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The Asia-Pacific Arbitration Review 2018

Korea

There were remarkable changes in Korea’s international arbitration regime in 2016. Continuing the momentum from the previous years, the proposed amendments to the Arbitration Act were accepted and entered into force around the same time that the proposed changes to the Arbitration Rules, both International and Domestic, of the Korean Commercial Arbitration Board (KCAB) were also adopted. In addition to these amendments, a new law was passed by the National Assembly at the end of 2016 dedicated to the promotion of international arbitration in Korea. The Act Related to the Promotion of Arbitration Industry (the Arbitration Promotion Act) is the first of its kind in Korea and announces to the international arbitration community that Korea is not only an arbitration-friendly country but is poised to become a hub of international arbitration in East Asia. This chapter will discuss each of these developments in more detail.

2016 amendment to the Arbitration Act

The new amendment to the Arbitration Act that came into effect on 30 November 2016 has been the topic of discussion on many occasions, including the 2017 edition of the Korea chapter in the Asia-Pacific Arbitration Review. It was a long-awaited amendment with discussions that began several years before with proposed changes to the existing law. Among these amendments, the most notable include the expansion of the scope of arbitrable disputes, a change in the interim measures, expansion of the arbitral tribunal’s ability to conduct evidence gathering and simplification of the procedure for enforcement of arbitral awards.

Scope of arbitrable disputes

The amendment expanded the scope of disputes that can be arbitrated to include non-monetary disputes on, for example, intellectual property rights and antitrust, which had been regarded as non-arbitrable. Moreover, by expanding the ‘in-writing’ requirement for a valid arbitration agreement to allow any type of recorded medium, which would have the same effect as a ‘valid arbitration agreement’ as long as it shows the parties’ intent to resolve disputes through arbitration, the actual scope of disputes that can be submitted for arbitration has been greatly enlarged.

Interim measures

Under the new Arbitration Act, the arbitral tribunal may, at the request of the party, make an order for interim measures for protection if it considers such measures to be necessary, once the application satisfies the following two conditions: (i) if the measure is not ordered it is likely to result in harm not adequately reparable by an award of damage and such harm outweighs the harm that is likely to result to the party against whom the measure is directed; and (ii) there is a reasonable possibility that the requesting party will succeed on the merits of the claim.1

The arbitral tribunal may render various types of interim measures ordering a party to (i) maintain or restore the status quo until the final award is made, (ii) prevent or refrain from any action that is likely to cause current or imminent harm or prejudice to the pending arbitration proceeding, (iii) provide a means of preserving assets from which a subsequent award may be satisfied or enforced, or (iv) to preserve evidence that is relevant or material to the resolution of the pending dispute.2 It is not yet clear from the text alone whether arbitral tribunals are bound to the four specified forms of measures or have the discretion to order measures beyond the examples set forth in article 18, section 2 of the Arbitration Act. Based on the text of article 18-7, section 4 of the Act, providing mutatis mutandis application to the Civil Execution Act of Korea pertaining to enforcement of interim measures,3 it would be a prudent approach to understand that arbitral tribunals are instructed to grant interim measures within the scope of the four examples provided in article 18, section 2.

Evidence gathering

The new Arbitration Act adopted an elaborated mechanism to allow arbitral tribunals to conduct a more effective role in evidence gathering. Arbitral tribunals are entitled to call for witnesses to appear at the hearing or to submit necessary documents for the arbitration proceeding. In addition to the above, the arbitral tribunal can request the court’s direct examination of evidence, or request for the court’s cooperation or assistance in relation to the examination of evidence based on its own authority or the request from a party,4 and when the court conducts the examination of evidence, the parties or the tribunal can participate in the process after obtaining approval from the court. In such circumstance, the requested court should keep record of the evidence-taking process, and deliver such record to the arbitral tribunal together with the transcript of witness examination and other relevant records obtained from evidence taking,5 and it is expected that the court will follow the Civil Procedure Act of Korea in providing evidence-gathering support to the tribunal.

