As the international arbitration community has been witnessing profound changes in the last few years, Korea has kept pace by reinforcing its own international arbitration infrastructure, especially its facilities and equipment, and by updating its rules and procedures to bring them in line with international standards. Specifically, Korea recently opened the Seoul International Dispute Resolution Centre, a venue equipped with cutting-edge technology for arbitration hearings, and is in the process of amending the Arbitration Act of Korea (Arbitration Act) as well as the International Arbitration Rules of the Korean Commercial Arbitration Board (KCAB) as part of its efforts for infrastructure improvement. Moreover, Korea continues to be recognised as a pro-enforcement jurisdiction in approving and enforcing arbitral awards where the Korean court’s refusal to enforce arbitral awards are rare exceptions. This arbitration-friendly stance is well demonstrated in recent court decisions.
This article will introduce the recent international arbitration trends in Korea by highlighting some of the key provisions in the currently proposed amendment to the Arbitration Act and the KCAB International Arbitration Rules and by discussing some of the notable decisions of the lower courts related to international arbitration.
Proposed amendment to the Korean Arbitration Act
From 2012, there were discussions regarding the need to amend the Arbitration Act to harmonise it with international standards. A special committee was commissioned by the Ministry of Justice to provide specific recommendations on the amendments, culminating in the final draft of the amendments for which a public hearing was held in November of 2014. The proposed amendment is intended to reflect the pro-arbitration stance that has emerged in the international community since Korea’s last amendment to its law in 1999. Of the many amendments that were proposed and are currently being discussed, a few provisions warrant particular attention. In particular, it is noteworthy that the proposed amendment aims to reflect the 2006 UNCITRAL Model Law on International Commercial Arbitration provision relating to the power of the arbitral tribunal to order interim relief, enabling the arbitral tribunal to issue a wide array of interim measures enforceable by court decisions. Additionally, such amendment is designed to simplify the enforcement process of arbitral awards by permitting the court to render a decision to enforce the award in the form of an order rather than in the form of a judgment.1
An interim measure is not a new concept in international arbitration in Korea. Article 18 of the current Arbitration Act contains a provision that stipulates the arbitral tribunal’s authority to grant interim measures. However, the existing article 18 has certain issues: first, it only states that the interim measure shall be given in the form of an ‘order’ instead of an award, and does not clarify whether such order is enforceable in accordance to the provisions regarding the recognition and enforcement of awards. Second, it limits the subject matter of the interim measure to a certain extent. Therefore, the proposed amendment removes the limitation that any interim measure shall be in the form of an order, and widens the scope of the subject matter of the interim measures. The main details of the proposed amendment related to interim measures are as follows:2
- A more detailed provision on the scope of the arbitral tribunal’s power to order interim relief – a provision which allows the tribunal to order a party to:
- maintain or restore the status quo pending determination of the dispute;
- take action that would prevent, or refrain from taking action that is likely to cause current or imminent harm or prejudice to the arbitral process itself;
- provide a means of preserving assets from which a subsequent award may be satisfied; or
- preserve evidence that may be relevant and material to the resolution of the dispute.
- Any party seeking compulsory enforcement based on the interim measure issued by the arbitral tribunal may request the court for an order granting compulsory execution.
- There will be grounds for refusing recognition or enforcement if:
- any of the grounds for revocation of arbitral awards set out in article 36(2) of the Arbitration Act are present;3
- at the request of the party against whom it is invoked, the court is satisfied that the arbitral tribunal’s decision regarding the provision of security in connection with the interim measure issued by the arbitral tribunal has not been complied with, or the interim measure has been terminated or suspended by the arbitral tribunal or by the court;
- the court finds that the interim measure is incompatible with the powers conferred upon it unless it decides to reformulate the interim measure to the extent necessary to adapt it to its own powers for the purposes of enforcing that interim measure and without modifying its substance;
Any determination made by the court on any grounds for refusal of recognition or enforcement of the interim measure shall be effective only for the purposes of the application to recognise and enforce the interim measure; the court where recognition or enforcement is sought shall not, in making that determination, undertake a review of the substance of the interim measure.
Simplification of enforcement procedures
Another proposed amendment simplifies the procedure for enforcing arbitral awards in Korea. The current Arbitration Act requires the judgment of a court for enforcement of arbitral awards. The proposed amendment changes the enforcement requirement from a judgment of a court to a court order. That is, the amendment newly adds provisions dealing with the following matters:
- a court receiving an application for enforcement of an arbitral award may render its decision in the form of an order, not a judgment;
- a court must set a date for a hearing, or a date for examination on which both parties may attend, and notify the parties thereof;
- as a fundamental matter a court must state the reasons for its decision on enforcement of arbitral awards;
- while a party may immediately appeal the court’s decision on enforcement of arbitral awards, such appeal shall not have the effect of staying the enforcement; and
- after the court’s decision on enforcement of arbitral awards is made final, a lawsuit for revocation of arbitral awards shall not be permitted.
