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 the 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.

1. 1.  Final Appeal Related to Defendant Nakahara Shipping Panama S.A.

   1. A.  First Point

      The latter part of Article V(1)(a) of the New York Convention provides that the validity of an arbitration agreement should be first determined under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made.

      According to the reasoning of the lower court’s judgment and that of the court of first instance, Article 3(1) of the terms and conditions in the overleaf of the bill of lading stated that ‘the contracts evidenced by or contained in this Bill of Lading shall be governed by Japanese law’. Article 3(2) further stated ‘any disputes arising from this Bill of Lading shall be referred to arbitration in Tokyo by the Tokyo Maritime Arbitration Commission (TOMAC) of the Japan Shipping Exchange, Inc., in accordance with Rules of TOMAC and any amendments thereto, and the award given by the arbitrators shall be final and binding on both parties’ (‘Arbitral Clause’). Based on this, we find that the parties designated the laws of Japan as the applicable law for the arbitration agreement.

      We hold that the lower court’s determination in the same regard that the applicable law of the arbitration agreement was the laws of Japan was justified. We find that they did not commit an error of law regarding the applicable law concerning the validity of the arbitration agreement as argued in the final appeal. Therefore, we hold that the arguments on final appeal are unwarranted.(p. 162)

   2. B.  Second and Fourth Points

      To establish the substance of a foreign law and to interpret its meaning regarding when it is to be applied to legal relations with a foreign element, the foreign law should be interpreted and applied according to how its meaning and substance are actually interpreted and applied in practice in its home country. The legal interpretation of the highest court of the home country shall be respected unless special circumstances exist. During the litigation process, if the substance of the foreign law cannot be ascertained because references to the court cases and standards of interpretation are not sufficiently submitted, a court can only establish the meaning and substance of the foreign law through the general standards of legal interpretation.⁶

      Article 13(2) of the Japanese Arbitration Act provides that ‘the arbitration agreement shall be in the form of a document signed by all the parties, letters or telegrams exchanged between the parties (including those sent by facsimile device or other communication device for parties at a distance which provides the recipient with a written record of the transmitted content), or other written instrument’.⁷ We find that the ‘other written instrument’ herein shall not be restricted to written documents exchanged between the parties.

      Concerning Defendant Nakahara Shipping Panama SA’s (‘Defendant Nakahara Shipping’) objection to the arbitration, the lower court agreed with the objection and dismissed the case against Defendant based on the following findings: (i) since the carrier issued a bill of lading with an arbitral clause to the shipper, a written arbitration agreement was found to exist between the carrier and shipper; (ii) by endorsing and delivering the bill of lading, the holder of the bill of lading acquired the rights within the bill; and, when the holder exercised the rights under the bill against the carrier, a written arbitration agreement was found to exist between the holder and the carrier; and, (iii) since the bill of lading allowed the vessel owner and others to invoke the carrier’s objections to arbitration, if the vessel owner or others did so invoke the carrier’s objections against a claim brought by the holder of the bill of lading, then a written arbitration agreement would be deemed to exist between the vessel owner and others and the holder of the bill of lading. Even though the holder of the bill of lading did not participate in the original arbitration agreement, as long as they exercised the rights under the bill, they would become subject to the terms of the bill, and an arbitration agreement would be established based on the bill of lading. The lower court found that the same legal principle applied when the holder of the bill of lading exercised rights in this manner and the vessel owner and others then invoked the carrier’s objections to arbitration according to the terms of the bill.

      We hold the lower court’s above judgment is justified based on the relevant laws and legal principles and no errors exist regarding the interpretation and application of the Arbitration Act in Japan or regarding the formal requirements of an arbitration agreement as claimed on final appeal. Therefore, we find that the arguments in this part of the final appeal are also unwarranted.

   3. C.  Third Point

      Although Defendant Nakahara Shipping, the vessel owner, could choose to avail itself of the carrier’s objections to arbitration based on the Himalaya Clause of the bill of (p. 163) lading, we do not find that through this alone an optional arbitration agreement could be deemed to exist based on those circumstances. We thereby find the lower court’s determination accepting Defendant Nakahara’s objection to arbitration contained no errors regarding the existence of an optional arbitration agreement or other matters. Therefore, we find the arguments in this part of the final appeal also cannot be accepted.

   4. D.  Fifth Point

      Plaintiff argued that if ‘the defences and limits of liability which the Carrier is entitled to invoke’, which the vessel owner could invoke under Article 5(2) of the terms and conditions on the overleaf of the bill of lading, could be interpreted as including objections based on the Arbitral Clause, then it would be invalid because it would violate the Act on the Regulation of Terms and Conditions of Korea (‘ARTC’).⁸

      Considering the record in light of the reasoning in the lower court’s judgment, we hold that the lower court’s rejection of Plaintiff’s arguments based on the following explanations of the circumstances was justified: (i) the Himalaya Clause itself contains general matters on the overleaf of the bills of lading relating to the risks and special characteristics of marine transportation and is commonly used internationally; (ii) the Himalaya Clause is also indirectly related to the freight borne by the consignor; and, (iii) the Himalaya Clause as a result cannot be considered as falling under Article 6 of the ARTC that concerns ‘clauses that are no longer fair because they violate the principle of good faith’, or falling under Article 14 of ARTC that applies to ‘clauses that unreasonably prohibit customers from bringing actions’. We find that they did not commit an error of law regarding the ARTC or Article 103 of the Civil Act.⁹ We find the arguments in this part of the final appeal unwarranted.

1. 1.  Final Appeal Grounds Related to Arbitration Agreement

   1. A.  [See para. 9.53]

   2. B.  Arguments Regarding Foreign Law

      Given Defendant denies the representative rights of Sang-Jun Lee in this case, we next consider whether the application of the arbitration agreement herein concluded between Sang-Jun Lee, who represented Defendant, and Plaintiff extends to Defendant. In other words, we consider whether Sang-Jun Lee lawfully represented or can be recognized as an apparent agent of Defendant such that an arbitration agreement existed between Plaintiff and Defendant under Article II of the New York Convention.

      Since this case concerns the international legal relations of a Korean national, the applicable law must be established first. Based upon the need for stable transactions and to protect the opposing party, we find that the law where the agent’s act occurred should be used to determine whether, in the case of a de facto agent, a principal is responsible to a transacting party who transacted with such agent or a person claiming to be such an agent.¹⁰ We determine that the applicable law should be English law, the law where the agent’s act occurred, for Sang-Jun Lee’s acts as an agent under the arbitration agreement herein and thus should be applied accordingly.

      Under Korean law, special provisions do not exist for the application and investigation of foreign law as the applicable law, but since foreign law is the law herein the court must investigate its contents ex officio. It is sufficient for this investigation to be carried out through a method that the court determines as rational. It does not necessarily require an appraiser’s appraisal, expert’s testimony or referral to appraise, or fact-finding by such places as a domestic government office or school.

      The lower court applied English law concerning the existence of Sang-Jun Lee’s rights as an agent and establishment of an apparent agency. The lower court then disclosed four conditions for the establishment of an apparent agency as provided above and recognized the establishment of an apparent agency based upon the macro-evidence regarding Sang-Jun Lee’s acts. The lower court’s determination concerning the English law on apparent agency is based on their examination of the evidence and is fully supported by academic theory and case law. This includes the sworn testimony of Sykes,¹¹ a UK Queen’s Counsel and authority in the area with over 30 years of (p. 165) experience in commercial law, the renowned textbook Gore-Browne on Companies, where Sykes serveds as an editorial advisor, and the UK High Court’s 1964 Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd case. We find the lower court’s determination justified and rule that the points argued by Defendant such as a contravention of the rules of evidence in determining the foreign law or error for failure to deliberate are unwarranted.

