Construction Arbitration: South Korea

1. Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

South Korea

The Republic of Korea is a civil law jurisdiction. The laws of Korea have been historically influenced by the laws of other civil law jurisdictions such as Germany, France and Japan. The National Assembly legislates statutes or acts that have legal force and effect. After legislation is passed by the National Assembly and sent to the Executive Branch for approval of the President, the government promulgates it as law by printing the text in the Official Gazette of the government. The laws may be passed with retrospective effect, with the exception of criminal law.

2. What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

South Korea

Under general principles of contract law in Korea, a contract is concluded and becomes valid when the intentions of the parties are in accord with the basic principle of “offer and acceptance”. The offer must concretely and definitively declare an intent to form a contract. The acceptance must correspond to the offer. The offer needs to include matters that are sufficient to determine the contents of the contract. The contract has binding effect on the parties from the time of its conclusion, unless otherwise agreed. There is no “letter of intent” in Korea and, instead, an employer may issue a “notice to winning bidder”, which does not have any binding effect unless otherwise stated.

3. Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

South Korea

Yes. However, in most government contracts, the government may require one or more of the following: (i) the contract to be governed by the laws of Korea, (ii) the language of the contract to be in Korean and/or (iii) any disputes be heard before the Korean courts or the Korean Commercial Arbitration Board.

4. How might terms be implied into construction contracts? What terms might be implied?

South Korea

Terms can be implied into a contract by law or by implied agreement between the parties. Terms implied in law are mandatory terms under relevant statutes, such as the requirement to pay minimum wage. Terms implied by the parties are terms needed to "fill in the gap" based on reasonable intent of the parties where a contract fails to include a necessary detail. For example, in a case where a construction contract was concluded without specifying the amount of consideration, but work commenced without any objection from the employer, the Supreme Court held there was an implied term for the employer to pay the contractor an amount based on actual costs incurred. There is no limit to the types of terms that may be implied by the parties.

5. When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

South Korea

The duties of a certifier or an engineer are prescribed under the Construction Technology Promotion Act, which categorises the work scope of a certifier into three different areas: design, inspection and survey, and construction. The Act requires any certifier to act honestly, with dignity and in the interests of quality improvement.

The parties are bound by certificates to the extent required by the contract, but these are not mandatory requirements for the completion of the works under the contract.

The contractor may bring proceedings directly against a certifier based on wrongful conduct and is able to claim damages for tort liabilities, which is also stipulated in the Act.

6. If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

South Korea

Under Korean law, an extension of time argument is primarily used as a defence rather than a basis for a claim. It is generally used by a contractor in defending a liquidated damages claim made by an employer. Article 398-2 of the Korean Civil Code gives discretionary power to the judiciary to reduce the amount of liquidated damages. Based on the discretionary power given, the Korean courts may reduce the amount of liquidated damages claimed if both parties or the employer is at fault.

7. How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

South Korea

A claim based on "disruption" is possible under general Korean law principles, but there are no relevant court precedents to date.

To be successful on a claim based on disruption, the contractor must demonstrate (i) the existence of a disruptive event due to the employer’s breach of the contract or acts of prevention, (ii) losses arising from the disruption and (iii) causation between the disruptive event and losses incurred.

The burden of proof, in principle, is on the claimant and the court or arbitral tribunal will review the claim based on the evidence submitted by the contractor. Where liability has been established, but not the quantum, the Korean courts may exercise its right to require the parties to provide information on the quantum and at its discretion, quantify the damages based on the available information, including circumstantial evidence.

8. How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

South Korea

A claim based on “constructive acceleration” is possible under general Korean law principles. Recently, a lower court ruled that if construction is temporarily halted due to no fault of the contractor, and the contractor had no choice but to allocate additional human and material resources to meet the original deadline (eg, where the employer rejects the contractor’s request for extension of time), the contractor may be entitled to additional payment. In other cases, the court could accept a claim based on ‘constructive acceleration’ by considering elements of proof similar to general principles of damages, including causation, foreseeability and damages.