Court’s cooperation with examination of evidence
Article 28 of the current Arbitration Act provides the arbitral tribunal a helpful process in which it can request a court to conduct examination of evidence. The proposed amendment to the Arbitration Act strengthens this process by guaranteeing the right of arbitrators or parties to participate in the court’s examination of evidence, and further enables the arbitral tribunal to request practical cooperation from the courts. The proposed amendment further provides that when cooperating with the arbitral tribunal in examination of evidence a court may compel a witness to appear before the arbitral tribunal or compel a person to produce certain documents to the arbitral tribunal.
In addition to the provisions discussed above, there are other noteworthy proposed amendments to the Arbitration Act.
Form of arbitration agreement
While the proposed amendment takes the approach of the 2006 Model Law, which relaxes the requirement that an arbitration agreement must be ‘in writing’, the proposed amendment, rather than abandoning the ‘in writing’ requirement, adopts the approach of requiring that arbitration agreement be recorded in any form.
Appointment of arbitrators
In situations where a party is not responding to request for appointment of an arbitrator, the proposed amendment provides that the arbitrator be appointed by the court or an arbitration institution designated by the court.
Decision on the arbitral tribunal’s authority
The current Arbitration Act stipulates that, when a question arises regarding the arbitral tribunal’s authority (or to what extent the tribunal has authority) to decide on certain matters in relation to the arbitral proceedings, a party may seek a court decision to determine the existence (or the extent) of such authority, provided that the party raised an objection in the arbitral proceedings and that the arbitral tribunal has made a decision that it has authority. The proposed amendment makes it clear that the party may seek a court decision where the arbitral tribunal has made a decision that it does not have authority also.
Arbitration cost and delay penalty (interest)
The proposed amendment adds provisions stating that unless the parties agree otherwise, the arbitral tribunal may determine the apportionment of arbitration costs after a thorough review of the facts of the case; and in cases where the arbitral tribunal grants an arbitral award it also has the authority to order payment of delay penalty.
Proposed amendment to the KCAB International Arbitration Rules
The key provisions of the proposed amendment to the KCAB International Arbitration Rules (KCAB Rules and the Proposed KCAB Rules) concern (i) instituting an emergency arbitrator system, (ii) the procedure for joining a party in a multiple-party dispute and (iii) the process of confirmation by the Secretariat of the KCAB (the Secretariat) concerning arbitrator appointment.4
The Proposed KCAB Rules introduce an emergency arbitrator system under article 28(3) and Schedule 3. Such amendment provides parties with timely interim relief prior to the constitution of the arbitral tribunal, while reducing the party’s burden of additionally filing a motion for conservatory measures in foreign courts, thus ensuring the parties’ rights and bringing the KCAB Rules in line with the rules of other major international arbitration institutions.5The amendment further provides that when the Proposed KCAB Rules are approved, the emergency arbitrator provision will be available in all current and future KCAB international arbitrations, regardless of whether the arbitration agreement was entered before or after the implementation of the Proposed KCAB Rules.
The details of emergency arbitrators are as follows:
- Under the Proposed KCAB Rules, a party may file a written motion to the Secretariat for interim (emergency) relief to be enforced by an emergency arbitrator, concurrently with or after the filing of arbitration proceedings.6
- If a written application for an emergency measure meets the requirements under the KCAB Rules and the Secretariat deems that appointment of an emergency arbitrator to be appropriate, the Secretariat shall use its efforts to appoint one emergency arbitrator within two business days from its receipt of such written application for an emergency measure.
- A party may file an opposition motion challenging the appointment of an emergency arbitrator within two business days from the day on which such party receives the notice of appointment or from the day on which such party becomes aware of that the fairness or independence of the appointed emergency arbitrator is in question, whichever is later, and in which case the Secretariat shall make a decision on such motion.
- The emergency arbitrator shall have fifteen days from his or her appointment to decide whether an emergency measure is deemed appropriate and necessary. The time limit shall not be extended unless there is an agreement between all the relevant parties or in case of extraordinary circumstances, and the Secretariat has approved the extension.
- An emergency arbitrator shall not serve as an arbitrator for the relevant dispute unless all relevant parties agree in writing.