   3. C.  [See para 2.76]

2. 2.  Final Appeal Grounds Related to the Interpretation of Article V(1) and Article V(2) of the New York Convention

   1. A.  [See para. 9.59 for Article V(1)(b).]

   2. B.  The Points Concerning Article V(1)(d) of the New York Convention

      [The court first cites Article V(1)(d).]

      Defendant argues that the arbitral clause written in the sales contract did not contain a valid agreement of the parties regarding the composition of the arbitral institution or the arbitral procedure. As a result, the composition of the arbitral institution or the arbitral procedure must ultimately be in accordance with the law of the place of arbitration which is English law. Without undergoing an investigation into English law concerning this point, Defendant argues that the lower court contravened Article V(1)(d) by ruling that the arbitral institution and the arbitral procedure complied with English statutes based on parts of the documentary evidence that Plaintiff submitted.

      We find that the sales contract in this case states in Article 13 of the conditions overleaf that ‘all 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’. This is a classical arbitration clause that should be interpreted as an agreement between the parties that the place of arbitration is London, United Kingdom, the arbitral institution is the LCIA, and the arbitral procedural rules are the LCIA Rules (in other words, English law). According to Plaintiff Exhibit 4-1, the arbitral award herein was clearly rendered based on the agreement of parties regarding the above arbitral institution and arbitral procedures. The lower court decision that held accordingly is justified, and the above point is groundless.

   3. C.  [See para. 8.80 for Article V(2)(b).]

First of all, we need to examine the applicable law that should apply when determining whether the arbitration agreement in this case is an exclusive arbitration agreement. When executing the Licensing Agreement, the parties agreed that the applicable law would be English law for disputes arising out of the Licensing Agreement, including the arbitral clause (Article 21). Therefore, the applicable law that should be used as the standard for determining the arbitral clause in this case should be English law.

‘Yet, if a deficiency exists in the foreign law applicable to the litigation proceeding or if no material regarding the foreign law was submitted, making it impossible to confirm its particulars, the court will follow the foreign country’s customary law based on the general principles under civil-based law regarding the source of law. If the particulars of the foreign country’s customary law cannot be confirmed, then the court must conduct the trial based on the rules of reason.’¹⁵ Since the English law related to the arbitration and the relevant customary law are unclear, the court must determine whether the arbitration agreement in this case is an exclusive arbitration agreement based on the rules of reason.

Next, we examine whether the arbitration agreement in this case is an exclusive arbitration agreement. As mentioned above, Article 21 (Arbitration Agreement) of the Licensing Agreement provides that ‘(1) [t]he parties agree that in the event of a dispute between the parties arising out of or relating to this Agreement, either party may refer it to compulsory and binding arbitration in Hong Kong; and that (2) [t]he dispute shall be settled by arbitration in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law’.

We deem it proper to find that an agreement existed between Plaintiff and Defendant that if a dispute arose relating to the Licensing Agreement it would be settled by arbitration (or, at a minimum, an agreement existed that if one party first requested arbitration and not a (p. 168) trial, then the dispute would be settled by arbitration no matter what), based on the following points:

1. (i)  since paragraph (2) in the Article provides that ‘[t]he dispute shall be settled by arbitration’, we deem it proper to find that paragraph (1) means ‘anyone that is a party to the Licensing Agreement can request arbitration’ and does not mean that ‘a dispute related to the Licensing Agreement may be settled by trial or arbitration’;

2. (ii)  even if we assume, as Plaintiff argues, that paragraph (1) is an optional arbitration agreement because it should be interpreted as meaning ‘if a dispute arises related to the Licensing Agreement, then it may be settled by arbitration’, we deem it proper to find that the parties agreed that if one party first requested arbitration and not a trial, then the dispute would be settled by arbitration no matter what; this is because paragraph (2) provides that ‘(if one party requests arbitration) [t]he dispute shall be settled by arbitration’; and,

3. (iii)  Plaintiff already filed for arbitration at HKIAC with regard to this case and the arbitral proceedings are still ongoing at the conclusion of oral argument of this action.

Therefore, Plaintiff’s action in this case is unlawful since it was brought in contravention of the arbitration agreement between Plaintiff and Defendant.

1. 3.  Determination

   1. B.  Whether an Arbitration Agreement Exists in this Dispute

      1. 1)  As provided in Article V(1)(a) of the New York Convention, the establishment and validity of an arbitration agreement shall be governed by the law that the relevant (p. 169) parties have designated as the law governing the arbitration agreement. If not designated, the law of the country of the place of arbitration shall govern, and we deem it reasonable that this includes implicit designations. Even if the parties did not stipulate the law governing the arbitration agreement, we deem it reasonable that the parties intended to designate the governing law in the underlying contract as the law governing the arbitration clause if the underlying contract that includes the arbitration clause explicitly or implicitly designates a governing law, unless special circumstances exists. If, however, the parties did not even implicitly designate a governing law for the underlying contract and the governing law would have to be decided based on the objective connections according to the Act on Private International Law, then the law of the place of arbitration should be rationally deemed the law governing the arbitration clause.

      2. 2)  Based on the underlying facts and Plaintiff’s arguments in the arbitration proceeding above, the dispute concerns whether the costs relating to the sale of the Site sought by Plaintiff pursuant to the Commitment Letter shall be paid to Defendant. The dispute therefore concerns the interpretation and application of the Commitment Letter. The Commitment Letter itself, however, does not contain a governing law clause. As provided below, it is difficult to consider the Commitment Letter a partial amendment of the Shareholders’ Agreement or an agreement specifically contemplated in the Shareholders’ Agreement. In principle, the law governing the interpretation of the Commitment Letter should be the law most closely related to the Letter according to Article 26 of the 2011 Act on Private International Law. The Commitment Letter states that the Prepaid Purchase Price shall be returned in Korea in Korean currency by Defendant, a Korean company located in the territory of Korea. This would make the law most closely related to the Commitment Letter the law of Korea and the law governing whether an arbitration agreement was established, such as through the existence of an arbitration agreement in the Commitment Letter, the law of Japan, which was the place of arbitration.¹⁸

[See para. 3.02 for the rest of the case.]

According to the lower court’s judgment, Defendant’s bill of lading contained a so-called Centrocon arbitration clause which provided that ‘[a]ny dispute arising out of this Contract shall be referred to the final arbitration of two arbitrators who are appointed by mutual agreement of the parties among the arbitrators working in London and granted the authority to appoint the chair arbitrator’. Courts and arbitrators in the UK find that when parties enter into an arbitration agreement in the UK, English law will apply to the arbitral procedures unless otherwise provided because they will deem the parties also agreed to English law as the governing law. Although the bill of lading designated Plaintiff as the consignee, Plaintiff held the bill of lading solely to secure the amount in the letter of credit. Furthermore, since the cargo was already lost, Plaintiff could not assume the status of a party to the charter party even if it presented the bill of lading. According to the laws of the UK, Plaintiff thereby could not argue that a valid arbitration agreement that was part of the charter party existed with Defendant. The lower court also found that herein where the cargo was destroyed after it was unloaded, American law could not be the governing law given that the arbitration proceeding had already commenced in the UK.¹⁹

In light of the record, we find that the lower court’s foregoing fact finding and determination convincing. Given this fact, although the bill of lading contains a Centrocon arbitration agreement, we cannot recognize that a valid arbitration agreement was established between Plaintiff and Defendant. Based on the premise that a valid arbitration agreement existed, even if Plaintiff appointed an arbitrator and notified Defendant in preparation of the arbitration, we nevertheless could not find that a binding, new arbitration agreement was made between Plaintiff and Defendant. We also find convincing the lower court’s decision to reject Defendant’s argument that a valid new arbitration agreement could not be recognized under UK law so the parties reached a new arbitration agreement when they appointed arbitrators to enter into arbitration in the UK regarding the bill of lading dispute and notified each other. We also find that the lower court’s fact finding and determination did not violate the rules of evidence and misunderstand the significance of arbitrator selection.

