1.01  From modest beginnings, Korea has managed to establish a modern arbitration system through a widely-accepted framework for alternative dispute resolution based on party autonomy.¹ Korea’s accelerated growth in arbitration remains intertwined with its economic development as it has catapulted itself from one of the poorest countries in the world to joining the Paris Club of the world’s largest creditors, all in the span of fifty years. The country now boasts the eleventh largest economy in the world. All three major credit agencies—Standard and Poor’s, Moody’s Investors Service, and Fitch Ratings—have placed Korea’s long-term foreign currency credit ratings for sovereign bonds higher than those of both Japan and China, and as the highest in Asia, excluding city-states or special administrative regions such as Singapore and Hong Kong. Record-breaking economic expansion occurred through a vast lattice of commercial transactions ranging from standard sales contracts, letters of credit, and supply agreements to engineering, procurement and construction contracts, shipbuilding contracts, agency and distributorships, and licensing agreements. This rise in commercial activity inevitably led to an increase in disputes and the need for an efficient, neutral, and consensual method for resolution.

(p. 2) 1.02  Furthermore, driven by export-led growth, international arbitration became Korean companies’ established method of dispute resolution for cross-border disputes that arose out of the increase in international trade, commerce, and investment. A substantial advancement in the arbitration landscape in terms of size and sophistication occurred following the Asian financial crisis, when major Korean companies became involved in a host of large, complex disputes. International commercial arbitration became more commonplace, and Korea-related international investment arbitration has recently become significant as well.

1.03  In 1966, Korea promulgated the Arbitration Act (‘Act’), its first modern law dedicated to arbitration.² Korea then signed the Washington Convention in 1967³ and the New York Convention in 1973.⁴ Nevertheless, until the early 1990s, most arbitration cases involved disputes between domestic parties. Export-led economic growth and the increase in international trade and investment led to the need for efficient dispute settlement through a neutral forum. Then, in 1999, Korea became the first jurisdiction in Northeast Asia and the fifth in Asia overall—after Singapore (1994), Sri Lanka (1995), India (1996), and Macao (1998)—to adopt the 1985 version of the UNCITRAL Model Law.⁵ This marked a milestone in Korea’s arbitration history, with the legal system becoming fully harmonized with the generally accepted international standards provided under the Model Law.⁶ In 2016, the developments in the arbitration law continued when major amendments were enacted to the Arbitration Act that substantially adopted the key provisions of the 2006 UNCITRAL Model Law on International Commercial Arbitration (‘2006 Model Law’).

1.04  The Arbitration Act serves as the backbone of the country’s arbitration infrastructure and applies to both domestic and international arbitration. The 2016 amendments to the Act that entered into force on 30 November 2016 serve as another landmark, with new provisions concerning the definition of arbitration, expanding the scope and application of interim measures, taking evidence through the courts, and simplifying the requirements for recognition and enforcement of awards.

(p. 3) 1.05  Since its bilateral investment treaty (BIT) with the Netherlands in 1975, Korea has also been a constant adherent to investor–State arbitration (ISA) as a means to settle investment disputes.⁷ As of October 2016, Korea has entered into eighty-seven investment treaties, the second highest number in Asia, after China.⁸ All but four of Korea’s investment treaties stipulate ISA as a means of dispute settlement. More recently, since 2004, Korea has begun to negotiate for ISA as part of investment protection through a separate chapter in its free trade agreements (FTAs) instead of using specific investment treaties. Other than the Korea–EU FTA, all of Korea’s fourteen free trade agreements include ISA provisions.

1.06  The Korean Commercial Arbitration Board (KCAB) remains the primary arbitration institution in Korea.⁹ In its fiftieth year at the time of writing, the KCAB has emerged as a major institution that boasts one of the largest caseloads in the world in terms of the number and size of domestic and international disputes. A dedicated staff of forty members oversees the operation of cases according to modern arbitration rules. Many renowned arbitrators not only are empaneled on the KCAB’s Panel of Arbitrators but also currently serve on KCAB tribunals in actual disputes.

