1. 2.  According to the reasoning and record of the lower court, Applicant Choyang Shipping entered into a charter party for carriage of hardwood through the Re-Appellant’s (Bando Lumber) vessel. Malaysian hardwood was to be loaded from the Port of Kuala Terengganu (first port of loading) and Port of Kuala Baram (second port of loading), both located in Malaysia, and then shipped to the port of discharge, Port of Dadaepo in Busan. In connection with the carriage, Applicant Choyang Shipping argued that in both ports of loading, a total of USD 53,441.66 in demurrage claims arose. To obtain payment of this amount, Applicant Choyang Shipping thereby requested an auction of the cargo that was to be delivered to the Re-Appellant pursuant to Article 804 of the 1963 Commercial Act² and Article 136(5) of the 1963 Non-Contentious Case Litigation Procedure Act.³

   The lower court first addressed the Re-Appellant’s objection that Applicant’s request to auction the cargo was unlawful because it would violate the arbitration agreement between the parties. The lower court acknowledged the fact that based on the charter party, Applicant and Re-Appellant did agree to resolve all disputes between the parties arising under the charter party pursuant to an arbitral award. Yet, the lower court found that the arbitration agreement only amounted to an agreement to finally resolve by arbitration disputes between the parties arising under the charter party (in the case herein, the existence of the claim for demurrage and its scope). The lower court determined that this could not serve as grounds to not accept their original decision, which granted Applicant’s request against the Re-Appellant to auction the cargo, allowing them to secure their claim of USD 53,441.66 in demurrage under the charter party. According to the facts established, the lower court sustained the court of first instance’s decision to grant Applicant’s request to auction the cargo by dismissing the Re-Appellant’s appeal because they recognized that the Re-Appellant had an obligation to pay the Applicant the demurrage of USD 53,441.66.

   Yet, in this case, we find that if the court permits the auction of Applicant’s cargo based on Article 804 of the Commercial Act, Applicant may immediately commence execution of the obligation by entrusting the bailiff to conduct an auction under the Auction Act. At the same time, for the court to decide whether to allow the auction, Applicant argues that the court must first determine and establish the scope of the demurrage obligation. As the lower court recognized, on the basis of the charter party, Applicant and Re-Appellant had an arbitration agreement to resolve all disputes between the parties arising under the charter party pursuant to an arbitral award. In this case, the parties contend whether a demurrage obligation had arisen under which the Re-Appellant would have to compensate Applicant in connection with the charter party. It would ultimately contravene the parties’ arbitration agreement to resolve all disputes under the charter party by arbitration if the (p. 246) courts had established the existence and scope of the demurrage obligation under contention and had then decided whether to permit an auction for its payment. Since the record clearly provides that a dispute exists as to whether a demurrage claim exists, we thereby find that Applicant’s request seeking permission for an auction of the cargo to pay the demurrage obligation should not be granted without first conducting arbitration.

   In the end, the lower court recognized that, based on the charter party, Applicant and Re-Appellant had an arbitration agreement to resolve all disputes between the parties arising under the charter agreement pursuant to an arbitral award. For the reasons explained above, the lower court rejected the Re-Appellant’s arguments that the request to auction was unlawful because it contravened the arbitration agreement. They then accepted Applicant’s request to auction the cargo.

   We find that lower court’s measure to maintain the court of first instance’s decision was an error of law concerning auctions of cargo under Article 804 of the Commercial Act and the effects of an arbitration agreement. We hold that the re-appeal arguments thereof were warranted.

The lower court recognized that when an arbitration is conducted without an arbitration agreement, the 1999 Arbitration Act recognizes the following three types of judicial oversight: (1) based on Articles 17(1)–17(5), when an arbitral tribunal decides as a preliminary question that it has the competence to rule on a party’s objection, then, based on Article 17(6), the objecting party may request a court to review the tribunal’s competence within 30 days, thereby providing a method for a court to review a tribunal’s competence; (2) in a setting aside action based on Article 36 where a party challenges an arbitral award, a court may examine whether an arbitration agreement existed; or, (3) in a request for a recognition or enforcement judgment of an arbitral award under Article 37, a court may examine in that action whether an arbitration agreement existed.