Defendant’s various arguments either criticize the lower court’s plenary authority to determine the finding of facts or are based on facts not recognized by the lower court. From their own perspective, Defendant argues errors exist, among other things, based on the lower court’s error of law regarding the governing law or selection of arbitrators. We find these arguments unwarranted.

According to Defendant Exhibit No. 1, we recognize that the invoice provides that all disputes arising in the contract should be settled by arbitration in Osaka, Japan. We next observe whether this can be found to be an agreement by Plaintiff and Defendant to settle all disputes arising in the contract by arbitration in Osaka, Japan.

First of all, we need to determine whether the arbitration agreement fulfils the necessary conditions of an arbitration agreement under the applicable law. Despite the insertion of an arbitral clause, where one cannot argue that a valid arbitration agreement exists under the applicable law of the arbitration, either it will be deemed that a valid arbitration agreement does not exist or it will be deemed impossible to perform. Whether an arbitration agreement is valid or has effect shall be determined by the law of the country where the arbitration is conducted or according to the applicable law of the arbitral clause.²⁰ The arbitral clause in the invoice does not provide the applicable law. The applicable law to determine the existence of the arbitration agreement and its validity should be the arbitration law of Japan where the arbitration is to be conducted.

At the same time, according to Defendant Exhibit No. 3-1, Article 13 of the Japanese Arbitration Act concerning the validity of arbitration agreements reads as follows:

We next observe whether the arbitration agreement fulfils the arbitration agreement requirements provided in Article 13 of the Japanese Arbitration Act.

Taking together Defendant Exhibit Nos. 1 and 5 and the overall oral arguments, we note the following circumstances: (1) the invoice only contains Defendant’s signature and does not contain Plaintiff’s signature or seal; (2) Plaintiff only received the invoice from Defendant by email, and did not send it back to Defendant; (3) for the contract, Plaintiff sent Defendant the purchase order, but the purchase order did not include any mention regarding arbitration; (4) the arbitral clause is also only part of the contract, and the purchase order and the invoice do not coincide on such matters as the time of payment for the batteries; we cannot find that an agreement was established based only on the invoice; (5) in addition, Plaintiff never expressed an intention to resort to arbitration in case a dispute arose in the contract; and, (6) if it could be deemed that an arbitration agreement was established when one party sends a document that included a clause regarding arbitration that the other party merely received, then the other party’s rights would be unjustly restricted.

In light of these facts, the arbitration agreement in this case was not in the form of a document signed by all the parties, letters or telegrams exchanged between the parties, or other written document. The document that contains the arbitration clause also did not make a reference to make the clause part of the relevant contract. We conclude that the arbitration agreement does not fulfil the necessary requirements provided in Article 13 of the Japanese Arbitration Act and thereby lacks effect. We do not accept Defendant’s defence before addressing the merits.

1. 2.  Pursuant to the lower court that refers to the reasons in the court of first instance’s judgment, the lower court described the relevant provisions in China’s Arbitration Act²¹ and the basis for CIETAC’s establishment and CIETAC’s arbitration rules (‘CIETAC (p. 173) Rules’),²² the rules that apply to the arbitration proceeding. The lower court then pointed out that, under the title of ‘Arbitration’, Article 10 of the purchase contract between the parties stated that ‘[a] dispute or divergence that arises during the performance of or related to this contract shall be duly settled by amicable negotiation. When it cannot be settled through amicable negotiation, however, then it shall be duly referred to arbitration. The place²³ of arbitration is China and the results of the arbitration shall be final and binding to both parties.’

   The lower court found that this arbitral clause amounted to an ‘arbitral clause in a contract’ under Article II(2) of the New York Convention and amounted to an arbitration agreement in writing ‘to submit to arbitration all or any differences’ under Article II(1) of the Convention, which both Korea and China were contracting states. They further found that the arbitral clause amounted to an ‘arbitral clause stipulated in a contract’ under Article 16 of the China Arbitration Act and an ‘arbitral clause stipulated in a contract’ under Article 3 of the CIETAC Rules.

   According to Article II of the New York Convention, for the Convention to apply, it will suffice if the arbitration agreement is ‘an agreement in writing … to submit to arbitration all or any differences’ and does not require that the place of arbitration, arbitration institution, or applicable law be stated. The lower court found that the expression in the arbitration agreement that ‘a dispute or divergence that arises during the performance of or related to this contract’ denoted the particulars for arbitration and the part that stated that ‘the place of arbitration is China’ denoted an international commercial arbitration institution among the arbitration organizations in China. CIETAC was the only institution in China that settled international or foreign-related contract-based economic, trade, and other related disputes between foreign legal and natural persons and Chinese legal and natural persons by means of arbitration.²⁴ In regard to Plaintiff’s 14 July 1997 request for arbitration at CIETAC, Defendant did not submit an ‘objection to … jurisdiction over the arbitration’. Instead, in response to Plaintiff’s arbitration request according to CIETAC Rules, Defendant selected arbitrators and filed an answer and counterclaim concerning the arbitration request.

   Therefore, the lower court found that the arbitration agreement did not fall under Article 18 of the China Arbitration Act that provides ‘agreement for arbitration … (where) supplementary agreement cannot be reached’. The arbitration agreement could not be considered as not valid under the law of the country where the award was made or not valid itself, which are grounds to refuse enforcement of an award under Article V(1)(a) of the New York Convention. It also could not be considered as being one where the composition of the arbitral authority or the arbitral procedure was not in accordance with the law of the country where the arbitration took place, which are grounds to refuse enforcement under Article V(1)(d) of the Convention.

   In light of the record, we find the lower courts’ finding of facts and determination correct and we hold that one cannot find errors existed as argued in the final appeal.

1. E.  Whether the Arbitral Award Contravened Public Policy

   1. 4)  Whether the Arbitrator Violated the Governing Law of the United Arab Emirates (UAE)

      According to Plaintiff Exhibit No. 1, the arbitrator used the expression that ‘it is similar to the wide-ranging discretionary power called total authority as recognized under French Law’ when describing the regulations of the UAE law concerning lost profits.

      (p. 175) Based on the above facts and in light of the following circumstances, we do not find that the arbitrator’s determination contravened UAE law or that the arbitral award contravened public policy:

      1. (1)  Under UAE law, claims for lost profits can be made as part of a single claim for compensation damages;

      2. (2)  As long as an arbitrator has an acceptable basis after reviewing and interpreting UAE civil law and case law, claims for future lost profits are possible, and an arbitrator has the authority to decide the amount thereof.

      3. (3)  In an arbitral award, an arbitrator possesses the authority to interpret the governing law that should apply to the arbitration agreement; a re-examination in essence of the award is only recognized in a limited manner; thus, in principle, an arbitrator’s statutory interpretation needs to be respected.