9. What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

South Korea

Under Korean law, a force majeure defence might be accepted even if there is no express force majeure clause in the contract. This is on the basis of the general Korean law principle that obligor’s intent, wilful misconduct or negligence is required for contractual liability and in a force majeure situation it would be deemed that there was no intent, wilful misconduct or negligence on the part of obligor. As such, there is no specific limitation to types of force majeure events.

The Korean courts have determined that the force majeure event must be unforeseeable to a party seeking relief.

The risk of a force majeure event may be allocated between the parties by contract.

Permanency of effect is not an essential factor in Korean courts.

As noted above, the absence of intent, wilful misconduct or negligence in performance on part of the obligor is a prerequisite to recognising a force majeure event. Thus, in theory, relief is available even if performance is not objectively impossible (ie, can be done by a third party), but practically impossible from the obligor’s subjective point of view. However, in practice, the court tends to rarely allow a force majeure defence where there is no express force majeure clause in the contract.

The available reliefs are: (i) to be excused from the obligation(s) which are affected due to the force majeure event(s) (where only certain obligation(s) that are not material are affected); or (ii) to terminate the contract (where material obligation(s) are affected). Relief does not apply automatically. According to Supreme Court precedents, force majeure is a ground for limiting the liability of a contracting party that failed to perform its obligation and therefore, the burden of proof, in principle, lies with the party claiming force majeure.

Rules concerning force majeure can be excluded by agreement.

10. When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

South Korea

The Korean courts have the authority to allow partial or full nullification of a contract that becomes unduly expensive or otherwise hard to perform based on the principle of good faith, but such authority is not commonly exercised by the courts. The parties may contractually limit the scope of such review by the court.

11. When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

South Korea

Under general Korean law principles, a contract can be terminated based on the doctrine of ‘impossibility’, but the party responsible remains liable for compensating the other party’s damages caused by such termination if the impossibility is attributable to the compensating party (ie, obligor).

As mentioned above, the only relief available for the obligee is to terminate the contract, unless the impossibility is attributable to the obligor.

12. How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example, making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

South Korea

Risk allocation is discretionary under the Korean Civil Code and therefore all of the examples given above can be implemented into a contract as part of risk allocation subject to the principles of good faith.

13. When must the contractor warn the employer of an error in a design provided by the employer?

South Korea

The contractor does not have an obligation to warn the employer of a design error unless expressly required under the terms of a contract. However, the contractor may be held partly liable for any loss arising from such design error if the contractor knowingly delays or omits to warn the employer of such error.

14. Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

South Korea

Yes. A general duty of good faith is well recognised in Korea, but there are no clear rules to address each of the questions stated above. In applying the principle of good faith, the Korean courts engage in a very fact-intensive analysis by giving consideration to the totality of the circumstances.

15. How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

South Korea

Under Korean law, a right to a claim can only be waived if such intent is clearly stated in writing. Notice requirement clauses that bar claims where such claims are not validly notified within a certain period are generally enforceable. An exception may be if a court finds the existence of unavoidable circumstances based on the principle of good faith.

In order to bring claims from outside the scope of the contract, such claims need to be based on applicable laws and satisfy any statutory limitations provided under such laws.

The approach may be different based on a court’s interpretation of the principle of good faith.

Claims for extension of time is generally used as a defence against other claims, but rarely used as an affirmative claim for relief in Korea, although this is not prohibited by law.

16. What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

South Korea

Korean law does not expressly recognise the concept of "suspension"; however, similar results can be obtained pursuant to the "defence right of simultaneous performance", which is prescribed in Article 536 of the Korea Civil Code. This defence excuses a party from performing its duty under a contract if the other party first fails to perform its obligation or it is clearly foreseeable that such party will not perform its obligation. However, to invoke this defence, the employer or contractor first needs to show that both performance obligations are linked together and that the counterparty’s obligation is due, or, if not, there are discernible reasons that would render the counterparty’s performance burdensome.