According to the relevant provisions in the Arbitration Act regarding the foregoing types of judicial oversight, the lower court held that the Act grants priority to the arbitral tribunal in terms of the right to determine the validity and scope of the arbitration agreement that serves as the basis of its jurisdiction. The lower court then noted that under the Act, such determination is not final and binding upon a court, and the right to make the final determination is reserved to the court.

At the same time, the lower court noted that Article 6 of the Arbitration Act provides that ‘[i]n matters governed by this Act, no court may shall intervene except where so provided in this Act’, and limits the scope that a court may intervene in terms of arbitration related matters to ‘matters governed by this Act’. Therefore, even if an arbitration agreement does not exist, a court cannot engage in judicial oversight over an arbitration except in the three foregoing (p. 247) cases permitted under the Act. Since an action seeking a declaration of the wrongfulness of an arbitration is a type of judicial oversight over an arbitration, the lower court held that it could not be allowed under Article 6 and that Plaintiff’s declaratory action herein was unlawful.⁴

Based on the record, we are convinced that the lower court’s foregoing determination was justified. As argued in the final appeal, we do not find that they committed an error of law regarding Article 6 of the Arbitration Act.

We also find it inappropriate to apply the Supreme Court’s 96 Ma 149, 11 June 1996 decision to the case herein because it concerned the old Arbitration Act before it was amended.

Furthermore, a party that argues the wrongfulness of an arbitral proceeding that was conducted without an arbitration agreement may receive a court’s review by requesting a review of the arbitral tribunal’s competence based on Article 17(6) of the Arbitration Act, through an action requesting a set aside of the arbitral reward based on Article 36 or through an action requesting enforcement of the arbitral award based on Article 37. Therefore, we find that just because a party is not allowed to bring a declaratory action regarding the wrongfulness of an arbitration proceeding, we cannot conclude that their constitutionally guaranteed right to receive trial by a judge was infringed.

According to Articles 9(1) and (2) of the 2002 Arbitration Act,⁶ a court shall dismiss an action brought concerning a matter that is the subject of an arbitration agreement when the defendant raises a defence that an agreement exists no later than the first oral argument on the merits.

(p. 248) According to the record in this case, the following facts can be confirmed: (1) on 26 April 2010, Plaintiff filed an action against Defendant for the unpaid amount of KRW 1,324,538 (USD 1,200) due under Article 12 of a contract based on the KOTRA Online Payment Service.⁷ Plaintiff then received payment of the entire claimed amount from Defendant during the above litigation; (2) on 1 September 2010, Plaintiff submitted a request to amend its Object and Statement of Claim to seek payment of KRW 7,899,450 (USD 6,900) for a different unpaid amount. Plaintiff’s attorney pleaded that he submitted the amended request at the opening hearing on 6 September 2010, but at the time Defendant had not received service of process of the amended request, which they finally received on 8 September 2010; (3) on 24 September 2010, Defendant submitted their defence that claimed that an arbitration agreement existed regarding disputes arising under the KOTRA Online Payment Service contract; (4) on 11 October 2010, Defendant’s attorney pleaded this defence in court at the second hearing; and, (5) at the same time, according to Article 18 of the KOTRA Online Payment Service contract, an arbitration agreement clause existed that if a dispute concerning the contract between Plaintiff and Defendant arose it would be resolved by arbitration at the KCAB.

According to the above confirmed facts, Defendant did not make a defence claiming an arbitration agreement existed before the opening hearing on 6 September 2010, but at the time they had not yet received service of process of the amended request. Therefore, the opening hearing could not be deemed as the first hearing on the merits. As long as Defendant made its defence that an arbitration agreement existed at the second hearing after they received the amended request, we hold that Defendant made its defence that an arbitration agreement existed ‘not later than the first oral argument on the merits’.