1.07  In terms of its rules, previous versions of the Domestic Rules went into effect in 1990, 1994, 1996, 2000, 2005, 2008 and 2011, and the current version is the 2016 one. International Rules that will be familiar to experienced international users were first adopted in 2007 and then amended in 2011 and 2016. As an institution, the KCAB adopts a more ‘light-touch’ approach in its oversight of arbitral proceedings that could be deemed closer to that of the Hong Kong International Arbitration Centre (HKIAC) than that of the Singapore International Arbitration Centre (SIAC).

1.08  As shown in Table 1.1, the KCAB’s caseload has increased at a steady rate, and recent reports indicate that the size of disputes has considerably grown. In terms (p. 4) of milestones, the KCAB registered more than 100 cases on an annual basis for the first time in 1996, more than 200 cases in 2002, more than 300 cases in 2009, and more than 400 cases in 2015. Furthermore, over the past five years, the number of international cases has averaged close to 30 per cent of the institution’s caseload. The total quantum of claims has also steadily increased, and reached USD 2 billion in 2013.

1.09  Korean parties now have extensive arbitration experience with all the major arbitration institutions in the world. Among the leading arbitration institutions, for instance, the International Chamber of Commerce (ICC), SIAC, and International Centre for Settlement of Investment Disputes (ICSID) provide information on parties’ nationalities. The statistics confirm that Korean parties have ranked among the most active users of the ICC, ranking third in Asia behind China and India, consistently above 4 per cent of the total caseload. At the SIAC, the growth in the portion of cases involving Korean parties is even more pronounced, reaching 12.54 per cent of the total number of cases in 2015. At the ICSID, at the time of writing, Korea is a respondent in one case and Korean investors have brought two cases.¹⁰ At the China International Economic and Trade Arbitration Commission (CIETAC), Korean parties were involved in twenty cases in 2014—the third highest number among foreign countries, excluding cases from Hong Kong.¹¹ At the same time, in terms of quantum, it has been reported that the cases involving (p. 5) Korean parties are larger on average.¹² It is not uncommon for two Korean parties to draft contracts that provide for dispute settlement by arbitration under a foreign country’s law, seated in a foreign location, administered by a foreign arbitral institution, and conducted in English. Table 1.2 provides a comparative summary of the number of Korean cases at the ICC and SIAC.

1.10  As a hearing venue, Seoul is becoming an increasingly popular option, particularly since the establishment of the state-of-the-art Seoul International Dispute Resolution Center (SIDRC) in 2014. The SIDRC has established partnerships, branch offices, and cooperation arrangements with such leading institutions as the HKIAC, ICC, International Centre for Dispute Resolution (ICDR), ICSID, London Court of International Arbitration (LCIA), Permanent Court of Arbitration (PCA), SIAC, and World Intellectual Property Organization (WIPO).

1.11  The World Bank’s 2016 Doing Business indicator ranks Korea second in the world in enforcing contracts; this is measured based on ‘[t]he ease or difficulty of enforcing commercial contracts … (and) is determined by following the evolution of a payment dispute and tracking the time, cost, and number of procedures involved from the moment a plaintiff files the lawsuit until actual payment’.¹³ This ranking is all the more significant because, starting from the 2016 report, alternative dispute resolution was included as a factor in the enforcing contracts indicator. (p. 6) Similarly, according to the 2015 World Justice Project Rule of Law Index, Korea ranks seventh in the world in civil justice,¹⁴ second only to Singapore in the Asia-Pacific region. The competency and integrity of the judicial system has served as the basis for arbitration to flourish in Korea.

1.12  Largely comprising career judges, the Korean judiciary has traditionally consisted of the best of the legal profession. Members of the judiciary have remained strong supporters of the development of alternative dispute resolution, particularly arbitration and mediation. The courts have become increasingly sophisticated in their understanding of the intricacies of international arbitration law. The judiciary currently operates two special divisions within the Seoul Central District Court: the 20th Civil Division and the 46th Civil Division, which specialize in international transactional disputes in general, including international arbitration. Two similar divisions, the 19th Civil Division and the 46th Civil Division, have also been established within the Seoul High Court. The vast majority of civil litigation occurs in the Seoul courts.