Enforcement of arbitral awards

The new Arbitration Act simplified the enforcement procedure by requiring a court order instead of a court judgment.6 According to the Civil Procedure Act of Korea, obtaining an order from the court, as opposed to obtaining a judgment, is generally more cost- and time-efficient, as courts are empowered with procedural discretion for issuing an order, including the decision on whether it is necessary to hold a hearing. Now that the new Arbitration Act allows enforcement by a court order, the court may recognise enforcement without necessarily conducting an in-court hearing.

The Arbitration Act also relieved the documentary requirements for filing enforcement that (i) a party may choose to submit the duly authenticated original award or ‘copy of the award’ and (ii) if the award is written in a language other than Korean, a party may submit a ‘Korean translation of the award’ rather than a ‘duly authenticated Korean translation’. Simplification of recognition and enforcement of arbitral awards is part of the effort to enhance the right of the winning party, and is a clear manifestation of the Korean judiciary’s arbitration-friendly stance.

2016 International Arbitration Rules of the KCAB

The proposed revisions to the KCAB International Arbitration Rules (the 2016 Rules) were adopted and became effective on 1 June 2016.7 The new 2016 Rules apply to arbitration cases filed on or after 1 June 2016, where at least one of the parties to the arbitration proceeding is a non-Korean or the place of arbitration set out in the arbitration agreement is in any state other than Korea.8

To guarantee objectivity and fairness in the appointment of arbitrators in KCAB arbitrations, the 2016 Rules provide that the party nominated arbitrator is subject to the confirmation by the KCAB Secretariat, and if the KCAB Secretariat determines that the nomination is ‘clearly inappropriate, the KCAB Secretariat may refuse to confirm the nomination’.9 The 2016 Rules further require an arbitrator to submit a statement of acceptance, and statement of impartiality and independence, when accepting appointment or nomination, to disclose any circumstances likely to give rise to justifiable doubts as to impartiality or independence.10

The new 2016 Rules explicitly allow submission of claims arising out of multiple contracts within a single request for arbitration, when the contracts contain compatible arbitration agreements and the claims are deemed to be arising out of the same transaction or series of transactions.11 Even after constitution of the tribunal, the tribunal may allow additional parties to be joined to the existing arbitration proceeding, if all parties and the additional parties agree in writing that the additional party is a party to the same arbitration agreement.12 The tribunal may, at the request of a party, consolidate claims made in separate but pending arbitrations under the 2016 Rules and between the same parties.13

A number of changes has been adapted in order to improve efficiency in KCAB arbitrations. Under the 2016 Rules, all written communications and submissions may be submitted by electronic means, unless otherwise provided in the Rules, or directed by the KCAB Secretariat or the tribunal.14 The 2016 Rules increased the threshold to 50 million won for documentary proceedings where disputes are resolved on the basis of documentary evidence,15 and 500 million won for expedited procedures for which the award shall be made within six months.16

The most significant change in the 2016 Rules is the introduction of an emergency arbitrator system. The new system set forth in Appendix 3 of the 2016 Rules aims to provide interim relief to the parties prior to the constitution of the arbitral tribunal. The KCAB Secretariat appoints a sole emergency arbitrator within two weeks from receiving the request,17 and the emergency arbitrator must make a decision within 15 days from the date of appointment. Any interim relief given under this system can be enforced through a motion filed by the party seeking the interim relief concurrently with or after the filing of the arbitration proceedings.18 It is important to note that the emergency arbitrator procedure is separate from the court-ordered conservative measure or the interim measures rendered by the arbitral tribunal because the power of the emergency arbitrator is to be terminated upon the constitution of the arbitral tribunal.19

Arbitration Promotion Act

In December 2016, the Arbitration Promotion Act was enacted. The National Assembly passed the Act in its plenary session on 8 December 2016, which was in turn promulgated on 27 December 2016 and will come into effect on 28 June 2017. The purpose of the Arbitration Promotion Act is to promote the use of arbitration in resolving domestic and international disputes and attracting international arbitration cases to Korea.20 To accomplish this goal, the Act imposes an obligation for the establishment of an overall plan for promotion of arbitration, creates a legal basis for establishing a foundation for the promotion of arbitration and providing support to attract international arbitration cases, and provides assurance for the autonomy and independence of arbitral institutions in order to gain the confidence of international arbitration parties.21 Moreover, the Act lays out both short-term and long-term efforts that will be made by the Korean government and the arbitration community in Korea in order to achieve its stated goal.