17. May the employer exercise an express power to omit work, or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

South Korea

Under the Korean Civil Code, the employer may terminate the contract at will regardless of the purpose of termination, if it compensates the contractor’s resulting damage, unless such termination right is expressly prohibited in the contract. The Korean Civil Code or other Korean laws are silent on whether the employer may omit work, which does not amount to ‘termination.’ Thus, the employer’s giving work to another contractor or carrying out the work itself is likely allowed if the employer compensates the contractor’s resulting damage given the Korean Civil Code’s position on termination or if such right is clearly expressed in the contract.

18. What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

South Korea

In addition to contractual termination, statutory termination is allowed under Korea law on the basis of delayed performance, refusal to perform, incomplete performance, impossibility to perform, force majeure and employer's will.

A construction contract, in principle, can only be terminated in its entirety.

Any future rights and obligations are removed upon termination, but existing obligations need to be fulfilled. In addition, termination does not affect any party’s existing right to make a claim for damages.

19. If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

South Korea

Yes. Statutory termination is still available.

20. What limits apply to exercising termination rights?

South Korea

There are no limits to exercising contractual/statutory termination. However, any abuse of termination rights will be subject to review by the courts based on the principle of good faith.

21. Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

South Korea

No. However, the fact that the employer has taken beneficial possession of the works and started using them can be used as strong evidence to support a contractor’s claim that works have been completed.

22. Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

South Korea

No. Taking over the work by the employer does not constitute acceptance in general. Acceptance can only be based on the conditions specified by contract, although taking over the work by the employer can be used as strong evidence to the contractor’s claim that works have been completed and the employer is obliged to accept the works.

23. To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

South Korea

Generally, having a provision in a contract for liquidated damages for delay to the completion of the works would be deemed an exhaustive remedy for all of the employer’s losses unless otherwise agreed between the parties. Having liquidated damages for delays prior to the contractual completion date is uncommon in Korea, but may be upheld as pre-arranged compensation.

Under Korean law, it is unclear whether there is any difference if critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence unless otherwise specified by contract. There has been no precedent directly addressing this issue.

In practice, the parties commonly exclude such voluntary misbehaviour by agreement.

24. If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

South Korea

No. The contractor will not be liable for any delays caused by the employer even if the contract does not provide for an extension of time to the contractual completion date. As explained above, the contractor can argue extension of time as a defence against the employer’s claim for liquidated damages.

25. When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

South Korea

Under the Korean Civil Code, judges have discretion to award amounts less than the liquidated damages specified in the contract for delay or other matters if the amount of liquidated damages is found to be unduly excessive.

Courts will consider the positions of the parties, the purpose and intent when setting out the liquidated damages, the percentage of the contract amount as liquidated damages, and any other factors relevant in deciding what is unduly excessive.

26. When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

South Korea

The Korean courts view liquidated damages as pre-arranged compensation for damages and would not award more than the amount specified in a contract. Fraud, wilful misconduct, recklessness, and gross negligence can be excluded from the liquidated damages provisions by express agreement.

27. How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

South Korea

Monetary compensation under Korean law can be divided into ordinary damages and special damages, which are generally similar to English law concepts of direct damages and consequential damages.

Under the Korean law (i) ordinary damages and (ii) foreseeable special damages are compensable. For example, lost profits are generally considered to be special damages and it would be difficult to prevail on such claims in the absence of a circumstance where the other party had been aware of or could have been aware of the lost profits. However, whether lost profits fall under direct damages (ordinary damages) or consequential damage (special damages) is a factual question to be determined on a case-by-case basis and there have been several precedents ruling that lost profits arising out of plant can be deemed as ordinary damages in a plant construction dispute.

The quantum of monetary compensation for lost profits needs to be within the anticipated range of expected lost profit or an amount that could have been foreseen by the other party.

28. If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

South Korea

Under the Korean Civil Code, an employer cannot bring a claim of rectification if such remedy would cause unduly excessive financial burden on the contractor when compared with compensation for damages. In such case, the remedy awarded will be for damages.

The parties may agree on a regime for remedies, but to an extent that it is not unduly excessive for any one party.

