Arbitration procedures and practice in South Korea: overview

A Q&A guide to arbitration law and practice in South Korea.

The country-specific Q&A guide provides a structured overview of the key practical issues concerning arbitration in this jurisdiction, including any mandatory provisions and default rules applicable under local law, confidentiality, local courts' willingness to assist arbitration, enforcement of awards and the available remedies, both final and interim.

To compare answers across multiple jurisdictions visit the Arbitration procedures and practice Country Q&A Tool.

This Q&A is part of the global guide to arbitration. For a full list of jurisdictional Q&As visit www.practicallaw.com/arbitration-guide.

Sae Youn Kim and Andrew White, Yulchon LLC
Contents

Use of arbitration and recent trends

1. How is commercial arbitration used and what are the recent trends?

Use of commercial arbitration and current trends

Commercial arbitration is used extensively in South Korea to resolve disputes. For example, the Korean Commercial Arbitration Board (KCAB), which is the only Korean arbitration institution, received an average of more than 370 new arbitration cases every year from 2012 to 2015. In fact, the number of new arbitration cases filed with the KCAB has steadily increased every year from 360 new cases in 2012 to 413 new cases in 2015. In the first six months of 2016, 211 new cases filed were filed.

South Korea has traditionally encouraged the use of arbitration to resolve disputes between domestic parties. This familiarity with the arbitral process means that Korean companies and governmental organisations have rapidly adopted arbitration as their preferred method for resolving international disputes.

With the continuing growth of international transactions in South Korea or involving South Korean parties, the country is emerging as an international arbitration hub in Northeast Asia. The number of arbitration cases involving international (non-Korean) parties has grown steadily over the past few years. Out of the 370 average cases filed with KCAB every year from 2012 to 2015, an average of 80 cases were brought under KCAB International Arbitration Rules. Moreover, the nationalities of parties in KCAB arbitration cases have been diverse, with around 27 different countries represented.

Advantages/disadvantages

International companies investing in South Korea or contracting with South Korean companies are increasingly choosing arbitration for its perceived advantage as a neutral dispute resolution forum. As in most jurisdictions, the following are commonly recognised as the most significant and attractive features of arbitration:

  • Impartiality.

  • Party autonomy.

  • Finality.

  • Efficiency.

  • Privacy.

South Korean courts are, for the most part, already highly efficient and cost effective. Therefore, the advantages of arbitration over litigation are not as significant as in other jurisdictions.

 

Legislative framework

Applicable legislation

2. What legislation applies to arbitration? To what extent has your jurisdiction adopted the UNCITRAL Model Law on International Commercial Arbitration 1985 (UNCITRAL Model Law)?

The enforcement of arbitration proceedings is governed by the South Korean Arbitration Act (the Arbitration Act), which applies to both domestic and international arbitrations. Arbitration proceedings seated in South Korea are also governed by ratified treaties such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention).

The Arbitration Act is largely based on the 1985 UNCITRAL Model Law (Model Law). Recent amendments are due to enter into effect on 30 November 2016 to ensure that the Arbitration Act mirrors the language of the amended Model Law, or the 2006 UNCITRAL Model Law. However, there are still some notable differences, for example:

  • The application of the Arbitration Act is not limited to "international" or "commercial" arbitrations.

  • The parties can challenge the appointment of an expert by the tribunal (Article 27(3), Arbitration Act).

  • The Arbitration Act did not incorporate Article 34(4) of the Model Law, which allows a court to suspend annulment proceedings to allow the tribunal to resume its proceedings or take measures to eliminate the grounds for annulment of the award.

  • While the language of the Arbitration Act on interim measures generally follows the Model Law (South Korea is one of the few countries that closely adheres to the Model Law's enforcement regime for interim measures), there are two notable differences between the Arbitration Act and the Model Law's interim measures regime:

    • only interim measures issued in arbitrations seated in South Korea can be enforced by South Korean courts; and

    • provision for preliminary orders (which do not exist in South Korea) is not included in the revised Arbitration Act.

