1. 1.  Article 1 of the 1997 Arbitration Act³ provided that the purpose of the Act is for parties to agree to promptly settle disputes that arise under private law not by a court judgment but by an arbitrator’s award.⁴ Article 2(1) provided that for legal relationships arising under private law an arbitration agreement becomes valid through an agreement to settle by an arbitration all or part of a dispute that has arisen or arises in the future between the parties (hereafter ‘arbitration agreement’).⁵ Article 2(2) provided that an arbitration agreement under the preceding paragraph must be a document that the parties have agreed to arbitrate and have signed and sealed, an agreement that contains an arbitral clause, or an exchange of letters or telegrams that contains an arbitral clause.⁶ Article 3 provided that parties to an arbitration agreement must comply with an arbitral award.⁷

   Yet, parties may institute a legal action only when the arbitration agreement becomes invalid, inoperative, or impossible to perform. Arbitration agreements become effective when parties agree in writing to settle by arbitration, rather than court judgment, all or part of a dispute between them that is arising or may arise in the future concerning a legal relationship under private law. For a specific arbitral clause to be considered a valid arbitration agreement, a determination must be made based on a comprehensive consideration of specific circumstances. Among other things, the content of the arbitral clause and the circumstances behind the parties’ choosing the arbitral clause should be considered in light of the concept of arbitration, the characteristics and methods of the arbitration agreement and other factors as provided under the Arbitration Act.⁸

   (p. 15) According to the record, Article 28(1) of the General Conditions of the Contract that constituted part of the product supply agreement herein provided that ‘the purchaser and supplier shall devote their best efforts to amicably settle all differences of opinion and disputes arising out of or related to the contract through direct and formal negotiations’. Article 28(2) provided that ‘if 30 days after the commencement of informal negotiations the contractual dispute between the purchaser and supplier has not been settled, either party may require that the dispute be referred for settlement to the formal mechanisms specified in the Special Conditions of the Contract’. Article 10(1) of the Special Conditions of the Contract provided that ‘[t]he means and methods of dispute settlement under Article 18 of the General Conditions of the Contract are as follows: first, in a dispute between a purchaser and supplier that are the same nationality, the dispute shall be referred to adjudication/arbitration in accordance with the laws of the Purchaser’s country’.

   On 30 December 1999, Defendant filed a request for arbitration against Plaintiff at the KCAB for an increase in the contract price as argued herein. We confirm that in response to Defendant’s request for arbitration, Plaintiff in its answer and subsequent submissions continuously argued that the request for arbitration should be dismissed because an arbitration agreement did not exist.

   In light of the legal principles provided above, we find that an optional arbitral clause as the one herein becomes a valid arbitration agreement if one party to the product supply agreement chooses arbitration over court proceedings against the other party and demands settlement according to those procedures and the other party without any objection participates in the arbitral proceedings. We find that in the case herein in which Plaintiff actively argued the non-existence of the arbitration agreement in their answer in response to Defendant’s request for arbitration while objecting to settlement by arbitration, a valid arbitration agreement cannot be deemed to exist.

   We hold that, while the lower court’s decision did not lack a degree of inadequate explanation, we are convinced that the lower court’s conclusion to reject Defendant’s defence before addressing the merits on the grounds that the optional arbitral clause herein was not a valid arbitration agreement is justified. As argued on final appeal, we do not find a failure to fully deliberate or error in fact, or an error of law regarding the validity of optional arbitral clauses.

1. 1.  Under the Arbitration Act, an arbitration agreement means an agreement between the parties to settle, by arbitration, all or part of a dispute that has already occurred or might occur in the future with regard to certain legal relationships, whether contractual or not.¹⁰ When the parties clearly state their intent to settle future disputes by arbitration, the requirements for a valid arbitration agreement are therefore fulfilled even if the arbitration institution, applicable law and place of arbitration have not been specified. When an arbitration agreement has been recognized to exist, we hold it reasonable to view that, unless special circumstances otherwise provide, the parties agreed to settle by arbitration all disputes that arise within the specific legal relations between the parties.

   Upon a review of the reasoning behind the lower court judgment in light of the foregoing legal principles and records, we find that part of the lower court’s explanation is inappropriate to some degree. Nevertheless, the lower court found no evidence to establish that an agreement existed concerning the unit cost, a factor used in calculating the construction price, when the arbitration agreement was reached. Furthermore, they found that Article 4 of the contract provided that ‘when the foregoing agreed terms are not performed, the matter should be immediately subject to arbitration by a third party institution’ and constituted a valid arbitration agreement under the Arbitration Act. They concluded that the arbitral tribunal had the competence to determine the dispute subject to the arbitration agreement, which concerned the construction payment claim itself under the same contract. We therefore find that the lower court was justified in determining that the arbitral award did not deal with a dispute not subject to the arbitration agreement and that the award did not deal with matters outside the scope of the arbitration agreement.¹¹ We find no errors as argued in the final appeal that affected the conclusion such as a violation of the rules of evidence or an error of law regarding arbitration agreements.

Whether a valid arbitration agreement exists in the Voyage Charter Party eventually depends on whether we can recognize Article 1(B)(2)(g) of the charter party as a binding arbitration agreement. First, we can establish that parties designated English law as the applicable law to the Voyage Charter Party or at least as the applicable law related to an arbitration agreement. We find it reasonable that English law, the applicable law designated by the parties, shall also apply when determining the interpretation and validity of the arbitration agreement.

Considering together the overall oral arguments, with Plaintiff Exhibit Nos. 3, 4, and 5 and Defendant Exhibit No. 9, we find that under English law an agreement merely stating ‘Arbitration, if any, by ICC rules in London’ would be interpreted as a whole that the parties intended to settle any dispute that might arise between them by arbitration according to the ICC rules in London and would be considered a binding, valid arbitration agreement. In particular, the words ‘if any’ would be viewed as surplusage or as an abbreviation for the words ‘if any dispute arise (sic)’.¹² The GENCON Terms and Conditions (revised in 1994) at the time of the conclusion of the Voyage Charter Party stipulate that disputes regarding a charter party shall be settled through arbitration. We confirm the fact that the above terms and conditions provide that ‘the seat of arbitration and applicable law are left blank so the parties to a charter party may choose to enter such information. If the parties, however, choose not to enter the seat of arbitration and applicable law, then English law shall apply for the interpretation of the charter party, and all disputes that arise under the charter party shall be settled by arbitration in accordance with the English Arbitration Act in London, UK.’ Considering all these points, Article 1(B)(2)(g) should be interpreted as a binding, valid arbitration agreement under English law that designated Hong Kong as the place of arbitration and English law as the applicable law. Therefore, we do not accept Defendant’s above argument.

Defendant’s Objection Before Addressing the Merits

Defendant counterargues that Plaintiff’s action is unlawful because an arbitration agreement existed between the parties concerning the dispute and that an arbitral award was rendered accordingly. Plaintiff in turn contends that in essence, the arbitration agreement between the parties was invalid.

If the authenticity of a document of disposition has been established, unless clear and convincing counterevidence to repudiate its content exists, a court must recognize the text as written in said document as representing the existence and content of the stated intentions of the parties. If a difference of opinion exists between the parties regarding the interpretation of a contract such that they differ in the interpretation of the intention of the parties as provided under the document of disposition, then courts must comprehensively consider such factors as the content of the text, background, and reason for entering into the contract, goal for entering into the contract, and real intentions of the parties and then make a reasonable interpretation based on logic and experience.¹⁴

(p. 19) Arbitration agreements become effective when parties agree in writing to settle by arbitration, instead of by court judgment, all or part of a dispute between them that has already arisen or may arise in the future concerning a legal relationship under private law. For a specific arbitral clause to be considered a valid arbitration agreement, a determination must be made based on a comprehensive consideration of specific circumstances. Among other things, the content of the arbitral clause and the background behind the parties’ choosing the arbitral clause should be considered based upon the concept of arbitration, the characteristics and method of the arbitration agreement, and other factors as provided under the Arbitration Act.¹⁵

As provided above, the arbitration agreement states under Additional Items that ‘plaintiff may appeal the arbitral award’.

Yet, in light of the following factors, we find it reasonable to hold that an arbitration agreement under the Arbitration Act existed between the parties concerning the dispute in this case: (1) the introduction of the agreement provided that ‘the parties agree to settle the below dispute at the KCAB under the KCAB Arbitration Rules and laws of Korea and the arbitral award rendered in this dispute is “final” and binds all parties’; (2) Plaintiff did not actively argue the non-existence of an arbitration agreement during the arbitration proceedings;¹⁶ (3) persons requesting arbitration under the KCAB’s Arbitration Rules must submit a ‘written statement certifying the agreement to arbitrate’,¹⁷ and it appears that Plaintiff did submit such a written statement when it requested arbitration at the KCAB; (4) by statute, an arbitral award rendered by arbitrators according to arbitral proceedings has the same effect as a final and binding court judgment,¹⁸ and even in cases where the arbitral award concerns disputes not covered under the arbitration agreement or exceeded the scope of the arbitration agreement, any challenge to the arbitral award can only be made by an action to set aside the award through the courts;¹⁹ (5) even if the above phrase ‘may appeal’ is interpreted to allow challenges to the arbitration agreement, such challenge could only be brought through an action to set aside through the courts; and, (6) regardless of whether it concerns a contractual dispute or not, arbitration agreements are agreements between parties to settle by arbitration all or part of a dispute that has already arisen or may arise in the future involving a certain legal relationship, and if such an arbitration agreement can be found, it is reasonable to hold that, unless special circumstances exist, all disputes arising out of the specific legal relationship of the parties will be settled by arbitration.²⁰

Therefore, the court holds that Plaintiff’s action against Defendant is inappropriate and must be dismissed as provided under Article 9 of the Arbitration Act.

1. B.  Determination of Defendant’s Surrebuttal

   In its surrebuttal, Defendant argues that even if an arbitration agreement could be deemed to exist, it was invalid because the place of arbitration, Japan, had no rational relationship with the carriage of the Cargo. We observe, however, that when we consider together the following points the arbitration agreement under the Bill of Lading cannot be deemed as invalid, making Defendant’s surrebuttal unwarranted: ① when parties decide to settle disputes by an arbitrator’s arbitral award and not by a court’s judgment, they may choose a third country unrelated to the parties as the place of arbitration for objective settlement of a dispute by a neutral arbitrator; and, the mere fact the location does not have a substantive relation to the dispute does not mean the arbitration agreement should be considered invalid; ② an agreement on an exclusive international jurisdiction of a foreign court requires a case to have a rational relationship with the foreign court, which is a legal principle that is difficult to apply, as is, also to an agreement for arbitration; and, ③ Nippon Gas Line, which entered into the carriage contract with LG International, cannot be considered as being unrelated to Japan.

2. C.  Sub-conclusion

   Therefore, Plaintiff’s action contravenes the arbitration agreement contained in the Bill of Lading’s terms and conditions and should be considered unlawful.

Article IV(1) of the New York Convention requires that an arbitration agreement be an ‘agreement in writing’ as provided under Article II. Article II(2) in turn provides that the agreement in writing shall ‘include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams’. Unless there were special circumstances confirming an arbitration agreement through such means (p. 21) as an exchange of documents or arbitration related documents between the parties before and after the request for arbitration in this case, we do not find that a valid arbitration agreement exists under Article II. This would be the case even if a type of implicit arbitration agreement could be established as a result of Defendant not raising any objection to Plaintiff’s request for arbitration at the Vietnam International Arbitration Centre. If the existence of a valid arbitration agreement is contested under the Convention, then the existence can only be proven by the evidentiary methods provided under Article IV. In this case where the application of the Convention is disputed, we cannot but find that the lower court erred in finding that a valid arbitration agreement existed based merely on the fact that Defendant did not raise any objection to Plaintiff’s request for arbitration.

1. 2.  Determination on the Defence Before Addressing the Merits

   1. D.  Determination

      1. 1)  Existence of the Arbitration Agreement

         1. A)  According to the foregoing facts, Article 26 (Arbitration) of Section B (Agreement and Conditions of Subtract) in Part III (Bidding Documents) of (p. 22) the Subcontractor Contract executed between the parties provided that all disputes arising out of the Subcontract Agreement would be settled by arbitration. Plaintiff insisted that it only received Part I (Subcontract Agreement) of the Subcontractor Contract from Defendant and signed it and they did not receive Part III (Bidding Documents) that included the arbitral clause. Therefore, Plaintiff claimed that they did not agree to an arbitral clause with Defendant.

         2. B)  Article 358 of the Civil Procedure Act stipulates that a private document shall be presumed to be authentic if it bears the signature, seal or thumbprint of the principal or representative thereof. If the person that drafted the private document personally acknowledges that she signed, sealed, or thumbprinted the private document, or in other words recognizes the impression of the seal, among other things, then the authenticity of the entire document shall be presumed. Otherwise special circumstances must exist such as the presumption being refuted through counterevidence. If the impression of the seal, among other things, can be established, then it will be presumed that the person signed, sealed, or thumbprinted the entire document in a complete state, unless other special circumstances exist. For a party to sign or seal, among other things, all or part of a document that was not complete must be considered an exceptional situation. To refute the presumption of authenticity as a complete document, a reasonable grounds and evidence that can support it such as indirect counterevidence must be provided.²³

         3. C)  Considering together Plaintiff Exhibit Nos. 6, 22, 23, 28 and 34 and the overall oral arguments, we observe as follows:

            • ①  The Subcontractor Contract did not contain any seals on adjacent pages;

            • ②  At the time of the execution of the Subcontract Agreement, Plaintiff and Defendant negotiated through such means as emails, webhard drives, and official documents; around September 2008, Defendant sent to Plaintiff by personal delivery two copies of the entire Subcontractor Contract that was combined into a single bound volume; we find it difficult to believe Defendant’s argument that Plaintiff held onto the Subcontractor Contract at the construction site for approximately two months and thereafter their representative director signed it and sent one copy to Defendant by personal delivery.

            • ③  On 25 November 2008, Defendant sent an official document to Plaintiff that read ‘[t]he modified contract will be modified as soon as the owner’s approval is obtained, so please sign it immediately and return it to us. Without the main contract, we cannot make the modified contract’. As Plaintiff argued, the Subcontractor Contract stated that it was drafted in February 2008, but in reality it was not drafted until around November 2008. It also appears that to draft the modified contract, it was necessary, among other things, to draft the Subcontractor Contract first. Plaintiff’s argument regarding the background of how the Subcontractor Contract was drafted is persuasive.

            • ④  The Korean contract draft related to the Construction that Defendant sent to Plaintiff on 17 March 2008 contained an arbitral clause (Article 28) that (p. 23) provided for arbitration at the KCAB located in Korea pursuant to Korean law (yet, the foregoing contract was only a draft and the parties had not reached an agreement).

            • ⑤  The Construction occurred at the so-called H1 site, and Plaintiff and Defendant entered into a contract for the H2 site around the same time and commenced construction. For the H2 site, a separate Korean contract was drafted that was sealed on adjacent pages and an arbitration agreement that provided for arbitration by the KCAB located in Korea pursuant to Korean law was concluded.

            • ⑥  When both parties commenced oral arguments on the basis that under the arbitral clause they agreed to arbitration at the Cambodian arbitration institution for disputes related to the Construction, they belatedly corrected themselves that the arbitral clause provided that the place of arbitration was Cambodia under ICC Rules. It appears that the Subcontractor Contract was drafted without specific negotiations or agreements between Plaintiff and Defendant concerning the arbitral clause.

            • ⑦  On the day oral argument ended, the place of arbitration under the arbitral clause, Cambodia, did not have an arbitration institution. In reality, arbitration pursuant to ICC Rules appeared difficult, making the possibility for dispute settlement pursuant to the arbitral clause unclear.

            At the same time, considering together Defendant Exhibit No. 2, the partial testimony of the witness and the overall oral arguments, we note the following circumstances:

            • ①  The Subcontractor Contract was not sealed on adjacent pages, but the entire Subcontractor Contract was bound into a single volume and was submitted as Defendant Exhibit No. 2; given the thickness of the contract, it would have been difficult to individually make a seal on all the adjacent pages;

            • ②  The Korean draft of the contract supposedly provided that disputes related to the Construction would be settled by arbitration at the KCAB located in Korea pursuant to Korean law but the contract was only a draft and both parties had not signed and officially executed it. Furthermore, the draft was even prepared through a Korean translation and provided that the Subcontractor Contract would take precedence;

            • ③  Although the place of arbitration and the institution were different in the arbitral clauses, the Korean draft contract and the contract regarding the H2 site both contained arbitral clauses;

            • ④  The Letter of Award contained the arbitral clause, and when Plaintiff bid for the Construction they were aware of the conditions;

            • ⑤  Defendant admitted that they signed Part I (Subcontract Agreement) of the Subcontractor Contract. The contract stipulated that ‘NOW THEREFORE, in consideration of the promises and mutual understandings, both parties have hereto entered into the Subcontract Agreement as per the provisions hereinafter described in the Terms and Conditions of the Subcontract’. Thus, through the terms in the Subcontractor Contract, it was expected that the detailed conditions of the contract would be proposed.