29. If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

South Korea

Under the Framework Act on the Construction Industry, the contractor continues to be liable for any defects or resulting damages for warranty during periods set forth in the Enforcement Decree of the Act for up to 10 years depending on the nature of the object building or structure, from (i) the completion date of the construction or (ii) the start date of use or management, whichever is earlier, unless expressly waived or stipulated otherwise in the contract or other relevant regulations.

30. What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

South Korea

The parties’ agreements related to damages, including agreement to exclude ‘indirect or consequential loss’, are generally recognised and enforceable in Korea, subject to the exceptions of fraud, wilful misconduct, recklessness or gross negligence.

31. Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

South Korea

It is permissible, in principle, to agree to exclude or to limit the scope of damages to be compensated under the construction contact including claims based on tort/delict.

There are no clear rules regarding limitation on liability in case of fraud, wilful misconduct, recklessness or gross negligence, but in such instances, and in particular in case of fraud or wilful misconduct, the Korean courts are unlikely to uphold limitations or exclusions of liability based on the basic principle of good faith under the Korean Civil Code.

Proximate cause must be shown between the behaviour and the loss.

32. What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

South Korea

Similar, but not identical, concept exists in Korea. The Korean Civil Code allows a contractor to claim a lien in the works it has carried out to secure payment owed under the construction contract regardless of the employer having any interest in the site or not. The contractor may enforce sale by auction based on the lien, but not necessarily have the priority to claim over other debtors.

33. How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

South Korea

Under article 34, paragraph 1 of the Framework Act on the Construction Industry and article 13, paragraph 3 of the Fair Transactions in Subcontracting Act, a contractor is required to make payment to a subcontractor within 15 days from the receipt of payment from the employer to the contractor. Therefore, any pay-when-paid provisions can prescribe a shorter period of time but cannot increase the 15-day period.  Furthermore, for small and mid-size subcontractors whose assets or annual revenues are lower than certain thresholds, an agreement on conditional payment may not be enforceable (depending on the specific circumstances) under the Fair Trade Act or the Fair Transactions in Subcontracting Act.

34. May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

South Korea

Yes. A subcontractor may claim against the employer for sums due to the subcontractor from the contractor under certain circumstances set forth in article 35, paragraph 2 of the Framework Act on the Construction Industry or in article 14, paragraph 1 of the Fair Transactions in Subcontracting Act, to protect the interests of the subcontractor.

The subcontractor’s right to directly claim against the employer is derived from the contractor’s right to claim against the employer and subject to any defences the employer may have against the contractor, such as parallel payment, repayment and set-off from the employer to the contractor. If the subcontractor succeeds in its claim against the employer, the employer’s payment will be made to the subcontractor.

As to whether said right would be recognised in connection with a construction contract governed by a foreign law, while there is no applicable court precedent to date, it is likely that such right will exist as long as the work site is located in Korea given that (i) the relevant statutory provisions are generally accepted as mandatory rules, and (ii) these provisions were introduced to protect Korean subcontractors from financial instability.

35. May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

South Korea

An employer may bring an arbitration against a contractor for subcontractor related issues under the arbitration agreement between the employer and the contractor. However, the contractor cannot bring itself, the employer and the subcontractor into a single litigation when an arbitration agreement exists only between the employer and the contractor. It does not make a difference if the seat of arbitration is not Korea.

36. May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

South Korea

Korean law recognises the right of subrogation whereby one person takes over the rights of another against a third party. The third party connected with the employer, such as the ultimate owner, if such third party has a valid claim against the employer, may obtain rights under a construction contract to bring claims against the contractor for damages due on behalf of the employer, for the purposes of and to the extent required to preserve its claim to the employer. If there are any conditions or limitations on damages in the contract between the employer and the contractor, such third-party claims will also be subject to the existing arrangements.

37. How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

South Korea

In general, any claims that arise out of a construction contract need to be brought against the contractor and the liabilities under the contract cannot be passed onto third parties connected with the contractor except pursuant to special arrangements. However, the employer is entitled to bring a tort claim against those contractor-related third parties as long as such parties are directly liable for the delay or defects caused.