      4. (4)  In relation to the arbitrator’s interpretation of the applicable law, both parties received sufficient and equal opportunity to express their own views concerning UAE law.

      5. (5)  This part of Plaintiff’s argument claim is premised on the assertion that the arbitrator calculated the lost profit without concrete evidence; however, the arbitrator calculated the lost profits based on his determination that the evidence Defendant presented was sufficiently credible and acceptable, and the arbitrator has complete authority in the determination of probative value.

      6. (6)  If the arbitrator conducted a review concerning the applicable law but misunderstood it and its purpose and interpretated it differently from the normal interpretation, as long as it was manifestly clear that the arbitrator did not intentionally disregard the applicable law or arbitrarily determine it without attempting to examine it, we do not find it convincing that the arbitral award would be contrary to public policy based solely on such grounds.

      As a result, we find this part of Plaintiff’s argument groundless.

1. 4.  Determination Concerning Defendant’s Argument

   1. (1)  Misapplication of the Applicable Law

   Defendant argues that as long as the parties did not have a special agreement regarding the applicable law that should govern the arbitral proceedings, the applicable law that (p. 176) should govern should also be Korean law, the law of the place where the acts occurred.²⁶ The arbitral award herein, however, did not contain any statement regarding which substantive or procedural applicable law should govern the arbitral proceedings. Defendant argues that this definitely means that the applicable law was incorrectly applied in the award and enforcement should not be allowed.

   We observe that, according to Defendant Exhibit No. 4 (Rules of Maritime Arbitration²⁷) that remained uncontested, the incorporated association the Japan Shipping Exchange conducts arbitration pursuant to the Rules of Maritime Arbitration that stipulate matters necessary for an arbitration regarding a maritime dispute. Unless special circumstances can be found, we find that the arbitration herein was conducted pursuant to the Rules of Maritime Arbitration.

   Article V(1)(d) of the New York Convention recognizes the principle of party autonomy regarding the composition of the arbitral tribunal or the arbitral procedure. If the parties have not agreed, the arbitration shall be in accordance with the law of the place of arbitration. We find that since the parties did not specify particular arbitration rules, the arbitration proceedings that were carried out pursuant to the Rules of Maritime Arbitration were lawful.

   Next, if the applicable law that should govern the determination of the substantive relations in this arbitration was Korean law, the place where the acts occurred, but instead Japanese law was applied in rendering the arbitral award, this would in the end denote that the reasoning of the arbitral award was incorrect. Such an incorrect application of law leading to an unjustified conclusion in the arbitral award, however, does not fall under any of the grounds for refusal that are restrictively listed in Article V of the Convention. We hold that Defendant’s first foregoing argument is unwarranted.

Plaintiff argues that the tribunal misapplied the applicable law, Chinese law, and that therefore the arbitral award should not be enforced. It protests that the tribunal relied upon an incorrect opinion from a law firm in reaching the conclusion that the Supplemental Agreement was effective under Chinese law even though it lacked a separate government ratification.(p. 177)

1. B.  Based solely on Plaintiff Exhibits (Plaintiff Exhibit No. 5-1 and 2, No. 6 and 7, No. 8-1 and 2), we find it difficult to conclude that the arbitral tribunal wrongfully applied the law of China, the governing law, according to a clearly improper opinion when it rendered the arbitral award. We find no other evidence to prove otherwise and hence hold that Plaintiff’s argument thereof is also unwarranted.

1. 3.  Arguments and Determination

   1. A.  Grounds for Set Aside under Article 36(2)(i)(d) of the Arbitration Act

      [(1)–(3) covered in para. 6.15 and para. 4.05.]

      1. (4)  Errors for not Following the Arbitration Act in Proving and Calculating Damages

         1. (A)  Plaintiff’s Argument

            Article 16 of the Licence Agreement stipulates the applicable law is Korean law. The Civil Act of Korea adopts the principle of compensation for actual damages that requires proof of the occurrence of damages and the amount of damages. Article 29(3) of the Arbitration Act provides that an arbitral tribunal may render an award ex aequo et bono only when the parties expressly grant such authorization. The arbitral tribunal rendered an arbitral award ordering Plaintiff to pay half of Defendant’s counterclaim USD 500,000 without any substantiation concerning the occurrence of damages and the amount of damages. This decision was made ex aequo et bono without the parties’ express authorization. The arbitral award should be set aside under Article 36(2)(1)(d) of the Arbitration Act for ‘the arbitral proceedings were not in accordance with agreement of the parties … (or) were not in accordance with the Arbitration Act’.

         2. (B)  Determination

            The reasons that must be provided in an arbitral award do not require clear and detailed determinations regarding the relationship of rights and obligations that form the basis of the relevant case. The reasons are sufficient if enough has been provided that one could figure out how the arbitrators reached their determination.³⁰ Under the Civil Act’s principle of compensation damages, the party seeking compensation damages must prove the occurrence of damages and amount (p. 179) of damages. When a creditor argues that they incurred damages due to the debtor’s violation of a confidentiality obligation and reproduction prohibition obligation and seeks compensation thereof, the creditor must assert and prove actual damages incurred due to the debtor’s violation of such obligations. Yet, we find that in terms of the degree of damages incurred due to the violation of the confidentiality obligation and reproduction prohibition obligation that must be asserted and proven, it would be sufficient to assert and prove the existence of concerns that damages would arise and its probability. Furthermore, in light of the principle of fair allocation of damages in compensation damages, the tribunal may calculate damages by considering the overall circumstances such as the background under which the damage occurred or the characteristic of the damage itself.

            In this case, according to Plaintiff Exhibit No. 1, the arbitral award established that Plaintiff violated the confidentiality obligation and reproduction prohibition obligation under the Licence Agreement. We note that the tribunal decided the amount of compensation as USD 500,000 after considering the overall circumstances such as the scale of the Licence Agreement, the amount of royalties for the First Oven, the scope of non-disclosure of the structural characteristics of the First Oven, and the degree of actual sameness of the two ovens.

            We find that, under the structure of the logic, the arbitral tribunal’s foregoing determination was clearly premised upon Defendant incurring damages due to Plaintiff’s violation of the confidentiality obligation and reproduction prohibition obligation. Plaintiff gained an advantage by, among other things, manufacturing the product by using the Second Oven in violation of the confidentiality obligation and reproduction prohibition obligation. In contrast, Defendant lost an opportunity to sell and receive royalties from, among other things, the vertical ovens. In addition, Defendant would have to compete in the sales of the vertical ovens and other products with Olbrich and others, who obtained the vertical oven manufacturing technology. Thus, we recognize ample basis for concerns that damages would arise and the probability that damages would arise due to Plaintiff’s violation of the confidentiality obligation. We do not find that the arbitral tribunal determined the compensation damages without any basis ex aequo et bono in violation of the Civil Act, which the parties stipulated as the applicable law of the arbitration. Furthermore, the arbitral tribunal determined the amount of damages taking into consideration the foregoing circumstances after establishing that damages occurred. We find that the tribunal did not calculate the amount of damages as Plaintiff asserts without any basis ex aequo et bono in violation of the Civil Act, which the parties stipulated as the applicable law of the arbitration.

1. 3.  Determination

   1. A.  Grounds for Set Aside under Article 36(2)(1)(d) of Arbitration Act

      [1) and 2) are covered in Chapter 8.]

