Korea’s continued efforts to promote international arbitration as an alternative form of dispute resolution have been evident to practitioners both at home and abroad. The result of such efforts has been an ever-increasing number of Korean parties involved in international arbitrations, as well as a growth in the number of international arbitrations administered under the International Arbitration Rules of the Korean Commercial Arbitration Board (KCAB). These changes reflect the growing consensus among Korean companies that arbitration is more expedient, more cost-efficient and less risky than litigation in a foreign jurisdiction. In addition, with the opening of the Seoul International Dispute Resolution Center (SIDRC) in 2013, Korea signalled its intention to position itself as a new regional hub, with plans to attract both Korean and non-Korean parties to select Seoul as the seat of their arbitrations.
Keeping in line with its reputation for being an arbitration-friendly and enforcement-friendly country, Korea has had several notable developments in the past two years. First, a proposed amendment to the Arbitration Act of Korea has been submitted to the National Assembly for ratification. Second, the International Arbitration Rules of the KCAB has been revised, and will come into effect on 1 June 2016. Lastly, Korean courts continue to demonstrate their positive attitude toward arbitration through recent decisions dealing with various aspects of arbitration. This article addresses each of these developments in more detail.
Proposed amendments to the Arbitration Act of Korea
Since the Arbitration Act was adopted in 1966, a number of amendments have been made in order to promote international trade and international commercial arbitration by adopting international arbitration standards, minimising domestic court interference and facilitating enforcement of arbitral awards. Following the new UNCITRAL Model Law of 2006, which introduced the power of the arbitral tribunal to order interim measure, enforceable interim measures, and other pro-arbitration changes, the Ministry of Justice undertook working level discussions for revisions starting in 2014 and submitted final draft of partial amendments to the Arbitration Act (the Amendment) to the National Assembly on 8 October 2015. While it awaits ratification by the National Assembly, a few key amendments are summarised below.
Scope of disputes
Article 1 of the Arbitration Act is understood to limit the scope of disputes to ‘dispute in private laws’, which in Korea is generally understood to encompass only disputes involving property.1
The Amendment expanded the scope to include ‘any property dispute or non-property dispute which may be resolved by the parties’ reconciliation’ as disputes that can be arbitrated.
This will expand the scope of arbitrable disputes under the Arbitration Act to include disputes involving intellectual rights and antitrust. Although they are generally classified as non-property disputes, they are considered suitable for arbitration as they tend to trigger confidentiality issues where the parties are reluctant to disclose information to the public, which is generally required in litigation.
Acceptable forms of arbitration agreement
An arbitration agreement must be ‘in writing’ and can be in the form of a separate agreement or in the form of an arbitration clause in a contract.
It is proposed that, like the UNCITRAL Model Law, any record should be considered to have the effect of a ‘valid arbitration agreement in writing’ if it shows the parties’ arbitration agreement, regardless of its form or method.
An expansion of the scope of acceptable forms of an arbitration agreement is expected to decrease the number of arbitral awards that are deemed unenforceable by the Korean courts for failure to satisfy the ‘in writing’ requirement.
Appointment of an arbitrator
While the parties are free to agree on the procedure for appointing an arbitrator, if an arbitrator cannot be appointed by the prescribed procedure, the current Arbitration Act empowers only the court to appoint an arbitrator.2
The Amendment allows the arbitral institution, as well as the court, to appoint an arbitrator if the parties fail to reach an agreement.
The arbitral institution is considered to be equipped with a more specialised knowledge of the dispute, as well as the arbitrators, and thus would be able to appoint an appropriate arbitrator for the case expeditiously.
Although article 18 of the current Arbitration Act provides interim measures in the form of an interim order, there continues to be debate on whether such ‘order’ is enforceable in the Korean courts under the current laws. As a result, after obtaining an interim order from the arbitral tribunal, a party seeking to enforce such interim measures often files a separate proceeding in the court, seeking the court’s interim measure rather than trying to enforce the already-obtained arbitral tribunal’s interim order.
The Amendment provides that an interim measure issued by an arbitral tribunal shall be recognised as binding, and shall be enforced upon application to the competent court. Where recognition or enforcement of an interim measure is sought, the court may, if it considers proper, order the requesting party to provide appropriate security, or where such decision is necessary, protect the rights of third parties. In addition, the party that obtained enforcement of an interim measure shall promptly inform the court of any termination, suspension or modification of that interim measure.
After the revision of the UNCITRAL Model Law in 2006, various countries, including Hong Kong, Austria, Germany, France and Switzerland, facilitated enforcement procedures for interim measures issued by arbitral tribunals. By following the international trend, the Amendment is expected to act for the convenience of the parties and further improve the efficacy of arbitral proceedings.
