Arbitration World

1.1 Describe the prevalence of commercial arbitrations as a method of settling disputes, both domestic and international.

Commercial arbitration is not a frequently used method of dispute resolution in Korea for either domestic or international disputes. Although cases before the Korean Commercial Arbitration Board (the KCAB) have increased from 211 in 2003 to 659 in 2004, considering that more than one million civil litigation cases are handled by the courts annually, the portion of disputes resolved by arbitration in Korea is very small. In Korea, most commercial disputes, whether domestic or international, are resolved through litigation in the courts. Arbitration practitioners and institutions (eg the KCAB) promote dispute resolution through commercial arbitration by publicising the advantages of commercial arbitration, seeking to simplify arbitration procedures through amendment of the arbitration rules of the KCAB etc.

2. LAW ON ARBITRATION

2.1 What are the principal sources of law and regulation relating to domestic and international arbitration? (Describe the role of federal or state laws and relevance of court decisions.)

The Arbitration Act of Korea (the ‘Arbitration Act’) was substantially amended on 31 December 1999 and it adopted substantially in whole the 1985 Model Law of UNCITRAL. The objective of the changes reflected in the Arbitration Act is to encourage the use of arbitration by development of the arbitration system in Korea and, in particular, to remove any obstacles to the commencement of international arbitration in Korea. The Arbitration Act collectively regulates domestic and international arbitration, and there is no distinction made between commercial and civil cases. As Korea does not have a federal system of government, the Arbitration Act applies to all arbitrations in Korea.

As a practical matter, most arbitration cases in Korea proceed under the KCAB, and such arbitration cases usually follow the arbitration rules of the KCAB. The enactment and amendment of the KCAB arbitration rules require approval of the Korean Supreme Court, and such arbitration rules were most recently amended in December 2004.

2.2 List and briefly describe relevant arbitration statutes, international treaties and conventions.

Of multilateral treaties relating to arbitration, Korea is a signatory to the New York Convention on the Recognition and Enforcement of Arbitral Awards (the ‘New York Convention’) and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1965 (the ‘ICSID Convention’). The New York Convention applies to the recognition and enforcement in Korea of arbitral awards rendered in another contracting state (art 39 of the Arbitration Act), while the Civil Procedure Act and the Civil Enforcement Act of Korea apply to the recognition and enforcement of arbitral awards rendered in non-contracting states. The requirements for recognition and enforcement of arbitration awards under the Civil Procedure Act and the Civil Enforcement Act are stricter than the requirements under the New York Convention.

In 1957, the Treaty of Friendship, Commerce and Navigation was entered into between the Republic of Korea and the United States (the ‘ROK-USA Treaty’). This treaty provides for mutual recognition and enforcement of arbitral awards rendered pursuant to arbitration agreements between the companies or nationals of the respective countries (Art 5, para 2 of the ROKUSA Treaty). However, there has been no actual case where an arbitral award rendered in the US was recognised and enforced in Korea pursuant to the ROK-USA Treaty.

3. PRINCIPAL INSTITUTIONS

3.1 What are/describe the principal institutions and/or government agencies that assist in the administration or oversight of international and domestic arbitrations?

The KCAB was established pursuant to the Arbitration Act, and is the leading commercial arbitration institution in Korea, in terms of both domestic and international arbitration.

4. ROLE OF THE NATIONAL COURTS

4.1 What is the relationship between agreements to arbitrate and access to the courts? Is there a presumption of arbitrability/policy support for arbitration? Will the courts stay court actions in favour of agreements to arbitrate?

If a valid arbitration agreement exists, disputes covered by the arbitration agreement are not subject to judicial resolution by a court. Therefore, if litigation is commenced with respect to a dispute that is covered by a valid arbitration agreement, the court will dismiss the case.

However, the court will not automatically dismiss such case, and the counterparty must claim the existence of such arbitration agreement at sometime prior to the first hearing on the substantive matters (art 9 paras 1 and 2 of the Arbitration Act). Further, even if such case continues, arbitral tribunals can commence or continue arbitration proceedings, and render an arbitral award (art 9, para 3 of the Arbitration Act).