The new amendments to the Arbitration Act provide two additional important changes from the previous version of the Arbitration Act that are unrelated to the Model Law:

  • Under the newly amended Arbitration Act, the court can be involved in a more focused way to assist the tribunal in taking evidence. Rather than limiting the court to either taking the evidence itself and sending records of it to the tribunal, or doing nothing while the tribunal takes the evidence on its own, the court can now provide assistance to the tribunal by ordering witnesses to appear before the tribunal or document holders to submit requested documents to the tribunal. This important new amendment allows the tribunal much greater control and direction over taking evidence.

  • The process of recognition and enforcement of arbitral awards under the newly amended Arbitration Act will be carried out by issuing an order (rather than a judgment), encouraging more expeditious enforcement proceedings. The Arbitration Act still provides, however, that awards can only be set aside by a judgment. This distinction reflects the view that a court cannot easily set aside an award and it must carefully review the reasons before doing so.

Mandatory legislative provisions

3. Are there any mandatory legislative provisions? What is their effect?

There is a limit to a party's right to object to non-compliance with the Arbitration Act's non-mandatory provisions (Article 5, Arbitration Act). It allows the parties to agree on arbitration proceedings except when they are contrary to its mandatory provisions (Article 20, Arbitration Act), but the Act does not clearly specify which of its provisions are mandatory. Nevertheless, the following are widely considered to be required:

  • An arbitrator's duty to disclose (Supreme Court Decision No. 2004Da47901 dated 29 April 2005) (Article 13(1), Arbitration Act).

  • Equal treatment of parties and due process (Article 19, Arbitration Act).

 
4. Does the law prohibit any types of disputes from being resolved via arbitration?

Nothing is explicitly excluded by the Arbitration Act as not being "arbitrable" and it does not rule out the possibility of arbitrating intellectual property, insolvency, or anti-trust disputes.

The definition of "arbitration" as a "procedure to settle a dispute in private law, not by the judgment of a court, but by the award of an arbitrator, as agreed by the parties" (Article 3.1, Arbitration Act) restricted the scope of "arbitrable" disputes to disputes in private law (as opposed to anything arising from public law).

However, the new amendments to the Arbitration Act modify the definition of an arbitration agreement and further broaden the scope of "arbitrable" disputes. It replaces the phrase "a dispute in private law" with "a dispute involving property rights or a dispute involving non-property rights, which can be resolved through settlement".

Limitation

5. Does the law of limitation apply to arbitration proceedings?

There are no laws or rules on limitation periods for starting arbitration proceedings. Claimants must generally refer to the relevant statute of limitation under the Civil or Commercial Code (or other relevant laws). For example, the limitation period under the statute of limitations for a claim arising from a commercial activity is five years under the Commercial Code.

 

Arbitration organisations

6. Which arbitration organisations are commonly used to resolve large commercial disputes?

The Korean Commercial Arbitration Board (KCAB) is the only national arbitration institution in Korea. There are no restrictions on foreign arbitral institutions administering arbitral proceedings under their own arbitration rules in South Korea. As such, the Seoul International Dispute Resolution Centre (SIDRC), which is an integrated dispute resolution complex, hosts arbitration hearings administered by foreign arbitral institutions as well as ad hoc arbitrations under the UNCITRAL Arbitration Rules.

In addition to KCAB, arbitral institutions outside Korea are also commonly used to resolve large commercial disputes, for example the following:

  • Singapore International Arbitration Centre (SIAC).

  • London Court of International Arbitration (LCIA).

  • Hong Kong International Arbitration Centre (HKIAC).

  • International Chamber of Commerce (ICC).

Parties doing business in South Korea most commonly specify KCAB in their contracts, although many with an international component also specify the ICC, SIAC, HKIAC or LCIA.

KCAB most commonly administers international arbitrations seated in South Korea and less commonly, the ICC.

See box, Main arbitration organisations.

 

Jurisdictional issues

7. What remedies are available where one party denies that the tribunal has jurisdiction to determine the dispute(s)? Does your jurisdiction recognise the concept of kompetenz-kompetenz? Does the tribunal or the local court determine issues of jurisdiction?