            (p. 24) In light of these various points, we conclude that the previously listed circumstances and Plaintiff Exhibit No. 32 (we do not find it convincing as it was only a confirmation by the non-litigant M who was an employee of Plaintiff) by themselves were not sufficient to refute the presumption of authenticity of the Subcontractor Contract in its entirety as a complete document.

         4. D)  Therefore, as long as the authenticity of the entire Subcontractor Contract was established, we recognize that an arbitration agreement existed between Plaintiff and Defendant pursuant to the arbitral clause.

      2. 2)  Determination Pursuant to the Arbitral Clause

         According to Article 9 of the Arbitration Act, when an action has been brought to a court regarding a dispute that is the subject of an arbitration agreement, and a Defendant raises a defence of the existence of an arbitration agreement, the court must dismiss the action. Based on the text of the arbitral clause, an exclusive arbitration agreement existed and the action was a claim for payment for the construction related to the contract and other matters, making it a dispute subject to the arbitration agreement. On the record, Defendant clearly submitted an answer that included the defence of the existence of the arbitration agreement before the first oral argument on the merits. Thus, we conclude that the action was brought in violation of the exclusive arbitration agreement and was unlawful.

1. 1.  Determination Concerning Whether an Arbitration Agreement Existed

1. (1)  On 23 July 1980, non-litigant Sea Pros-Marine Co., which represented Plaintiff, entered into a voyage charter party with Defendant in Seoul, Korea for carriage of 19,800 tons of compound fertilizer that Defendant was exporting to Iran by Plaintiff’s vessel the MS Sun River from Port Yeosu in Korea to Port Bandar Abbas and Port Bandar Khomeini, both of which are in Iran. Neither party contests that a special terms and conditions provision, Article 43, was added to the charter party that provided that ‘Any dispute arising under this Charter Party to be referred to “The Korean Commercial Arbitration Association, Seoul, Korea”²⁹ and “The Japan Shipping Exchange, Inc., Japan” and the award of which to be final and binding upon both parties.’ [‘The Korean Commercial Arbitration Association’ referred to in the charter party appears to be a misstatement of the English name of the incorporated association the KCAB, ‘The Korean Commercial Arbitration Board’.]

2. (2)  Plaintiff argues that an arbitration agreement was established between the parties pursuant to the above provision whereas Defendant contends that the foregoing provision could not be considered a valid arbitration agreement because it was defective. Not only does it list multiple arbitration institutions in a parallel fashion but it also fails to stipulate the location of arbitration³⁰ and the applicable law.

   The arbitral clause at issue in this case was to settle disputes that arose under the voyage charter party between Plaintiff (shipping company) and Defendant (a Korean legal entity/export company, charterer), for carriage of goods that Defendant exports to certain ports in the third country, Iran, and should be considered an external activity (p. 26) relationship. The parties’ intention concerning the applicable law that should be applied regarding the establishment and effectiveness of an arbitration agreement is not clear (the same applies to the charter party that is the main contract). We thereby decide pursuant to Article 9 of the Act on International Private Law of Korea, the place where the acts took place.

3. (3)  Furthermore, we consider whether an arbitration agreement was established. First, Defendant argues that to recognize that an arbitration agreement exists three fundamental factors, the arbitration institution, applicable law, and the location of arbitration, must clearly be established.

   The Arbitration Act, however, merely provides that an arbitration agreement will become effective through an agreement in writing that disputes regarding legal relations that the parties can dispose of will be finally settled by an arbitrator’s award and not by court procedures. It does not provide that an arbitration institution (these days arbitration is generally carried out according to permanent arbitration institutions, but it does not have to be restricted to this means), the applicable law that governs the procedural and substantive law of the arbitration, the location of arbitration, and other matters are basic factors of the arbitration agreement that must be stipulated. We find that if the parties’ intent to settle the dispute according to arbitration has been clearly provided in writing, then an arbitration agreement will be considered to have been established as long as special circumstances do not exist. As a result, Defendant’s foregoing argument is unwarranted. (The model arbitral clause of the incorporated association KCAB that Defendant mentions does include and stipulate the foregoing three factors. Yet, this is merely an example of a standard arbitral clause that the KCAB has recommended to prevent unnecessary conflict and delay later during the arbitration proceeding if these matters are not clearly stated.)

   Therefore, in this case, only the charter party’s provision that lists arbitration institutions and the place of arbitration in a multiple, parallel fashion (‘The Korean Commercial Arbitration Association, Seoul, Korea’ and ‘The Japan Shipping Exchange, Inc., Japan’) presents an issue. The Korean Arbitration Act does not provide any reference to this type of situation. We thus must make a determination by objectively considering the parties’ intent in light of, among other things, the purpose of the arbitration system, the general principles of law and particularly the purpose of the settlement system under the Civil Procedure Act.

   We find that requesting arbitration to settle a single dispute at two arbitration institutions in different countries would lead to great cost and inconsistent determinations. Not only does this not correspond with the parties’ intent, but it also clearly conflicts with the provision in the charter party that ‘the arbitral award is final and binding upon both parties’. We find it unreasonable to be constrained by the word ‘and’ and to find that the charter party requires a simultaneous request for arbitration at two arbitration institutions.

   Furthermore, if we carefully consider Plaintiff Exhibit No. 2 (The Charter Party), the arbitration agreement is not printed on the overleaf in printed form but was specifically inserted by a typewriter to the main body of the charter party together with the special standardized terms and conditions. During the process of entering into the contract, various sections in the special standardized terms and conditions (Articles 26, 36, 37, and 40) were partially deleted. At the same time, according to the testimony of the witness Myeong-Hak Park, who was the director in charge of exports of Defendant and who signed the charter party on behalf of Defendant, specific discussions did not occur regarding Article 43, which was (p. 27) the arbitral clause, when the charter party was executed, yet they understood its meaning. Additionally, Park personally reviewed the charter party before he signed it. In light of these facts, we find that one cannot view that Article 43 was abandoned as a meaningless provision without any effect.

   Therefore, we find that the central part of the intent of the parties in relation to Article 43 of the special standardized terms and conditions when they executed the contract was that ‘dispute … to be referred to (arbitration) … and the award of which to be final and binding’. We believe it is reasonable to interpret the word ‘and’ as an expression of the purpose that both parties may request arbitration in Seoul ‘or’ Tokyo, and if the arbitration proceedings were initiated by one party, then the other party had to respond accordingly.³¹

   In addition, we rule that even if the arbitration institution or the place of arbitration is provided in multiple, elective fashion, the arbitration agreement should be considered valid as long as these factors can be specified. Hence, we find that an arbitration agreement was established pursuant to Article 43 of the voyage charter party between the parties.

Plaintiff’s counsel argues that on 19 October 1977 Plaintiff, a general trading company, and Defendant, a shipping company, entered into a carriage contract to ship 6,570 metric tons of bagged cement and 3,000 metric tons of steel to Kuwait by a Defendant-operated vessel the Queen Rose. If Plaintiff completed the work at the port of shipment and port of unloading faster than agreed, then Defendant agreed to pay Plaintiff a despatch according to a certain percentage. When Plaintiff completed the loading and unloading faster than agreed upon under the agreement, they obtained a despatch credit of USD 15,373 from Defendant. Furthermore, as the carrier of the cargo, Defendant had an obligation under the carriage contract when receiving, loading, storing, and carrying the cargo and delivering it to the consignee to deliver it in the same safe state in which they received it. Defendant neglected this obligation and a considerable amount of the cement cargo could not be used for their original purpose because it became wet and solidified due to humidity and sea water. The consignee incurred USD 25,949.27 in damages to the non-litigant party, Yali & Alayyan Trading Company, and Plaintiff acquired the third party’s compensation claim against Defendant. Plaintiff sought from Defendant payment of the despatch and the acquired compensation claim for USD 40,621.37, plus six per cent annum interest from 20 January 1978 for delay damages. If the payment could not be made in US dollars, they sought payment in Korean Won converted at the exchange rate at the time of execution.

(p. 28) In response, as a defence before addressing the merits, Defendant’s counsel argued that Plaintiff and Defendant agreed to settle disputes between them arising out of the charter party by arbitration, and thereby Plaintiff’s claim herein was unlawful. We observe that the parties do not dispute the formation of the Voyage Charter (Plaintiff Exhibit No. 1), which stipulated that ‘when a dispute arises under this charter party it shall be referred to arbitration at the Korean Chamber of Commerce located in Seoul. This stipulation is final and conclusive upon both parties.’ No evidence exists to affect this otherwise. According to Article 5(8) of the Chamber of Commerce Act,³² the Korean Chamber of Commerce’s business include mediation and arbitration of domestic commercial disputes. Considering together the Arbitration Act, provisions in the Commercial Arbitration Rules and the undisputed Plaintiff Exhibit No. 9 (Confirmation of Facts), the Korean Chamber of Commerce’s Korean Commercial Arbitration Committee was established pursuant to Article 5(8) of the Chamber of Commerce Act and the Arbitration Act and was placed in charge of commercial arbitration. Yet, in May 1971, the Korean Commercial Arbitration Committee was dissolved and instead the Korean Commercial Arbitration Association³³ was independently established as an incorporated association separate from the Korean Chamber of Commerce. Thereafter, the Korean Chamber of Commerce did not handle commercial arbitration work and only the Korean Commercial Arbitration Association handled arbitration pursuant to the Arbitration Act, making the Association the sole organization in charge of commercial arbitration work. As a result, the arbitration agreement herein between Plaintiff and Defendant that called for arbitration by the Korean Chamber of Commerce, which was not an arbitral institution, could not be performed as provided under the proviso of Article 3 of the Arbitration Act.

Therefore, Plaintiff’s action herein is lawful and a determination should have been made on the merits. The court of first instance reached a different conclusion and did not make a determination, found Plaintiff’s action was unlawful, and dismissed it. We rule that this decision was unjust and should be overturned and decide that this case should be remanded to the Seoul Civil District Court, the court of first instance.

1. (1)  Defendant argues that the foregoing arbitral clause does not contain an agreement on who becomes the arbitrator and designates an arbitration institution, ‘the British Commercial arbitration board’, that does not exist in the UK such that the arbitration agreement is invalid. We rule that it is sufficient for an arbitration agreement to consist of an agreement in writing to submit disputes to arbitration and it does not need to stipulate the location of arbitration, arbitration institution or arbitrators. We also find it reasonable to view that in light of the point that the later part of ‘the British Commercial arbitration board’, which is ‘arbitration board’, is not written as a proper noun, it does not represent the name of an arbitration institution. Instead, it signifies a common reference to a commercial dispute arbitration institution among the arbitration organizations in the UK.

1. 1.  First Issue

   The lower court first outlined Defendant’s arguments during the arbitration proceedings. During the arbitration proceedings, Defendant argued that ‘Article 12(F) of the Importing Terms and Conditions of the Invitation to Bids (“Article 12(F)”) that placed the same responsibility on the agent as the supplier lacked common sense. To place responsibility therein was practically unjust and totally unacceptable from a common sense perspective and could be considered an anti-national provision.’ The lower court found that this argument could not be viewed as an argument that Article 12(F) violated good faith. They decided that the arbitral award could not be considered as containing an error for omitting a decision.

   We are convinced that the lower court’s foregoing decision was justified. Furthermore, according to the record, we do not find Article 12(F) to be an invalid provision contrary to (p. 31) good faith or social order. We thus do not find, as argued on final appeal, an error of law in the lower court’s decision involving an omission of decision or an error of fact that violated the rules of evidence.

   We cannot accept the arguments that take a different view from the lower court and fault its determination.

2. 2.  Second Issue

   We will allow an arbitration agreement not only where an arbitral clause is stipulated in a contract but also where a contract refers to another document that contains an arbitral clause such as the general terms and conditions and the parties deem it part of the contract.³⁸

   The lower court combined together the admitted evidence and noted the following matters:

   1. (1)  Plaintiff prepared the ‘General Terms for Bids’ in English around August 1988 that provided in detail 23 sections regarding such matters as Plaintiff’s bid procedures and material;

   2. (2)  To participate in Plaintiff’s beef importation bid and enter into a beef supply contract, one had to first register with Plaintiff as a supplier. Around 7 February 1992, Defendant registered with Plaintiff as a supplier and participated in Plaintiff’s beef bids eight times in 1992 and five times in 1993, including twice in this case;

   3. (3)  Plaintiff received supplier registrations from domestic agents, and explained and simultaneously provided the General Terms for Bids to them after the registration and before they participated in the bids;

   4. (4)  Before conducting the bids, Plaintiff placed a notice in the daily newspaper that ‘the specific details will be in accordance with the General Terms for Bids and Contracts and the Invitation to Bids distributed by our Organization’. Furthermore, before conducting the bids, Plaintiff provided and explained to domestic agents, including Defendant, that wanted to participate in the bid an English version of the Invitation to Bids. It included the letter or credit form and power of attorney and specified in detail such matters as the import conditions and specifications and measurements;

   5. (5)  The cover of the Invitation to Bids stated, ‘We request that you submit sealed bids that meet the General Terms for Bids as established by our Organization’. The import conditions under Article 14(B) of the Invitation to Bids provided that ‘the remaining conditions follow the General Terms for Bids established by the Livestock Products Marketing Organization in August 1988’;

   6. (6)  The power of attorney that Defendant submitted stated, ‘We completely accept all of the conditions that your Organization established in the General Terms for Bids and Contracts, and we delegate all authority regarding the bidding and contracting to the bid participant Yeong Jang’; and,

   7. (7)  At the same time, Defendant represented the non-litigant Atlas Corporation, participated in the various bids and prevailed. On 8 June 1993, they submitted Firm Offers to Plaintiff that provided the loading conditions and methods as well as (p. 32) other payment methods for the 3 June 1993 contract, and on 10 August 1993, for the 6 August 1993 contract. The Firm Offers’ explanatory note provided that ‘the remaining conditions will follow the Invitation to Bids of the Livestock Products Marketing Organization’.

   According to the foregoing established facts, we find the Invitation to Bids and the General Terms for Bids are part of the contractual terms that constitute the terms and conditions that a party to a contract prepares in advance when they plan to enter into numerous contracts. In the case of the Invitation to Bids, Plaintiff provided a copy and explanation for each bid to the domestic agents that participated in the bidding, including Defendant. In the case of the General Terms of Bids, although Plaintiff did not provide a copy and explanation, they did provide a copy and explanation when the suppliers that participated in the bids registered or when the first bid was made. They also informed transacting counterparties regarding the Invitation to Bids and the power of attorney through such means as newspaper public notice. As long as these things were done, the lower court found that the Invitation to Bids was part of the contract between the parties and the General Terms for Bids were also incorporated into each contract through the Invitation to Bids. Therefore, they concluded that the arbitral clause that was included was also part of the contract, and that a valid arbitration agreement was established between the parties.

   In light of the foregoing legal principles, the facts outlined in the record along with the fact that Defendant did not argue at all that an arbitration agreement did not exist during their oral arguments on the merits in the arbitration proceedings, we conclude that the lower court’s foregoing decision is reasonable. We thus do not find, as argued on final appeal, an error of law concerning the establishment of an arbitration agreement or an error of fact that violated the rules of evidence.

   We cannot accept Defendant’s arguments because they contest the selection and determination of evidence and finding of facts that are within the exclusive domain of the lower court and because they take a different view in faulting the lower court’s determination.

1. 2.  Final appeal related to the Formation of an Arbitration Agreement

   The effects of an arbitration agreement extend not only to the contract containing the arbitral clause but also to disputes that are directly or closely related to the formation and performance of such contract and its validity.³⁹ Furthermore, we will allow an arbitration agreement not only where an arbitral clause is stipulated in a contract but also where a (p. 33) contract refers to another document that contains an arbitral clause and the parties deem it part of the contract.⁴⁰

   According to the reasoning of their judgment, the lower court comprehensively reviewed the evidence adopted in the judgment and recognized the following facts: (1) on 29 June 1989, Plaintiff and Defendant entered into a Joint Investment Contract for a project to develop the resort area herein that states that ‘disputes arising under said agreement shall be finally settled by arbitration’; (2) on 31 January 1990, Plaintiff and Defendant re-entered into a settlement agreement (‘Settlement Agreement’) in relation to the performance of the Joint Investment Contract herein that states that ‘matters not stipulated in the settlement would follow the Joint Investment Contract’; and, (3) the dispute that became the subject of the arbitral award herein involved the return of a pre-paid amount based on the termination of the Joint Investment Contract and the Settlement Agreement because Defendant failed to perform their obligations under the Settlement Agreement. The lower court then found that the dispute that was the subject of the arbitral award herein was directly or closely related to the performance of the Joint Investment Contract containing the arbitral clause herein. The arbitral proceedings hereto were conducted pursuant to the arbitration agreement between Plaintiff and Defendant and did not meet the grounds to set aside an award under Article 13(1)(1) of the 1998 Arbitration Act.

