activities. The Korean Commercial Arbitration Board (KCAB) is an internationally recognised arbitration board with offices in Seoul and Prusan. It is dedicated to the prevention and settlement of commercial disputes and pro-vides international parties who find themselves in conflict during the performance of their commercial business with unbiased and independent services to administer and con-duct international arbitration, conciliation and mediation.

The KCAB has also signed more than 30 international arbi-tration agreements and co-operation agreements with similar organisations throughout the world.

MAIn ArbITrATIon orGAnIsATIon




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Jurisdiction of the arbitral tribunal is consistent with South Korean law and the treaties to which South Korea is a party.

Losing party received adequate notice of the arbitration and sufficient time to defend its case.

Award is not in conflict with the good morals or other public policy of South Korea.

Jurisdiction in which the arbitral award was issued recipro-cally recognises and enforces South Korean judicial deci-sions and arbitral awards.

Generally, South Korean courts may be considered to be friendly to arbitration. For example, South Korean courts have adopted a narrow interpretation of the limits on the enforceability of arbi-tral awards on public policy grounds. The South Korean Supreme Court has ruled that under the New York Convention, considera-tions of ‘public policy’ must take into account not only South Korea’s domestic situation, but also the need for foreseeability and stability in international business transactions.

A final award by an arbitral tribunal can be enforced by filing an enforcement action with a South Korean district court. In an ac-tion seeking enforcement or recognition of an arbitration award, a party is required to submit an original or certified copy of the arbitration agreement and the award, as well as certified transla-tions of these if they are in a foreign language.

26. To what extent is an arbitration award made in your jurisdic-tion enforceable in other jurisdictions? Is your jurisdiction party to international treaties relating to this issue such as the Un Convention on the recognition and enforcement of Foreign Arbitral Awards 1958 (new york Convention)?

South Korea signed the New York Convention on 8 February 1973 and it entered into force on 9 May 1973.

South Korea has declared that the New York Convention applies only to arbitral awards made in the territory of states that are also party to the New York Convention, and only to disputes that may

be considered ‘commercial disputes’ (contractual or otherwise) under South Korean law. Because of this, arbitral awards from South Korea are generally enforceable in other signatory states of the New York Convention.

Also, South Korea signed the Convention on the Settlement of In-vestment Disputes between States and Nationals of Other States on 21 February 1967, which entered into force on 23 March 1967.

27. To what extent is a foreign arbitration award enforceable in your jurisdiction? Please briefly outline the enforcement pro-cedure.

Arbitral awards from foreign jurisdictions that are party to the New York Convention are recognised and enforced according to the New York Convention (Article 39, Arbitration Act).

Awards from jurisdictions to which the New York Convention does not apply (see Question 26) are recognised and enforced accord-ing to the provisions of the Civil Procedure Act and Civil Execu-tion Act relating to the recognition and enforcement of foreign judgments (see Question 25).

28. How long do enforcement proceedings in the local court take? Is there any expedited procedure?

Enforcement proceedings at the district court level generally take about six months. While there are no specific procedures for expedited enforcement proceedings, South Korean courts are generally efficient and expeditious, unless there are genuine is-sues of dispute in the narrow context of the review of the arbitral award during the enforcement proceedings. A decision to enforce or refuse enforcement of an arbitral award made by a district court can be appealed to a South Korean appellate court.


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