There are no particular provisions in the Arbitration Act regarding the presumption of arbitrability in Korea.

Korean courts are not required to stay litigation proceedings in favour of agreements to arbitrate. Upon deciding whether or not there is a valid arbitration agreement, the court will either dismiss or allow the litigation proceedings to continue.

4.2 May an arbitral tribunal rule on a party’s challenge to its own jurisdiction (‘competence-competence’)? Need a tribunal suspend its proceedings if a party seeks to test jurisdiction in the courts?

The Arbitration Act expressly recognises the authority of arbitral tribunals to rule on the issue of their own jurisdiction over arbitration cases (ie competence-competence). In other words, an arbitral tribunal can decide as to its own jurisdiction on an arbitration case and any challenge to the existence and validity of an arbitration agreement. A challenge to the arbitral tribunal’s jurisdiction must be made before the answer on the substantive matters is submitted by the defendant and, in such case, a challenge may be made even if the challenging party has appointed an arbitrator or otherwise participated in the appointment process. A challenge on the basis that the arbitral tribunal has gone beyond its own authority must be made immediately upon the occurrence of the grounds for such challenge. Once such challenge is made, the arbitral tribunal may render a separate decision on the jurisdiction issue or decide together with the substantive issues in the arbitral award. If the arbitral tribunal decides first that it has proper jurisdiction, the parties may request the court to review the jurisdiction of the arbitral tribunal within 30 days of receiving the arbitral tribunal’s decision. The decision of the court regarding the arbitral tribunal’s jurisdiction cannot be appealed (art 17, paras 1–6, 8 of the Arbitration Act).

The arbitral tribunal can continue the arbitration proceedings or render an arbitral award even during the court examination regarding the arbitral tribunal’s jurisdiction (art 17, para 7 of the Arbitration Act).

5. USEFUL REFERENCES

5.1 Provide a selected bibliography of the most influential publications in or relied upon in the jurisdiction – books, journals, newsletters and pamphlets.

Books

Y J Mok Treatise on Commercial Arbitration Law (Pak Young Sa, Seoul, 2000)

Korean Commercial Arbitration Board Treatise on Commercial Disputes and

Arbitration Procedures (Korean Commercial Arbitration Board, Seoul,

2001)

M C Chang et al Treatise on Model Arbitration Law of UNCITRAL (Sechang

Publications, Seoul, 1999)

Articles

S H Song ‘Doctrine and Prospects for Dispute Resolution Methods Replacing Litigation,’ 14 Civil Case Research (Civil Case Research

Institute, 1992) at pp 411–441,

J I Suh ‘Practical Problems In Applying the New Arbitration Act’ 296

Arbitration (Korean Commercial Arbitration Board, 2000) at pp 4–12,

B H Chang ‘Enforcement of Arbitral Awards Between Government and

Individuals’ 294 Arbitration (Korean Commercial Arbitration Board,

1999) at pp 32–45

Journals

Arbitration, a journal published by the KCAB on a quarterly basis, is the most frequently published journal on arbitration in Korea. In addition, the Korean Association of Arbitration Studies publishes the Arbitration Scholarly Bulletin on an annual basis.

6. AGREEMENT TO ARBITRATE

6.1 Are there form and/or content requirements for an enforceable agreement to arbitrate? How may they be satisfied?

An enforceable agreement to arbitrate can be drafted as an independent contract or an arbitration clause within another contract, but the agreement to arbitrate must be in writing. Further, a written agreement to arbitrate is regarded as existing in the following cases: (i) where an agreement to arbitrate is included in a writing signed by the parties; (ii) where an agreement to arbitrate is included in a writing exchanged between the parties by letter, telegram, telegraph, fax or other communication medium; and (iii) where one party claims that an agreement to arbitrate is included in a writing exchanged between the parties and the other party does not dispute such claim (art 8 of the Arbitration Act).

The permissible subject matter of arbitration is limited to private disputes. However, the Arbitration Act does not expressly define the scope of private disputes, nor is there any clear case precedent on such issue, although the general consensus among legal scholars is that matters of public law (eg criminal cases) and family law are not arbitrable.