1.13  The Korean judicial system’s three levels of courts consist of a District Court, High Court, and Supreme Court.¹⁵ As with most civil law jurisdictions, the appeals court, typically one of the five High Courts, conducts a de novo review of the facts of cases appealed from the court of first instance. The Supreme Court, however, does not. According to Article 390 of the Civil Procedure Act, if a higher court agrees with a lower court’s opinion, they can just adopt it wholesale and simply re-quote the lower court’s reasoning.

1.14  As with many civil law jurisdictions, Korean court judgments may appear concise and, to the eyes of a common law lawyer, lacking in sufficient explanation. In most civil law jurisdictions, technically only the ‘Disposition’¹⁶ that appears at the beginning of a case has res judicata effect.¹⁷ While a court must provide the reasons behind the disposition in its judgment, in some regards such reasons could be almost considered dicta, since they technically do not have the same binding effect as the Disposition. From a similar standpoint, the principle of stare decisis does not exist. Yet, courts regularly cite the reasons of Supreme Court judgments as though (p. 7) they have something akin to precedential value, in a similar fashion to common law court judgments.¹⁸ The Disposition for cases has not been included in the text of the judgments in this book.

1.15  In international cases, the courts have adhered to the civil law tradition, strict in their application of the New York Convention and the Arbitration Act and non-interventionist and pro-arbitration. Only under extremely rare circumstances have Korean courts denied recognition or enforcement or set aside arbitral awards. The courts have shown consistent deference to party autonomy when parties have chosen arbitration to resolve their dispute.

1.16  Korea’s legal industry has also played an essential role in the growth of arbitration. The legal profession remains one of the most highly competitive service sectors in the economy. Despite having a population of 50 million, the Korean bar only reached 10,000 attorneys in 2008 and just reached 20,000 attorneys in 2015. Notably, several thousand foreign legal consultants also work in Korea. Domestic arbitration is practised by a wide range of practitioners, but international arbitration largely remains the domain of the largest law firms, although recently specialist boutique firms have begun to emerge.

1.17  In terms of arbitration practice, almost all of Korea’s major law firms have practice groups dedicated to arbitration, with the first appearing in 2001. Several homegrown law firms have amassed extensive experience, coming to be recognized as significant players in international commercial arbitration and also more recently in investment arbitration.¹⁹

1.18  Furthermore, with the entry into force of the Korea–EU FTA and Korea–US FTA, more than twenty-five leading Europe and America-based law firms have established offices in Korea, many with specialized arbitration practices. Since March 2012, foreign firms have been permitted to open offices in South Korea to practise foreign law. Among the 2015 GAR 30, for instance, ten of the thirty firms listed have established Seoul offices.²⁰ Korea’s legal market entered the third and final (p. 8) stage of liberalization for Europe-based on 1 July 2016 and US-based firms are set to follow on 15 March 2017.²¹ Under the final stage, foreign firms will be able to establish joint ventures with domestic firms and hire Korean attorneys, allowing them to partially practise Korean law. The impact of the final stage of liberalization on the arbitration market, and whether joint ventures with domestic firms will be established, remains uncertain. Given that most of the European firms with offices in Korea are based in the UK, however, the impact of the UK’s planned departure from the EU remains a significant issue that will need to be resolved. The UK will most likely have to renegotiate a separate FTA with Korea on similar terms within the next two years, before its departure from the EU takes effect, in order for UK-based firms to continue operating in Korea.

1.19  Among individual practitioners, several currently serve or have served as court members, vice-presidents, or secretary generals of such leading institutions and organizations as the ICC, LCIA, SIAC, and International Council for Commercial Arbitration (ICCA). Almost all Korea-licensed attorneys practising international arbitration at the largest law firms have received advanced academic degrees such as LLMs from the United States and are also members of the New York Bar.²² They work closely with a diverse range of foreign legal consultants, many with extensive arbitration experience, that are licensed in jurisdictions such as Singapore, Pakistan, Australia, China, the UK, Germany, Belgium, France, Austria, the US, and Argentina, and have worked in all the major jurisdictions in the world.