The Arbitration Act adopted the principle of kompetenz-kompetenz and stipulates that the arbitral tribunal can rule on its own jurisdiction including any objections made to the existence or validity of an arbitration agreement (Article 17(1), Arbitration Act). The arbitral tribunal can treat the objection as a preliminary question or rule on it in an arbitral award on the merits (Article 17(5), Arbitration Act).

If the arbitral tribunal issues an independent ruling that it has jurisdiction, any party can, within 30 days of receiving notice of the ruling, request that a court review it. In addition, the courts can address the issue of the jurisdiction of the arbitral tribunal at the recognition and enforcement stage. In any event, the courts are not bound by the decision of the arbitral tribunal on its jurisdiction and will independently review the issue of the jurisdiction.

Under the amended Arbitration Act, courts can review the issue of jurisdiction even if the arbitral tribunal finds that it lacks such jurisdiction (Article 17(6), Arbitration Act).

 

Arbitration agreements

Validity requirements

8. What are the requirements for an arbitration agreement to be enforceable?

Substantive/formal requirements

An arbitration agreement must be in writing (Article 8(2), Arbitration Act). Consistent with the Model Law, an arbitration agreement is deemed to be in writing when it is contained in:

  • A document signed by the parties.

  • An exchange of letters, telex, telegrams, facsimile or other means of communication between the parties.

  • An exchange of statements of claim and defence in which the existence of an arbitration agreement is alleged by one party and the other party does not deny it (Article 8(3), Arbitration Act).

The recent amendments to the Arbitration Act adopted Option I of Article 7 of the 2006 UNCITRAL Model Law which provides that an arbitration agreement need not be in writing, as long as it is possible to confirm later through written records that there was an arbitration agreement between the parties.

Separate arbitration agreement

An arbitration agreement is enforceable regardless of whether it exists as an arbitration clause or as a separate agreement.

A reference in a contract to a document (for example, standard general terms) containing an arbitration clause constitutes an arbitration agreement, provided that the contract is in writing and the reference makes that clause part of the contract.

Unilateral or optional clauses

9. Are unilateral or optional clauses, where one party has the right to choose arbitration, enforceable?

The Supreme Court has held that an optional arbitration clause offering a choice between litigation and arbitration is unenforceable unless one party to the agreement initiates arbitration proceedings and the other party does not raise any objections to the arbitration procedure (Supreme Court Decision 2003Da318 dated 22 August 2003).

 
10. In what circumstances can a party that is not a party to an arbitration agreement be joined to the arbitration proceedings?

In principle, an arbitration agreement only binds the parties to it and the Arbitration Act does not allow an arbitral tribunal to assume jurisdiction over a third party who is not a party to an arbitration agreement.

There has been no court precedent dealing with the issue of piercing the corporate veil in an arbitration context.

 
11. In what circumstances can a party that is not a party to an arbitration agreement compel a party to the arbitration agreement to arbitrate disputes under the arbitration agreement?

The Arbitration Act does not contain any provisions on whether the joinder of parties in an arbitration process is permitted. In practice, however, a third party can participate in an arbitration governed by the Arbitration Act with consent from all the parties to it.

Separability

12. Does the applicable law recognise the separability of arbitration agreements?

An arbitration clause forming part of a contract must be treated as an agreement independent of the other terms of the contract (Article 17(1), Arbitration Act). Accordingly, any amendment, rescission, termination or nullity of the contract will not affect the validity of the arbitration agreement unless it is also directly related to the arbitration clause itself.

Breach of an arbitration agreement

13. What remedies are available where a party starts court proceedings in breach of an arbitration agreement or initiates arbitration in breach of a valid jurisdiction clause?

Court proceedings in breach of an arbitration agreement

If a party breaches an arbitration agreement by commencing court proceedings, a court must dismiss the action if the defendant requests it no later than his or her first oral submission at the first hearing on the merits, unless the arbitration agreement is null and void, inoperative or incapable of being performed (Article 9, Arbitration Act).

Arbitration in breach of a valid jurisdiction clause

If a party initiates arbitration proceedings in breach of a valid forum selection clause, the other party can challenge the tribunal's jurisdiction.

 
14. Will the local courts grant an injunction to restrain proceedings started overseas in breach of an arbitration agreement?