The Proposed KCAB Rules introduce a procedure for joining a party to resolve disputes among multiple parties at one time. This amendment is designed to promote judicial economy and to prevent any conflicting awards being issued by different arbitral tribunals for parties involved in related disputes. In particular, the Proposed KCAB Rules state that a third party may be joined in a case if (i) a party files a motion for joining a third party; such third party agrees to the joinder in writing (and that any and all claims against such third party arise from the same arbitration agreement which is among the existing parties); and (ii) the arbitral tribunal is satisfied that the motion is valid (even over the objection of the other party). The amendment further states that, even when a party is joined after the formation of the arbitral tribunal, the joinder shall not affect the composition of the arbitral tribunal, and that the arbitral tribunal may not approve the joinder if it is likely to cause undue delay, even if the above-mentioned requirements for joinder has been satisfied.
Confirmation by the Secretariat concerning arbitrator appointment
The Proposed KCAB Rules contain a provision whereby the appointment of an arbitrator becomes effective only on the confirmation by the Secretariat. This entitles the Secretariat to review, at its own discretion, the fairness or independence of the arbitrator or arbitrators appointed by the parties or examine the parties’ complaint related to such appointments. This confirmation process will result in the parties or arbitrators to make appointments more cautiously, and enables the Secretariat to exclude inappropriate arbitrators at an earlier stage, which will in turn contribute to the efficiency of the arbitration proceedings.
Recent notable court decisions
As mentioned above, Korea is generally known as a pro-enforcement jurisdiction in enforcing international arbitral awards, and, for rarely refusing the enforcement of arbitral awards. This arbitration-friendly stance is also demonstrated in recent court decisions.
In practice, a party receiving an unfavourable arbitral award typically files a suit seeking to set aside or, obtain the non-recognition or non-enforcement of, such arbitral award, mainly arguing that the arbitral agreement between the parties is invalid or that the subject of the award is beyond the scope of the relevant arbitration agreement, or the recognition and enforcement of the arbitral award contradicts public policy.
However, Korean courts generally tend to reject the argument that an arbitration agreement between the parties is invalid. Korean courts also seldom recognise the argument that a dispute over an arbitral award is beyond the scope of the arbitration agreement because courts generally interpret the scope as broadly as possible. Moreover, Korean courts rarely accept a party’s argument that the recognition and enforcement of the arbitral award contradicts public policy, based on the Supreme Court’s ruling that such provision must be narrowly interpreted in consideration of the balance between maintaining domestic welfare and providing for stability in international transactions based on the following premises: (i) the purpose for refusing the recognition and enforcement of foreign arbitral awards is to prevent fundamental morals and social order of a country in which the arbitral award is being enforced from being harmed; and (ii) the Korean court may refuse to recognise and enforce a foreign arbitral award to the extent that the result from the recognition of such foreign arbitral award actually contradicts public policy (see Supreme Court Decision 93Da53054 dated 14 February 1995).
Among the court decisions made in the past two years (2013 and 2014), the following are notable:
Claim for the examination and confirmation of the arbitral tribunal’s authority to decide on the language of the arbitral proceedings
This case arose from a KCAB arbitration between a US company, Company A, and a Korean company, Company B, where the presiding arbitrator recommended the use of both English and Korean due to the parties’ inability to agree on the language for arbitration (the Recommendation for Agreement). Company B objected and argued that the language must be in Korean, after which the arbitral tribunal decided that both Korean and English would be used in this arbitral proceeding (the Language Decision). Company B filed a suit seeking the examination and confirmation of the authority of the arbitral tribunal based on Articles 17(3), 17(5) and 17(6)7 of the Arbitration Act for the Language Decision.
The District Court ruled that, though the Language Decision was rendered by the arbitral tribunal after the objection was raised by Company B, this was not an exercise of the arbitral tribunal’s authority to rule on the ‘preliminary question’ regarding the authority of the arbitral tribunal pursuant to article 17(5). As such, it ruled that a suit for examination and confirmation was inappropriate. However, on appeal, the Appellate Court held that the suit for examination and confirmation was appropriate. The Appellate Court reasoned that the Recommendation for Agreement corresponded to the matter alleged to be beyond the scope of the arbitral tribunal’s authority that came into question during the arbitral proceedings according to article 17(3) of the Arbitration Act, and that the Language Decision subsequent to Company B’s objection falls under the scope of a ruling as a preliminary question under article 17(5).8
This decision now permits a party in an arbitration that suspects that the arbitral tribunal has exceeded its authority to immediately object to a decision, and, if the arbitral tribunal makes a ruling as a preliminary question, the objecting party can immediately seek examination and confirmation from the court pursuant to article 17 of the Arbitration Act. In other words, disputes relating to the authority of the arbitral tribunal can be dealt with by the courts in the early stage of the arbitration to ensure a smoother arbitration process.