Industrialising arbitration

An important, fundamental aspect of the Arbitration Promotion Act is the government’s recognition of arbitration as an industry  and that Korea’s investment in arbitration will make the country more competitive in the global market.22 By attempting to industrialise arbitration and manage the industry, the government has acknowledged that new jobs can be created in and additional economic revenue can be gained from not only the legal services sector but also hotels and transportation, and arbitral institutions.23 Moreover, increasing the awareness, availability and access to an alternate form of dispute resolution can lead to a decrease in both direct and indirect costs that would normally result from different forms of social conflict.24 Therefore, the Arbitration Promotion Act defines the ‘arbitration industry’ broadly as being an ‘industry in relation to dispute resolution institutions and other services necessary to promote and facilitate arbitration cases.’25

While the government’s investment in arbitration is certainly nothing new as it has in recent years taken many steps to ensure that Korea is known to be an arbitration-friendly country to the international arbitration community, including its support of the establishment of the Seoul International Dispute Resolution Centre in 2013, the Arbitration Promotion Act shows a different level of dedication by the Korean government that had not been seen, and is elaborated on below.

Basic legislation for long-term planning

The Arbitration Promotion Act serves as basic legislation for long-term planning to build infrastructure to promote arbitration in Korea. The Act stipulates that such planning shall include plans to (i) provide a basis for promoting the arbitration industry and for attracting international arbitration cases to Korea; (ii) establish and operate dispute resolution institutions; (iii) cultivate experts in the area of arbitration; and (iv) provide a basis for supporting research and study in the field of arbitration.26

Accordingly, the Korean Ministry of Justice plans to establish ‘Basic Plans for Promoting the Arbitration Industry’ every five years, which will encompass all the necessary matters to further develop the arbitration industry in Korea. In its annual report in 2017, the Ministry of Justice made it clear that such plans would include advancing arbitral institutions, expanding and improving relevant facilities, and promoting Seoul as a seat of arbitration in international arbitration cases. Moreover, the Ministry is currently carrying forward a plan to construct a complex arbitration centre that will serve as a one-stop service centre for arbitrations. Specifically, this centre is expected to be a state-of-the-art, multi-purpose hearing centre conveniently located in a landmark office building in Seoul. To accommodate the increasing number of arbitration cases seated in Seoul, the centre will provide at least six large and six medium-sized hearing rooms, with all the necessities for conducting hearings either in person or via other electronic means. Moreover, the centre is expected to provide separate office space for arbitral institutions, arbitrators, court reporters, interpreters and even law firms, so that all services that can be required in an arbitration proceeding can be provided by the occupants in the planned complex arbitration centre.

Attracting international arbitration cases

The Arbitration Promotion Act provides a separate provision that mandates that the Minister of Justice shall set up necessary measures to further promote Seoul as an attractive seat and a place of international arbitration. Such measures include research on and investigation into international cooperation in relation to the arbitration industry; international exchange of professional manpower and information with regard to the arbitration industry; and hosting information sessions overseas and various events accompanied therewith, and international collaboration activities with foreign arbitration institutions.27

This is expected to create synergy at a time when the KCAB has for the first time expanded its presence abroad by opening an office in Los Angeles in 2016 and is preparing to launch another office in Shanghai in 2017 to promote international arbitration. Moreover, the promotional measures taken by the Ministry of Justice will likely also result in more arbitrators being added to the panel of international arbitrators of the KCAB, which already includes over 300 professionals from nearly 30 countries.

Ensuring independence and autonomy of arbitral institutions

Despite the investment and promotional efforts that will be made by the Korean government, the Arbitration Promotion Act expressly stipulates that ‘any institutions, corporate bodies, and organizations founded under this Act shall be entitled to independence and autonomy in their activities and operations’.28 This is the government’s assurance to the international arbitration community that Korea as a country and Seoul as a seat will be fair and impartial in every aspect of international arbitration, in addition to being convenient and effective.

