SOUTH KOREA

Bami Yoo and Vaishali Sharma

A. LEGISLATION AND RULES

A.1       Legislation

South Korea has adopted a pro-arbitration legal framework that governs both domestic and international proceedings. International arbitration continues to be governed by the Korean Arbitration Act, which is based on the UNCITRAL Model Law. In 2016, the Korean legislature enacted long-awaited amendments to the Korean Arbitration Act and adopted many of the 2006 Amendments to the UNCITRAL Model Law. A further small amendment was made in 2020 to article 40, which removed the authority of the Ministry of Justice to designate a private organization promoting domestic and international arbitration as eligible for a subsidy and limited such authority solely to the Ministry of Trade, Industry, and Energy.

The Arbitration Industry Promotion Act is another important legislation for international arbitration in Korea.  Through the Arbitration Industry Promotion Act, the Korean legislature has mandated governmental support for efforts to make Korea an attractive arbitral seat, cultivate experts and arbitration professionals, and further develop the arbitration industry in Korea.  There have been no legislative amendments since the law came into force in 2017.

A.2       Institutions, Rules and Infrastructure

The international arbitration industry encountered various challenges prompted by COVID-19 pandemic, which, as a result, facilitated a number of developments in institutions, rules and infrastructure.

The most notable development was the release of “Seoul Protocol on Video Conferencing in International Arbitration (“Seoul Protocol”) in March 2020, which proved to be timely as it was released at the very outset of the global spread of the COVID-19 pandemic which necessitated a significant increase in remote and virtual hearings.  First introduced at the 7th Asia Pacific ADR Conference, held in Seoul on 5 and 6 November 2018, the Seoul Protocol sets out a standard set of protocols that counsel and arbitrators may turn to for guidance on logistical challenges presented by conducting remote international arbitration hearings through video-conferencing.

The key features of the Seoul Protocol are the basic parameters and standards particularly for remote witness examinations and remote hearing venues, including technological and logistical requirements.  For instance, article 1 requires witnesses to present evidence while sitting at an empty desk or standing at a lectern, and article 2 requires that on-call technical staff be available during the hearing, and also have certain cybersecurity measures in place.  Article 5 specifically stipulates minimum technical requirements that the hearing venues should satisfy in order to ensure audio and video transmission, such that transmission speeds would not be less than 256 kB/second and 30 frames/second.  While the parties and the tribunal would need to carefully consider logistical and technological details that are particular to the hearing at hand, the Seoul Protocol has served as useful guidance and starting point for arranging remote and virtual conferencing while ensuring effective, fair and efficient arbitrations.

The Korean Commercial Arbitration Board (KCAB) continues to expand and promote arbitration and alternate dispute resolution in Korea and other countries.  In 2020, KCAB entered into numerous Memorandums of Understanding with prominent foreign arbitration centers, such as Thailand Arbitration Center in January 2020, Ilustre Colegio de Abogados de Madrid in March 2020, China Guangzhou Arbitration Commission in June 2020, Benchmark Chambers International & Benchmark International Mediation Center in August 2020,  and Japan International Dispute Resolution Center in December 2020.  KCAB has also established a collaborative relationship with Korean organizations such as the Korean Federation of Small and Medium Business in September 2020.

B. CASES

B.1       Set-off after the award is an exceptional ground of objection to enforcement

In March 2019, Seoul Central District Court affirmed that a set-off after the award is an exceptional ground to object to the enforcement of an arbitral award.[1]  Seoul Western District Court re-affirmed this year (2020) that enforcement of an arbitral award after the payment obligation of a party has been discharged through set-off is against public policy under article 5.2(b) of the New York Convention, and therefore cannot be allowed.[2]

The 2020 dispute arose with respect to a supply agreement for nickel, under which a company, on behalf of the claimant, was to purchase a certain amount of nickel from the respondent.  The supply agreement contained an arbitration clause which provided that any dispute that cannot be amicably settled between the parties shall be resolved under the rules of the China International Economic and Trade Arbitration Commission (CIETEC).

The claimant initiated arbitration proceedings at CIETEC on the ground that it was entitled to reimbursement under the supply agreement for damages and costs associated with re-selling of the products.  The arbitral tribunal rendered the award in favor of the claimant and thereafter, the claimant filed for the enforcement of the arbitral award in the Seoul Western District Court.

The respondent raised several objections to the claimant’s application for enforcement, including that the respondent had rightfully set-off the claimant’s claim arising out of the arbitral award with its separate claim against the claimant.

In deciding the case, the District Court cited the Supreme Court judgment which emphasized that “if it is discovered during the court proceedings of the enforcement that allowing enforcement of an arbitral award would contravene fundamental principles of Korean law for reasons such as discharge of an obligation, the court may refuse enforcement of the arbitral award pursuant to article 5.2(b) of the New York Convention – that it is contrary to the public policy of Korea.”[3] The District Court determined that in the current case, the set-off took effect after the arbitral award was rendered (according to Korean law, the effect of set-off is retroactive and is deemed to have been effected when both obligations became due and payable), and accordingly the respondent’s obligation has been discharged.  The court therefore concluded that allowing enforcement of the arbitral award would be contrary to the public policy of Korea.

While Korea still remains arbitration-friendly and restrictive against setting aside or refusing to enforce arbitral awards, this case is notable as it reaffirms the 2019 case, marking a sign of solidifying the ground of post-award set-off as one of the representative examples of setting aside or blocking enforcement of an arbitral award under the public policy ground.

 

[1] Seoul Central District Court Judgment No. 2019GaDan5224688 dated 21 March 2019

[2] Seoul Western District Court Judgment No. 2020Kagi218 dated 28 July 2020

[3] Korean Supreme Court Decision No. 2001Da20134 dated 11 April 2003