Clarification of arbitral award
Company C and Company D entered into an agreement whereby Company D was to supply certain goods to Company C (the Supply Agreement). Company C filed for arbitration seeking damages, etc, against Company D, and, in response, Company D filed a counter-claim against Company C demanding the performance of obligations set forth in clause 14.2 of the Supply Agreement. The relevant arbitral tribunal dismissed Company C’s claim and upheld Company D’s claim, and issued the following ruling: ‘Company C shall perform its obligations set forth in clause 14.2’.
Company D filed a suit seeking a decision of enforcement of the relevant arbitral award.
The District Court issued the following ruling:
Paragraph (3) in the arbitral award fails to meet the requirements as a compulsory execution certificate, since it does not directly specify the type, details and scope of benefits to be realised by compulsory execution. Furthermore, even when a decision of enforcement is issued by a court, as a practical matter, it is impossible to implement the compulsory execution procedures according to the above Paragraph (3) of the relevant arbitral award and, therefore, there are no legal interests for Company D to seek for a decision of enforcement of the relevant arbitral award.
As such, the Court ruled that it was inappropriate for Company D to file a suit to seek the decision of enforcement.Subsequently, the court of appeals overruled the lower court’s decision and permitted the enforcement of the relevant arbitral award for the following reasons: (i) a decision of enforcement not only grants enforceability to such arbitral award, but serves as a mechanism preventing the other party from arguing any reasons for to set aside such arbitral award; and (ii) even if such arbitral award is unenforceable, a party to such arbitral award must comply with such arbitral award, once the validity is confirmed by the court’s decision of recognition and enforcement. Thus, even when the arbitral award is unenforceable, there are judicial benefits for seeking a decision of enforcement. Furthermore, the court of appeals permitted the compulsory execution in such case since a decision of enforcement with reference to this arbitral award is not in contravention of public policy in Korea and there was no other reason for refusing to enforce such arbitral award under the Arbitration Act. Thereafter, the case has come to a conclusion due to Company D’s withdrawal of its petition during the Supreme Court proceedings.
As such, Korean courts respect the purport of arbitral awards and deem that there are judicial benefits, even when the obligations set forth in an arbitral award are somewhat ambiguous.
- In Korea, when rendering a decision in the form of a judgment, the court is required to abide by certain and strict procedures, whereas when rendering a decision in the form of an order, the court has the discretion for more flexible procedures.
- These provisions referenced article 17 of the UNCITRAL Model Law on International Commercial Arbitration (As adopted by the United Nations Commission on International Trade law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006 (Model Law)).
- The grounds for revocation of arbitral awards under the Arbitration Act are almost identical to those set forth in Article 34 of the Model Law.
- The KCAB is also preparing a draft of the KCAB Code of Ethics for Arbitrators together with its amendment to the KCAB Rules.
- It is widely known that if a party files a motion for an interim measure with a court prior to the constitution of the arbitral tribunal, Korean courts generally issue interim measures to the extent that any rights to be protected by such interim measures have been demonstrated by the requesting party, even when the merits are subject to arbitration proceedings.
- Any party filing a motion for an emergency measure must pay in advance a management cost of 3 million won and an emergency arbitrator fee of 15 million won (the amount may be subsequently reduced in certain cases) when submitting its motion for such emergency measure. In case of non-prepayment, the Secretariat deems such motion to have not been filed.
- Korean Arbitration Act, Article 17 (Determination of Arbitral Tribunal’s Authority over Arbitration Proceedings):
(3) Any objections on the arbitral tribunal’s scope of authority shall be raised as soon as the matter alleged to be beyond the scope of its authority comes into question during the arbitral proceedings.
(5) The arbitral tribunal may rule on the objection under Paragraphs (2) or (3) above either as a separate order to the objection (or the ‘preliminary question’ regarding the authority of the arbitral tribunal, ‘preliminary question’), or within the merits of the arbitral award.
(6) If the arbitral tribunal rules as a separate order to the preliminary question that it has authority under Paragraph (5) above, any party who is dissatisfied with that ruling may request, within thirty (30) days after it has received notice thereof, the court to examine the authority of the arbitral tribunal.
(8) No appeal shall be filed against the decision on the examination of the authority which is rendered by a court following a request therefor under Paragraph (6) above.
- The Appellate Court nevertheless dismissed Company B’s appeal, ruling that Article 17(8) of the Arbitration Act indicates that no appeal can be filed against the court’s decision on the examination over authority following the motion set forth in Article 17(6) of the same Act.