Korean courts have never issued any anti-suit injunction in aid of arbitration, and it appears highly unlikely they will grant such an injunction.

 

Arbitrators

Number and qualifications/characteristics

15. Are there any legal requirements relating to the number, qualifications and characteristics of arbitrators? Must an arbitrator be a national of, or licensed to practice in your jurisdiction in order to serve as an arbitrator there?

The Arbitration Act does not limit the parties' autonomy to select arbitrators and there are no set legal requirements.

There is a default procedure for selecting arbitrators if the parties fail to do so (Article 12(4), Arbitration Act).

Unless agreed otherwise by the parties, non-South Korean nationals or those who are not licensed to practice in South Korea can act as arbitrators when the seat of the arbitration is in South Korea or hearings are held in South Korea. No person can be precluded by their nationality from acting as an arbitrator, unless there is an agreement between the parties to the contrary (Article 12(1), Arbitration Act).

Independence/impartiality

 
16. Are there any requirements relating to arbitrators' independence and/or impartiality?

On being asked to serve as an arbitrator, a candidate must disclose any circumstances likely to give rise to reasonable doubts about his impartiality or independence to the parties (Article 13(1) , Arbitration Act). Reasonable doubt about impartiality and independence of an arbitrator can be grounds to challenge the arbitral award (Article 36(2) 1(d) , Arbitration Act).

Article 10(2) of the International Rules of the Korean Commercial Arbitration Board also contains similar requirements.

Appointment/removal

17. Does the law contain default provisions relating to the appointment and/or removal of arbitrators?

Appointment of arbitrators

There is a default procedure for selecting arbitrators when the selection mechanism fails. An appointment can be made by a competent court or an arbitral institution designated by the court on request from a party in the following events:

  • There is no agreement between the parties on the selection of arbitrators and the parties and/or party-appointed arbitrators fail to select arbitrator(s) (Article 12(3) , Arbitration Act).

  • There is an agreement between the parties but one party fails to appoint an arbitrator according to the agreed procedure, or the parties or party-appointed arbitrators fail to appoint an arbitrator according to the agreed procedure, or an institution or any other party entrusted to appoint an arbitrator fails to do so (Article 12(4) , Arbitration Act).

Removal of arbitrators

An arbitrator can be challenged on two grounds:

  • Circumstances exist that give rise to justifiable doubt about his impartiality or independence (Article 13(1) , Arbitration Act).

  • The arbitrator does not possess the qualifications agreed by the parties (Article 13(2) , Arbitration Act).

In either event, a party can only challenge an arbitrator that it appointed or in whose appointment it participated for reasons it became aware of after the appointment (Article 13(2) , Arbitration Act).

The parties can agree on the procedure for challenging an arbitrator (Article 14(1), Arbitration Act). If they fail to agree, the arbitral tribunal will decide and the challenging party must send a written request to the tribunal stating its reasons for the challenge within 15 days of becoming aware of the composition of the arbitral tribunal, or after becoming aware of the existence of any circumstances that constitute grounds for a challenge (Article 14(2), Arbitration Act).

If the arbitral tribunal denies the challenge, the challenging party can request a judicial review of the decision within 30 days of receiving notice of it (Article 14(3), Arbitration Act). While the review of the challenge is pending before the court, the arbitral tribunal can commence or continue the proceedings and render an arbitral award (Article 14(3), Arbitration Act) but if the court eventually approves the challenge, the award rendered will be deemed invalid. The parties cannot appeal against the decision of the court to approve the challenge (Article 14(4), Arbitration Act).

 

Procedure

Commencement of arbitral proceedings

18. Does the law provide default rules governing the commencement of arbitral proceedings?

Arbitral proceedings start when the respondent receives the claimant's request for arbitration (Article 22, Arbitration Act). The request for arbitration must contain a description of the subject matter of the dispute and details of the arbitration agreement.

Applicable rules and powers

19. What procedural rules are arbitrators bound by? Can the parties determine the procedural rules that apply? Does the law provide any default rules governing procedure?