As such claims against those connected with the contractor are based in tort, the right to claim against such parties cannot be excluded or limited by the construction contract with the contractor. Under Korean law, a tort can be established by negligence even if it does not amount to gross negligence.

38. What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

South Korea

The contractor continues to be liable for any defects or resulting damages for a warranty period of up to 10 years, depending on the nature of the object building or structure, from (i) the completion date of the construction or (ii) the start date of use or management, whichever is earlier. Any other claims by the employer based on a breach of contract would be subject to the statute of limitation period of five years. On the other hand, a cost claim made by the contractor against the employer is subject to the statute of limitation period of three years.

As regards to the statute of limitations, any filing of court proceedings or making a claim through other means, attachment or preliminary attachment, preliminary injunction or any admission of liability thereof may stop time running from counting towards the limitation period.

Although statute of limitations are provided in the substantive laws such as the Korean Civil Code and the Korean Commercial Code, Korean courts have yet to decide whether the rules are substantive or procedural in nature.

Parties may agree to shorten the limitation period, but are prohibited from removing or extending the limitation period.

39. What laws apply that cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

South Korea

Where Korean law is the governing law of a construction contract, laws related to public policy (or public interests), such as fair trade and health and safety, cannot be excluded or modified by the parties to the contract. Generally, areas of public interests in a construction contract are addressed in the Framework Act on the Construction Industry, the Construction Technology Promotion Act, and the relevant building codes.

FIDIC Books are not commonly used in Korean construction contracts, and there are currently no relevant court precedents.

40. What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

South Korea

Even if the governing law of a construction contract is not Korean law, the Korean courts would apply the mandatory rules of law.

41. For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

South Korea

We are not aware of any legal precedents related to DAB decisions in Korea, including court injunctions/preliminary decisions based on DAB (and also for engineer) decisions. Generally, the Korean courts do not recognise decisions by non-arbitral ADR tribunal including DAB and interim arbitration decisions that require payment prior to a final award under the Korean Arbitration Act.

42. Does your jurisdiction have courts or judges specialising in construction and arbitration?

South Korea

The Korean district courts and the high courts have divisions specialising in construction matters, but there are no courts specialising in arbitration matters in Korea.

43. What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

South Korea

While judicial procedures for construction and arbitration matters follow general civil procedure, construction matters will be heard by the construction divisions of the district court and the high court. Upon request, it is generally possible to obtain redacted decisions from these courts if one knows the name of the parties and the case number. Most of the Supreme Court decisions are accessible through its official website. Although there is no common law doctrine of binding precedent in Korea and a decision by the Supreme Court only binds the case at issue, in practice, the courts endeavour to present a consistent approach on many issues of public interest.

44. In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

South Korea

In Korea, civil procedures are based on adversarial system and the Korean courts review cases based on the facts and the issues presented by the parties and will not, in principle, raise any issues that were not put to them by the parties. Any court or arbitral tribunal giving preliminary indications as to how it views the merits of the dispute face the risk of having its decision reversed or nullified by a higher court on the basis of, among others, partiality or bias.

45. If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

South Korea

Having an arbitration agreement does not per se prohibit parties from bringing parallel court proceedings. However, such parallel court proceedings may be dismissed if there exists a valid arbitration agreement and the respondent submits as its first submission (in general, the answer) an affirmative defence of valid arbitration agreement regardless of satisfaction of any preconditions to arbitration. Nevertheless, if the respondent does not submit such affirmative defence in its first submission and the court proceeding continues on to the merits stage, the proceeding will not be dismissed in favour of arbitration absent special circumstances.

46. If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

South Korea

Applying to a foreign court for interim or provisional relief does not prohibit or invalidate one’s right to arbitrate. In fact, the Korean Arbitration Act allows parties to make applications to a court for interim or provisional relief prior to or during arbitral proceedings.