      1. 3)  Whether Article 29(3) of the Arbitration Act was Violated

         Article 29(3) of Arbitration Act states an arbitral tribunal shall decide ex aequo et bono only if the parties have expressly authorized it to do so. The arbitral award that the arbitral tribunal rendered, however, specifically dealt with Plaintiff and Defendant’s arguments regarding specific issues related to the outage time of the generator. We do not find that that arbitral award made a decision ex aequo et bono without making a determination regarding the individual issues.

         Therefore, we also do not accept this part of Plaintiff’s arguments.

1. B.  Plaintiff’s First Claim

   1. (1)  Based on the relevant submissions and all oral arguments, we find the following facts are undisputed:

      1. (A)  For its first claim during the arbitral proceeding, Plaintiff asserted that the soil texture parameter that Defendant provided did not accurately ascertain the conditions of the power plant construction site, forcing Plaintiff to commit additional personnel to complete the original design drawing by the promised deadline. On 21 December 1983, Defendant agreed to pay Plaintiff FF 19,500,000 as compensation for all losses incurred due to the soil texture parameter. Plaintiff argued (p. 181) that this agreement did not include the construction based on the piping design and sought payment for additional compensation, interest and incidental damages for the costs expended thereof. (For convenience, the interest and incidental damages claims are omitted below.)

         Plaintiff’s request for arbitration sought a total payment of FF 24,352,385 that consisted of FF 19,832,240 for the subcontract with Sofinel, FF 1,719,543 for adjustments for inflation (paid to Sofinel) and FF 2,801,602 for Plaintiff’s remuneration of 13 per cent of the sum of the subcontract and adjustments. Plaintiff’s 1 June 1989 Hearing Brief instead sought payment of FF 22,495,282.

         Sofinel first claimed FF 30,130,000 of which 65.821 per cent, or FF 19,831,904, consisted of FF 10,210,000 for reducing the duration of the project multiplied by 1.9424 (inflation adjustment factor). As a result of negotiations, Sofinel reduced its claim from FF 30,130,000 to FF 28,600,000. Eventually FF 19,907,329 was paid to Sofinel for reducing the duration of the project, by multiplying the above 65.821 per cent to FF 30,244,646.60, which was the sum of FF 28,600,000 and the inflation adjustment factor. Plaintiff argued that an additional 13 per cent of the foregoing FF 19,907,329, or FF 2,587,953, should be added for their general management and profit and that Defendant should pay a total of FF 22,495,282. Plaintiff’s 20 September 1989 final brief made in response to an order from the ICC International Court of Arbitration (‘ICC Court’) also provided that ‘the costs claimed by Claimant have been proven in the attached annex of the Hearing Brief’.

      2. (B)  The ICC Court found that ‘in light of Claimant’s consistent arguments following the agreement above, Respondent must compensate the additional expenses that Claimant incurred from the pipe construction based on the provisions above. As a result, the arbitral tribunal approved payment of FF 24,352,385 … (omitted) … and 6 per cent statutory interest thereof that Claimant formally requested.’

   2. (2)  According to the facts accepted above, Plaintiff’s claim was reduced from FF 24,352,385 to FF 22,495,282 as a result of its 1 June 1989 Hearing Brief. The ICC Court should have rendered an award regarding this dispute, which was referred to arbitration by an arbitration agreement between the parties, within the confines of the reduced claim amount. Instead, they overlooked this and rendered an award based on the entire originally claimed amount. By approving a finding beyond the amount claimed by a party, the arbitration proceeding was not conducted in accordance with the arbitration agreement as required under Arbitration Act Article 13(1)(1).³¹ Without any further need to consider the issues, we hold that the first claim of the arbitral award should be set aside.

   3. (3)  Plaintiff also argues in its 1 June 1989 Hearing Brief that the claim for FF 22,495,282 was not a reduction in the claim amount but was offered as an optional amount calculated according to a different method from the original claim amount. According to Plaintiff, the ICC Court had the legitimate authority to use the figure in the Terms of Reference that was also the amount Plaintiff claimed from Defendant when it filed the request for arbitration. We hold that the Terms of Reference was prepared as a summary of the parties’ arguments and defences up to that time so that, within its scope, claims could become more specified and reduced during the proceedings. We find that even though the Terms of Reference stated the claim (p. 182) amount as FF 24,352,385 if the 1 June 1989 Hearing Brief that was submitted thereafter sought payment of FF 22,495,282 the claim amount should have been deemed as reduced accordingly. The ICC Court should have rendered the award within the limits of the reduced amount and Plaintiff’s foregoing challenge hereof is unwarranted.

      Plaintiff next contends that the ICC Court’s determination in the arbitration proceedings concerned all of the issues between the parties and was not limited to specific arguments stated in the cause of action or amounts specified in the statement of claims. Even if the ICC Court rendered an arbitral award that exceeded the scope of adjudication, Plaintiff argues that this concerned the content of the arbitral award and not a defect in the arbitral procedure. Furthermore, in arbitral procedures, the principle of disposition³² under the Civil Procedure Act does not apply and cannot be a basis for a set aside.

      We hold that a dispute that the parties delegate to an arbitral tribunal by an arbitration agreement includes quantitative aspects. Arbitrators only have the authority to render an award within the limits of Claimant’s claimed amount. To recognize an amount beyond Plaintiff’s reduced claimed amount would constitute an error that exceeds the arbitrator’s authority in the arbitration proceedings. Arbitrators are not confined to making a determination only regarding the specific rights or matters claimed by a party. When resolving an entire disputed case between the parties, arbitrators can make a determination not only based on provisions of the law but can also consider various circumstances from a fairness viewpoint.³³ Yet, this only means that when a tribunal must make a comprehensive determination, including preliminary and derivative issues, to decide a dispute specified in a request for arbitration, they can treat the determination as being within the confines of the dispute specified in the request for arbitration and make a determination through a provision in the arbitral award. We hold that this does not mean, as in the case herein, that where the same factual and legal relationship existed and the claim amount was clearly reduced for the convenience of proof purposes that a tribunal can recognize the originally claimed amount in excess of the scope of the reduced amount. We again find that Plaintiff’s foregoing challenge is unwarranted.

2. C.  Plaintiff’s Second, Third, Sixth, and Seventh Claim

   1. (1)  Based on a comprehensive review of the relevant submissions and all oral arguments, with regard to Plaintiff’s claims above and Defendant’s defences in the arbitration proceeding, we find the following facts are undisputed:

      1. (A)  Second Claim: Plaintiff would have been delayed in providing the cabling to Defendant within the construction time. It could no longer use the foreign-made cable trays it had planned to use due to a new Korean government policy requiring use of domestic products and changes in the soil texture parameter. To meet the promised deadline, Plaintiff had to employ additional personnel from the subcontractor in charge of preparing the cabling that required a payment of FF 7,985,000. Adding an inflation adjustment and 13 per cent in general management expenses and profits to this amount, Plaintiff claimed a total of FF 10,823,349.58.

         (p. 183) Third Claim: During the initial negotiation stage, the diesel generator that was supposed to be provided under the Offshore Contract was not subject to a domestic content requirement. But, during the process of obtaining governmental approval, it was designated as subject to a domestic content requirement. Notice of this change was delayed and Plaintiff claimed FF 890,046 for personnel costs and a 15 per cent brokerage fee because it had to terminate its existing contract with the French subcontractor SACM and enter into a new subcontract with a domestic outsourcer.