Enforcement: filing requirements
To request enforcement of an arbitral award, the party must submit a duly authenticated original award or duly certified copy of the award, and the original arbitration agreement or a duly certified copy of the agreement with the complaint for the enforcement judgment. In addition, if either the award or the arbitration agreement is in a foreign language, a ‘duly certified Korean translation’ must be included.3
The Amendment simplified the requirement to a ‘copy of the award’ as opposed to a ‘duly certified copy of the award’, and a ‘Korean translation of the award’ as opposed to a ‘duly authenticated Korean translation’. The Amendment eliminated the requirement for an ‘original arbitration agreement or duly certified copy thereof’.4
This relaxed requirement for filing is expected to make the enforcement proceeding much more cost and time efficient.
Enforcement: request for an order
A party seeking to enforce an arbitral award in Korea is required to go through the litigation process of filing a complaint, making submissions, attending oral hearings and obtaining a judgment from the court.
A party can request that the court issue an order in favour of enforcement of an arbitral award.
Based on the Civil Procedure Act of Korea, obtaining an order, as opposed to a judgment, from the court is generally more cost and time efficient, as courts have several procedural discretions for issuing an order, including the decision of whether or not to hold a hearing.
Newly amended KCAB International Arbitration Rules
In 2014, the KCAB unveiled proposed changes to its then-current International Arbitration Rules (the International Rules) to address the needs of foreign parties in international arbitration in Korea and to reflect the recent trends in the field of international arbitration. The KCAB’s proposed changes to the International Rules were widely welcomed by practitioners, given the increasing number of arbitrations being administered under its International Rules, especially in relation to the high number of construction arbitrations in 2015. These proposed changes were eventually approved, and the new International Arbitration Rules (the New International Rules) will come into full effect on 1 June 2016.5
Of the many changes to the new International Rules, the following are worth special note and discussion.
One of the most notable changes in the New International Rules is the adoption of the ‘emergency arbitrator’ provision. With the advent of the system by the American Arbitration Association (AAA) in 2006, various institutions, including the Singapore International Arbitration Centre (SIAC) in 2010, the International Chamber of Commerce (ICC) in 2012, the Hong Kong International Arbitration Centre (HKIAC) in 2013, and the London Court of International Arbitration (LCIA) in 2014, have been introducing emergency arbitrator provisions to their rules. This wide adoption has been a result of the fact that an emergency arbitrator provides more effective protection of the parties’ rights during arbitration proceedings, and the KCAB’s inclusion of the emergency arbitrator provision in the New International Rules has already received wide support among practitioners. A brief overview of the newly added provision is as follows:
- A party in urgent need of interim measures prior to the constitution of the arbitral tribunal may apply for such relief pursuant to the procedures set forth in the appendix of the New International Rules.
- Any party seeking conservatory and interim measures may apply in writing to the secretariat for interim measures by an emergency arbitrator, with the following required information:
- details of the measure sought;
- a reference to the arbitration agreement;
- contact information of the parties; and
- specific facts supporting the necessity of the emergency measures.
- The secretariat shall appoint a competent emergency arbitrator, and the emergency arbitrator may order, modify, suspend or terminate emergency measures he or she finds necessary. Parties are bound by the ordered emergency measure ordered by the emergency arbitrators, and the ordered emergency measures shall be deemed as interim measures ordered by the arbitral tribunal once constituted.
Joinder of additional parties
The KCAB also added a provision allowing the joinder of additional parties to the arbitration if the arbitral tribunal approves and all parties, including the additional party, agree in writing to be joined, or the additional party is a party to the same arbitration agreement and the additional party agrees in writing to be joined. However, the arbitral tribunal may refuse the joinder on reasonable grounds, such as a delay in arbitral proceedings.
Single arbitration under multiple contracts and consolidation of arbitrations
The New International Rules provide a way for parties involved in disputes arising out of multiple contracts to deal with their disputes in a single arbitration proceeding administered by the KCAB. If the arbitration agreements contained in the contracts at issue are considered identical and they all specify arbitration under the KCAB, and most importantly, if it is sufficient to conclude that the contracts are intended to form one unified and indivisible or continuous transaction, the secretariat can allow for the submission of a single request for arbitration for all claims arising out of multiple contracts. Moreover, the New International Rules added a provision that allows consolidation of arbitrations in certain instances. Consolidation is only possible with the request of a party, prior to the appointment of an arbitrator in the other arbitration, and approval from the tribunal after consulting with the parties and considering the relevant factors.