   Considering the above legal principles in light of the reasoning and records of the original judgment, we find the lower court’s fact finding and determination convincing. We find they did not commit a violation of the rules of evidence or an error of law concerning the formation of the arbitration agreement that affected the outcome of the arbitral award. We cannot accept this portion of the final appeal.

(First Issue on Final Appeal)

We will allow an arbitration agreement not only where an arbitral clause is stipulated in a relevant contract but also where a contract refers to another documents that includes an arbitral clause such as the general terms and conditions and the parties deem it part of the contract.⁴²

The lower court cited the district court Judgment that found that Defendant entered into a contract on 4 September 1996 to purchase Brazilian soybean meal from Plaintiff for purposes of supplying the National Livestock Cooperative Federation (NLCF). For conditions not (p. 34) otherwise provided in the contract, the parties acknowledged they were familiar with the ‘NLCF’s Terms’ and agreed to follow them. The court found that Article 14(b) of NLCF’s Bid Commodity and Freight General Terms and Conditions (‘General Terms and Conditions’) provided that when provisions and conditions in the contract were not provided in the General Terms and Conditions, NLCF’s General Provisions for Bidding and Contract (‘General Provisions’) should apply. The court then found that Article 22 of the General Provisions in turn provided that all disputes that arose relating to the contract between the parties should be settled by arbitration in Seoul under the arbitration rules of the KCAB and the laws of Korea.

The lower court noted that Plaintiff participated in numerous grain bids that the NLCF held and more than twice was the successful bidder when the same General Terms and Conditions and the General Provisions applied. They deemed that Plaintiff knew well the content of the General Terms and Conditions and the General Provisions. The General Terms and Conditions and the General Provisions were the most basic as well as only documents that comprised the contract in the NLCF’s public bids. In the contract herein, the parties expressly acknowledged that they were familiar with the ‘NLCF Terms’. The court found that the NLCF Terms mentioned in the contract should be deemed the General Terms and Conditions and the General Provisions. They determined that it was reasonable to find that the parties made the General Terms and Conditions and the General Provisions part of the contract herein.

As provided in the jurisprudence and record above, we are convinced that the lower court’s fact-finding and determinations herein were justified. We do not find as argued in the final appeal that they committed an error of law concerning the existence of an arbitration agreement or based on an error in fact in contravention of the rules of evidence.

1. (1)  Whether An Arbitration Agreement Existed

   Article 14 of the Charter Party provides that ‘the other contract terms will follow the 1994 amended Gencon Charter Party and it shall be considered a part of the Charter Party’. The Gencon Charter Party was attached to the Charter Party, and each page was affixed with a seal between pages by the parties.

   Based on Plaintiff Exhibit No. 1, Defendant Exhibit Nos. 1, 2-2, 2-3, 3 and 4, parts of the testimony of witness A, and the overall oral arguments, we recognize the following facts:

   1. (A)  The Charter Party was executed in Korean as well as in English (We have difficulty finding Plaintiff’s argument convincing that the Charter Party was clearly executed based on the premise of domestic dispute settlement because both parties were Korean legal persons).

   2. (B)  Other than Article 14, both the Korean contract and the English contract do not contain any other provisions regarding the applicable law or the method of dispute settlement (The English contract, like the Korean one, also contains a provision incorporating the Gencon Charter Party such that at least regarding the arbitral clause, no issue would arise concerning discrepancies in language as provided under Article 16 of the Charter Party).

   3. (C)  A, the broker of the Charter Party knew the substance of Gencon Charter Party well, having worked at a foreign company that engaged in maritime transportation for 20 years or more, among other things. And, during the process of negotiating the Charter Party, Plaintiff exchanged opinions with broker A through email and other means and amended Defendant’s initial draft of the contract (Articles 7, 8, and 15 among others).

   4. (D)  Before the Charter Party, Plaintiff engaged in fishing operations in the Falkland Islands sea area for approximately 10 years. Plaintiff entered into charter parties with the maritime transport company where A worked and other companies that also contained clauses incorporating the Gencon Charter Party.

   5. (E)  The Gencon Charter Party is a standardized terms and conditions of maritime charter parties widely used internationally. Incorporation of the Gencon Charter Party widely occurs in the process of executing maritime transportation contracts and maritime charter parties.

   Based on this, we find it reasonable to view that, at the time they entered into the Charter Party, Plaintiff was aware not only of the provision incorporating the Gencon Charter Party but also its arbitral clause. (We do not believe the part of witness A’s testimony that Plaintiff might not have known of these facts because when the Charter Party was executed Defendant and broker A did not explain to them the fact of the incorporation of the Gencon (p. 36) Charter Party or the arbitral clause in the Gencon Charter Party). Therefore, we find that when the parties entered into the Charter Party they included the arbitral clause of the Gencon Charter Party as a part of the Charter Party. If a dispute arose regarding the Charter Party, they entered into an arbitration agreement to settle it through arbitration according to English law and seated in London (‘Arbitration Agreement’). We determine that the foregoing arbitration agreement should also be considered as a valid ‘written agreement’ under English law, the applicable law designated by the parties.

   {According to Article V(1)(a) of the New York Convention, which both Korea and the UK are members, the applicable law of the arbitration agreement shall as an initial matter be considered the law designated by the parties. We thus find the applicable law of the Arbitration Agreement is English law. The 1996 English Arbitration Act provides that ‘agreement in writing’ is a condition for an arbitration agreement to be valid (Article II of the New York Convention provides the same). Our Supreme Court has held that an arbitration agreement is not limited to cases where an arbitral clause is stated in the contract itself. As long as the contractual parties agree to include them in the contract, they will also be permitted when other documents such as standardized general terms and conditions that include an arbitral clause are cited.⁴⁴ As a result, whether a valid written arbitration agreement exists between the parties is an issue that depends on whether an objective meeting of the minds existed between the parties when they entered into the Charter Party to include the arbitral clause of the Gencon Charter Party as part of the Charter Party. Taking into consideration the foregoing overall circumstances, we determine that from an objective view such a meeting of the minds existed.}

2. (2)  Whether a Violation of Public Policy or an Unfair Contract Occurred

   We observe the following circumstances that are established by the foregoing recognized facts and evidence:

   1. (A)  The place of arbitration UK (London) has reasonable and practical connection with the dispute under the Charter Party given that, among other things, the loading locations of the Charter Party, the Falkland Islands sea area or Port of Berkeley Sound, are all under British control or within the UK. (We find it difficult to accept Plaintiff’s argument that the ‘reasonable and practical connection’, which is a requirement for an ‘exclusive agreement on international jurisdiction’, is also required for the Arbitration Agreement because in the end it also is an ‘exclusive arbitration agreement’ to exclude jurisdiction of the Korean courts. Even if such a requirement was necessary, we find the dispute under the Charter Party and the place of arbitration of the Charter Party, which is the UK, have a reasonable and practical connection.)

   2. (B)  Defendant provided the original draft of the Charter Party but during the process of executing the contract at the request of Plaintiff parts of the contract were amended.

   3. (C)  Fishing vessels associated with Plaintiff presently continue to carry out fishing operations in the Falkland Islands sea area.

   4. (D)  Defendant themselves requested arbitration against Plaintiff in London, UK for a dispute regarding the excess fuel charge under the Charter Party.

   In light of the foregoing, we find that Plaintiff, a legal person within Korea, must in the end settle the dispute under the Charter Party pursuant to arbitral procedures in London (p. 37) according to English law. We do not find that the Arbitration Agreement violates public policy or can be considered an unfair contract just because the expenses expected as a result are not small.

3. (3)  Whether a Violation of the 2007 Act on the Regulation of Terms and Conditions (‘Act’)⁴⁵ Exists

   1. (A)  As Plaintiff argues, the Gencon Charter Party constitutes ‘Standardized Terms and Conditions’ under Article 2(1) of the Act. Plaintiff also argues that Defendant cannot assert that the arbitral clause has effect upon them under Articles 3(3) and 3(4) of the Act because they did not explain to them the arbitral clause of the Gencon Charter Party that was attached to the Charter Party. As seen above, we do not accept this argument because we find it reasonable to view that the parties agreed to include the arbitral clause of the Gencon Charter Party as part of the Charter Party.

   2. (B)  We next consider Plaintiff’s argument that the Arbitration Agreement and the arbitral clause of the Gencon Charter Party that is part of the Charter Party are invalid because they violate Articles 6(1) and 6(2) (Provisions of Standardized Terms and Conditions that are contrary to good faith and become unfair) and Article 14 (Unjustly unfavourable provisions that prohibit court action) of the Act. Article 15 of the Act stipulates that ‘if the Presidential Decree provides, the application of Articles 7 through 14 may be restricted by clause or business sector for Standardized Terms and Conditions that are widely used internationally and other standardized terms and conditions used in special circumstances’. Article 3 of the Presidential Decree provides that the internationally widely used transportation industry constitutes one such industry. Under a textualist interpretation of Article 15, one may view that the application of Article 6 should be excluded. Yet, if Article 6, which comprehensively provides for when Standardized Terms and Conditions generally become invalid, were to apply to Articles 7 through 14, which specifically provide for when Standardized Terms and Conditions become invalid, this would lead to an irrational result that would completely undermine the purpose of Article 15, which is to exclude the application of specific invalid clauses. We thereby find that Article 6 also should not apply to specific business sectors as decided by Presidential Decree.⁴⁶

      As seen above, the foregoing Gencon Charter Party constitutes Standardized Terms and Conditions for the transportation industry that are widely used in international transactions. Article 3 of the Presidential Decree and Articles 6 and 14 of the Act, which Plaintiff tries to claim are applicable, should be excluded from the application to the Gencon Charter Party. Furthermore, even if the provisions of the Act did apply to the Arbitration Agreement or to the arbitral clause of the Gencon Charter Party, we determine that in light of the various circumstances in paragraph (2) above that it would be difficult to find that they violated the foregoing statutory provisions and were invalid.

1. 1.  Plaintiff’s Defence before Addressing the Merits of Defendant’s Counteraction

   Through a counteraction, Defendant sought a refund from Plaintiff for the commission they paid in advance pursuant to an Export Commission Contract.⁴⁸ Plaintiff defends that when they entered into the Export Commission Contract they agreed that if a dispute arose they would abide by arbitration at the International Court of Arbitration.⁴⁹ Plaintiff argues that Defendant did not resort to arbitration and brought an unlawful counteraction.

   According to Defendant Exhibits Nos. 1 and. 6, we observe that on 13 December 2002 Defendant agreed to exclusively sell the products they produced to Plaintiff and non-litigant GSI of Dade County Inc. (‘GSI’). The Exclusive Sales Contract they entered into provided that the applicable law concerning the contract and related legal relations would be US law, and that if a related dispute thereof arose they would follow the rules of the International Court of Arbitration.

   On 14 December 2002, Defendant also concluded a separate contract with Plaintiff, parallel to the foregoing three-party contract, under which they agreed to pay an export commission for the above products. Defendant agreed to follow the three-party Exclusive Sales Contract⁵⁰ (Defendant Exhibit No. 1) regarding all contractual terms that were (p. 39) not stipulated in the Export Commission Contract between the two parties (Defendant Exhibit No. 6).

   The Exclusive Sales Contract herein, however, concerns an international transaction that involves a foreign company, GSI, as a related entity. We find that the Exclusive Sales Contract specifically stipulated the applicable law as well as the dispute resolution institution to fairly settle disputes related to the contract. On the other hand, the Export Commission Contract, although related to the Exclusive Sales Contract, is a separate contract concluded just between the two domestic firms, Plaintiff and Defendant. Thus, we find it difficult to conclude that if a dispute related to the Export Commission Contract arose it should also be settled by arbitration at the International Court of Arbitration and the applicable law would be US law, even though it was not directly related to the foreign company, GSI. Therefore, we hold that it is consistent with the intentions of the parties to interpret the terms ‘all contractual terms that were not stipulated in the Export Commission Contract’ to apply to issues regarding the performance of the contract, and not to the applicable law, means of dispute settlement, or court of jurisdiction.

   We find Defendant’s foregoing defence made under the premise that an arbitration agreement existed between the parties was unwarranted.

Determination Regarding Defence Before Addressing the Merits

In response to Plaintiff’s claim against Defendant seeking payment of USD 160,000 under the Arrangement, Defendant raises the defence before addressing the merits that Plaintiff’s action is unlawful because it breaches the arbitration agreement for the following reasons: (a) the Contract contains a clause that all disputes arising from the Contract shall be settled by arbitration; and, (b) the Arrangement refers to the Contract thereof.

We observe that Article 8(4)⁵¹ of the 2002 Arbitration Act stipulates that ‘[w]here a contract refers to a document containing an arbitral clause, an arbitration agreement shall be deemed to exist. Yet, this shall be limited to cases where the contract is prepared in writing and part of the contract includes an arbitral clause.’ We hold that the purpose of the statement in the Arrangement concerning agreements based on the Contract is that it concerns an agreement concerning the legal relationship derived under the Contract. It should not be interpreted as if the arbitral clause in the Contract should be part of the Arrangement. We considered the following overall circumstances: (a) while the Contract is a licensing agreement concerning an online game product, the Arrangement concerns the refund of the contract deposit that was delivered under the Contract, and hence it is a new agreement separate from the Contract; (b) the Arrangement separately provides that Plaintiff may undertake legal measures, if Defendant does not refund the contract deposit within the promised duration; (c) unlike the Contract, the Arrangement does not include any technical and specialized content that suggests arbitration would be a more appropriate means of dispute settlement. Hence, we hold that the application of the arbitration agreement in the Contract does not extend to the action in this case, leading us to conclude that Defendant’s defence is unwarranted.

1. B.  We conclude that we cannot accept the lower court’s judgment as is.

   1. (1)  As the lower court explains, Article 12(1) and Article 13 of the General Conditions contain provisions, as provided above, covering such issues as modifications of design and adjustments in the contractual amount due to the additional construction and other matters. Yet, at the same time, according to Article 12(1) and Article 13, a party must notify or try to notify the public servant in charge of the contract about such matters as modifications of design and adjustments in the contractual amount through the on-site superintendent. Despite this, on-site superintendents may, for instance, mistakenly delay notification, preventing the public servant in charge of the contract from immediately investigating and confirming the facts and taking necessary measures so that the construction can proceed properly. In this case, we note that the General Conditions do not contain any provision regarding compensation for damages that a contracting party incurs for having to expend additional construction costs as a result.

   2. (2)  Yet, as found above in the facts recognized by the lower court, the arbitral award herein ordered compensation damages because the superintendent was negligent and violated her obligation as a supervisor when attending to Defendant’s demand for modifications of design and such fault was attributable to Plaintiff. The award did not order payment itself of construction costs for such matters as the additional construction.

   3. (3)  As such, we find that the dispute that was the subject of the arbitral award dealt with issues that arose under the contract, which according to Article 31 of the General Conditions excluded matters under the provisions in the contractual documents or budget and accounting laws.

2. C.  Despite this, the lower court cited the reasons as provided above and determined that the arbitral award herein should be set aside because it was rendered without an arbitration contract.⁵² We rule that they committed an error that affected the judgment through an (p. 43) error of law caused by an incorrect interpretation of the meaning of the provisions in the General Conditions and of the application of the arbitration contract, and through an error of fact caused by violation of the rules of evidence and failure to fully deliberate. We hold the lower court judgment cannot avoid reversal.

On 21 June 1993, Plaintiff, a Polish company, entered into two contracts with Defendant, a Korean company, to provide approximately 1,000 tons of PVC to Defendant for USD 536,000 per contract. A dispute arose when Plaintiff argued that Defendant did not pay USD 149,012.97 for the 8th and 9th shipments of the first contract and 7th and 8th shipments of the second contract. Defendant asserted that the PVC had defects and some of the goods were undelivered. The parties met on 9 and 10 May 1994 at Warsaw, Poland and agreed that Defendant would waive the claim for defects and non-performance and that the total amount that Defendant would have to pay for the shipments of the first contract, the shipments of the second contract and a separate purchase contract (Invoice Number A and B) would be USD 320,913.37. Furthermore, the parties agreed on an Additional Supply Contract that provided the method and schedule for the payment as follows:

1. 1.  USD 20,000 of the above purchase amount shall be paid within 7 days of the execution of the agreement by means of a telegraphic remittance.

2. 2.  After receiving USD 20,000 and the meeting minutes signed by the CEO from Defendant, Plaintiff will provide 744.975 tons of PVC at USD 640 per ton, separately from the first contract and second contract. Defendant will pay an extra USD 143,035.20, which amounts to 30 per cent of the additional supply payment, seven days before the expected loading by means of telegraphic remittance, as partial payment for the above unpaid amount of USD 320,913.37.

3. 3.  When the second paragraph has been performed, after receiving a supply of 586.95 tons of PVC at USD 680 per ton, Defendant will then pay an extra USD 119,737 when paying for the Additional Supply Contract, which is 30 per cent of the amount, as partial payment of the remaining debt of USD 157,878.80.