         Sixth Claim: Originally, the shipment date for an internal part in the atomic reactor that Plaintiff was supposed to provide was 22 May 1986. Plaintiff incurred costs when, at Defendant’s request, the shipment date was advanced to 10 May 1986. Plaintiff also incurred costs because Defendant rejected acceptance of the internal part of the atomic reactor when it was delivered to the local factory on 10 May 1986. In its 12 February 1988 brief, Plaintiff specified its payment claim as ‘(B) FF 57,300 for additional shipment costs that arose due to the change in the 10 May FAS conditions and the rejection of the acceptance’, ‘(C) FF 32,865 for additional costs for expediting the delivery and for the negotiation expenses concerning the additional costs of the outsourcing companies’, and sought payment for these amounts in addition to 13 per cent thereof for their remuneration and other expenses.

         Seventh Claim: Plaintiff supplied two discharge filters during the construction process but according to the Offshore Contract only one discharge filter was supposed to be supplied. Plaintiff claimed FF 148,000 consisting of the additional price for the second filter, an outsourcing engineering fee, management expenses, general management expenses, and their profit plus an inflation adjustment.

      2. (B)  Defendant counters that it is not responsible for the various amounts that Plaintiff claimed above in the arbitration proceedings. Specifically, no basis exists to recognize Plaintiff’s claims for an inflation adjustment, the 13 per cent in general management expenses and profits and other expenses, the 15 per cent brokerage fee in the Fifth Claim, and the engineering fee and management expenses in its Seventh Claim.

   2. (2)  Defendant argues that even though they contested Plaintiff’s claimed amount and other matters in the arbitration proceeding as provided above, the ICC Court recognized Plaintiff’s claimed amounts without any basis. The arbitral award should be set aside for failure to set out its reasons and for its omission to decide.³⁴ For the Sixth Claim, the ICC Court did not recognize costs for early delivery and only recognized costs for rejecting receipt by ordering payment of ‘FF 64,749 (FF 57,330 plus 13 per cent, or FF 7,449, in general management expenses)’. Defendant argues that paragraph (B) of Plaintiff’s 12 February 1988 brief called for FF 57,300 in expenses for rejecting receipt and also for early delivery. The arbitral award, however, did not differentiate between these two expenses in recognizing the figure FF 57,330 instead of the figure FF 57,300. They argue the award should be set aside based on the grounds of failing to set out its reasons since it is unclear how the tribunal reached this conclusion.

   3. (3)  We observe that Article 1 of the Arbitration Act provides that the purpose of arbitration is to achieve expeditious resolution of private disputes by mutual agreement of (p. 184) the parties through an arbitrator chosen by the parties instead of through a court judgment. The phrase ‘when an arbitral award does not include its reasons’ found in the latter part of Article 13(1)(4) refers to the situation where no reasons are stated at all, or formally does include the reasons of the award but they are so unclear that the factual or legal determination upon which they are based cannot be ascertained or the award contains contradictory reasons. As long as the arbitral award contains an explanation of its reasons, just because aspects of the determination are unjust or incomplete, we would not consider it a situation where the award did not provide its reasons.³⁵ According to Article 18 of the Arbitration Act and Article 49(4) of the KCAB Rules, the extent that reasons must be provided differs from a court judgment, and providing a summary of major points will suffice, whereas providing the basis or evidence is not necessary. Furthermore, an award does not have to provide a legal decision including detailed matters, or provide an explanation of the reasons concerning how the material that was used in reaching the decision was selected.

      A failure to make a determination that would affect an arbitral award applies to the situation where it cannot be determined upon what facts or opinion the decision of the arbitral award was reached, and does not concern the rightfulness or wrongness of the decision. It is sufficient that the rights and obligations of parties can be finalized. According to Article 18 of the Arbitration Act and Article 49(4) of the KCAB Rules, unlike a court judgment, in reaching its conclusion, an arbitral award only needs to provide a summary of the main points to assure that it did not fail to make a determination regarding the arguments raised by the parties.

      Given the purpose of the system of arbitration, we conclude that arbitration is based on the principle of party autonomy through an arbitration agreement. Therefore, conclusions can be reached not only through positive law but also through the arbitrator’s experience and notion of equity.³⁶

      Combining together Plaintiff Exhibit No. 1 and the overall arguments, we observe in this case that for each claim, the ICC Court summarized the facts, Plaintiff’s claimed amount, and the parties’ arguments and defences. Without making a determination on how evidence was selected, the ICC Court did make a determination concerning Defendant’s liability for each claim. We find that they also did recognize the entire amounts or partial amounts (half of the Second Claim and Third Claim and paragraph (B) of the Sixth Claim) that Plaintiff claimed. Absent any contrary proof, therefore, we conclude that the arbitral award included the process of how the tribunal reached the conclusion for the amounts above. Defendant’s arguments in (1)(B) above concerning the determination and grounds for making the determination, and the lack of basis for how the claimed amounts were calculated, all involve the appropriateness or inappropriateness of the contents of the arbitral award and are not within the scope of review of an enforcement judgment for an arbitral award. We therefore find no basis for set aside due to a failure to state reasons or omission to decide.

      Defendant also contends that the summary of Plaintiff’s arguments and the arbitral tribunal’s determination of it thereof are totally distinct from each other such that the summary of Plaintiff’s arguments cannot be viewed as providing the grounds (p. 185) for making the determination. We find this contention unwarranted because the arbitral award consisted of ‘I. Facts, II. Claims, III. Claimant’s Arguments, IV. Respondent’s Arguments and V. Arbitral Tribunal’s Conclusion’ and in its totality comprised the reasons for the award.

   4. (4)  With regard to the Sixth Claim, according to the relevant evidence, the ICC Court found that ‘The claim consists of two parts. The first part concerns Respondent’s demands for early delivery and the cost incurred by moving the date forward from 22 May to 10 May. The second part concerns the costs incurred because Respondent rejected the acceptance of the products. The dispute amount consists of the following: (1) First Claim, FF 32,865; (2) Second Claim, FF 57,300; and, (3) Third Claim, 13 per cent of the above two claims consisting of Plaintiff’s indirect expenses, interest, and the total amount of incidental damages under the principles from the Ninth Claim based on the Offshore Contract … (omitted). Based on the above reasons, the arbitrators only recognize Claimant’s Second Claim. Thus, we recognize payment to Claimant of FF 64,749 (FF 57,330 plus 13 per cent indirect expenses of FF 7,449) and interest.’

      According to Plaintiff’s Exhibit No. 1, the FF 64,749 in damages cited by the ICC Court was the sum of FF 57,300 plus 13 per cent in indirect expenses of FF 7,449. The amount FF 57,330 was a mere misstatement of FF 57,300 and no contrary evidence exists. In writing an arbitral award, mere misstatements should not be criticized as cases where reasons for an arbitral award were not provided. The arbitral award found FF 57,300 as the cost for the above rejection of receipt and accepted the entire amount claimed by Plaintiff. Therefore, even if the FF 57,300 claimed by Plaintiff included the costs expended for early delivery and it was not appropriate to recognize the entire amount, this is a problem concerning the appropriateness or inappropriateness of the award and does not concern a failure to state reasons. We find Defendant’s contentions untenable because we do not believe that the conditions for set aside exist based on a failure to state reasons.