Confirmation of appointed arbitrators
The KCAB’s special attention to ensuring impartiality and independence of an arbitrator is evident in the New International Rules, as reflected in amendments dealing with the arbitrator selection process. Under the previous International Rules, an arbitrator selected by a party (or selected by arbitrators) automatically became a member of the tribunal without any confirmation process. The revision, however, now states that the appointment of an arbitrator would only be valid upon confirmation of the appointment by the secretariat. Even in cases where parties include an explicit statement in the arbitration agreement granting the power to appoint an arbitrator to a party or to each party, it will be assumed that the parties intended to follow the confirmation process of the KCAB. If during the confirmation process the secretariat determines that the arbitrator is clearly inappropriate, the secretariat can reject the appointment after providing opportunity for the appointing party and the appointed arbitrator to submit their opinions.
Statement of impartiality and independence
To further ensure arbitrators’ impartiality and independence, the New International Rules include an amendment to the provision dealing with arbitrators submitting statements of impartiality and independence. Under the previous International Rules, only an arbitrator who believed that there were circumstances likely to raise justifiable doubts as to his or her impartiality or independence was required to submit the statement. However, the amendment now requires that all arbitrators accepting appointment must submit an acceptance form and statement.
The amendment also grants the electronic submission of pleadings and written communications. Previously, such submissions were required to be in hard copy form, with a copy for each party, arbitrator and the secretariat, and in certain cases the hard copies would be sent to the secretariat for distribution to the parties. However, the New International Rules added the option of providing submissions and written communications through electronic means, such as email and fax.
Other notable changes in the New International Rules include:
- an amendment to the maximum dispute amount for expedited proceedings from 200 million won to 500 million won;
- the addition of a provision that grants the secretariat or the arbitrator the ability to require a party to submit a translation of a submission, if the arbitral language has not yet been decided; and
- a new requirement that once a respondent has filed an answer, the claimant can withdraw all or part of its request for arbitration only with the consent of the respondent.
Recent court decisions
As the Korean legal system bases its foundation on the civil law system, court decisions in Korea do not have binding stare decisis effect. Nevertheless, Korean courts do give considerable weight to prior decisions, and decisions from the Supreme Court of Korea are considered to have de facto stare decisis effect as the lower courts tend to maintain consistency with the Supreme Court’s decisions. In this regard, it is undisputable that the ‘pro-arbitration’ approach shown in court decisions has long contributed to forming an arbitration-friendly judicial basis in Korea.
Along with the introduction of amendments to the Arbitration Act to expand the scope of valid arbitration agreement, the Supreme Court in 2015 reaffirmed the judiciary’s strong position of widely accepting parties’ intent to resolve dispute by arbitration.6 In case No. 2013da74868, the Supreme Court ruled that a dispute arising out of a Commitment Letter (the Letter) in which one party promised to return the dividend it received in the case of a triggering event, was subject to arbitration despite the fact that the Letter did not contain an arbitration clause. The Supreme Court reasoned that the two parties had executed a shareholders’ agreement that contained an arbitration clause, and the original distribution of the dividend was in accordance with the shareholders’ agreement. It went on to explain that the Letter should be deemed to be a follow-up agreement to the shareholders’ agreement, that the dispute arising out of the Letter is considered to be a dispute arising out of or in connection with the application of the shareholders’ agreement, and as such the arbitration clause of the shareholders’ agreement would apply. The Supreme Court took the position that there could be discrepancies in the results if disputes relating to the distribution of dividends are subject to arbitration, whereas disputes relating to return of dividends are not.7
There is little doubt that Korea is invested in promoting arbitration as an alternative means of dispute resolution. These recent developments serve as assurance that Korea has the system in place to be the next regional hub of international arbitration in the Asia-Pacific. In the coming year there will continue to be developments, especially in light of the Ministry of Justice’s recently submitted draft of the ‘Act Related to the Promotion of Arbitration Industry’ to the National Assembly. If passed, the proposed act will have a great impact on Korea’s ability to attract more international arbitration cases to Korea, educate and train arbitration specialists, and establish a solid foundation for the arbitration industry in Korea.
- Article 1, the Arbitration Act.
- Article 12, the Arbitration Act.
- Article 37, the Arbitration Act.
- This change is fairly reasonable, as the arbitral tribunal should have reviewed the existence and effectiveness of the arbitration agreement before it proceeded with the arbitration proceedings.
- In accordance with the Arbitration Act, the amended International Rules were submitted to the Supreme Court of Korea for approval. In March of 2016, the Supreme Court approved the Korean version of the New International Rules, and the English version was expected to be approved soon after the time this article was written.
- Supreme Court Decision, No. 2013da74868 rendered on 29 October 2015.
- Seoul High Court Decision, No. 2014na29096 rendered on 16 January 2015.