4. 4.  When the foregoing third paragraph has been performed, the parties will discuss the payment method and timing for the remaining USD 38,140.

5. 5.  These meeting minutes are a final settlement surrounding the dispute for the payment of the remaining USD 320,913.37.⁵³

6. (p. 44) 6.  All disputes arising out of or in connection with the present agreement, including disputes on its conclusion, binding effect, amendment and termination shall be settled, to the exclusion of the ordinary courts by a three-person Arbitral Tribunal in accordance with the International Rules of the Zürich Chamber of Commerce.

When Plaintiff brought this action for payment, Defendant argued that it was unlawful and violated the arbitration agreement between the parties.

According to the above finding of facts, the Additional Supply Contract that includes an arbitration agreement was executed to settle the dispute regarding the sale of PVC between the parties, including the partial payment that Plaintiff seeks in the action herein for the 8th and 9th shipments of the first contract and 7th and 8th shipments of the second contract, and the products in Invoice Number A and B shipped under the separate purchase contract. The payment methods and schedule of the outstanding payment are part of the contents of the Additional Supply Agreement and, under it, when additional supplies were delivered, partial payment was supposed to occur. In light of these points, we conclude that the dispute in this case is based on, or at least related to, the above Additional Supply Contract, and that an arbitration agreement between the parties accordingly existed.

Plaintiff argues that the above arbitration agreement does not apply to the 1994 deliveries.⁵⁴ Yet, according to paragraph 3 in Defendant Exhibit No. 1 (marked as ‘&3’ in the original), the parties established that the outstanding payment obligation for items delivered after the 4th quarter in 1993 (including the deliveries in this case and Invoice Number A and B) was USD 320,913.37, and the payment method was connected with the 1994 deliveries. We find that Plaintiff’s argument that the meeting minutes that contain the arbitration agreement do not apply only to the 1994 deliveries is unwarranted.

As a result, we dismiss Plaintiff’s action herein since it lacks a legitimate interest to bring a legal action given that a separate arbitration agreement exists.

Defendant provided services for Bomberman, an offline arcade game for homes and recreational centres. Plaintiff provided services for Crazy Arcade BNB, an online arcade game. Similarities existed between the two games in terms of their layout, rules, settings and item functions. Plaintiff argued that Crazy Arcade BNB did not infringe Defendant’s copyright in Bomberman. Defendant counterargued that Crazy Arcade BNB infringed their copyright and right to create derivative work.

(p. 45) Determination Regarding Defence before Addressing the Merits Concerning the Principal Action

Plaintiff argues that Crazy Arcade BNB does not infringe Bomberman’s copyright, and through this action seeks to confirm that Defendant does not have the right to prohibit infringement and claim compensatory damages based on infringement thereof. Defendant pleads that Plaintiff’s action is unlawful because it is contrary to the arbitration agreement provided under the Software Sublicense Contract (‘Contract’) between Plaintiff and Defendant.

We observe that the following facts can be recognized: (a) according to Plaintiff Exhibit No. 2, Plaintiff and Defendant entered into the Contract on 1 April 2003 and, in exchange for Plaintiff obtaining Defendant’s approval to develop and provide Crazy Arcade BNB within Korea and to provide services for Crazy Arcade BNB in the Asia region, excluding Korea and Japan, Plaintiff agreed to pay JPY 17 million on 31 July 2003 and 31 March 2004 to Defendant; (b) Article 6 of the Contract provided that Defendant had the copyright to Bomberman and Plaintiff had the copyright to Crazy Arcade BNB but that Plaintiff confirmed that Crazy Arcade BNB was a derivative work of Bomberman; and, (c) Article 13(1) of the Contract provided that the laws of Japan were the governing law; Article 13(2) further provided that if any dispute arose between the parties regarding the Contract or related to the Contract, it must be first settled through amicable consultation between the two parties, but if the dispute could not be settled by consultation between the parties, it must be settled under the relevant arbitration rules of the International Commercial Mediation Association⁵⁵ in Tokyo, Japan; and, the decision reached by the arbitrators would be final and binding on the parties.

The Contract primarily concerns Plaintiff’s obligation to pay a certain amount to Defendant in exchange for Plaintiff receiving Defendant’s approval regarding services for Crazy Arcade BNB. The principal action, however, concerns the dispute regarding whether Crazy Arcade BNB infringed the copyright of Bomberman and does not concern any sort of dispute between the parties related to the Contract. A determination regarding whether the copyright was infringed cannot be considered as a dispute directly or closely related with the establishment, execution and validity of the Contract.

Even if the parties added an arbitral clause for disputes related to the Contract while agreeing on the obligatory rights and duties regarding permission to use the copyright, we hold it difficult to find that the validity of the arbitral clause extends to the principal action herein which seeks the determination of whether a copyright as an absolute right was infringed.

Furthermore, according to Plaintiff Exhibit No. 2, the Contract’s effective period is 2 years from the date of entry. Although Article 11(2) of the Contract provides that certain provisions such as the arbitral clause shall remain in effect even after the Contract’s termination, we cannot find a similar continuing effect provision for Article 6 regarding Copyright Ownership and Derivative Work or Article 2 concerning Permission to Use. We find that both the Copyright Ownership and Derivative Work clause and Permission to Use clause of the Contract are no longer in effect because the Contract’s term expired on 31 March 2005.

(p. 46) Therefore, we cannot find that the arbitration agreement in the Contract between the two parties extended to disputes after the Contract’s termination concerning whether Bomberman’s copyright was infringed. We believe the evidence in Defendant Exhibit No. 2 and partial evidence in Plaintiff Exhibit No. 19 and No. 20 are insufficient to overrule this finding such that Defendant’s above defence is unwarranted.

The parties do not contest that Defendant brought a request for arbitration against Plaintiff at the KCAB for USD 300,000, and on 25 November 1986 an arbitral award was rendered. We consider together the uncontested evidence and the overall oral arguments.

On 1 September 1978,⁵⁷ Plaintiff entered into an Exclusive Distribution Contract with Defendants to sell Orban brand automobile tyres and tubes within Iran that Plaintiff manufactured and exported. Article 20 of the contract included an arbitral clause that provided that ‘If a claim or dispute arises out of or in relation to or in connection with this contract, then all claims or disputes must be amicably settled between the interested parties. If settlement fails, however, then it shall be referred to the Korean Commercial Arbitration Committee⁵⁸ located in Seoul, Korea and the parties shall be ultimately bound by such decision’.

From this point, under the Exclusive Distribution Contract, Defendant began to import the Orban brand tyres and sell them in Iran. At the same time, in addition to the Orban brand tyres, Defendant also imported and sold Aurora brand tyres that Plaintiff manufactured and sold. Eventually, the Aurora brand tyres that were imported and sold without exclusive distribution rights began to sell better than the Orban brand tyres with exclusive distribution rights. On 28 November 1979, the parties entered into a memorandum of understanding (p. 47) that Plaintiff would supply the Orban and Aurora brand tyres together for a period and then after 1980, if Defendant wanted, Plaintiff would only supply the Aurora brand tyres. They did not, however, reach a clear agreement on whether the exclusive distribution rights would be recognized.

After the memorandum of understanding was executed, Defendant continued to import and sell Orban and Aurora brand tyres. In 1980, they continued to conduct business without conclusively choosing one of the tyre brands, extending the Exclusive Distribution Contract or executing a new Exclusive Distribution Contract. Then, on 14 July 1980, they extended the exclusive distribution rights with Plaintiff for the Orban brand tyres. Plaintiff agreed to supply the Aurora brand tyres as well if Defendant wanted to receive them, but granted exclusive rights only for the Orban brand tyres. This ended the debate on whether the exclusive distribution rights would be recognized.

When the parties finalized that Defendant would only have exclusive distribution rights over the Orban brand tyres and not for the Aurora brand tyres, Plaintiff sought to sell USD 7,257,816.50 worth of Aurora brand tyres to non-litigant Motodar Company of Iran and waited for them to open a letter of credit. Defendant, however, reasserted their vested rights in the Aurora brand tyres through the Iran Tire Dealer Association. With distrust, pressure, and other factors mounting against large companies due to the influence of the Iran revolution at the time, Motodar practically was in a difficult position to open a letter of credit.

To resolve this situation, Plaintiff’s employees went to Iran and met with Defendant. On 10 March 1981, they entered into an agreement that Plaintiff would pay Defendant USD 300,000 in return for Defendant not raising any objection to Plaintiff exporting Aurora brand tyres to Iran. On 11 April 1981, they prepared a memorandum of understanding that reconfirmed this. When Plaintiff did not pay the amount under the foregoing agreement, on 11 March 1986, Defendant filed a request for arbitration at the KCAB seeking payment thereof.

We do not believe the statements in Defendant Exhibit Nos. 6, 7–11 and 7–12 that conflict with the above recognized facts, and counterevidence otherwise does not exist. Based on the foregoing facts, Plaintiff argue that the foregoing arbitral award was rendered even though an agreement did not exist between the parties to settle by arbitration disputes under the monetary payment agreement or by the KCAB as the arbitrators. They seek to set aside the arbitral award on the grounds of Article 13(1)(1) of the 1973 Arbitration Act. Defendant instead argues that the arbitral award was lawfully rendered based on the arbitral clause provided in Article 20 of the 1 September 1978 Exclusive Distribution Contract between the parties for the Orban brand tyres. We first consider whether the dispute claiming payment of the USD 300,000 that was referred to arbitration herein is a dispute that ‘arises out of or in relation to or in connection with this contract’ as provided under Article 20 of the Exclusive Distribution Contract.

In general, an arbitration agreement means a contract to settle all or part of a dispute between them that has arisen exists or may arise in the future between the parties concerning a legal relationship under private law by an arbitral award of an arbitrator, who is a private person, instead of by judgment of a court. Such an arbitration agreement is a contract that has important procedural law effects that lead to a waiver of the right to bring an action at a national judicial institution and grants jurisdiction to an (p. 48) arbitrator. An arbitration contract⁵⁹ is only valid when parties sign and seal their names on a written agreement to arbitration, or the contract contains an arbitral clause, or an exchange of letters or telegrams contains an arbitral clause. In finalizing the existence of an arbitration agreement or the scope of the effects of such an agreement, a court shall strictly interpret such matters as whether the parties could have sufficiently predicted at the time they agreed to an arbitration agreement the subject of the dispute in the arbitral award.

We find that Article 20 of the 1 September 1978 Exclusive Distribution Contract, which provides that a dispute that ‘arises out of or in relation to or in connection with this contract’, does at least refer to disputes such as the one concerning the supply of the Orban brand tyres that are related to the Exclusive Distribution Contract of the Orban brand tyres that Plaintiff manufactures and sells. We do not find, however, that if a transactional relationship for a new product was formed out of the transactional relationship from the Exclusive Distribution Contract of the Orban brand tyres and a dispute arose out of such a relationship, then the parties also intended to settle it by arbitration pursuant to Article 20 of the Contract.

In this case, Defendant entered into the Exclusive Distribution Contract with Plaintiff for the Orban brand tyres. Through this connection, they also imported and sold the Aurora brand tyres. A dispute arose between the parties as to whether exclusive distribution rights should also be recognized for the Aurora brand tyres. To end this dispute, Defendants only agreed to pay Plaintiff USD 300,000. We find that the parties could not have predicted at the time of the 1 September 1978 Exclusive Distribution Contract the dispute surrounding the supply of the Aurora brand tyres. We conclude that the dispute surrounding the foregoing payment agreement that resulted from the dispute over the Aurora brand tyres could not be viewed as a dispute falling under the provision in the arbitral clause of the 1 September 1978 Exclusive Distribution Contract that provides ‘arises out of this contract or in relation to this contract, or in connection with this contract’.

As a result, we find that in the absence of any substantiation of Defendant’s assertion that an arbitration agreement existed that the arbitral award was ultimately rendered without a valid arbitration arrangement. This constitutes grounds to set aside the arbitral award under Article 13(1)(1) of the Arbitration Act. We thus hold that the arbitral award should be set aside and accept as warranted Plaintiff’s claim herein that seeks such a set aside. We dismiss as unwarranted Defendant’s counterclaim that seeks compulsory execution of the arbitral award. We pronounce as provided in the disposition that the litigation costs for the claim and counterclaim shall be borne by the losing Defendant.

1. 1.  First Ground of Final Appeal

   If an arbitration agreement to settle future disputes by arbitration exists, we find it proper to hold the parties agreed to settle all disputes arising out of the specific legal relations between them by arbitration, unless special circumstances exist such as the scope of disputes applicable under the arbitration agreement has been clearly specified and limited.⁶¹

   According to the reasoning in their judgment, after confirming the facts based on their findings, the lower court found that matters subject to arbitration under the arbitration agreement in each construction contract included disputes concerning contractual interpretation and statutory issues. The court reached this determination based on the following three points.

   First, the lower court noted that Article 111(1) of each construction contract provides that disputes subject to the arbitration agreement are ‘differences in opinion regarding the facts and other disputes.’ Article 111(4) then provides the specific order by which the arbitrator must interpret the contract or determine the rights, obligations, and responsibilities of the contracting parties.⁶² Article 111 itself, which contains the basic provisions of the arbitration agreement, is premised on not only fact-finding but also the contractual and related statutory interpretations being the subject of the arbitration. Moreover, Article 17 provides that ‘if, among other things, there is a matter not covered in the contract or an unclear matter in the contractual document, or the parties differ as to its interpretation, the owner can make a reasonable interpretation and supplementation. Even if the contractor holds a different opinion, they must still follow the owner’s interpretation or supplementation “until an arbitral award under Article 111 determines otherwise.” ’ Article 17 is clearly based on the obvious premise that contractual interpretation matters are the subject of arbitration. The lower court observed that sufficient basis existed to find that according to the contextual interpretation of each contract the arbitration agreements therein not only covered factual disputes but also disputes related to contractual interpretation or legal issues.

   Second, the lower court held that in disputes concerning legal relations, factual issues, contractual interpretation issues, and statutory issues are all organically connected. Because the determination of facts only represents one necessary factor in a trial for the settlement (p. 50) of a dispute, disputes can never be settled solely by a determination of facts. If arbitrators only made factual determinations, the courts would inevitably have to conduct another trial based on the arbitral award. Such a result would contravene the purpose of the Arbitration Act to settle private law disputes by arbitration in a proper, impartial and rapid manner and the object of Article 6 of the Act that the courts cannot intervene in an arbitration except under those situations provided under the Act.

   Third, the lower court noted that arbitration is a system based on the parties’ agreement to settle disputes, which normally should be settled by court judgment, by an arbitrator’s award instead of a court’s. The subjects of arbitration extend to legal disputes that the jurisdiction of a court can reach. In the case of arbitration, arbitrators can determine all aspects related to the subject of the dispute including factual issues and legal issues. This differs from Expert Arbitration⁶³ that only involves making determinations regarding factual issues. As Plaintiff argues, if the object of the arbitration is only confined to ‘factual issues’, enforcement of arbitral awards could not easily occur.

   Taking into consideration the legal principles based upon the lower court’s determination above, the arbitration related provisions in each construction contract did not clearly specify that the arbitration agreements were limited to ‘factual disputes’. We find it proper to hold that the arbitration-related provisions above stipulated that all disputes arising out of each construction contract should be settled by arbitration. Therefore, we hold the lower court judgment that decided accordingly was justified and we find they did not commit an error in law concerning the interpretation of legal acts as argued in the final appeal.

   We cannot accept the first ground of the final appeal.

2. 2.  Second Ground of Final Appeal

   According to the record, Plaintiff argued that the latter portion of Article 111 of each construction contract amounts to an agreement not to bring legal action for ‘disputes regarding interpretations unrelated to factual issues, among other things’. Yet, as demonstrated in the grounds of the final appeal, the lower court did not make an explicit determination regarding the interpretation of the latter portion of this article. We find no error based on the court’s omission to decide. The lower court’s ruling that the arbitration agreement in each construction contract not only covers factual disputes but also disputes over contractual interpretation and statutory issues can be considered a rejection of Plaintiff’s above argument. Moreover, in light of the record, the court of first instance thoroughly reviewed the circumstances behind the drafting of the arbitration-related provisions of each construction contract and the lower court made their determination accordingly. Therefore, we find no error in the lower court’s judgment for failure to deliberate fully the above circumstances.

   We also cannot accept the second ground of the final appeal.

1. 3.  Determination as to Defendant’s Arguments

   Defendant argues that the enforcement of the Arbitral Award and supplementary award should be refused for the following reasons:

   1. A.  Argument on the Non-existence of an Arbitration Agreement

      Defendant argues that the Confidentiality Agreement that Plaintiff submitted as the basis for an arbitration agreement between the parties concerned the documents that were delivered in March 1995 (‘March 1995 Documents’) to assess the product, its potential market size and the feasibility of registering it in Korea before entering into a full-fledged license contract or raw material supply contract. They argue that the Confidentiality Agreement and its arbitral clause should only apply to disputes concerning the March 1995 Documents and should not apply to the documents that were later delivered for the actual registration (‘Registration Documents’). Defendant asserts that enforcement of the Arbitral Award should be refused under Article V(1)(c) of the New York Convention because an arbitration agreement did not exist.