Applicable procedural rules

The Arbitration Act governs the arbitration procedure for all proceedings seated in South Korea (Article 2(1), Arbitration Act). The Act recognises the principle of party autonomy and allows the parties (or alternatively, the arbitral tribunal) wide discretion to determine the applicable procedural rules as long as the arbitration proceedings comply with the mandatory provisions of the Act (Article 20, Arbitration Act).

Default rules

Arbitrators have the authority to do the following:

  • Determine their own jurisdiction.

  • Order interim measures unless otherwise agreed by the parties.

  • Determine the place and language of arbitration if the parties fail to agree.

  • Conduct arbitration proceedings in any manner they consider appropriate in the absence of agreement between the parties. In these cases, the arbitral tribunal has the power to determine admissibility, relevance, and weight of any evidence.

  • Set the time limits for submitting the statements of claim and defence unless otherwise agreed by the parties.

  • Decide whether or not to hold an oral hearing unless otherwise agreed by the parties.

  • Decide whether or not to terminate the arbitral proceedings based on the default of a party.

  • Appoint one or more experts to consult on specific issues unless otherwise agreed by the parties.

  • Decide whether or not to request the court to assist with the examination of evidence.

At the same time, arbitrators have the following duties:

  • To treat the parties equally in the arbitral proceedings and provide each party with a sufficient opportunity to present its case.

  • To make an award in accordance with the law applicable to the substance of a dispute, and decide ex aequo et bono (in justice and fairness) only if the parties have expressly authorised them to do so.

 

Evidence and disclosure

20. If there is no express agreement, can the arbitrator order disclosure of documents and attendance of witnesses (factual or expert)?

There is no limit on the scope of an arbitrator's authority with respect to the disclosure of documents. However, there is no full documentary disclosure under the Civil Procedure Act and it is therefore not ordinarily expected by parties in arbitration proceedings seated in South Korea.

 
21. What documents must the parties disclose to the other parties and/or the arbitrator? How, in practice, does the scope of disclosure in arbitrations compare with disclosure in domestic court litigation? Can the parties set the rules on disclosure by agreement?

Scope of disclosure

Except for the provisions relating to court assistance, there are no specific provisions on document production in the Arbitration Act. A formal document production process is not ordinarily expected by South Korean parties in domestic arbitrations, where expectations are conditioned by norms and court practices. There is no full documentary disclosure under the Civil Procedure Act.

However, in international arbitrations, formal document processes (although somewhat limited in their scope) are often adopted. In these cases, tribunals are ordinarily familiar with international disclosure practices and are able to accommodate the expectations of the parties. Tribunals and parties in international arbitrations also commonly rely on the IBA Rules on the Taking of Evidence in International Arbitration and make use of Redfern Schedules.

Validity of parties' agreement as to rules of disclosure

Since the parties have discretion under the Arbitration Act to agree on the procedural rules as long as they are in accordance with the mandatory provisions of the Act, it follows that any agreement between them on the rules of disclosure is also valid.

 

Confidentiality

22. Is arbitration confidential? If so, what is the scope of that confidentiality and who is subject to the obligation (parties, arbitrators, institutions and so on)?

Arbitral proceedings taking place in South Korea are not intrinsically confidential and the Arbitration Act does not contain any provisions that address confidentiality.

Arbitral proceedings will only be confidential if:

  • The parties have designated arbitration rules containing provisions on confidentiality (such as the International Arbitration Rules of the Korean Commercial Arbitration Board).

  • They have agreed to keep the arbitration proceedings confidential in their arbitration agreement.

  • The parties enter into a confidentiality agreement.

 

Courts and arbitration

23. Will the local courts intervene to assist arbitration proceedings seated in its jurisdiction?

Courts can intervene in or assist with taking evidence on request from the arbitral tribunal. Under the new amendments to the Arbitration Act, a court can be involved in a more focused way than before to assist the tribunal, allowing it much greater control and direction over taking evidence. The tribunal can make a request to the court either if a party asks it to or at its own discretion (Article 28, Arbitration Act). The means and extent of disclosure will be subject to the Civil Procedure Act.

There is no specialist arbitration court in South Korea but the courts are reasonably familiar with the law and practice of international arbitration.