7. ARBITRABILITY

8.1 May an arbitral clause be considered valid even if the rest of the contract in which it is embedded is invalid?

The Arbitration Act expressly provides that, if an agreement to arbitrate is in the form of an arbitration clause within a contract, the validity of the remaining provisions in such contract have no effect on the validity of such arbitration clause (art 17, para 1 of the Arbitration Act).

9. QUALIFICATION/APPOINTMENT/LIABILITY OF ARBITRATORS

9.1 Are there specific provisions regulating the qualifications of arbitrators? Are there requirements (including disclosure) for ‘impartiality’ and ‘independence’, and do such requirements differ as between domestic and international arbitrations?

The Arbitration Act provides that, unless the parties have agreed otherwise, citizenship, residency or professional qualifications are not required to be an arbitrator. However, in certain cases of arbitration under the arbitration rules of the KCAB, arbitrators are appointed by the KCAB instead of the parties themselves. In such cases, if the nationality or residing country of the parties is different, the KCAB is required to appoint arbitrators from a country different from that of the parties upon request of a party (art 22 of arbitration rules of the KCAB).

The Arbitration Act provides that the parties can decide the procedures for appointment of arbitrators by mutual agreement, and if no such agreement exists, arbitrators are to be appointed in accordance with the Arbitration Act (art 12 of the Arbitration Act). Persons who have been invited to become an arbitrator or who have been appointed as an arbitrator pursuant to the Arbitration Act are required to disclose without delay any grounds for doubt as to his or her impartiality or independence in the arbitration (art 13 of the Arbitration Act).

9.2 Are there provisions governing the challenge or removal of arbitrators? Do the courts or other jurisdictions play/have a role in any such challenge?

Under the Arbitration Act, arbitrators may be challenged only on the basis that: (i) the arbitrator does not hold the qualifications agreed upon by the parties; or (ii) there are grounds for doubt as to the impartiality or independence of the person who has been invited to become or who has been appointed as an arbitrator. An arbitrator who has been appointed by a party or who has been appointed after participation by a party in the appointment process may be challenged solely on the basis that such party became aware of grounds for doubt as to such arbitrator’s qualifications, impartiality or independence after the appointment of such arbitrator (art 13 of the Arbitration Act).

The parties can decide the procedures for challenging arbitrators, and if no such agreement exists, the party seeking to challenge an arbitrator must submit an application to the arbitral tribunal within 15 days of the date on which the party becomes aware of the grounds for challenge or the date on which the arbitral tribunal has been organised. If the arbitral tribunal rejects the challenge, the party may challenge the arbitrator through the court by filing an application within 30 days of notification from the arbitral tribunal rejecting the challenge. Even if the court has not rendered a decision as to the challenge, the arbitral tribunal can proceed with the arbitration or render an arbitral award. The decision of a court as to the challenge of an arbitrator cannot be appealed (art 14 of the Arbitration Act).

Further, under the Arbitration Act, if an arbitrator is legally or factually prevented from carrying out his or her duties, or delays performance of his or her duties without justification, the authority of such arbitrator is terminated upon his or her resignation or by agreement of the parties. In the event of a dispute as to whether the authority of an arbitrator has been terminated, a court may render a decision on such issue upon request of a party.

9.3 Does legislation govern, or have the courts developed rules regarding the liability of arbitrators for acts related to their decision-making function?

An arbitrator who takes, requests or promises a bribe in relation to his or her duties may be subject to imprisonment or a fine under Korean criminal law. However, there are no Korean laws which expressly impose civil liability upon arbitrators in relation to their decision-making functions. However, the prevailing view is that arbitrators are entrusted by the parties to resolve the dispute on their behalf, and as a result, arbitrators owe fiduciary duties toward the parties in handling the arbitration case. Although there is no legislation on the exemption of liability for arbitrators, the courts view arbitrators as having wide discretion in deciding arbitration cases and, thus, it is rather unlikely that a court would impose civil liability upon arbitrators for actions taken during their decision-making process.