47. In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

South Korea

Tribunal or party-appointed experts are commonly used in Korea and party-appointed experts owe their duties to the party appointing them. However, some experts are also bound by certain codes of professional conduct, which may create conflicting situations and require them to withdraw from the proceedings.

48. Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer).

South Korea

When public bodies enter into a construction contract with private contractors, the following are the general laws that govern such contracts: (a) the Act on Contracts to Which the State is a Party, (b) the Act on Contracts to Which a Local Government is a Party, and (c) the Framework Act on the Construction Industry the Construction Technology Promotion Act. These, in principle, are applicable to all types of construction contracts in Korea whether public or private. In general, these laws focus on issues of procedural fairness, such as mandatory bidding rules, bidding procedures and rights to exclude a bid if found to be unfair, as well as certain substantive matters on strict liability, contract price adjustment and bid guarantee, among others. Further, the Ministry of Economy and Finance and the Ministry of Interior and Security are delegated under such laws to be the competent authorities to establish specific regulations and guidelines, such as the General Terms and Conditions Guideline (GTC) and GTC of Sales Guideline. While these specific regulations and guidelines address commercial issues such as pricing, suspension, termination and dispute resolution, they are not mandatory and the parties can deviate from them by mutual agreement.

Further, both the Act on Contracts to Which the State is a Party and the Act on Contracts to Which a Local Government is a Party provide that government officials should not include any terms that unreasonably restrict the private contractors’ rights prescribed in these statutes as well as any other applicable laws and regulations, and that such terms, if included, might be invalid.

49. If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

South Korea

The fact that it is a settlement offer does not limit its admissibility under Korean law. While parties may stipulate admissibility based on the principle of without prejudice, admissibility of any settlement offer in breach of such an agreement depends on the judge’s wide discretion.

50. Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

South Korea

As discussed above, Korean law does not clearly recognise the concept of “without prejudice”. While there is no applicable court case in point, an arrangement by the parties to pay a sum if settlement communications are disclosed to a court or arbitral tribunal may be enforceable in Korea based on general principles of Korean contract law.

51. Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

South Korea

In Korea, general attorney–client privilege is protected under various analogous concepts that define an attorney’s confidentiality requirements. However, while the idea itself has been widely discussed and supported in academia, the law is silent on whether the advice of in-house counsel is privileged from disclosure requirements.

52. What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

South Korea

There are no specific form requirements under Korean law regarding a guarantee, and oral guarantees may still be legally effective. However, for practical evidentiary purposes, most guarantees are issued in written form by the financial institutions or other organisations providing guarantees.

53. Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

South Korea

Where the guarantee is silent, liability of the guarantor will be limited to that of the party to the underlying construction contract. Parties may broaden the scope of the guarantee by including specific wording to such effect.

54. Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

South Korea

In principle, a guarantor can only be released from liability as provided by the express provisions of the guarantee. For example, a guarantor can be released when the proceeds are paid out according to the terms of the guarantee or if a guarantee uses the proceeds of the guarantee for purposes other than as expressly allowed under the terms of such guarantee.

55. If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

South Korea

The Korean courts have allowed challenges to a call for an on-demand guarantee based on the beneficiary’s abuse of right, but there are no court precedents challenging a call based on jurisdiction.

56. If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts that the employer is entitled to (such as sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

South Korea

Korean courts have allowed challenges based on the beneficiary’s abuse of right, but the element of abuse must be clear and present and, in principle, defence based on underlying contract is not sufficient. As courts strictly apply the concept of abuse of right, even where an employer is knowingly making a claim that he or she does not have the right to make under the contract or where there is a significant difference between the amount of the call and the employer’s entitlement, this does not in and of itself give rise to a successful abuse of right claim.

57. Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?

South Korea

As with other civil law jurisdictions, except for a limited number of large construction firms that have gained experience in overseas jurisdictions, employers and contractors in Korea are not familiar with the legal principles underlying common law-based construction contracts. Thus, when a foreign party negotiates a construction contract with a Korean party, it is necessary to ensure that the parties share the same understanding for a true "meeting of minds".