 
24. What is the risk of a local court intervening to frustrate an arbitration seated in its jurisdiction? Can a party delay proceedings by frequent court applications?

Risk of court intervention

The courts can only intervene or support arbitration proceedings where specified (Article 6, Arbitration Act). Courts can intervene and assist in the selection of the arbitral tribunal (Article 12, Arbitration Act), but once the tribunal has been constituted, procedural issues arising during the arbitration proceedings must be handled by the parties or the tribunal only (Article 20(2), Arbitration Act).

Delaying proceedings

A party must not be able to delay proceedings by filing frequent court applications. The courts can intervene in an arbitration proceeding under the Arbitration Act only in limited circumstances.

 

Insolvency

25. What is the effect on the arbitration of pending insolvency of one of more of the parties to the arbitration?

Neither the Arbitration Act nor the Debtor Rehabilitation and Bankruptcy Act provide any specific provisions on how ongoing arbitration proceedings will be affected by the pending insolvency proceedings of any party to the arbitration. There are no court precedents on this point. In practice, an arbitration can carry on in spite of the start of insolvency proceedings.

 

Remedies

26. What interim remedies are available from the tribunal?

Interim remedies

An arbitral tribunal can, at the request of a party, order any interim measures that it considers necessary, and those interim measures are now enforceable (Article 18(1), Arbitration Act). Previously, an interim measure from an arbitral tribunal was not enforceable per se, but the relevant party usually complied with it because non-compliance might have triggered an adverse inference by the tribunal. The amended Arbitration Act adopted all of the interim measures available under the Model Law except for preliminary orders.

Ex parte

The Arbitration Act does not directly address this issue of ex parte proceedings. It is worth noting that the amended Arbitration Act does not allow a tribunal to grant preliminary orders (which can be issued on an ex parte basis).

Security

Both national courts and arbitral tribunals can order the requesting party to provide appropriate security for interim measures (Article 18, Arbitration Act and Article 18-4 of the amended Arbitration Act; Articles 280 and 301 of the Civil Execution Act).

 
27. What final remedies are available from the tribunal?

There is no limit to the types of remedies that are available to the parties. The parties can therefore freely agree on the remedies to be sought from the arbitral tribunal, and even seek remedies that are not available before the courts.

In the absence of an agreement, the arbitral tribunal can theoretically order any remedies that are available under the law that apply to the substance of the dispute. At the enforcement stage, however, courts can refuse to enforce an award or a portion of it if it contravenes the public policy of South Korea. For example, courts can refuse to enforce punitive damages, which are not recognised under South Korean law.

 

Appeals

28. Can arbitration proceedings and awards be appealed or challenged in the local courts? What are the grounds and procedure? Can parties waive any rights of appeal or challenge to an award by agreement before the dispute arises (such as in the arbitral clause itself)?

Rights of appeal/challenge

Arbitral awards cannot be appealed before the courts under the Arbitration Act. As a matter of fact, there is a lower court decision invalidating an arbitration agreement that provided for a right to appeal an arbitral award to a court of competent jurisdiction (Seoul High Court Decision No. 2002Na68982 dated 24 October 2002).

Grounds and procedure

There is no right of appeal. The only way for the parties to an arbitration to challenge an award rendered in South Korea is to apply to annul the award on certain limited grounds (Article 36(2) , Arbitration Act).

Waiving rights of appeal

The Arbitration Act is silent on whether the parties can exclude by agreement any basis of challenge against an arbitral award under Article 36(2). More generally, the courts have not addressed the issue of whether the parties can contractually exclude or limit the basis for setting aside an award. The courts would likely consider than an agreement to exclude or severely limit the right to challenge an award made before the award is rendered would be contrary to public policy and therefore unenforceable.

 
29. What is the limitation period applicable to actions to vacate or challenge an international arbitration award rendered?

An application must be made within three months from the date on which the applicant received a duly authenticated copy of the award (or of a correction or interpretation or an additional award) and before a final and conclusive judgment for the recognition or execution of the relevant award is rendered by a court (Article 36(4), Arbitration Act).

 
30. What is the limitation period applicable to actions to enforce international arbitration awards rendered outside your jurisdiction?