10. PARTY REPRESENTATION

10.1 Are there particular qualification requirements for representatives (‘counsel’) appearing in the jurisdictions?

The Arbitration Act does not prescribe any qualification requirements to become the representative of a party in arbitration. However, the Attorneys-At-Law Act of Korea prohibits persons who are not licensed attorneys in Korea from handling or assisting in the handling of legal work (including arbitration work) for fees or other benefits, and persons in violation of the foregoing may be subject to criminal sanctions. Therefore, if a person who is not a licensed attorney in Korea acts as a representative of a party in an arbitration proceeding in Korea in return for fees or other compensation, such person may be in violation of the Attorneys-at-Law Act of Korea and may be subject to criminal sanctions.

However, it is not certain whether such restrictions under the Attorneys-At-Law Act apply to foreign licensed attorneys who handle international arbitrations that take place in Korea, as there is no case precedent on such issue. As of yet, there has been no case where criminal sanctions were imposed on a foreign licensed attorney for handling an international arbitration in Korea.

11. PLACE OF ARBITRATION/PROCEDURES

11.1 Are there provisions governing the place (seat) of arbitration, or any requirement for arbitral proceedings to be held at the seat?

In principle, the Arbitration Act applies if the place (seat) of arbitration is Korea (art 2, para 1 of the Arbitration Act). The place of arbitration is decided by agreement between the parties in arbitration, and if no such agreement exists, the place of arbitration is decided by the arbitral tribunal in consideration of the parties’ convenience and various other circumstances of the case (art 21, paras 1 and 2 of the Arbitration Act). Absent agreement of the parties to the contrary, the arbitral tribunal may decide to hold discussions among arbitrators, examination of the parties and experts or witnesses, on-site inspection of evidence, and examination of documents at a place other than the place of arbitration.

11.2 Are specific procedures mandated in particular cases, or in general?

Under the Arbitration Act, the parties may agree on arbitration procedures to the extent that such arbitration procedures do not contravene mandatory provisions of the Arbitration Act, and in the absence of such agreement, the arbitral tribunal may proceed in the manner it deems appropriate pursuant to the provisions of the Arbitration Act (art 20 of the Arbitration Act).

In relation to arbitration procedures, the Arbitration Act requires the arbitral tribunal to allow sufficient time for oral witness examinations and other evidence examinations by prior notification of parties, to provide notice of briefs and other documents submitted by one party to the other party, and to provide both parties with expert witness statements and documentary evidence which form the basis for its arbitral decision (art 25 of the Arbitration Act).

12. EVIDENCE GATHERING

12.1 What is the general approach to the gathering and tendering of evidence at the pleading stage and at the hearing stage (production, discovery, privilege, use of witness statements etc)? Are there differences between domestic and international arbitrations?

The Arbitration Act does not contain detailed provisions on the rules of evidence applicable to arbitration proceedings. However, methods of gathering and tendering evidence may be agreed upon and followed by the parties, and if no such agreement exists, the arbitral tribunal may decide upon the appropriate method. The arbitral tribunal has authority to determine the admissibility, relevance and strength of evidence (art 20, para 2 of the Arbitration Act).

As mentioned at section 11.1 above, the arbitral tribunal may decide to hold deposition of witnesses, examination of the parties and expert witnesses, on-site inspection of evidence, and examination of documents at a place other than the place of arbitration as methods of gathering and tendering evidence, and the detailed procedures applicable are agreed upon by the parties or decided by the arbitral tribunal. The Arbitration Act does not have system similar to the discovery procedures used in the US. The Arbitration Act does not make any distinction between domestic and international arbitrations in its approach to the gathering and tendering of evidence.

12.2 What powers of compulsion or court assistance are there for arbitrators to require attendance of witnesses or production of documents, either prior to or at the substantive hearing? Is there a difference between domestic and international tribunals or as between parties and non-parties? Do special provisions exist for arbitrators appointed pursuant to international treaties (ie bilateral or multilateral investment treaties)?

