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Construction Arbitration

Last verified on Monday 19th June 2017

Korea

Dong Seok (Johan) Oh and John Sangho Park

    Legal system

  1. 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?

    1. The Republic of Korea is a civil law jurisdiction. The laws of Korea have been historically influenced by the laws of other civil law countries such as Germany, France and Japan. The instruments having legal force and effect are statutes or acts, which are legislations enacted by the National Assembly. After a piece of 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.

    Contract formation

  2. 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?

    1. 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 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.

    Choice of laws, seat, arbitrator and language

  3. 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?

    1. Yes. However, in the case of government contracts, the government may require that the contract be governed by the laws of Korea, the language of the contract to be in Korean and any disputes be heard before the Korean courts or the Korean Commercial Arbitration Board.

    Implied terms

  4. 4.

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

    1. 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 minimum wage or merchantability of subjects under a supply contract. 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 the necessary detail. This concept is more broadly applied in comparison with English law and there is no limit to the types of terms that may be implied by the parties. 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.

    Certifiers

  5. 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?

    1. A certifier or an engineer is administered 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.

    Competing causes of delay

  6. 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?

    1. Under Korean law, an extension of time argument is 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 or deny the amount of liquidated damages. Based on the discretionary power given, the Korean courts are likely to deny liquidated damages claimed if an employer is solely found to be at fault, and may consider reducing the amount of liquidated damages claimed if both parties are at fault.

    Disruption

  7. 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)?

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

      The contractor must show lost opportunity due to the employer’s breach of the contract or acts of prevention.

      Burden of proof, in principle, is on the claimant to quantify the loss and the court or arbitral tribunal will review the claim based on the proof submitted by the contractor. Where liability has been established, but not the quantum, the Korean courts may exercise its right to ask for clarification to request that the contractor establish the quantum for the court’s consideration.

    Acceleration

  8. 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?

    1. A claim based on “constructive acceleration” may be 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, the contractor may be entitled to a higher pay. 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.

    Force majeure and hardship

  9. 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?

    1. While there is no specific limitation to types of force majeure events, the concept of force majeure is encompassed under the broad doctrine of “impossibility” (see question 18).

      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 (ie, an impossibility event) may be allocated between the parties by contract.

      The Korean courts do not require permanent effect as an essential factor.

      As noted above, impossibility in performance is a prerequisite to recognising a force majeure event. Relief is only available when it becomes impossible to achieve the purpose of the contract in its entirety.

      The only available relief is to terminate the contract.

      Yes, the rules can be excluded by agreement.

  10. 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?

    1. The Korean courts have the authority to allow amendments or nullification of a contract thatbecomes 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.

    Impossibility

  11. 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?

    1. 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. (See question 9.)

      As mentioned above, the only relief available is to terminate the contract.

    Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  12. 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?

    1. 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 as stated in question 10.

    Duty to warn

  13. 13.

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

    1. 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 delays or omits to warn the employer of such error.

    Good faith

  14. 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?

    1. 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.

    Time bars

  15. 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?

    1. Right to a claim can only be waived if such intent is clearly stated in writing under Korean law. However, notification provisions that bar claims if 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 limitation provided under such laws.

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

      Claims for extension of time can only be used as a defence against other claims and cannot be used as an affirmative claim for relief in Korea.

    Suspension

  16. 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?

    1. Korean law does not recognise the concept of "suspension"; however, similar results can be obtained under 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 part of the obligation or it is clearly foreseeable that such party will not perform its obligation. However, the contractor first needs to show that both performance obligations are linked together.

    Omissions and termination for convenience

  17. 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?

    1. Unless such right is clearly expressed in the contract, the employer may not omit work, terminate the contract at will or for convenience, or give work to another contractor or carry out the work itself.

    Termination

  18. 18.

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

    1. In addition to contractual termination, statutory termination is allowed under Korea law on the bases of delayed performance, refusal to perform, incomplete performance and impossibility to perform.

      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. 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?

    1. Yes. Statutory termination is still available. See 18.

  20. 20.

    What limits apply to exercising termination rights?