      We observe that considering the facts established above, the foregoing evidence and overall oral arguments, we can acknowledge the following:

      1. (a)  On approximately 7 March 1995, Defendant agreed with Plaintiff that Plaintiff would supply the raw material for Acamprol, a treatment that Plaintiff produced (p. 52) to prevent alcoholism relapse, so Defendant could use it to also manufacture and produce a preventative treatment for alcoholism relapse in Korea.

      2. (b)  Prior to concluding the main contract, Defendant signed and returned to Plaintiff the Confidentiality Agreement that they received from Plaintiff with the March 1995 Documents.

      3. (c)  The Confidentiality Agreement’s Preamble (‘Preamble’) provides in Article 2 that ‘Defendant has expressed interest in the Product⁶⁵ and in assessing its potential marketability in Korea, including the possibility of registering it in Korea’;

      4. (d)  Article 4 of the Preamble provides that ‘the disclosure of information is only allowed for the purposes listed in Article 2, namely for the purpose of accessing and making a decision as to Defendant’s interest in obtaining the necessary registration’;

      5. (e)  Article 1 of the Confidentiality Agreement states that ‘Defendant agrees … to use the Information⁶⁶ only for the assessment purposes indicated in Article 2 of the Preamble. The Information must not be disclosed to a third party and must not be used for any other purposes’.

Yet, based on the above facts and the overall oral arguments, we also recognize the following circumstances:

1. (1)  Article 3 of the Preamble provides that ‘Plaintiff intends to disclose information regarding the Product to Defendant. The information herein is the property of Plaintiff, part of which is confidential information that has never been disclosed to the public after its development in Plaintiff’s research lab (“Information”)’. Even if the March 1995 Documents were sent to Defendant together with the Confidentiality Agreement, we find no material that suggests that the phrase ‘information regarding the Product’ in Article 3 in the Preamble should be limited to mean only the March 1995 Documents;

2. (2)  Article 4 of the Confidentiality Agreement provides that ‘according to the Agreement, regardless of whether the parties entered into a license or agency contract, the restriction concerning the use of the information or transfer of the information to a third party remains valid for 10 years from the date that the parties sign this Agreement’;

3. (3)  The arbitral clause in the Confidentiality Agreement states that ‘all disputes that arise related to this Agreement shall be finally settled by more than one arbitrator according to the Conciliation and Arbitration Rules of the International Chamber of Commerce’ so the parties agreed to comprehensively define the subject matter of the arbitration agreement as ‘all disputes that arise related to this Agreement’; and,

4. (4)  An arbitration agreement pertains to an agreement to settle, by arbitration, all or part of a dispute that has already arisen or might arise between the parties in the future with regard to certain legal relationships, whether contractual or not, for the purpose of settling private law disputes reasonably, fairly, and promptly. Such agreement is, in principle, comprehensive in terms of character, and thus to limit the subject matter of the arbitration, it must be clearly stipulated in the arbitral clause.

(p. 53) Taken together with the background behind the parties entering into the Confidentiality Agreement, the standard practices of transactions, the intentions of the parties, and the overall circumstances demonstrated during the oral arguments, we reach the following conclusions:

1. (1)  Article 2 of the Preamble should be interpreted to mean to cover the background or motives behind entering into the Confidentiality Agreement, and should not be interpreted to mean that the scope of information subject to the Confidentiality Agreement should be limited to the product Acamprol and the materials needed in assessing its potential marketability in Korea, including the possibility of registering it in Korea

2. (2)  Based on the wording of Article 4 of the Preamble, Plaintiff’s ‘purpose of disclosing the information’ to Defendant should be interpreted to mean it is for Defendant to decide and assess their interest in registering the Acamprol product in Korea; and ‘the purpose and applicable scope of the Confidentiality Agreement’, on the other hand, should not be interpreted to mean it covers when Defendant decides and assesses their interest in registering the Acamprol product in Korea;

3. (3)  Article 1 of the Confidentiality Agreement provides that ‘Defendant agrees to use the Information only for the purposes indicated in Article 2 of the Preamble’. This means that Plaintiff’s ‘purpose of disclosing the information’ to Defendant is for the assessment purposes as provided in Article 2 of the Preamble. At the same time, the ‘applicable scope of the Confidentiality Agreement’ cannot mean it is limited to the materials provided for the purpose of assessment as indicated in Article 2 of the Preamble, namely the March 1995 Documents;

4. (4)  Article 1 of the Confidentiality Agreement provides that ‘the Information shall not be disclosed to a third party (for purposes other than that indicated in Article 2 of the Preamble) and neither shall it be used for any other purposes’. This cannot have intended to deny disclosure of the documents that Defendant received from Plaintiff to the registration office, where they need to be submitted to be registered in Korea.

In addition, Defendant asserted that the Confidentiality Agreement should only apply to the March 1995 Documents and should not apply to the Registration Documents that Defendant received from Plaintiff. The court finds it cannot accept this assertion based upon the results of the factual inquiry from the Head of the Korea Pharmaceutical Manufacturers Association. Other than the evidence that was excluded above, we cannot find any other evidence to substantiate this assertion. Therefore, we find Defendant’s foregoing assertion based on a contrary premise unwarranted.

Plaintiff argued that the arbitral award contained certain matters that were already agreed upon by the parties. They thereby claimed that the arbitral award should be (p. 54) set aside because it covered disputes that were not subject to the arbitration agreement or matters that fell outside the scope of the arbitration agreement. The lower court found that one party argued that an agreement was already reached regarding the dispute and that it should not be subject to the arbitration agreement. The other party filed a request for arbitration arguing that an agreement was not reached regarding the dispute. The dispute regarding this issue continued to exist among the parties. The lower court held it reasonable to view the dispute as ‘a dispute that arises among the contracting parties during the performance of the contract’ according to Article 49 of the General Terms. Furthermore, the lower court held that Plaintiff Exhibit No. 3 (Record of the Meeting), which supports the point that the parties had reached an agreement, was insufficient to establish the foregoing facts as argued by Plaintiff, even if other evidence was added. Based on this reason, they dismissed Plaintiff’s claim herein.

According to the record, we find the lower court’s decision was justified. We do not find they committed, as argued in the final appeal, an error of fact due to a violation of the rules of evidence that would have affected the judgment or an error of law regarding the effects of the dispositive documents.

The lower court dismissed Defendant’s arguments and upheld the judgment as follows:

1. (1)  Defendant argued that the Arbitral Award should be set aside under Article 36(2)(1) of the 2002 Arbitration Act because a valid arbitration agreement did not exist between Plaintiff and Defendant. The lower court finds that Article 31(2) of the General Conditions constituted an optional arbitral clause. If either one of the parties to the contract had chosen arbitration proceedings instead of a court judgment against the other party⁷⁰ and demanded settlement of the dispute through those procedures, and the other party participates in the arbitration proceedings without raising any particular objections at the time of the original answer or the first arbitration hearing, then a valid arbitration agreement would have deemed to exist.

   As found in the facts above, Defendant did not contend, with regard to Plaintiff’s request for arbitration herein, the existence or the scope of the arbitration agreement during the answer and the first arbitration hearing but responded to the merits of the arbitration. For this reason, we find that Article 31(2) of the General Conditions has conclusive effect between Plaintiff and Defendant as an arbitration agreement under the Arbitration Act.

2. (2)  Defendant next argued that the dispute regarding the additional construction costs constituted ‘matters provided in the provisions of the Contract Documents and the Budget and Accounting Act’ and was not the subject of the arbitration agreement so the arbitral award should be set aside under Article 36(2)(1) of the Arbitration Act. The construction contract contained an optional arbitral clause such as Article 31(2) of the General Conditions. The phrase ‘matters provided in the provisions of the Contract Documents and the Budget and Accounting Act’ under Article 31(1) of the General Conditions only stipulates the standards and legal source to interpret the parties’ intentions regarding the contract and does not provide the subjects to be excluded (p. 56) from the arbitration agreement. Just because the dispute regarding the additional construction costs may fall under this provision does not mean that it should be excluded as a subject of the arbitration agreement. Furthermore, even if the foregoing phrase could be considered to stipulate the subjects to be excluded in the arbitration agreement, it would only mean ‘matters that could be clearly settled according to the Contract Documents and the Budget and Accounting Act’. Considering the background, substance and other parts of the dispute, the dispute regarding the additional construction costs does not fall under this meaning. As a result, the lower court sustained as is the court of first instance’s judgment that accepted Plaintiff’s claims.

We observe in light of the provisions in the Arbitration Act and the record that the lower court’s foregoing finding of fact and determinations are all justified. We rule that they did not commit, as argued in the final appeal, errors of law concerning Articles 3, 17(2), or 36(2)(1) of the 2002 Arbitration Act, the right of selection in the method of dispute settlement and the interpretation of Article 31 of the General Conditions, or an error of fact based on a violation of the rules of evidence. We find that the Supreme Court precedents cited in the final appeal differ in the issues and purposes therein and are not appropriate for application in this case.

When contracting parties agree to include an arbitral clause when entering into a contract such a clause should be interpreted to embody the intent of the parties, who seek simplified and rapid dispute settlement through the clause, and to grant both parties the right to request arbitration, unless the arbitral clause explicitly excludes or limits the rights of one contracting party. The lower court found that the arbitral clauses herein provided that if the seller did not request arbitration within a certain period of time, all of the buyer’s decisions concerning the contracts would be deemed final and conclusive. The clauses provided a relative advantage to the buyer for their protection and gave priority to all of the buyer’s decisions over the seller’s contrary arguments. If the seller did not request arbitration against the buyer’s decision and did not perform their obligations, the clauses sought to ultimately settle disputes regarding the contracts herein. The lower court did not find that the arbitral clauses sought to only provide Plaintiff, as the seller, the unilateral right to (p. 57) request arbitration and to explicitly exclude Defendant from exercising such right to seek dispute settlement.

Therefore, the lower court found Defendant clearly could relinquish their right to unilaterally make decisions on matters related to the contracts and could themselves request arbitration for fair settlement of the dispute. The 30-day period to request arbitration after notification of Defendant’s decision seeks to protect Defendant’s interest by only limiting a request for arbitration by Plaintiff and to finalize Defendant’s decision if Plaintiff, as the seller, and does not bring a request within the given period. The lower court determined that the period limiting when a request could be brought would not apply even when Defendant did not make a unilateral decision and then sought to request arbitration themselves.

In light of the lower court’s confirmation of the background behind the request for arbitration herein and the arbitral clause, we find the lower court’s determination was correct. We find no error in the lower court’s determination based on an error of law regarding arbitration agreements. We do not accept the points that take an opposite position and are critical of the lower court’s judgment.

1. 1.  Final Appeal Grounds Regarding the Arbitration Agreement

   1. A.  [see para. 9.53]

   2. B.  [see para. 5.12]

   3. C.  Withdrawal from an Arbitration Agreement

      Rescission of an arbitration agreement refers to a party’s unilateral expression of intent to retroactively extinguish a previous expression of intent based upon the existence of grounds to rescind the arbitration agreement. The term ‘rescission’ as argued refers to a party’s unilateral expression of intent, without such grounds, that prospectively eliminates the effect of a previous expression of intent, or in other words refers to a withdrawal from an arbitration agreement. Whether withdrawal from an arbitration agreement is possible ultimately depends on the validity of the arbitration agreement. The latter part of Article V(1)(a) of the New York Convention provides that this should be initially determined based upon the law designated as the applicable laws of the parties or failing any indication thereon under the law of the country where the award was made.

      According to Article 13 of the conditions on the opposite side of the sales contract that was drafted between Plaintiff and Defendant’s representative, ‘[a]ll disputes occurring under or related to this contract will be decided by arbitration according to the LCIA rules at the time of the execution of the contract’. We find that parties designated English law as the applicable law under the arbitration agreement.

      Therefore, based on the record, we consider the issue of withdrawal from an arbitration agreement under English law. We find that a party cannot at will unilaterally withdraw from a written (p. 59) arbitration agreement like the one in this case. The argument that a party can withdraw from a written arbitration agreement before an arbitral award is rendered is unwarranted. We conclude that the lower court’s explanation on this point was insufficient in some regards, but the rejection of the withdrawal argument hereof based upon the same premise was justified.

1. B.  The Arbitration Agreement Lapsed Argument

   Defendant claims that it notified Plaintiff of its interest to enter into the Contract after reviewing the March 1995 Documents pursuant to Article 5 of the Confidentiality Agreement. The Confidentiality Agreement as a result lapsed. The arbitral award was rendered based upon the arbitration agreement in the Confidentiality Agreement. Therefore, Defendant claims enforcement of the award should be refused under Article V(1)(c) of the New York Convention.

   Considering the facts established above, the specific evidence, and overall oral arguments, we find as follows:

   1. (1)  Article 5 of the Confidentiality Agreement provides ‘Defendant shall notify Plaintiff whether or not they are interested in a partnership (license, agency, etc.) with Plaintiff within three months of receiving the Information’.

   2. (2)  Accordingly, Defendant sent a letter on 18 April 1995, which provides as follows:

      We confirm receipt of the document that you sent on 30 March 1995. They are really important documents, and we think they will tremendously help us in planning our domestic business strategy … I would like to participate in next December’s Symposium mentioned in your letter of 7 April 1995 and would deeply appreciate it if you could reserve a hotel accordingly. We thank you again for your kind assistance and promise we will try our best to successfully achieve Acamprol’s entry into Korea.

   At the same time, we acknowledge the following based upon the facts established above, the foregoing specific evidence and overall oral arguments:

   1. (1)  Article 7 of the Confidentiality Agreement provides that ‘in case Defendant notifies Plaintiff that they are not interested or Defendant fails to provide any notice to Plaintiff within expiration of the three month period indicated in Article 5, Defendant must immediately return to Plaintiff all information they received under the Agreement and the Agreement shall be terminated thereof’;

   2. (2)  On 14 May 1999, Defendant returned the Registration Documents sent from Plaintiff with a letter saying that they ‘believe it is unfortunate to send notice (p. 60) that all pending matters between the two companies concerning Acamprol are no longer in effect. We expressed our wishes to enter into a license contract over the past few years, but we never received a response from you so we gave up. Therefore, we return all the documents received from your company regarding Acamprol so please contact us once you receive all the documents.’

   Based only on these established facts, we hold it difficult to find the Confidentiality Agreement was no longer effective based on Defendant’s 18 April 1995 notice. Instead, we deem it proper to conclude that the Confidentiality Agreement terminated with Defendant’s return of the Registration Documents on 14 May 1999. Hence, Defendant’s contention based on a contrary premise is unwarranted and need not be further examined.

1. (1)  According to the record, the basis for liability under the arbitral award was that Defendant’s sanction of Plaintiff that restricted their qualification as a bidder amounted to a tortious act. Defendant’s sanction was clearly based on Plaintiff’s alleged failure to perform their payment obligation under the purchase contract. Plaintiff contends that they did not violate their obligations under the purchase contract. They only did not pay the amount on time because, among other things, they requested arbitration to reduce the figure since it was unreasonably high in light of the defect in the subject goods. Whether the sanction was proper depends on whether Plaintiff violated the contract. According to Article 26 of the purchase contract that the parties entered into, disputes regarding problems that arose out of the contract would be settled by agreement of the contracting parties, but if agreement could not be reached, the parties agreed to settle the dispute by arbitration of a mediation committee established according to relevant statutes, unless separately provided in the contract. Whether the sanction was proper, or, in other words, whether the contract was violated is a dispute regarding the problems of the purchase contract and within the scope of the arbitration agreement.

   Accordingly, we find that the lower court’s determination is justified and they did not commit an error of law regarding the scope of effect of the arbitration agreement.

   Furthermore, we find that Plaintiff’s declaratory action to nullify the sanction does not mean that they admitted that the sanction was not within the scope of the arbitration. Also, just because Defendant did not raise an objection against the above action based on the existence of the arbitration agreement and received a judgment on the merits, we cannot (p. 62) find that an implicit agreement was established between the parties to terminate the arbitration agreement. The argument regarding the termination of the arbitration agreement was first raised in the final appeal and cannot serve as grounds for a lawful final appeal. We do not find the lower court committed an error because it failed to deliberate upon the foregoing argument.

1. 2.  According to the arbitral clause of Article 14 of the Sale of Business Contract, the subject of arbitration was provided as ‘legal disputes that cannot be settled between the parties regarding the terms of this contract’. We find that legal disputes regarding the terms of this contract include disputes directly or closely related to the formation, performance, and effects of the terms of contract and not only disputes over simply interpreting the meaning of the terms of the contract.

   In this case, when damages arose from a hidden defect in the subject matter of the sale, the seller’s liability to the buyer for the defect is, by its nature, a liability due to incomplete performance. Such liability is directly related to the performance of the terms of contract. When liability for defects and tortious acts concurrently exists based on the same factual situation, a dispute over whether liability for tortious acts exists remains closely related to the performance of the terms of contract. We find it reasonable to conclude that such a dispute is included in the subject matter of the arbitration as provided under the foregoing arbitral clause.