Arbitral tribunals do not have the authority to compel attendance of witnesses. The Arbitration Act does not contain any provisions that require witnesses testifying before arbitral tribunals to swear an oath as to the veracity of their testimony. Further, arbitral tribunals do not have the authority to compel a party to submit documents, and if a party does not submit documents within the relevant period, the arbitral tribunal can render a decision based on the evidence submitted up to that point (art 26, para 3 of the Arbitration Act).

Arbitral tribunals may, on their own initiative or upon request of a party, request the gathering of evidence to a court. In such case, the court may gather evidence and, thereafter, forward the record of witness examination, evidence inspection and other records to the arbitral tribunal (art 28 of the Arbitration Act). In the course of gathering evidence at the request of an arbitral tribunal, the court may compel attendance of witnesses to testify under oath and require the submission of documents. Such method of gathering evidence applies to both domestic and international arbitration.

13. INTERIM MEASURES/ROLE OF THE TRIBUNAL

13.1 Are there special provisions relating to the granting of interim and preliminary relief? Have the courts recognised and/or limited any such authority? Do the courts themselves play a role in interim relief in arbitration proceedings?

Under the Arbitration Act, unless otherwise agreed by the parties, the arbitral tribunal may grant interim and preliminary relief at the request of a party if deemed necessary in relation to the disputed subject matter. In such case, the arbitral tribunal can require the other party to provide appropriate security instead of granting interim and preliminary relief (art 18 of the Arbitration Act), but such interim and preliminary relief cannot be recognised or enforced by a court.

However, the parties may request interim or preliminary relief (such as provisional attachment or provisional disposition) from a court before or during arbitration proceedings (art 10 of the Arbitration Act), and such interim or preliminary relief may be enforceable by a court.

14. TAXATION OF ARBITRATORS’ FEES

14.1 Does the state, or any of its sub-divisions, purport to tax domestically the fees of foreign arbitrators conducting hearings in the state? Is there a difference if the arbitration is ‘seated’ in the state or elsewhere?

Under Korean tax laws, there is no distinction made between foreign arbitrators and other foreigners who earn profit through the provision of personal services in Korea. As a general matter, if an arbitrator is a Korean resident for purposes of tax laws, tax will be imposed on the fees earned by the arbitrator regardless of his or her nationality. If the arbitrator is not a Korean resident for purposes of tax laws, and such arbitrator is a national of a country that has a tax treaty with Korea, then such fees may be exempted or reduced pursuant to such tax treaty. As of April 2005, Korea has entered into tax treaties with 67 countries and, in many cases, such fees may be exempted or reduced pursuant to the relevant tax treaty.

15. DEFAULT PROCEEDINGS

15.1 Are there provisions governing a tribunal’s ability to determine the controversy in the absence of a party who, on appropriate notice, fails to appear at or seek adjournment of the arbitral proceedings?

Under the Arbitration Act, in the event that the claimant fails to submit the statement of claim within the relevant period without justifiable grounds, the arbitral tribunal is required to terminate the arbitration proceedings, and in the event that the respondent fails to submit his or her response to the statement of claim within the relevant period, the arbitral tribunal is required to continue the arbitration proceedings and does not deem such failure to be an admission of claims. Also, in the event that a party fails to appear for a hearing without justifiable grounds or to submit documentary evidence within the relevant period, the arbitral tribunal may continue the arbitration proceedings and render an arbitral award based on the evidence submitted up to that point (art 26 of the Arbitration Act).

16. THE ARBITRAL AWARD

16.1 Must an award take any particular form, eg in writing, signed, dated, place, the need for reasons, delivery etc?

Under the Arbitration Act, arbitral awards are required to be in writing and signed by all arbitrators. Also, arbitral awards are required to state the reason(s) forming the grounds for the decision of the arbitral tribunal unless the parties have agreed otherwise, in addition to the date and place of the arbitral award. An authenticated copy of the arbitral award is sent to each party, and the original arbitral award is sent to and deposited with the competent court.

16.2 Are there limits on arbitrators’ powers to fashion appropriate remedies, eg punitive or exemplary damages, rectification, injunctions, interest and costs?