The lower court should have dismissed this action according to Article 9(1) of the Arbitration Act but overlooked this while reviewing and determining the merits. We find that the lower court judgment cannot be sustained as is.

Therefore, we reverse the lower court judgment, but, finding sufficient basis to make our own direct judgment, we decide to render our own judgment under Article 437⁸ of the Civil Procedure Act and vacate the court of first instance’s judgment. We dismiss the action in this case and assess all costs associated with the final appeal against the losing party. By unanimous decision of all participating Supreme Court Justices, we enter judgment as provided in the disposition.

The court will review ex officio whether the action is lawful before the merits are addressed.

(p. 249) On 12 October 1983, the head of Seoul Thermoelectric Power Plant, a subsidiary of Plaintiff, debarred Joongwon Construction Co. (‘Participating Company’) from bidding in all government projects until 11 October 1985. On 22 August 1988, the Participating Company filed for arbitration against Plaintiff seeking damages for the debarment. Defendant registered the arbitration and the proceeding is ongoing. Plaintiff argues that the above arbitration should be disallowed because Defendant KCAB accepted the Participating Company’s arbitration request even though an arbitration agreement between Plaintiff and Participating Company concerning the above dispute did not exist.

We observe that in a private law dispute based on commercial acts between two parties where one party files a request for arbitration based on the existence of an arbitration agreement against another party under the Arbitration Act and related commercial arbitration rules, the other party that argues that an arbitration agreement does not exist may request at the arbitral proceedings itself that the arbitration should not be allowed. After the arbitral award is rendered, the other party may seek, based on the same reason, a set aside action under Article 13 of the Arbitration Act or seek a dismissal of an enforcement judgment under Article 14.

We find that the authority to determine whether an arbitration agreement exists and whether to accordingly permit the arbitration is ultimately reserved for the court through such means as an action to set aside the arbitral award and an action seeking an enforcement judgment. In light of this legal basis, before an arbitral award, an objecting party may bring a declaratory action to the court that the arbitration should not be allowed due to the non-existence of an arbitration agreement. If legal basis exists for an action seeking disallowance of an arbitration as provided above, then in essence such an action is a declaratory action, and the parties in the litigation should be both deemed legally interested parties to the dispute.

In this case, however, we find that the Participating Company filed the request for arbitration. Clearly, the interested parties in the dispute concerning whether an arbitration agreement existed and whether the arbitration should be accordingly permitted are Plaintiff and Participating Company. Defendant is merely an incorporated association overseeing the foregoing arbitration case and is not in a position to legally have any interest in the dispute. Accordingly, we hold that the action herein is against a party who does not have standing to be sued and therefore should be considered unlawful.

1. 3.  Third Point on Final Appeal

   According to the reasoning in the lower court’s judgment, Defendant argued that the arbitral tribunal explained in the reasons behind its Arbitral Award that the set-off issue that (p. 250) Defendant raised after the hearing should be solved by agreement of the parties or by the enforcement proceedings of the domestic court. The tribunal thus requested that the domestic court where the recognition and enforcement judgment was submitted had to examine and resolve the set-off issue that Defendant raised so the set-off argument had to be examined and determined in these court proceedings. Defendant held an automatic obligation against Plaintiffs amounting to Saudi Arabian Riyal (SAR) 2,818,910. This exceeded the credit amount recognized under the Arbitral Award. Thus Defendant argues that if the automatic obligation is set-off, then the entire credit amount established under the Arbitral Award would expire.