The Arbitration Act does not prescribe a limitation period for enforcing international arbitration awards rendered outside of Korea. There is no limitation period specifically set for enforcing arbitration awards.

 

Costs

31. What legal fee structures can be used? Are fees fixed by law?

The parties can freely agree on their legal fee structures, although task-based billing is most common in domestic litigation.

Contingent fees (more commonly known as "success fees") are a widespread practice in South Korea. In 2015, the Supreme Court of South Korea ruled that contingent fee arrangements for criminal representation were void as against public policy. However, contingent fee arrangements are still frequently entered into for civil litigation and commercial arbitrations.

In general, there are no specific restrictions on third parties funding claims. However, in one case where a third party paid court fees and retained a lawyer for the claimant, the Supreme Court held that the third party was actually leading the proceedings and in doing so breached Article 109 of the Attorney-at-Law Act, which forbids non-lawyers from representing a party in court proceedings (Supreme Court Decision No. 2013Da28728 dated 24 July 2014).

As a result of this precedent, third-party funding could become an issue under Korean law when the funder effectively participates in the litigation or arbitration proceedings. In addition, it has been suggested that Article 7 of the Trust Act, which provides that "[a]nyone who is not entitled to enjoy a specified property right….shall not enjoy, as a beneficiary, the same benefit as he/she who has such right", could be interpreted as prohibiting third-party funding.

There are no professional funders active in the Korean market and commercial third-party funding is not as active as in other jurisdictions.

 
32. 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?

Cost allocation

Although the Arbitration Act does not contain any provisions on recoverable fees and/or costs, parties to an arbitration seated in South Korea are generally entitled to seek recovery of legal fees or costs. The "loser pays" or "costs follow the event" rule generally applies and most of the fees and/or costs are awarded to the winning party. This is in line with the local court proceedings, where fee-shifting is the norm, albeit the scope of recovery is relatively limited.

Cost calculation

When the amended act comes into force in November 2016, the tribunal will have the authority to decide on the division of arbitral expenses and order interest in arrears (Articles 34.2 and 34.3, amended Arbitration Act).

Factors considered

For the most part, tribunals adhere to the principle of costs following the event when allocating costs.

 

Enforcement of an award

Domestic awards

33. To what extent is an arbitration award made in your jurisdiction enforceable in the local courts?

In general, South Korean courts have been in favour of enforcing arbitration agreements and will refuse to enforce an arbitral award only if one of the grounds for refusal under the Arbitration Act (Article 38) or the New York Convention exists (Article V). Likewise, courts have narrowly interpreted the grounds for refusal to enforce, leading to very few refusals to recognise arbitral awards.

The party applying to enforce an arbitral award must submit the duly authenticated original award or a copy of it, with a translation into Korean if the award or arbitration agreement is made in a foreign language (Article 37(3) , amended Arbitration Act).

Enforcement of arbitral awards under the newly amended Arbitration Act will be carried out by issuing a court order (rather than issuing a formal judgment, as was previously the case), encouraging more expeditious enforcement of awards (Article 37(2) , Arbitration Act).

Foreign awards

34. Is your jurisdiction party to international treaties relating to recognition and enforcement of foreign arbitration awards, such as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention)?

South Korea acceded to the New York Convention on 8 February 1974 and the Convention entered into force on 9 May 1973. South Korea made both the reciprocity and the commercial reservations. As a result of these two reservations, an award is treated as a New York Convention award under the Arbitration Act if it was rendered in a country that is also a party to the New York Convention in respect of a commercial dispute determined by South Korean law. This apparent limitation is not that relevant in practice because the majority of foreign arbitral awards presented for enforcement in South Korea are rendered in countries that are parties to the New York Convention and concern commercial matters. Awards rendered outside of South Korea that are not subject to the New York Convention can still be enforced in South Korea (Article 39(2) , Arbitration Act).

The amendments to the Arbitration Act further simplify the recognition and enforcement process.

 
35. To what extent is a foreign arbitration award enforceable?

See Question 33 for general explanations on the enforcement procedure.

The procedure also varies depending on whether the New York Convention is applicable (Article 39, Arbitration Act). If a foreign award is rendered in a country that is party to the New York Convention, courts will enforce the award in accordance with the Convention.