1.20  The growth of in-house counsel has also played a role in the expansion of arbitration. Korea now claims more than 2,000 in-house counsel working throughout the public and private sectors. The two major associations of in-house counsel, the In-House Counsel Forum²³ and the Korea In-House Counsel Association,²⁴ both have established arbitration or dispute resolution committees. As the primary users of arbitration, the institutional knowledge that a government ministry or company accumulates through its in-house counsel remains vitally important. Korean parties have amassed considerable experience as claimants and respondents with all the major institutions, law firms, and arbitrators.

1.21  An umbrella group called the Korean Council for International Arbitration (KOCIA), composed of leading practitioners, in-house counsel, academics, institutional representatives, and arbitrators, was established in 2005. As an informal interest group of (p. 9) the arbitration industry, the KOCIA has been involved with drafting and amending the KCAB’s international rules, amending the Arbitration Act, and organizing major international conferences and special lectures. The Young KOCIA also operates as a networking group for the next generation of arbitration specialists.

1.22  This book seeks to provide a comprehensive introduction to the arbitration-related judgments rendered by Korean courts. It analyses how Korean judges have interpreted the New York Convention and Korean arbitration law. It introduces the global arbitration community to a jurisdiction that has developed a reservoir of jurisprudence and scholarship, but has been inaccessible to and thereby underappreciated by non-Korean speakers. A UNCITRAL Model Law jurisdiction, Korea offers a civil law perspective that can supplement the jurisprudence from better known common law jurisdictions in the Asia-Pacific area, such as Hong Kong, Singapore, Australia, and India. Many cases are being revealed for the first time. Korean courts only recently began to disclose lower court cases. As a result, many earlier cases, particularly before the 1970s, are not available.

1.23  Covering almost 150 cases, the book includes the full text of almost all the cases rendered in Korea, offers commentaries from treatises and scholarship by Korean specialists, and posits questions and problems for academic inquiry. The survey of arbitration jurisprudence confirms that Korea is one of the largest jurisdictions in Asia and has amassed a sophisticated body of case law. This book hopes to contribute to the discourse on international arbitration jurisprudence. As a general matter, based upon an analysis of available cases from 1970–2015, less than 2 per cent of KCAB cases have led to court proceedings seeking recognition or enforcement or set aside This suggests that award debtors voluntarily complied with the arbitral awards in the remaining cases and award creditors consequently did not find a need to pursue court action.

1.24  Two fundamental challenges compound the difficulty involved in writing a book that analyses how Korean courts have interpreted and applied arbitration law. The first is the translation of the Korean language into English, given that both languages share little linguistic commonality. The second issue concerns converting Korean legal principles, concepts, terms, and expressions that primarily derive from German civil law into English, particularly for the benefit of those steeped in the common law tradition. In the face of this formidable task, the book no doubt has many shortcomings. All errors are mine alone.

1.25  All Supreme Court judgments available as of 1 June 2016 have been covered and all High Court judgments, excluding those that have been appealed to the Supreme Court, have been included. While most District Court judgments that have not (p. 10) been appealed have been included, some have been omitted due to space limitations. Seoul’s five district courts, the Seoul Central District Court, Seoul Northern District Court, Seoul Western District Court, Seoul Southern District Court, and Seoul Eastern District Court, are all referred to as ‘Seoul District Court’.²⁵ The other unfortunate consequence of including as much of the case law as possible is that a vast amount of scholarly references and research material on Korean arbitration cases cannot be provided in detail. This will hopefully be supplemented in a future edition.

1.26  The book is structured into eleven chapters for use as an academic course over a full semester, particularly for use at law schools in common law jurisdictions.

1.27  In addition, for the benefit of readers, the following conventions have been followed:

1.28  The Korean language is frequently written in the passive voice, often with the subject implied. For the benefit of English readers, the text has been changed to use the active voice and the subject of a sentence has been added if it provides clarity. Korean judgments also frequently use double negatives. For the benefit of English readers, this has usually been changed to a positive statement.

1.29  Korean court judgments, particularly older ones, are drafted in long sentences that can often take up an entire page. For the benefit of readers, long sentences have been broken down and paragraphs have been added. The Korean Supreme Court has recently announced that it will encourage judges to shorten sentences and include more punctuation.