    1. 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.

    Completion

  21. 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?

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

  22. 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?

    1. No. Taking over the work by the employer does not constitute acceptance. Acceptance can only be based on the conditions specified by contract. Acceptance does not bar an employer from raising complaints within the time period specified under the Framework Act on the Construction Industry. According to the Act, the contractor continues to be liable for any defects or resulting damages for warranty a period of five years or 10 years, depending on the structure of the construction, after the completion of the works.

    Liquidated damages and similar pre-agreed sums ('liquidated damages')

  23. 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?

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

      Under general principles of Korean law, it does not make any difference if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence unless otherwise specified by contract.

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

  24. 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?

    1. 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. 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?

    1. 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. 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?

    1. The Korean courts view liquidated damages as pre-arranged compensation for damages and would not award more than the amount specified in a contract. As discussed in question 23, however, fraud, wilful misconduct, recklessness, and gross negligence can be excluded from the liquidated damages provisions by express agreement.

    Assessing damages and limitations and exclusions of liability

  27. 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?

    1. Monetary compensations 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. For example, lost profits are generally considered as special damages and it would be difficult to prevail on such claims in the absence of circumstance where the other party had been aware of or could have been aware of the lost profits.

      The scope of any monetary compensation for lost profits needs to be within the anticipated range as expected or as could have been foreseen by the other party.

  28. 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?

    1. 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 compared with the damage compensation, in which case the remedy awarded will be for damages.

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

  29. 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?

    1. As explained in questions 15 and 22, the contractor remains liable for any defects in its work for the duration of the statutory period of time unless expressly waived by contract.

  30. 30.

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

    1. The parties’ agreements related to damages, including agreement to exclude ‘indirect or consequential loss’, are recognised and enforceable in Korea.

  31. 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?

    1. 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.

    Liens

  32. 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?

    1. 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.

    Subcontractors

  33. 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)?

    1. Under article 34-1 of the Framework Act on the Construction Industry, 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.

  34. 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)?

    1. Yes. A subcontractor may claim against the employer for sums due to the subcontractor from the contractor under certain circumstances, 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.

      While there is no applicable precedent to date, it is likely that such right will exist as long as the work site is located in Korea.

  35. 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?

    1. 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 between the employer and the contractor. It does not make a difference if the seat of arbitration is not Korea.

    Third parties

  36. 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?

    1. 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, may obtain rights under a construction contract to bring claims against the contractor for damages due on behalf of 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. 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?

    1. 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 on to those connected with the contractor. However, the employer is entitled to bring a tort claim against those connected with the contractor as long as such parties are directly liable for the delay or defects caused.

      As such claims are based in tort against those connected with the contractor, the right to claim against such parties cannot be excluded or limited by the construction contract with the contractor.

    Limitation and prescription periods

  38. 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?

    1. As explained in question 22, the contractor continues to be liable for any defects or resulting damages for a warranty period of five years, or 10 years, depending on the structure of the construction, 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, any claim made by the contractor against the employer is subject to the statute of limitation period of three years.

      As regards statute of limitation, 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.

      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 increasing the statute of limitation.

    Other key laws

  39. 39.

    What laws apply which 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?

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

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

  40. 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?

    1. Even if the governing law of a construction contract is not Korean law, the Korean courts would apply the mandatory rules of law as explained in question 39.

    Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  41. 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?

    1. We are not aware of any legal precedents related to DAB decisions in Korea. Generally, Korean courts do not recognise interim arbitration decisions that require payment prior to a final award under the Korean Arbitration Act.

    Courts and arbitral tribunals

  42. 42.

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

    1. 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. 43.

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

    1. While judicial procedures for construction and arbitration matters follow the general civil procedures, construction matters will be heard by the construction divisions of the district court and the high court. Upon request, it is possible to obtain redacted decisions from these courts. Supreme Court decisions are fully accessible through its official website. While 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. 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?

    1. 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 faces the risk of having its decision reversed or nullified by a higher court.

  45. 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)?