Under the Arbitration Act, there are no particular restrictions on arbitrators’ power to fashion appropriate remedies. The prevailing view in Korea is that the appropriate remedies may be determined by agreement of the parties, and in the absence of such agreement, the remedies available under the governing law may be applied. However, if such remedy is enforced in Korea, the public policy of Korea will be applied. For example, punitive damages in the arbitral award cannot be enforced in Korea.

17. RECOURSE FROM AN AWARD

17.1 Are there provisions governing modification, clarification or correction of an award?

Under the Arbitration Act, unless the parties have agreed otherwise, within 30 days of receipt of the authenticated copy of the arbitral award each party may: (i) request the arbitral tribunal to correct errors in computation, typographical errors or any similar errors; (ii) upon agreement of the parties, request the arbitral tribunal to interpret a certain part of or specific point regarding the arbitral award; and (iii) unless the parties have agreed otherwise, request a supplemental award as to a claim asserted during arbitration proceedings but which was not included in the arbitral award. The arbitral tribunal is required to render a decision within 30 days of request in the case of (i) and (ii) above, and within 60 days in the case of (iii) above (art 34 of the Arbitration Act).

17.2 May an award be appealed to or set aside by the courts? If so, on what grounds and by what procedures?

An arbitral award may not be appealed to a court for the purpose of amendment thereof, but may be appealed to a court to set aside the arbitral award. The Arbitration Act enumerates certain limited cases where arbitral awards may be set aside, and such cases are adopted almost in their entirety from the Model Law and the New York Convention. The appeal to set aside an arbitral award is required to be made within three months of receipt of the original arbitral award; provided that if an arbitral award is recognised and an enforcement judgment is therefore rendered by a Korean court, such appeal cannot be made (art 36 of the Arbitration Act).

18. ENFORCEMENT OF AWARD

18.1 What are the procedures and standards for enforcing an award? Is there a difference between ‘domestic’ and ‘non-domestic’ awards?

There is no substantial difference between domestic and non-domestic arbitral awards since both are required to have a Korean court grant recognition of the arbitral award and render an enforcement judgment in order for it to be enforced upon in Korea.

In the case of domestic arbitral awards:(i) an authenticated copy or a properly certified copy of the arbitral award; and (ii) an original copy or a properly certified copy of the agreement to arbitrate (if such agreement is drafted in a foreign language, then additionally a certified Korean translation thereof), are required to be submitted for the court to grant recognition of the arbitral award and render an enforcement judgment. In the absence of grounds to set aside the arbitral award, courts are required to grant recognition and render an enforcement judgment (arts 37 and 38 of the Arbitration Act).

The procedures applicable to the recognition and enforcement of a non-domestic arbitral award depend on whether or not the country in which the arbitral award has been rendered is a contracting state to the New York Convention. If the country is a contracting state, the recognition and enforcement in Korea of arbitral awards rendered in such country will be made in accordance with the New York Convention (art 39, para 1 of the Arbitration Act). If not, the Civil Procedure Act and the Civil Enforcement Act will apply, and the requirements thereunder are generally more strict than those of the New York Convention. That is, under the Civil Procedure Act and the Civil Enforcement Act, the following elements must be established in order for a non-domestic arbitral award to be granted recognition and enforcement in Korea: (i) valid jurisdiction of arbitral tribunal; (ii) valid service of process; (iii) non-contravention of any public policy; and (iv) reciprocity.

At the time of entry into the New York Convention, Korea made reciprocity and commercial reservations. However, Korean courts broadly interpret the scope of commercial relationships, and thus, as a practical matter, the commercial reservations made under the New York Convention do not pose any significant hurdle in the recognition and enforcement of non-domestic arbitral awards.

19. CONFIDENTIALITY OF PROCEEDINGS

19.1 What are the confidentiality requirements of the arbitral process, ie existence of the arbitration, pleadings, documents produced, hearing, award?

The Arbitration Act does not contain any particular provisions on confidentiality in the arbitral process. However, the commercial arbitration rules of the KCAB require the matters relating to the arbitral process not to be disclosed (art 8 of the KCAB commercial arbitration rules).