   The lower court noted that that the parties agreed to waive liability for defects and determined that the dispute over the liability for tortious acts was a dispute that the parties could (p. 63) not have predicted. Yet, we find it reasonable to view that if the parties went so far as to make an agreement to waive liability for defects, then they could have predicted liability for tortious acts concurrently with the liability for defects. Even if the parties did not predict this out of their inattentiveness and left out an agreement to waive liability for tortious acts in the contractual provisions, we do not find it convincing that it was a dispute that they could not have anticipated.

   We conclude that the lower court judgment ultimately erred in interpreting the subject matter of the arbitration as provided under the arbitral clause. The lower court committed an error that influenced their judgment, thereby making Plaintiff’s assertion concerning this point warranted.⁷⁶

1. 3.  Determination Regarding the Counteraction

   1. A.  Parties’ Arguments

      Defendant argues that Plaintiff is obligated to pay (1) USD 700,000 in card commissions and licensing costs under the contract; (2) KRW 10 million (USD 87,000) in additional development costs that Defendant spent while performing the contract such as for the server simulation; and, (3) KRW 10 million (USD 87,000) in damages for Plaintiff’s tortious acts of claiming damages after unjustly delaying the performance of the contract and unilaterally terminating the contract. For their partial claim, they argue for a total payment of KRW 10 million (USD 87,000) consisting of (1) KRW 5 million (USD 44,000) in card commissions and licensing costs; (2) KRW 3 million (USD 2,600) in additional development costs; and (3) KRW 2 million (USD 1,800) in damages.

      Plaintiff argues that Defendant’s counteraction is unlawful because it is contrary to the arbitration agreement.

   2. B.  Determination

      The arbitral clause in the contract provides ‘all disputes that cannot be settled through amicable consultations within a reasonable time’. We find that this provision seeks to (p. 64) include not only disputes simply regarding the interpretation of the meaning of the contract, but also disputes directly related and closely connected to the establishment of a contract’s contents, its performance, and its effect.⁷⁷ We conclude that Defendant’s first claim that seeks liability for performing the provisions of the contract, and their second and third claims that seek liability for tortious act directly related to the performance of the provisions of the contract constitute disputes that are closely connected to the performance of the contract. We rule that they are thereby included in the subject matter of the arbitration as provided in the arbitral clause. Hence, we hold that the counteraction is unlawful because it is contrary to the arbitration agreement.

[The court first cited the provisions of Articles 3(1), 3(2), 8(1), and 9(1) of the 2002 Arbitration Act.]

Arbitration agreements become effective when parties agree in writing to settle by arbitration, instead of by court judgment, all or part of a dispute between them that has already arisen or may arise in the future concerning a legal relationship under private law. For a specific arbitral clause to be considered a valid arbitration agreement, a determination must be made based on a comprehensive consideration of the specific circumstances. Among other things, the content of the arbitral clause and the background behind the parties’ choosing the arbitral clause should be considered based on the concept of arbitration, the characteristics and method of the arbitration agreement and other factors as provided under the Arbitration Act.⁷⁹

According to the record, Article 50(1) of the General Conditions that are part of the Contract provides that ‘disputes that arise between the contracting parties during the performance of the contract shall be settled by consultation’. Article 50(2) provides that ‘if consultation under paragraph 1 is not successful within 30 days after the dispute has arisen, then settlement shall occur under one of the following methods’. Article 50(2)(1) provides ‘mediation through such entities as a mediation committee established pursuant to the relevant statutory provisions, or by arbitration through an arbitration institution pursuant to the Arbitration Act’. Subparagraph 2 provides ‘When recourse against the mediation brought under subparagraph 1 is sought, judgment by a court that has jurisdiction over the location of the Korea High Speed Rail Construction Authority (“Construction Authority”)’.⁸⁰

In June 2002, Defendants Sambu Construction, Kyeryong Construction & Industrial, and Doosan E&C before they merged into Defendant Doosan Industrial Development (‘Defendants’), together filed a request for arbitration at the KCAB against the Construction Authority before their railway assets and rights were comprehensively succeeded by Plaintiff. They sought payment of a reduced amount of KRW 829,700,000 and delay damages due to adjustment of the contract price pursuant to price fluctuations and design changes pursuant to changes in the method of tunnelling excavation. In response to the request for arbitration, the Construction Authority continued to argue in its answer and subsequent written submissions (p. 66) that an arbitration agreement did not exist. The KCAB arbitral tribunal then rendered an arbitral award that was premised on the existence of an arbitration agreement between the Construction Authority and Defendants pursuant to Article 50 of the General Conditions.

According to the foregoing legal principles and dispute settlement by mediation thereof, if the parties cannot reach an agreement, then in the end dispute settlement procedures pursuant to judgment of a court have to be pursued. Furthermore, Article 50(2) of the General Conditions provides in Subparagraph 2 that if recourse against the mediation is sought, then judgment by a court must be pursued.

In light of these points, we find that an optional arbitral clause consisting of such terms will become a valid arbitration agreement only when one party to the contract chooses arbitration instead of mediation against the counterparty and demands dispute settlement according to its procedures, and, in this regard, the counterparty participates in the arbitration proceedings without any particular objection. In this case, we cannot find that a valid arbitration agreement exists when in response to one party’s, Defendants’, request for arbitration the other party, the Construction Authority, affirmatively argued in its answer to the request for arbitration that an arbitration agreement did not exist and objected to settlement by arbitration.

We hold the lower court’s determination therein was justified. We do not find they committed, as argued on final appeal, an error of fact by violating the rules of evidence or an error of law regarding arbitration agreements.

1. 2.  Court’s Determination

   1. A.  Article 3(1)⁸² of the 1999 Arbitration Act provides that ‘arbitration means a procedure to settle by agreement of the parties a dispute in private laws, not by a judgment of the court, but by an award of an arbitrator’. [The court then cites Articles 3(2), 8(1), and 9(1) of the Act.]

      Arbitration agreements become effective when parties agree in writing to settle by arbitration, instead of by court judgment, all or part of a dispute between them that has already arisen or may arise in the future concerning a legal relationship under private law. For a specific arbitral clause to be considered a valid arbitration agreement, a determination must be made based on a comprehensive consideration of the specific circumstances. Among other things, the content of the arbitral clause and the background behind the parties’ choosing the arbitral clause should be considered based upon the concept of arbitration, the characteristics and method of the arbitration agreement, and other factors as provided under the Arbitration Act.⁸³

   2. B.  Dispute settlement according to these legal principles and mediation would not be possible unless the parties reached an agreement, without which they would have to resort to a court judgment to settle the dispute. In light of this, we find that optional arbitral clauses such as Article 31(2) of the General Conditions would only become valid arbitration agreements when a party chooses arbitration proceedings rather than mediation and demands dispute settlement pursuant to its procedures and when the counterparty participates in the arbitration proceedings without any particular objection.

      According to the facts that the lower court lawfully recognized, with regard to Shinwha Construction’s request of arbitration, the counterparty Plaintiff affirmatively argued that an arbitration agreement did not exist and objected to settlement by arbitration. We rule that Article 31(2) of the General Conditions cannot be considered a valid arbitration agreement. Therefore, the arbitral award should be set aside in its entirety.

   3. C.  Part of the lower court judgment considered Article 31(2) of the General Conditions a valid arbitration agreement and determined that the part of the arbitral award regarding Dispute 9 in the Annex of the Table of Disputes was just. We find that this part of the judgment committed an error of law regarding the validity of the arbitration agreement. Plaintiff’s final appeal arguments that assert this point are warranted. We find that in its judgment concerning the part of the arbitral award regarding the Disputes 1 through 8 of the Annex of the Table of Disputes the lower court erred in explaining its reasoning but was just in its conclusion to set aside the award. We thus find no need to separately determine Defendant’s final appeal arguments and do not accept them.

1. 1.  After recognizing the fundamental facts, the lower court judgment decided as follows concerning Defendant’s arguments:

   1. A.  Whether a Valid Arbitration Agreement Existed

      Article 30(2) of the Construction Contract provided that ‘if an agreement cannot be reached under paragraph 1, a party may request mediation through entities such as the Construction Dispute Conciliation Committee established under Article 69 of the Construction Industry Framework Act or the Subcontract Dispute Meditation Council established under Article 24 of the Fair Transactions in Subcontracting Act, or request arbitration at an arbitration institution established under other statutes’. The wording does provide ‘to settle by arbitration’.⁸⁵

      Yet, the lower court noted the following factors:

      1. (1)  Article 3 of the 2002 Arbitration Act does not limit a valid arbitration agreement to agreements to settle only by arbitration, or so-called exclusive arbitration agreements;

      2. (2)  Even if clauses such as Article 30(2) of the Construction Contract were viewed as an arbitration agreement, it would not harm the country’s judicial order or legal stability;

      3. (3)  Guaranteeing disputing parties a variety of dispute settlement methods or remedial procedures is more beneficial and convenient to parties and if anything would correspond with the principle of party autonomy; and,

      4. (4)  If Article 3 of the Arbitration Act was strictly interpreted such that only exclusive arbitration agreements were valid arbitration agreements, then use of the arbitration system itself would be significantly reduced.

      Taking these points into consideration, the lower court found that Article 30(2) of the Construction Contract must be viewed as constituting a valid arbitration agreement under the Arbitration Act.

   2. B.  The lower court found it reasonable to conclude that, in principle, Article 30(2) of the Construction Contract provided that disputes would be settled by ‘mediation through such entities as a mediation committee established under the relevant statutory provisions or by arbitration at an arbitration institution under the Arbitration Act’ while allowing the possibility that disputes might be settled by a court judgment. The lower court did not find that it totally excluded the right to bring an action to court. The court found that a valid arbitration agreement did not exist where one party chose arbitration proceedings and requested arbitration at an arbitration institution concerning a specific dispute related to the Construction Contract, while the counterparty raised an objection therein and opposed dispute (p. 69) settlement by arbitration proceedings. When Plaintiff, a party to the Construction Contract, chose arbitration proceedings and demanded dispute settlement according to its procedures, Defendant, the counterparty, objected to settlement by arbitration and actively argued that an arbitration agreement did not exist in its answer to the request for arbitration. The lower court thus found that in this case Article 30 of the Construction Contract was not a valid arbitration agreement.

2. 2.  According to the Arbitration Act, arbitration agreements become effective when parties agree in writing to settle by arbitration, instead of by court judgment, all or part of a dispute between them that has already arisen or may arise in the future concerning a legal relationship under private law. For a specific arbitral clause to be considered a valid arbitration agreement, a determination must be made based on a comprehensive consideration of the specific circumstances. Among other things, the content of the arbitral clause and the background behind the parties’ choosing the arbitral clause should be considered based on the concept of arbitration, the characteristics and method of the arbitration agreement, and other factors as provided under the Arbitration Act.⁸⁶

   The case herein provides as the method of dispute settlement ‘a request for mediation by such entities as a mediation committee as established under the relevant statutory provisions or request for arbitration at an arbitration institution established under other statutes’. We find that the so-called optional arbitral clause will become a valid arbitration agreement only when one party to the contract chooses arbitration over mediation and demands dispute settlement accordingly and the counterparty participates in the arbitration without any particular objection. Where one party affirmatively argues that an arbitration agreement does not exist in their answer to the other party’s request for arbitration and objects to settlement by arbitration, we find that such clauses would not be a valid arbitration agreement.⁸⁷

   Yet, in this case, as found in the lower court, when Plaintiff, a party to the Construction Contract, chose arbitration proceedings and demanded dispute settlement accordingly, Defendant, the counterparty, affirmatively argued that an arbitration agreement did not exist in their answer to the request for arbitration and objected to settlement by arbitration. We thus deem that in this case Article 30(2) of the Construction Contract was not a valid arbitration agreement.

   We find that the lower court’s determination was justified. We do not find they committed, among other things, an error of law regarding arbitration agreements under the Arbitration Act or contradiction in reasoning that would have influenced the outcome of the judgment as argued in the final appeal.

1. 3.  Determination on the Counterclaim

   1. A.  Arguments of the Parties

      [Defendant argues that the arbitral award should be set aside under Article 36(2)(1)(d) because it dismissed their request for arbitration that was within the scope of the arbitral clause. Plaintiff contends that Article 31 of the General Conditions is a part of the Construction Contract and is not valid as an arbitration agreement.]

   2. B.  Determination

      We examine whether an arbitration contract⁸⁸ existed under the Arbitration Act between the parties when they entered into the Construction Contract. An arbitration contract under the Arbitration Act becomes effective when parties agree in writing to settle by arbitration, instead of by court judgment, all or part of a dispute between them that has arisen or may arise in the future concerning a legal relationship under private law. For a specific arbitral clause to be considered a valid arbitration agreement, a determination must be made based on a comprehensive consideration of the specific circumstances. Among other things, the content of the arbitral clause and the background behind the parties’ choosing the arbitral clause should be considered based upon the concept of arbitration, the characteristics and method of the arbitration agreement, and other factors as provided under the Arbitration Act.⁸⁹

      Article 31 of General Conditions that comprises part of the Construction Contract provides in Paragraph 1 that ‘[e]xcluding matters under the provisions in the Contractual Documents or budget and accounting laws, disputes regarding issues that arise under the contract shall be settled by mutual agreement of the parties’. Paragraph 2 provides that ‘if an agreement cannot be reached under paragraph 1, then the party may seek settlement by mediation through such entities as a mediation committee established (p. 71) under the relevant statutory provisions or by arbitration at an arbitration institution pursuant to the Arbitration Act’.

      When Defendant requested arbitration, during the arbitration proceedings, as provided above, Plaintiff argued the request should be dismissed because an arbitration contract did not exist. Article 2 of the General Conditions is merely a declaratory statement that the dispute could be settled by ‘mediation through such entities as a mediation committee established under the relevant statutory provisions or by arbitration at an arbitration institution pursuant to the Arbitration Act’. We do not find it completely excludes the possibility of settlement by the judgment of a court. In this case, a valid arbitration contract will exist only when both parties must agree to settle by arbitration the specific dispute related to the Construction Contract, or if one party chooses arbitration against the other party and demands dispute settlement by its procedures while the other party participates in the arbitration proceedings without any particular objection. Defendant, one party to the Construction Contract, chose arbitration proceedings (instead of a judgment), and demanded dispute settlement by its procedures. In response, the other party affirmatively argued that an arbitration contract did not exist and objected to settlement by arbitration in its answer to the request for arbitration. We thus find that Article 31 is not a valid arbitration contract.

   3. C.  Sub-Conclusion

      Therefore, we find the request for arbitration was unlawful, and the arbitral award that dismissed the request was justified in its conclusion.

1. 1.  Arbitration agreements become effective when parties agree in writing to settle by arbitration, instead of by court judgment, all or part of a dispute between them that has already arisen or may arise in the future concerning a legal relationship under private law. For a specific arbitral clause to be considered a valid arbitration agreement, a determination must be made based on a comprehensive consideration of the specific circumstances. Among other things, the content of the arbitral clause and the background behind the parties’ choosing the arbitral clause should be considered based upon the concept of arbitration, the characteristics and method of the arbitration agreement, and other factors as provided under the Arbitration Act.⁹⁰

2. 2.  According to reasoning of the lower court and evidence that the lower court lawfully adopted, we note the following facts:

   1. A.  Muan County in South Jeolla Province decided to pursue the establishment of the ‘Korea–China International Industrial Complex Project’ across Muan County. On 6 December 2005, Muan County signed the ‘Korea–China International Industrial Complex Project Main Contract’ (‘2005 Main Contract’) with Defendant and others and established the legal person Korea–China Future City as the developer of the project.

   2. B.  Thereafter on 2 August 2007, Muan County, Korea–China Future City, Defendant, and others entered into a contract (‘2007 Main Contract’) that modified the 2005 Main Contract under the same name and added Byuck San Engineering & Construction and Bookook Securities as parties. On 18 January 2008, all the parties entered into a contract (‘2008 Main Contract’) again under the same name that added the National Agricultural Cooperative Federation as a party. On 29 December 2008, all the parties entered into a supplementary shareholder arrangement with Plaintiff and other additional investors concerning the 2008 Main Contract (‘Supplementary Shareholder Arrangement’). They agreed that Defendant, a Chinese legal person, would invest 51 per cent of Korea–China Future City’s legal capital of KRW 150 billion and that a Korean investor would invest the remaining 49 per cent.