1.30  Korean cases, particularly older ones, usually do not disclose the names of parties. When referring to a case, courts only provide the citation number, date, and relevant court. For the benefit of readers, particularly common law lawyers who are accustomed to citing cases by the names of parties, the names of the parties have been provided to the extent that they have been disclosed, particularly through such public sources as the Korea Stock Exchange or foreign countries. Where the parties could not be identified, a short description of the subject matter of the case is included, such as ‘Iron Pipes Case’ or ‘Frozen Squid Case’. For frequently cited cases, the name of the plaintiff is used in subsequent citations within the same chapter. Where the same plaintiff has brought many cases, such as ‘Republic of Korea’, then the defendant’s name has been used instead.

1.31  All court judgments, particularly lower court ones, begin with a factual overview of the case. To the extent relevant, this factual part has been summarized at the beginning of each case. Judgments related to foreign arbitral awards will always (p. 11) begin with a description of how Korea is a member of the New York Convention. Given Korea’s reservations, the court will then make a determination on whether the award was rendered in a member state and whether it involves a commercial dispute. Since this is duplicative for all cases, unless there is something special about the case or analysis, this section of judgments has been omitted.

1.32  Laws are stated as of the effective date, not the date of promulgation, with the effective year added before the name of the statute (e.g. ‘2016 Arbitration Act’).

1.33  When a citation for a counteraction also exists in a case, only the citation for the principal action is provided.

1.34  Unless special circumstances exist, all Korean names have been romanized according to the system proclaimed by the Korean government, which can be found at the National Institute of Korean Language.²⁶

1.35  Supreme Court judgments use the notation ‘Da’, High Court judgments ‘Na’, and District Court judgments ‘Gadan’ if a single judge and ‘Gahap’ if a three-member bench. Korean court case numbers are stated consecutively without spacing, such as ‘8888Gahap7777’ or ‘2222Da9999’. For readability purposes, a space has been added before and after the court notations, to make the case citations appear as ‘8888 Gahap 7777’ or ‘2222 Da 9999’.

1.36  Currencies have been abbreviated as KRW (Korean won), USD (US dollars), SGD (Singapore dollars), EUR (euros), GBP (UK pound), and JPY (Japanese yen).

1.37  For readers’ convenience, all Korean currency figures include the equivalent currency in US dollars in parenthesis, at the rate of 1 USD to 1150 KRW.

1.38  Korean statutes consist of Articles, Paragraphs and Subparagraphs, and Items. ‘Article 31, Paragraph 1, Subparagraph 3, Item a’ is summarized as ‘Article 31(1)(3)(a)’.

1.39  The metric equivalent has been included in parenthesis for Korean measurements, such as ‘pyeong (3.3 square metres)’.

1.40  Unless a party, all references to the ‘Republic of Korea’ have been simplified to ‘Korea’. Similarly, the United States (US) and United Kingdom (UK) have been abbreviated.

1.41  Major arbitration institutions such as the American Arbitration Association (AAA), American Film Marketing Association (AFMA), Grain and Feed Trade Association (GAFTA), International Chamber of Commerce (ICC), Korean (p. 12) Commercial Arbitration Board (KCAB), Singapore International Arbitration Centre (SIAC), Japan Commercial Arbitration Association (JCAA), Hong Kong International Arbitration Centre (HKIAC), and Tokyo Maritime Arbitration Commission (TOMAC) are spelled out once per chapter and thereafter simplified to their acronyms.

1.42  ‘New York Convention’ is used instead of the full citation, ‘Convention on the Recognition and Enforcement of Foreign Arbitral Awards (in force 9 May 1973, Multilateral Treaty No. 471, promulgated 19 February 1973)’.

1.43  In the interests of gender neutrality, even-numbered chapters use female pronouns and odd-numbered chapters use male pronouns. Similarly, in the translation of the Arbitration Act provided in the Appendix, even-numbered articles use female pronouns and odd-numbered articles use male pronouns.

1.44  To the extent known, the Western name or commonly used initials of Koreans cited in the book have been added.