3. D.  Plaintiff’s Fourth Claim

   1. (1)  Based on the relevant submissions and overall oral arguments, we note the following facts and no contrary evidence exists. Plaintiff sought payment in the arbitration proceedings of FF 6,825,000 as contractually provided for compensation for training of Defendant’s personnel pursuant to the Offshore Contract. Defendant argues that this figure is based on FF 539.75 man/month of training but in reality only FF 530 man/month was provided. Defendant further argued that Plaintiff’s claim to seek payment of the entire amount violated the principle of estoppel because after the training of Defendant’s personnel was reduced the parties consulted with each other as to whether the entire amount or a reduced amount should be paid.

   2. (2)  Defendant contends that the ICC Court erred by omitting to make a decision concerning its argument regarding the violation of the principle of estoppel. According to the relevant submissions, we recognize, and no contrary evidence exists, that the ICC Court responded to Plaintiff’s argument that ‘[i]n particular, Respondent appears to be conveniently forgetting the arguments that it rightfully quoted from other sources. In other words, special provisions prevail over general provisions and arguments based on relinquishment of rights have been excluded from the contract. In light of Respondent’s lack of consistency, we conclude that despite the explicit contractual provisions, Respondent caused the entire dispute when it (p. 186) unilaterally changed the training plans. We find that Plaintiff’s arguments therein are warranted.’ We believe the award includes a decision concerning Respondent’s arguments regarding the violation of the principle of estoppel. Even if the award did not, it could be viewed as intending to implicitly reject such a contention. We thus hold Respondent’s contention is untenable because we cannot find an error exists based on an omission to decide.

4. E.  Plaintiff’s Eighth Claim

   1. (1)  Plaintiff claimed payment of FF 384,359 for personnel expenses that arose because they had to provide different engineering services due to the specific circumstances of the site during the process of carrying out the construction. The parties do not dispute that Defendant argues that they do not have to respond to Plaintiff’s claim because the above change was part of a safety issue that was included in Plaintiff’s original construction scope.

   2. (2)  Defendant argues that regarding their arguments related to the safety issues Plaintiff had the burden of proof because they were part of Plaintiff’s factual basis for bringing their claim. Yet, the ICC Court completely accepted Plaintiff’s arguments because they found that Defendant failed to prove the safety related issues thereof. Defendant argues that they reversed the burden of proof and thus reached their conclusion without providing the grounds for making their determination for the amount of damages.

   3. (3)  When the ICC Court, however, ordered the parties to submit their opinions on whether the change in order for the detailed design concerned safety issues, Defendant only replied that ‘[w]e agree with Claimant that Respondent’s question deals with a rather unrelated issue so no need to reply exists … (omitted) … Such procedure is inappropriate.’ The parties do not dispute that when the ICC Court specifically requested an explanation no particular evidence was submitted. Based on the purpose of the system of arbitration, it is not absolutely necessary to follow the burden of proof under litigation procedure law in arbitration, and facts can be determined under the principle of equity³⁷ based on the manner in which the parties conducted the proceedings. Given that they determined Defendant’s responsibility and recognized Plaintiff’s entire claimed principal amount, we cannot conclude that ICC Court did not provide the reasons in the award just because they referenced the manner in which Defendant conducted the arbitration proceeding. We thus find Defendant’s above contentions untenable.

1. 2.  Determination of the Parties’ Arguments

   According to the underlying facts above, the award can be enforced in Korea based on the New York Convention that both Korea and Japan have joined as parties, unless Defendant can prove through evidence that grounds exist to refuse enforcement of the arbitral award under Article V(1)(a)~(e) or Article V(2)(a) or (b) of the Convention.

   In this regard, Defendant argues that the arbitral award violated the principle of fault liability, a fundamental legal principle in Korea, in rendering a unilateral arbitral decision for Plaintiff by applying the principle of fairness, which is just a general legal principle, even though Defendant was not at all at fault. Therefore, recognition and enforcement should not be allowed because it would be contrary to the public policy of Korea as provided under Article V (2)(b) of the Convention.

   Article V(2) of the Convention provides that the court in the enforcing country may refuse recognition and enforcement of an arbitral award where recognition and enforcement would be contrary to the public policy of that country. The provision seeks to ensure the recognition and enforcement of the arbitral award protects the fundamental moral beliefs and social order of the enforcing country. The determination thereof must take into consideration not only the perspective of the domestic circumstances but also the stability of the international trading order and must be based on a narrow interpretation.³⁸

   According to Plaintiff Exhibit Nos. 12 (Certified Arbitral Award) and 13 (Certified Translation), the arbitral award states that ‘although Defendant accepted all the points of the contractual agreement that I (Arbitrator) described above, Defendant did not accept that the allocation (p. 188) risk for the goods (Freight) while under the supervision of the shipping company (Korea Maritime) lay with Defendant … But I duly conclude that I cannot accept Defendant’s above argument … Some might find that that I am too one-sided in light of the fact that no evidence was discovered that Defendant was actively involved in the damage incurred and that the actual responsible parties were Korean Maritime and EGTRA … However, one of the parties in this case must bear the damage herein … The arbitrator finds it more reasonable that Defendant should bear the damage in light of the principle of fairness.’

   In light of the facts above, the arbitral award acknowledges that the damage in this case arose due to the fault of the third party Korean Maritime and not by the parties of this contract, who were Plaintiff and Defendant. We find that when a contract cannot be performed due to reasons that are not the fault of either party and one party must bear the damage, in the light of the principle of fairness from the perspective of risk allocation, it is reasonable that Defendant should bear it. If we consider that Article 537 of the Civil Act adopts the principle that the obligor bears the risk,³⁹ we cannot find that the arbitral award herein is contrary to the public policy of Korea, and no evidence exists proving otherwise. We hold Defendant’s foregoing argument lacks merit.

1. 2.  Determination on the Final Appeal

   1. A.  First Issue: Argument on the Error of Law regarding the Validity of the Arbitration Agreement

      Whether the arbitral clause in the First Charter Party that the Second Charter Contract applies mutatis mutandis and should be incorporated into the bill of lading such that it is a valid arbitration agreement between the holder of the bill of lading and the carrier shall be determined according to the governing law of the bill of lading. Article 9 of the 1999 AIPL, effective at the time, provides that ‘[t]he existence and validity of legal acts will be determined by the law that applies according to the intent of the parties. If the intent of the parties is unclear, the law where the act occurred will apply.’ If the terms and conditions of the bill of lading explicitly provide the applicable law of a country, then that law applies. But, if the issuer of the bill of lading did not explicitly or implicitly stipulate the applicable law in the bill of lading, then the law will be determined according to the law of the country where the bill of lading was issued.

      (p. 190) The terms and conditions in the overleaf of the bill of lading herein contain a paramount clause that provides the Hague Rules drafted by developed countries and, in certain circumstances, the Hague–Visby Rules apply. Otherwise, however, they do not explicitly provide the governing law of the bill of lading. Therefore, according to the terms and conditions herein, the Hague Rules, and in certain circumstances the Hague–Visby Rules that have been legislated in the US, the country where the cargo was loaded, should apply to the bill of lading. For other matters, the laws and the customs of the US, where the bill of lading was issued, should apply.