   3. C.  Article 13(1) of the 2008 Main Contract provides that ‘when any dispute or claim arises out of this contract or a violation of the said contract, the parties shall devote their efforts to smoothly settle the problem through amicable negotiations. If the parties are unable to settle a dispute, claim, contract violation or other matters by mediation or compromise within 30 days, the injured party may seek settlement through arbitration as stipulated below.’ Paragraph 2 adds that ‘when a dispute, claim or violation arises out of or concerning this contract, it shall be finally settled through arbitration in a third country agreed upon by the parties. Yet, if they cannot reach an agreement, the arbitration will be at the SIAC.’ Also, Article 86 of the articles of incorporation of Korea–China Future City (‘Articles of Incorporation’) provides that ‘[i]f a dispute arises, each party must settle it through negotiations pursuant to Korean Law. If they cannot settle it, they will proceed to arbitration in a third country that each party agrees based upon international custom and international commercial arbitration rules.⁹¹ Yet, if they cannot reach an agreement, then they will have arbitration at SIAC.’

   4. (p. 73) D.  The Korea–China Future City failed to obtain the financing needed for its business projects. As a result, on 15 November 2009, the shareholders’ meeting voted to dissolve the company but on 15 December 2009 decided to continue operations with an equal reduction in capital.

3. 3.  In response to Defendant’s defence before addressing the merits that this court action is unlawful because it violated the exclusive arbitration agreement between the parties, the lower court should have found that the arbitration agreement in the 2008 Main Contract was an exclusive arbitration agreement based on the following circumstances:

   1. (1)  Article 3(1) of the 2008 Main Contract provides that the dispute between the parties ‘can be settled’ by arbitration, but considering the textual meaning itself the phrase ‘can be settled’ suggests that dispute settlement not through arbitration could also be possible;

   2. (2)  The foregoing provision was a modification in the ‘2007 Main Contract’ from ‘shall be settled by arbitration’ in the ‘2005 Main Contract’. We find that it correlates to the general principles of experience that this modification in wording was intended to change the meaning of the provision;

   3. (3)  Article 13(2) of the 2008 Main Contract stipulates the place of arbitration, the arbitral procedures, and other matters and provides that the parties are bound by the arbitral award. But, in light of the structure of the provision and its wording, we find it appropriate that this provision applies when the parties choose arbitration as the means to settle the dispute according to paragraph 1 of the same article; and,

   4. (4)  Article 86 of the Articles of Incorporation appears to provide arbitration as the only means to settle disputes, but the articles of incorporation of a stock corporation may be amended if a sufficient quorum is met. Parties that objected to an amendment could not avoid its application so, in light of these characteristics, including an arbitral clause in the articles of incorporation that binds all of the shareholders cannot be permitted.

   Plaintiff did not select arbitration proceedings, brought this litigation, and clearly expressed that they had no intention to settle the dispute through arbitration proceedings. The lower court dismissed Defendant’s defence before addressing the merits under the reasoning that Defendant could not argue that the court action was unlawful by citing the arbitration agreement.

4. 4.  We do not find the lower court’s foregoing determination convincing for the following reasons:

   1. A.  According to Article 13(1) of the 2008 Main Contract, when a contractual dispute arises the parties must commence informal negotiations through such means as mediation and compromise, and if the dispute has not been settled after 30 days, then each party can settle the dispute related to the contract through the formal means called arbitration. In light of the purpose of the foregoing provision, Article 13(1) of the 2008 Main Contract that provides ‘can be settled by arbitration’ means that the parties may also attempt to settle the dispute through formal settlement procedures called arbitration instead of by negotiation if 30 days have elapsed after negotiations have commenced. In other words, if the dispute cannot be settled through negotiations, then the dispute may be settled ultimately by a means called arbitration. We do not find that the provision seeks to allow parties to choose arbitration over a trial (p. 74) among the means of resolving the dispute, or in other words that the dispute may be settled through arbitration instead of a trial.

      Instead, the text of the foregoing contract does not provide for arbitration or court judgment in a parallel fashion. Article 13(2) of the 2008 Main Contract provides that for disputes regarding the contract arbitration will be conducted in a third country that the parties agree upon and if they do not agree then by final arbitration at SIAC. Article 86 of the Articles of Incorporation also provides in a similar fashion. Hence, the parties’ intent to conclusively settle disputes between them by arbitration was clear. On the other hand, we do not find anywhere else in the dispositive documents such as the 2008 Main Contract or the Articles of Incorporation that settlement may be possible through different dispute settlement means such as court litigation, in addition to arbitration. Therefore, we find it reasonable to interpret the 2008 Main Contract as excluding different dispute settlement means other than arbitration.

   2. B.  The Korea–China Future City was established by a joint investment by a Chinese legal person (Defendant) and the Korean legal persons at the ratio of 51% to 49%, respectively. We find that the 2005 Main Contract provided arbitration as the only means for dispute settlement. The companies from two countries sought to resolve disputes in a third country through arbitration. They intended to avoid any risk or disadvantage that might be incurred by resolving a dispute in the court of one party’s country.

   3. C.  It is true that the wording in Article 14(1) of the 2005 Main Contract that provided ‘settled by arbitration’ was changed in Article 13(1) of the 2007 Main Contract to ‘can be settled by arbitration’. We note the following:

      1. (1)  From the viewpoint of the Chinese and Korean shareholders of Korea–China Future City, we do not find any special circumstances or rational reason for them to abandon or change the exclusive arbitration agreement for ‘arbitration in a third country’ as originally provided in the 2005 Main Contract and to assume the risk and disadvantages that might occur in a court judgment in the other party’s country;

      2. (2)  In the 2007 Main Contract, in addition to Article 13(1), the wording in most of the other provisions from the original 2005 Main Contract was changed, but in many cases, only the phrasing was amended without any particular change in substance; and,

      3. (3)  For disputes between Korean shareholders, on 29 June 2007 and 29 December 2008, an exclusive jurisdiction agreement provision that designated the Seoul Central District Court as the court with jurisdiction was established. In contrast, the 2007 Main Contract still did not establish a court jurisdiction provision for disputes between Plaintiff and Defendant.

   4. D.  The articles of incorporation of an incorporated association would be binding upon the members who drafted it as well as the members who joined later and the organs of the incorporated association.⁹² The Articles of Incorporation of Korea–China Future City was established on 4 December 2008 and was amended several times up until 16 April 2012. Despite this, the substance of Articles 86 through 88 that provided arbitration as the only means of dispute settlement never changed. Even if we cannot establish that a written exclusive arbitration agreement existed between the shareholders of Korea–China Future City through the direct effects of the provisions in the Articles of Incorporation, in light of the binding nature of the articles (p. 75) of incorporation as found above, we believe that the provisions in the Articles of Incorporation can be taken into consideration to interpret the parties’ intent concerning the arbitral clause in the 2008 Main Contract.

   5. E.  Considering together Articles 13(1) and 13(2) of the 2008 Main Contract, the background of including an arbitral clause in the 2008 Main Contract, the amended parts in the foregoing main contract, and the arbitral clause in the Articles of Incorporation, we view it appropriate to conclude that an exclusive arbitration agreement existed between Plaintiff and Defendant to settle through arbitration disputes related to the 2008 Main Contract.

   6. F.  Despite this, based only upon its findings, the lower court dismissed Defendant’s defence before addressing the merits by interpreting the arbitration agreement between Plaintiff and Defendant as an optional arbitration agreement. We find that the lower court’s determination constituted an error of law regarding the interpretation of the arbitration agreement such that an error that influenced the outcome of the judgment existed. We hold that the final appeal arguments that pointed this out were warranted.

We first determine the grounds of the final appeal. Under the 2010 Arbitration Act, Article 3(1) defines ‘arbitration as a procedure by party agreement to settle a dispute under private laws, not by the judgment of a court, but by the award of an arbitrator’. Article 3(2) states that the term ‘arbitration agreement means an agreement between the parties to settle, by arbitration, all, or part, of a dispute that has already occurred or might occur in the future concerning a defined legal relationship, whether contractual or not’. Article 8(1) stipulates that ‘the arbitration agreement may be in the form of an independent agreement or in the form of an arbitral clause in a contract’. Article 9(1) states that ‘when a court action is brought concerning a matter that is the subject of an arbitration agreement and if (p. 76) the defendant raises as a defence the existence of an arbitration agreement, the court should dismiss the action; Provided, they should not do so, if the arbitration agreement is non-existent, null and void, inoperative or incapable of being performed’.

As such, an arbitration agreement becomes effective when parties agree in writing to settle by arbitration instead of court judgment all or part of a dispute that has already arisen or may arise in the future between them concerning a legal relationship under private laws. Whether a specific arbitral clause can become a valid arbitration agreement depends on a comprehensive determination of the specific circumstances such as the contents of the arbitration agreement and the background behind choosing the arbitral clause that should be based upon factors under the Arbitration Act such as the concept of arbitration and the method and characteristics of the arbitration agreement.⁹⁴

Absent agreement between the parties to settle the dispute through the above arbitration principles or mediation, ultimately the dispute must be settled by court judgment procedures. Thus, optional arbitral clauses such as the Article 2 dispute settlement clause in this case will be deemed a valid arbitration agreement when one party chooses arbitration instead of mediation and demands dispute settlement according to its procedures, and then the counterparty participates in the arbitral proceedings without any particular disagreement. Therefore, we find the lower court’s determination under this reasoning is justified, and we do not find they committed an error of law regarding the Arbitration Act as argued in the final appeal.

In addition, we find that the challenges against the selection of evidence and fact-finding of the lower court, which has plenary power over the fact-finding proceedings, are not appropriate grounds for a final appeal.

1. 1.  [The court first provided a summary of the facts.]

   Generally, when parties cannot settle a dispute by mediation, the dispute in the end must be settled by dispute settlement procedures pursuant to a court judgment. Moreover, Article 49(2)(2) of the General Terms has a separate provision that provides that when recourse against the mediation under subparagraph 1 is sought, the dispute shall be settled by a court judgment. In light of this, the foregoing optional arbitral clause finally becomes a valid arbitration agreement when one party of the Contract selects arbitration instead of mediation and demands dispute settlement under its procedures against the other party of the Contract, while the other party participates in the arbitration without any particular objection.⁹⁷

   At the same time, Article 17(2) of the Arbitration Act stipulates the time to object to an arbitral tribunal’s competence by providing that ‘[a] plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence on the substance’. Since the competence of an arbitral tribunal is directly related to the existence or validity of the arbitration agreement, ‘a plea that the tribunal does not have jurisdiction’ includes ‘a plea concerning the existence or validity of the arbitration agreement’. Against Claimant’s request for arbitration based upon the optional arbitral clause, Respondent did not submit an objection that an arbitration agreement did not exist by the time they submitted their statement of defence on the merits as required under the foregoing provisions. Such an objection thereby cannot be submitted during the remaining stages of the arbitration. On the other hand, the optional arbitral clause acquires conclusive effect as an arbitration agreement.

   We find the lower court’s determination based on the same reasons is justified. We do not find they committed, as asserted by Plaintiff on final appeal, an error of fact based on a violation of the rules of evidence that would have affected the judgment or an error of law regarding the grounds to set aside an arbitral award.

   Moreover, we find it reasonable to view Plaintiff’s active denial of the merits of Defendants’ request for arbitration was not an active objection to the arbitration agreement but instead an expression of their intent to not contend the existence of the arbitration agreement. We cannot accept Plaintiff’s final appeal that raises this point.

2. 2.  Plaintiff argued in their claim that in the arbitral award the part that they asserted concerned matters that were already agreed upon by the parties. They thereby argued that the arbitral award should be set aside because it covered disputes that were not subject to the arbitration agreement or involved matters that fell outside the scope of the arbitration (p. 78) agreement. One party argued that an agreement already had been reached regarding the dispute and thereby the dispute should not be subject to the arbitration agreement, whereas the other party filed a request for arbitration arguing that an agreement had not been reached regarding the dispute. A dispute regarding this issue continued to exist among the parties. The lower court held it reasonable to view the dispute as ‘a dispute that arises among the contracting parties during the performance of the contract’ according to Article 49 of the General Terms. Furthermore, the lower court held that Plaintiff Exhibit No. 3 (Record of the Meeting), which Plaintiff argued demonstrated that an agreement was established between the parties, was insufficient to establish the foregoing facts as argued by Plaintiff even if other evidence was added. Based on this reasoning, they dismissed Plaintiff’s claim herein.

   According to the record, we find the lower court’s decision was justified. We do not find they committed, as argued in the final appeal, an error of fact due to a violation of the rules of evidence that would have affected the judgment or an error of law regarding the effects of the dispositive documents.

If it has been established that a dispositive document was authentically prepared, a court should recognize the existence and content of a declaration of intent according to the wording as stated in the said document, unless [there is] clear and convincing counterevidence to negate its existence. If the parties have a difference of opinion surrounding the interpretation of the contract such that the interpretation of the intentions of the parties under the dispositive document becomes an issue, then courts must comprehensively consider such factors as the content of the wording, the motivation and background for entering into the contract, the objective sought through the contract, and the real intentions of the parties, and make a reasonable interpretation based on logic and experience.⁹⁹

Arbitration agreements become effective when parties agree in writing to settle by arbitration, instead of by court judgment, all or part of a dispute between them that has already arisen or may arise in the future concerning a legal relationship under private law. For a specific arbitral clause to be considered a valid arbitration agreement, a determination must be made based on a comprehensive consideration of the specific circumstances. Among other things, the content of the arbitral clause and the background behind the parties’ choosing the arbitral clause should be considered based upon the concept of arbitration, the characteristics and method of the arbitration agreement and other factors as provided under (p. 79) the 2001 Arbitration Act.¹⁰⁰ The effects of an arbitration agreement apply not only to the contract itself that contains the arbitral clause but also to disputes directly or closely related to the establishment of the contract, its performance, and its validity.

[See Chapter 8 for this paragraph.]

Based on the facts recognized pursuant to the evidence explained, the lower court found the following arbitration agreement was not a so-called optional arbitral clause in light of the background under which it was made: ‘for dispute settlement, both contracting parties will abide by arbitration of the KCAB Busan branch under the Arbitration Act, and if a legal contests occurs it will be in the court with jurisdiction over the place of domicile of gab (a term that refers to Defendant, the contractor)’. They found that instead it should be interpreted as an exclusive arbitral clause. They held that the phrase ‘when a legal contention occurs’ in the arbitration agreement should be viewed as an agreement on the competent court under Article 7 of the Arbitration Act for actions that could be brought related to the arbitration or arbitral award. Even if Plaintiff and Defendant agreed around 3 July 2002 that ‘matters that both sides contest shall be dealt with by consultation of the parties’, the lower court determined that the arbitral clause could not be considered as having lapsed based only on such an agreement. For all of the reasons outlined above, the lower court rejected Plaintiff’s arguments in the claim that the arbitral award should be set aside under Article 36(2) of the Arbitration Act. Instead, they sustained judgment of the court of first instance that had accepted Defendant’s counterclaim for an enforcement judgment of the arbitral award.

In light of the record, we are convinced that the lower court’s foregoing decision was justified because it followed the above legal principles. We do not find any errors as argued in the final appeal that would have affected the judgment such as a violation of the rules of evidence, insufficient deliberation, or failure to state the reasoning or conflicting reasoning, or any errors of law regarding the interpretation of the intent under the dispositive documents, the optional arbitral clause, the effect of establishing and terminating a so-called parceling-out type real estate trust relationship, the scope of effectiveness of an arbitration agreement or the subject of review of an arbitral award, the effect of a subsequent unconstitutionality decision in another case upon the arbitral award, or Article 52(1) of the KCAB Arbitration Rules.

Plaintiff, Incheon International Airport Corporation, manages Incheon International Airport. On 29 May 1997, Plaintiff entered into a construction agreement with a joint enterprise that included Defendant that agreed to settle disputes in an optional manner (‘Construction Contract’). On 17 January 2001, Defendant filed for arbitration against Plaintiff at the KCAB, arguing that they had paid Plaintiff an excess amount for the construction and sought payment of KRW 9,146,910,646 and delay damages.(p. 80)

1. 2.  Determination Regarding the Existence of a Valid Arbitration Agreement

   Plaintiff believes an arbitration agreement can only be found when a so-called exclusive arbitral clause exists in writing such as the following: ‘[a]ll disputes regarding this contract shall be finally settled through arbitration according to the KCAB’s Commercial Arbitration Rules and Korean law, and the award rendered by the arbitrators shall finally bind both parties.’ They argue that the agreement in this case is not this type of exclusive arbitral clause and hence a valid arbitration agreement did not exist between the parties.

   We observe that under Article 3 of the 1999 Arbitration Act ‘arbitration’ is defined as a procedure to settle private legal disputes, not by the judgment of a court, but by the determination of an arbitrator, as agreed by the parties. Additionally, ‘arbitration agreement’ is defined as an agreement by the parties to settle by arbitration all or certain disputes which have already occurred or which may arise between them in the future in respect of a defined legal relationships, whether contractual dispute or not. As argued by Plaintiff, the Act does not provide that a dispute can be settled under private laws according to arbitration only when an exclusive arbitration agreement exists.

   Therefore, we find that Article 51 of the Construction Contract that provides as follows is an arbitration agreement in writing under the Arbitration Act: ‘[d]isputes arising while the parties are performing the contract shall be settled by consultation. If, after 30 days a dispute arises, the consultation according to the paragraph 1 is not successful, it shall be settled by mediation through such entities as a mediation committee established according to the relevant laws, or by arbitration according to an arbitral institution under the Arbitration Act, and when recourse is sought against the foregoing mediation, the dispute shall be settled by the judgment of the court that has jurisdiction over the public corporation’s location.’