If an award has been set aside by the judgment of a foreign court, a South Korean court can refuse to enforce it under Article V.1(e) of the New York Convention. If the foreign court unreasonably set aside the award, there is a possibility that the award will still be enforced in South Korea. So far, there have not been any cases where a South Korean court enforced an award that had been aside by a foreign court.

Length of enforcement proceedings

36. How long do enforcement proceedings in the local court take, from the date of filing the application to the date when the first instance court makes its final order? Is there an expedited procedure?

In the past, enforcement proceedings in the local courts usually took around six months to a year at first instance. Now that the process of recognition and enforcement of arbitral awards is by order instead of judgment, enforcement proceedings are expected to take less time.

 

Reform

37. Are any changes to the law currently under consideration or being proposed?

The Arbitration Act was amended on 29 May 2016 and will enter into effect on 30 November 2016. The Arbitration Act was already in line with the 1987 UNCITRAL Model Law but the amended act will adopt the 2006 Model Law more closely.

Some of the notable changes include adopting Option I of Article 7 of the Model Law as well as the 2006 Model Law regime on interim measures, including its section on enforceability. The changes also simplify the process of recognition and enforcement of arbitral awards so that the entire process is now carried out through a court order instead of a judgment. As a whole, the changes are intended to strengthen South Korea's role as an international arbitration hub in Northeast Asia.

 

Main arbitration organisations

Korean Commercial Arbitration Board (KCAB)

Main activities. The KCAB has offices in Seoul and Busan, and is the only authorised arbitration institution in Korea. It has the statutory power to settle commercial disputes under the Arbitration Act and can also administer arbitration proceedings under the rules of any other arbitration institution. The KCAB also offers a comprehensive mediation service.

W www.kcab.or.kr



Online resources

W www.law.go.kr and www.law.go.kr/eng/engMain.do

Description. The Ministry of Government Legislation directly runs the National Law Information Center, which is the Korean representative legal information website. For practical purposes, the National Law Information Center is a search engine for statutes (including English translations), regulations, treaties, case law, and so on.



Contributor profiles

Sae Youn Kim, Partner

Yulchon, LLC

T + 82 2 528 5349
F + 82 2 528 5228
E kimsy@yulchon.com
W www.yulchon.com

Professional qualifications. Korea, 1994; New York, 1995

Areas of practice. International dispute resolution; litigation; construction law; health and pharmaceutical law.

Non-professional qualifications. LLM, Duke University School of Law,2007; LLB, Seoul National University, 1991

Recent transactions

  • Currently representing the Government of Korea in an ad hoc arbitration under the Korea-Iran BIT involving a claim against the Government of Korea.
  • Currently representing a major Korean construction company in an ICC arbitration involving a construction project in the United Arab Emirates between the construction company and a Saudi construction company.
  • Currently representing a multinational defence and aerospace solutions provider in parallel proceedings in US and Korea involving a military procurement contract against a Korean government agency.
  • Represented a Korean regional government in an ICC arbitration related to the termination of a public-private partnership construction project between the government and a foreign consortium.

Languages. Korean, English

Professional associations/memberships. Regional Representative Asia General, Litigation Committee, IBA; Member, Committee for Legislation of Act on Promotion of Arbitration Industry; Arbitrator, SIAC; Member, Working Group on Harmonizing Arbitration Laws, APAG, IBA; Board member, International Association of Korean Lawyers; Advisor, Advisory Board on Investor State Dispute, Ministry of Justice; Arbitrator, KCAB.

Andrew White, Senior Foreign Counsel

Yulchon, LLC

T +82 2 528 5200
F +82 2 528 5228
E awhite@yulchon.com
W www.yulchon.com

Professional qualifications. Colorado Bar, USA (1993-present, active membership status); North Carolina Bar, US (1990-present, inactive membership status); various United States Federal Courts, including the United States Supreme Court; Singapore International Commercial Court (2016 registered as Foreign Lawyer).

Areas of practice. International dispute resolution; construction and design law;

Islamic law and finance; Middle East and South East Asia cross-border transactions and disputes.


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