      According to the record, nothing was submitted on US laws and customs regarding the legal relations of the bill of lading. ‘For international cases, to determine the applicable foreign laws and regulations and to interpret the meaning thereof, the foreign law must be interpreted and applied as the meaning and content is actually interpreted and applied in the foreign country. Yet, if a deficiency exists in the foreign law applicable to the litigation proceeding, or if no material regarding the foreign law was submitted making it impossible to confirm its particulars, the court will follow the foreign country’s customary law based on the general principles of civil affairs regarding the source of law. If the particulars of the foreign country’s customary law cannot be confirmed, then the court must conduct the trial based on the rules of reason.’⁴¹

      In general, for an arbitral clause in a charter party to be incorporated into a bill of lading, the bill of lading must first specifically have a provision that provides for the incorporation of the arbitral clause as such. Among other things, the provision must also specifically refer to the date and parties of the charter party. (Yet, this does not include the situation where the charter party does not make such specific references but the holder of the bill of lading knows about the charter party and content of the arbitration provision.) If the incorporating language in the bill of lading does not specifically refer to the arbitral clause in the charter party but refers to incorporating all the general provisions of the charter party, and if it is unclear whether the arbitral clause of the charter party has been incorporated, then the receiver (holder) of the bill of lading must have known, or could have known, of the existence of the arbitral clause. Furthermore, once the arbitral clause is incorporated into the bill of lading, it must not conflict with other provisions in the bill of lading. As the same time, the arbitral clause in the charter party must broadly provide that the scope of the parties bound to the arbitration agreement includes not only disputes between the vessel owner and charter but also third parties such as the holder of the bill of lading.

      Based on these legal principles, the court holds that, although the bill of lading has a provision that suggests that all the provisions in the charter party shall be incorporated, the bill of lading did not specifically refer to the charter party herein. The incorporation language is also overly general making it unclear to third parties, such as the holder of the bill of lading, whether the arbitral clause is included among the provisions to be incorporated from the charter party. As seen above, the arbitral clause in the longer term ocean shipping agreement under which the second charter party applies limits its scope of application to the parties of the charter party. Based solely on the language in the bill of lading incorporating the charter party, we do not find that the bill of lading could be considered to have incorporated the (p. 191) arbitral clause of the charter party as well. Although the lower court should be faulted for reaching its conclusion without determining the governing law, we hold that in the end the court was justified in not accepting Defendant’s defence before addressing the merits. We do not find that they committed an error of law regarding whether the arbitral clause of the charter party should have been incorporated into the bill of lading as argued by Defendant.

1. 2.  Determination Concerning the Lawfulness of the Claim

   1. (1)  In the action herein Plaintiff as the insurer of the freight seeks compensation for the insurance payment that they paid by subrogation of Cage Chemical’s claim for compensation against Defendant. Defendant raises the defence before addressing the merits that the action violates the arbitration agreement and is thus unlawful. They argue that an arbitration agreement is incorporated in the Bill of Lading that was agreed upon between Defendant and Samsung Asia when the Charter Party was concluded.

   2. (2)  We find that if we combine the overall gist of the arguments with Plaintiff Exhibit No. 1 and Defendant Exhibits No. 1 and No. 2, we can confirm the following facts: (a) the Charter Party between Defendant and Samsung Asia contains an arbitral clause and a governing law clause that states ‘ARBITRATION, IF ANY, IN HKG AND ENGLISH LAW APPLIED’; (b) the front side of the Bill of Lading provides beneath the heading ‘Bill of Lading’ ‘TO BE USED WITH CHARTER-PARTIES’; (c) Article 1 of the overleaf (p. 192) terms and conditions hereof provides that ‘[a]ll terms and conditions, liberties and exceptions of the Charter Party, dated as overleaf, including the Law and Arbitration Clause, are herewith incorporated’; (d) in the date section of the Charter Party on the front side of the Bill of Lading states ‘CHARTER-PARTY DATED 28TH JUNE, 2006.’

   According to the foregoing facts, we deem it proper to rule that the charter party of 28 June 2006 indicated in the Bill of Lading is the Charter Party herein. Whether the effect of the arbitral clause of the Charter Party shall be incorporated in the Bill of Lading and extends to the relationship between the carrier of the Charter Party and the holder of the Bill of Lading shall be determined by the applicable law of the Bill of Lading. The 2001 AIPL provides that ‘[t]he formation and validity of a contract, in case the contract is validly formed, shall be determined according to the applicable law that shall apply under this Act. (Article 29(1)); A contract shall be governed by the law that the parties explicitly or implicitly choose (main sentence of Article 25(1))’.⁴² In light of this fact, we deem it reasonable to hold that the governing law of the Bill of Lading, which specifically mentions and provides for the incorporation of the governing law clause of the Charter Party, shall be the governing law of the Charter Party, which is English law.

   According to English law, where the incorporating provision in a Bill of Lading mentions the arbitral clause of the Charter Party, the said arbitral clause is incorporated into the Bill of Lading.⁴³ Thus, in the case herein where the Bill of Lading specifically mentions the arbitral clause of the Charter Party and clearly stipulates that it shall be incorporated, the arbitral clause of the Charter Party shall be incorporated into the Bill of Lading and shall apply to the relationship between Defendant, who is the marine carrier of the freight and the holder of the Bill of Lading.

   We find that Plaintiff’s action herein, as the insurer of the freight, involving a subrogation of Cage Chemical’s claim for compensatory damages under the legal principles of insurance subrogation against Defendant, the final holder of the Bill of Lading, is an unlawful action contrary to the arbitration agreement. We thereby hold that Defendant’s defence is warranted.

1. 3.  Determination Regarding Defence before Addressing the Merits and Applicable Law

   1. B.  Applicable Law

      Plaintiff seeks performance of the obligations under the Arbitral Award from Defendant Unimark Maritime because Unimark America’s corporate entity has to be disregarded. Plaintiff also seeks compensatory damages in the amount of Unimark America’s obligations under the Arbitral Award from Defendant WT based on his tortious acts of cancelling Unimark America and establishing Defendant Unimark Maritime as a formally independent legal entity to avoid its debt obligations. We find that whether liability should be imputed based on disregarding a corporate entity should be decided according to the lex personalis of the legal entity.

      With regard to the lex personalis of a legal entity, Article 16 of the 2001 AIPL provides that ‘for a legal entity or organization, it will be according to the applicable law of where it was established’. With regard to tortious acts, Article 32 of the AIPL provides that ‘for a tortious act, it will be according to the law of where the act was carried out’.⁴⁴

      In the present case, Defendant Unimark Maritime was established in Washington State, US, and the tortious act of cancelling the Unimark America and establishing Defendant Unimark Maritime, as argued by Plaintiff, also occurred in Washington State. We thereby hold that the applicable law in this case should be the law of Washington State.

Applicable Law

The 2011 AIPL stipulates in Article 25 that parties may choose the applicable law of a contract. The FOSFA Contract No. 53⁴⁵ that has been incorporated into the Contracts between Plaintiff and Hwami provides the applicable law is English law. Therefore, absent special circumstances, the FOSFA provisions are part of the Contracts and, among other things, the applicable law regarding the interpretation, effect, performance, and termination for each of the Contracts is English law.

At the same time, Plaintiff seeks to hold Defendant responsible as the acquirer of Hwami’s business. An acquirer who continues to use the trade name of a business has a statutory liability to creditors of the acquired business. The AIPL does not contain any provisions directly applicable to this type of liability, but it does contain provisions concerning statutory obligations such as management of administrative affairs, unjust enrichment, and tortious acts that we can refer by analogy. Article 33 of the AIPL provides that after the fact Korean law can be chosen as the applicable law for such statutory obligations. Since both Plaintiff and Defendant agreed that Korean law should govern as the applicable law in this court, we ultimately hold that Korean law is the applicable law regarding, among other things, the existence and validity of Defendant’s responsibility as the acquirer of the business.