   In this case, we note that the validity of so-called optional arbitration agreements may be considered an issue. In modern society with its complex commercial transactions, the so-called ‘mediation-or-other-means-first provision’,¹⁰¹ which, according to the needs or requests of the contracting parties or to protect a contracting party in an inferior position, allow settlement by litigation or arbitration only after conciliation or mediation, do not harm the country’s legal order or legal stability. The same can be said for ‘optional arbitration agreements’, which provide a choice to the parties to settle the dispute by mediation through a mediation committee (court litigation when recourse is sought against) or by arbitration through an arbitral institution. Furthermore, they provide the parties more advantages and convenience by guaranteeing diverse means for dispute settlement and remedy procedures. In this case, we do not find grounds to override the parties’ autonomy or self-determination to not seek court litigation as the initial method to settle the dispute.

   Therefore, we hold that unless special circumstances exist such as the right of selection has been reserved to one party and thus is unfavourable to the other party, even though the arbitration agreement in this case provides for an option, we deem it is valid. Accordingly, we find Defendant’s 17 January 2001 arbitration request against Plaintiff at the KCAB was lawful and Plaintiff’s primary argument unwarranted.

1. 2.  Determination

   1. A.  The Claims by the Parties (omitted)

   2. B.  Determination

      1. 1)  Standards for Determining an Optional Arbitration Agreement¹⁰⁴ and Their Effect

         For a specific arbitral clause to be considered a valid arbitration agreement, a determination must be made based on a comprehensive consideration of the specific circumstances. Among other things, the content of the arbitral clause and the background behind the parties’ choosing the arbitral clause should be considered based upon the concept of arbitration, the characteristics and method of the arbitration agreement, and other factors as provided under the Arbitration Act.¹⁰⁵ An optional arbitral clause allows a contracting party to select the arbitral process and demand dispute settlement accordingly against the counterparty and the clause becomes a valid arbitration agreement when the counterparty participates in the arbitral process while not raising any particular objections. If a party actively argues the non-existence of an arbitration agreement and objects to settlement by arbitration in their answer to the other party’s request for arbitration, then a valid arbitration agreement will not be deemed to exist.¹⁰⁶

      2. 2)  Whether the Clause in Dispute is an Optional Arbitration Agreement

         If subparagraphs A and B of the Provision represented a ranking in terms of priority, then it is possible to view the arbitral cause as an exclusive arbitration agreement. But, based on the agreed upon facts and the evidence cited above, we find as follows:

         1. (1)  By providing that ‘if consultation does not settle the dispute between the contracting parties, then it shall be settled as provided in one of the following subparagraphs’, the Provision did not rank subparagraphs A and B relative to each other and simply provided an option among the alternatives for dispute settlement;¹⁰⁷

         2. (2)  Substantially insufficient basis exists to interpret the Provision text as meaning ‘if a party first chooses between arbitration or court judgment, then the counterparty must follow this choice’ (reasoning behind the arbitral award);

         3. (3)  Even according to the reasoning behind the Arbitral Award, subparagraphs A and B of the Provision were not ranked in priority;

         4. (4)  If the stipulations in the Provision could provide the sole basis to reach the interpretation as provided in the reasoning behind the Arbitral Award, then the same interpretation could have been reached concerning the issue in the Supreme Court Judgment Samsung Engineering [n 67] [yet this judgment reached a different conclusion];

         5. (5)  The dispute settlement provision in the Ministry of Strategy and Finance Accounting Template (Construction Contract General Conditions) that was (p. 83) referred to when drafting the Construction Contract General Conditions has been interpreted as being an optional arbitration agreement; and,

         6. (6)  When Plaintiff and Defendant entered into the Construction Contract, they did not engage in any detailed discussion or consultation regarding the Provision.

         We thus find that interpreting the Provision as an exclusive arbitration agreement would expressly contravene the intentions of the contracting parties and text of the contract. We hold that the Provision provides a means of settling disputes related to the Construction Contract that should be considered as an optional arbitration agreement that allows an option between the two methods of judgment by a court or arbitration through an arbitration institution.

      3. 3)  Validity of the Arbitration Agreement

         Defendant selected arbitration proceedings under the Provision against Plaintiff and filed a request for arbitration at the KCAB. Plaintiff actively asserted and contested that an arbitration agreement did not exist in its answer to the request for arbitration. Considering these facts in light of the legal principles considered above, we do not find it convincing that an arbitration agreement was validly established between Plaintiff and Defendant since Plaintiff actively asserted that an arbitration agreement did not exist in response to the request for arbitration and clearly expressed their intentions to object to settlement by arbitration. Thus, the Provision is not valid as an arbitration agreement. Plaintiff’s claim to set aside the Arbitral Award is warranted.

Case Reference List

• ■  Examples of Optional Arbitral Clauses

  • •  A contractual clause that states that ‘in a dispute between a Purchaser and Supplier that are the same nationality, the dispute shall be referred to adjudication/arbitration in accordance with the laws of the Purchaser’s country’ was determined an optional arbitral clause [Rotem (n 2)].

  • •  A clause that provided that disputes ‘mediation through such entities as a mediation committee established pursuant to the provisions of the relevant laws or by arbitration by an arbitration institution pursuant to the Arbitration Act. When recourse against the mediation … is sought, judgment by a court was regarded as an optional arbitral clause [Korea Rail (n 16)].

  • •  A clause that stipulated that ‘excluding matters not provided under the relevant contracting documents and the budget and accounting laws disputes that arise under the contract shall be settled by mutual agreement of the contracting parties. If … (the above) … agreement is not established, then the parties may settle the dispute by mediation through a mediation committee established pursuant to the provisions of the relevant laws or by arbitration’ was held an optional arbitral clause [Shinwha Construction (n 82); Shinhwan Environment (n 85)].

  • •  In case the consultation in paragraph 1 is not realized within 30 days after the dispute arises, it shall be settled as provided in the following subparagraphs:

    1. 1.  It shall be settled by mediation through such entities as a mediation committee established pursuant to the provisions of the relevant laws or by arbitration at an arbitration institution according to the Arbitration Act.

    2. (p. 84) 2.  When recourse against the mediation in subparagraph 1 is sought, it shall be settled by judgment of the court that has jurisdiction over location of the Korea High Speed Rail Construction Authority [Samsung Engineering (n 67)].

• ■  Examples of Exclusive Arbitral Clauses

  • •  A clause that stated that ‘for dispute settlement, both contracting parties will abide by arbitration of the KCAB Busan branch under the Arbitration Act, and if a legal contest occurs it will be in the court with jurisdiction over the contractor’s place of domicile’ was regarded as an exclusive arbitral clause [Yet, they specifically considered the background that, Defendant requested inclusion of the arbitral clause for rapid settlement of the dispute, which Plaintiff] [Hanshin Gongyoung (n 15).]

1. 1.  Argument of the Parties and Determination Thereof

   1. A.  Plaintiff argues as the grounds for the claim that the arbitral proceedings being conducted under the arbitral clause of the Contract of Goods (‘Arbitral Clause’) is wrongful because the clause does not contain an expression of intent to settle all future disputes solely by arbitration. Thus, an arbitration agreement did not exist or was not formed between the parties.

(p. 85) On the other hand, Defendant claims that the Arbitral Clause granted the parties the right to select a dispute settlement procedure. As long as Defendant exercised this right first and chose to settle the dispute by arbitration, Plaintiff had to follow this decision. Also, considering that an arbitration agreement clearly exists between Defendant and D, the actual party to this import/export relationship, disputes between Plaintiff, who is just a formal party, and Defendant should unquestionably be settled through arbitration.

• 1. B.  Therefore, we observe that arbitration refers to a procedure to settle a dispute in private laws, not by the judgment of a court, but by the decision of an arbitrator, as agreed by the parties (Article 3(1) of the Arbitration Act); and an arbitration agreement is an agreement between the parties to settle, by arbitration, all or some disputes which have already occurred or might occur in the future with regard to defined legal relationships, whether contractual or not (Article 3(2) of the Arbitration Act). In the end, an arbitration agreement is an agreement to settle disputes through arbitration by a private individual and not by the litigation procedures of a national court, and by its nature, the use of a litigation system of the national court is waived. The Arbitral Clause, however, provides that ‘the parties shall follow the agreement of the Seoul Civil District Court or the Commercial Arbitration Board’. We do not find it convincing that as provided above it could be considered an arbitration agreement because it does not exclude the possibility of using the national court’s litigation system.¹⁰⁹

Defendant argues that the Arbitration Agreement granted the parties the right to select the dispute settlement procedures, but under such interpretation, the settlement of the dispute could become even more difficult. Even if a party exercised their right of selection and requested arbitration, it would be difficult to conclude that the validity of such a selection would extend to all disputes that have already arisen or may arise under the contractual relationship. As long as the subject matter of an action or other matters are differentiated, it would be difficult to prevent a different party from exercising their right of selection and bring an action to the court. As a result, it could lead to the court and KCAB simultaneously conducting proceedings regarding practically the same dispute. (In fact, Plaintiff sought to consolidate, but later withdrew, a claim in the action herein for compensation for damages against Defendant arguing that they terminated the Contract of Goods because of Defendant’s breach of its obligation to provide samples.) Hence, the Arbitral Clause should instead be interpreted as ‘if the counterparty does not object, settlement of the dispute by arbitration is possible’.

Defendant also asserts that it should be deemed that an arbitration agreement exists between Defendant and Plaintiff based on the fact that a clear arbitral clause was included in the sales right agreement between Defendant and non-litigant D. Yet, we find it obvious that the validity of the arbitral clause of the Sales Right Agreement does not extend to Plaintiff who is not the party to that agreement. Additionally, the fact that the arbitral clause in the Sales Right Agreement was not incorporated into the Contract of Goods when it was concluded supports the point that Plaintiff had no intention to forfeit his right to use the litigation system.

1. 3.  Whether an Arbitration Agreement Exists

   1. A.  Plaintiff’s Assertion

   Plaintiff argues that Article 31(2) of the General Conditions does not constitute a valid arbitration agreement between the two parties. Article 69 of the Construction Industry Framework Act provides that if a party is not satisfied with mediation by a mediation committee, they can still bring an action to the courts, and it does not exclude the option of court litigation. Not only does Article 31(2) grant a choice between mediation and arbitration, but it does not require either option and is not mandatory. Article 31(2) simply constitutes an agreement between the parties to potentially agree to arbitration. Plaintiff argues the award should be set aside under Article 36(2)(1)(a) of the 2002 Arbitration Act because the arbitration agreement was invalid.

2. 1. B.  Determination

      1. (1)  Article 3(2) of the Arbitration Act provides that ‘ “arbitration agreement” means an agreement by the parties to settle by arbitration all or certain disputes which have already arisen or which may arise between them in the future in respect of a defined legal relationship, whether contractual dispute or not’. Article 3(1), however, provides that ‘ “arbitration” refers to a procedure to settle by agreement of the parties a dispute in private laws, not by a judgment of the court, but by an award of an arbitrator’. When interpreting the definition provisions of the two provisions, one might simply combine the meaning of the two texts and conclude that an ‘arbitration agreement means an agreement by the parties to settle a dispute not by a judgment of the court but by an award of an arbitrator’. In this case, the issue becomes whether an arbitration agreement is only valid when the parties intend both to settle the dispute through arbitration and to waive the use of the litigation system according to the national courts.

      2. (2)  In business transactions in a complicated modern society, arbitration is chosen as a means to settle disputes as an alternative to litigation through the courts, pursuant to the needs or demands of the contracting parties or for the protection of a contracting party in an inferior situation. We note that the intention of such disputing parties to choose arbitration should be respected to guarantee diverse means to settle disputes and remedy procedures. Based on this point, we find that the phrase ‘not by a judgment of the court’ from Article 3(1) of the Arbitration Act only confirms that arbitration is significant as an ‘alternative’ means to settle disputes as opposed to a judgment of the court. Likewise, we conclude that Article 3(2) should be interpreted as not requiring that an exclusive arbitration agreement must exist for a dispute to be settled through arbitration.

      (p. 87) In contrast, if the meaning of the language of the two provisions were to be combined and interpreted to restrict arbitration such that it would only be possible as an exclusive means to settle disputes while barring use of the litigation system of the national courts, it would lead to a result that is contrary to the parties’ private autonomy to seek diverse methods to settle disputes. Furthermore, such an outcome would also lead to the disregarding of the party’s utility in seeking an appropriate method of settlement depending on the diverse characteristics of a dispute. Hence, we rule that one cannot conclude that an arbitration agreement must include an intention to waive use of the litigation system of the national courts.

   2. 1. (3)  We find that the purpose of the parties to agree upon an optional method of dispute settlement such as Article 31(2) of the General Conditions was to grant any party the option to select one of the agreed upon methods of dispute settlement when a dispute arose. Plaintiff argues that if one party chooses a method but the other party does not approve and chooses a different method, then it could lead to the problem of two different methods of dispute settlement proceeding concurrently. They also argue that if one party had to follow the method the other party had chosen at will, then it would be unjust because it forces one party to waive their right of selection. The premise of this argument is that even after one party has exercised their right of selection, the other party would still maintain their right of selection. This premise instead diminishes both parties’ intentions when they entered into the agreement, at the dispute settlement stage, given that they agreed to grant each other the power to choose one of the agreed upon methods of dispute settlement and settle the dispute according to the method so chosen. Furthermore, when a party selects arbitration that precludes bringing an action in the courts, this choice deprives the other party from a right to trial. As long as both parties, at the time of agreement, agreed on arbitration as one of the methods for dispute settlement in accordance with their will, such a decision is within the scope of their responsibility.

      2. (4)  Therefore, we rule that Plaintiff’s foregoing argument is unwarranted. (In addition, Plaintiff refers to Articles 380 and 381(2) of the Civil Act and contends that in its relationship with Defendant, as the ‘obligor’, they have the right of selection, according to the foregoing provisions. Plaintiff claims that only when they do not exercise their right of selection after Defendant gives them notice to make a selection can Defendant exercise their right of selection. Yet, we find that the above provisions in the Civil Act concern the choice of ‘the object of an obligation’, whereas Article 31(2) of the General Conditions concerns the choice of ‘the method of dispute settlement’. Thus, just because Defendant chose arbitration in this case, we cannot find Plaintiff assumes a similar status as the foregoing ‘obligor’. Therefore, the above argument is unfounded.)

1. 3.  Determination

   1. A.  We observe that arbitration refers to a procedure to settle by agreement of the parties a dispute under private law, not by the judgment of a court, but by an award of an arbitrator (2001 Arbitration Act, Article 3(1)). Arbitration agreement means an agreement by the parties to settle by arbitration all or certain disputes which have already arisen or which may arise between them in the future in respect of a defined legal relationship, whether contractual dispute or not (2001 Arbitration Act, Article 3(2)).

      An arbitration agreement ultimately means an agreement to forgo use of the litigation system through the national courts and to finally settle disputes under private law not through litigation procedures of the national court but through arbitration by a private person. The dispute settlement provision in this case provides that ‘if it cannot be settled by agreement, it will be settled through an arbitral decision of the KCAB, and if dissatisfied with the arbitral decision, it will be finally settled by the competent court at the address where A (Plaintiff) is located’. The provision clearly reserves the possibility for general re-examination of the arbitral award by the national courts and thus cannot be viewed as an arbitration agreement as provided above.

   2. B. 

      1. (1)  Defendant argues that the dispute settlement provision in this case that provides that ‘if dissatisfied with the arbitral decision’ refers to bringing a court action to set aside the arbitral award. Additionally, ‘competent court at the address where A (Plaintiff) is located’ refers to an agreement of the place of arbitration under Article 21.1 of the Arbitration Act or the competent jurisdiction for the foregoing action to set aside the arbitral award. Defendant thus argues that the dispute settlement provision in this case is not contrary to the inherent nature of an arbitration agreement. We find no basis to restrictively interpret the meaning of the above dispute settlement provision notwithstanding its objective wording. We find Defendant’s foregoing argument unwarranted.

      2. (2)  Defendant also protests that with regard to the arbitration in this case, the arbitral award in this case is valid because an ex post arbitration agreement exists between the parties. As mentioned previously, we observe that Plaintiff raised an objection during the arbitral proceedings in this case based on the non-existence of an arbitration agreement and no evidence exists otherwise to substantiate the point that an ex post arbitration agreement was formed between the parties. We find Defendant’s foregoing defence also unwarranted.

   3. C.  Therefore, we cannot find that an arbitration agreement existed between the parties. We hold that the arbitral award in this case meets the grounds of ‘when an arbitration (p. 90) agreement is not valid’ as provided under Article 36(2)(1)(1) of the Arbitration Act. Without a need to consider any of the other points raised, we hold that the arbitral award in this case should be set aside.