Recent court decision

Despite the recent major changes in the laws and rules related to arbitration, the Korean courts have been quick to demonstrate their willingness to adapt to these changes. The Supreme Court has been working on amending the Supreme Court Rules so that they also support the arbitration process in accordance with the changes in the laws, and even held a large seminar in November 2016 that addressed these specific points. Moreover, the Supreme Court’s pro-arbitration attitude was reflected again in its recent decision, in which it held that an arbitration agreement in the form of a letter offering arbitration as the parties’ choice of dispute resolution, and a letter in reply agreeing to this, was a valid arbitration clause since it was an offer and an acceptance under the governing law of California, despite the fact that the reply arrived to the other party two-and-a-half years after it was originally sent.29 In reaching its decision, the Supreme Court reaffirmed that an arbitration agreement must be in writing but at the same demonstrated that it is willing to broadly interpret the ‘in-writing’ requirement of the law based on the facts of each case.

Future outlook

In light of these developments, the international arbitration regime in Korea can’t help but continue to improve year after year. The efforts made by the government and the arbitration community in Korea have already resulted in an increase in the number of cases being seated in Seoul and being handled by the KCAB. In fact, the KCAB’s 2016 annual report shows that 381 new arbitration cases were filed with the KCAB in 2016, with 62 of them being international arbitrations. While this was a slight decline from 2015, which was a record-breaking year with 413 arbitration cases newly filed with the KCAB with 74 of them being international arbitrations, it nevertheless showed a continuing strong trend for arbitration. More importantly, despite the slight decrease in the number of newly filed cases, there was a significant increase of 124 per cent in the average claim amount for arbitrations filed with the KCAB in 2016 with such amount reaching an average of 4.9 billion won per case. These statistics coupled with the increasing number of KCAB cases involving construction disputes, intellectual property disputes and maritime disputes being filed, reflect that Korea is already being recognised as a notable country for arbitration.

As a result of the Arbitration Promotion Act and the measures that will be put in place in compliance with the Act, it may only be a matter of time until Korea becomes a hub for international arbitration in East Asia and Seoul becomes the parties’ seat of choice. As for the impact on Korea itself, the government forecasts that the arbitration centre it plans to construct will result in 600 billion won of annual added value by turning the trade balance of Korea in legal services from deficit into surplus and creating more jobs in the arbitration industry in the long term. This is a continuing development that arbitration practitioners will certainly watch closely.

Notes

  1. Arbitration Act, article 18-2 (Requirements for Interim Measures), section 2.
  2. Arbitration Act, article 18 (Interim Measures), section 2.
  3. Arbitration Act, article 18-7 (Recognition and Enforcement of Interim Measures), section 4.
  4. Article 28 of the amended Arbitration Act adds that the tribunal may also request the court for any assistance pertaining to evidence taking.
  5. Arbitration Act, article 28, sections 2, 3, and 4.
  6. Arbitration Act, article 37, section 2.
  7. KCAB Domestic Arbitration Rules were also amended and became effective in November 2016, and contain similar amendments to those made to the International Rules.
  8. 2016 Rules, article 2(c).
  9. 2016 Rules, articles 12 and 13.
  10. 2016 Rules, article 10.
  11. 2016 Rules, article 22.
  12. 2016 Rules, article 21.
  13. 2016 Rules, article 23.
  14. 2016 Rules, article 4(1)(b).
  15. 2016 Rules, article 47.
  16. 2016 Rules, article 48.
  17. 2016 Rules, Appendix 3, article 2.
  18. 2016 Rules, Appendix 3, article 3(4).
  19. 2016 Rules, Appendix 3, article 3(7).
  20. Arbitration Promotion Act, article 1.
  21. Ministry of Justice Bulletin, 8 December 2016, p. 1.
  22. Id.
  23. Id. at p. 3.
  24. Id.
  25. Arbitration Promotion Act, article 2.2.
  26. Arbitration Promotion Act, article 3.

27   Arbitration Promotion Act, article 7.

28   Arbitration Promotion Act, article 10.

29   Supreme Court Decision No. 2012Da84004 rendered on 24 March 2016.