    1. Having an arbitration agreement does not prohibit parties from bringing parallel court proceedings. However, such parallel proceeding may be dismissed if the respondent proves the existence of a valid arbitration agreement as its affirmative defence, regardless of satisfaction of any preconditions to arbitration. Nevertheless, once the court proceeding continues on to the merits stage, the proceeding will not be dismissed in favour of arbitration.

  46. 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?

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

    Expert witnesses

  47. 47.

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

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

    State entities

  48. 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)?

    1. When public bodies enter into an agreement with private contractors, the following are the general laws which govern public contracts and construction projects: the Act on Contracts to Which the State is a Party; the Act on Contracts to Which a Local Government is a Party; the Framework Act on the Construction Industry; and the Construction Technology Promotion Act. The Ministry of Strategy and Finance and the Ministry of the Interior 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. In general, these laws focus on issues of procedural fairness, such as mandatory bidding rules, bidding procedures and rights to exclude bid if found to be unfair, as well as certain substantive matters on strict liability, contract price adjustment and bid guarantee among others.

    Settlement offers

  49. 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?

    1. 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.

    Privilege

  50. 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?

    1. As discussed above, Korean law does not clearly recognise the concept of without prejudice. While there is no applicable case on 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. 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?

    1. 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.

    Guarantees

  52. 52.

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

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

  53. 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?

    1. 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. 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?

    1. A guarantor can only be released from liability under a guarantee as provided by the express provisions in such 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.

    On-demand bonds

  55. 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.

    1. 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. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like 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?

    1. As stated in question 55, the 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, examples of an employer knowingly making a claim that he or she does not have the right to make under the contract or even where there is a signification difference between the amount of the call and the employer’s entitlement would be difficult to defend against by arguing abuse of right.

    Further considerations

  57. 57.

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

    1. As in other civil law countries, 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".

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GAR know-how provides reliable cross-jurisdictional insight to help cement the building blocks of international practice. In this section, select experienced practitioners answer commonly asked questions for key jurisdictions so allowing readers to be better-placed to solve the challenges of their working days.

Questions

    Legal system

  1. 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?


  2. Contract formation

  3. 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?


  4. Choice of laws, seat, arbitrator and language

  5. 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?


  6. Implied terms

  7. 4.

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


  8. Certifiers

  9. 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?


  10. Competing causes of delay

  11. 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?


  12. Disruption

  13. 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)?


  14. Acceleration

  15. 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?


  16. Force majeure and hardship

  17. 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?


  18. 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?


  19. Impossibility

  20. 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?


  21. Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  22. 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?


  23. Duty to warn

  24. 13.

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


  25. Good faith

  26. 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?


  27. Time bars

  28. 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?


  29. Suspension

  30. 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?


  31. Omissions and termination for convenience

  32. 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?


  33. Termination

  34. 18.

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


  35. 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?


  36. 20.

    What limits apply to exercising termination rights?


  37. Completion

  38. 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?


  39. 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?


  40. Liquidated damages and similar pre-agreed sums ('liquidated damages')

  41. 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?


  42. 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?


  43. 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?


  44. 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?


  45. Assessing damages and limitations and exclusions of liability

  46. 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?


  47. 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?


  48. 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?


  49. 30.

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


  50. 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?


  51. Liens

  52. 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?


  53. Subcontractors

  54. 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)?


  55. 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)?


  56. 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?


  57. Third parties

  58. 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?


  59. 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?


  60. Limitation and prescription periods

  61. 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?


  62. Other key laws

  63. 39.

    What laws apply which 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?


  64. 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?


  65. Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  66. 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?


  67. Courts and arbitral tribunals

  68. 42.

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


  69. 43.

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


  70. 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?


  71. 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)?


  72. 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?


  73. Expert witnesses

  74. 47.

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


  75. State entities

  76. 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)?


  77. Settlement offers

  78. 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?


  79. Privilege

  80. 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?


  81. 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?


  82. Guarantees

  83. 52.

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


  84. 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?


  85. 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?


  86. On-demand bonds

  87. 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.


  88. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like 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?


  89. Further considerations

  90. 57.

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