   We rule that the part of the Arbitral Award that raises concerns merely provided that the arbitral tribunal would not examine during the arbitral proceeding the set-off argument that Defendant raised for the first time after the hearing for issues was completely over. The award found that this issue had to be resolved separately and merely offered examples of how it should be resolved such as by an agreement between the parties or by an enforcement judgment by the court. The award did not request that the domestic court’s ruling on the recognition and enforcement of the award had to examine and determine the set-off argument. Even if a foreign arbitral tribunal requested in the reasons of its arbitral award that a domestic court examine issues not examined during the arbitral proceedings, a domestic court would not gain the right or obligation to examine or determine thereof merely based on such a request.

   Furthermore, since Plaintiffs and Defendant agreed to resolve disputes related to the Construction Contract through arbitration, we find the arbitral tribunal did not have the authority to provide, contrary to the arbitration agreement between the parties, a method other than arbitration to resolve the set-off defence that was based on the existence of an automatic obligation related to the Construction Contract. The domestic courts also would not have the authority to examine and determine the existence of the automatic obligation and its scope as argued by Defendants. It would be contrary to the arbitration agreement between the parties. We rule that Defendant’s set-off argument must be resolved by a separate arbitral award according to the parties’ arbitration agreement and is not an issue that this court could examine and determine.

   According to the records, we are convinced that the lower court’s finding of facts and determinations are reasonable. We do not find, as argued in the final appeal, that they committed mistakes such as an error of law regarding set-off or an infringement of the constitutional right to request a trial.

1. 2.  Determination Concerning Defence Before Addressing the Merits⁹

   1. (3)  Arbitration Defence

      Defendant counsel argues that when Plaintiffs and Defendant entered into the Ship Modification Contract (‘Contract’), they agreed to refer disputes related to the Contract to arbitration (Article 15(2)). They argue that Plaintiffs’ lawsuit that was brought in violation of the arbitration agreement is unlawful. In contrast, Plaintiffs’ counsel argues that since Defendant did not request arbitration until the expiration of the agreed upon arbitration request period, the arbitration agreement was no longer valid.¹⁰

      Taking into consideration the uncontested Plaintiff Exhibit No. 1 (Modification Contract), Plaintiff Exhibit No. 2 (Sworn Written Statements), Defendant Exhibit No. 2-3 (Request for Arbitration), and Defendant Exhibit No. 2-1 (Sworn Written Statements; the entire document’s authenticity is presumed because it is uncontested that it is from a public institution; sections at the end, however, that are not credible are excluded), and all aspects of the oral arguments, we confirm the following facts and no rebuttal evidence exists:

      1. (1)  Article 15(2) of the Contract provides that ‘unless a different provision in this Contract states otherwise, all disputes related to this Contract shall be referred to arbitration by three arbitrators’;

      2. (2)  Article 15(5) states that ‘the above arbitration shall take place in London and that its proceedings should proceed and be controlled according to the 1950~1982 arbitration laws and rules or the validly-amended and re-enacted substantive rules or governing law at the time’;

      3. (3)  Article 20 provides that ‘this Contract shall conclude when the modified vessel is redelivered under Article 8 of the Contract, yet Articles 10, 12, 15 and 19, which expire only when all obligations related to the expiration of the warranty period have been performed, are excluded’;

      4. (4)  Article 10 provides that the warranty period for defects shall be 24 months for defects related to such matters as the welding of steel structures and 18 months for other defects (yet, depending on the circumstances of the subcontractor, the period could be over 18 months or could be 12 months), and notice of these defects must be provided within 15 days of the expiration of the warranty period;

      5. (5)  Article 12 provides that payment of the contract price shall be paid over five instalments, and the fifth instalment shall be deposited by telegraph money order 2 bank working days before the modified vessel is redelivered;

      6. (p. 252) (6)  Article 19 provides for the method and location for notice or manifesting intent and the effective date related to the Contract;

      7. (7)  After the vessel was redelivered to Defendant in 2 August 1987, defects in the repair of the vessel were not discovered, or Plaintiff’s or others failure to perform a contractual obligation was not discovered;

      8. (8)  On 12 April 1990, Defendant appointed British attorney Richard Stone as an arbitrator;

      9. (9)  On May 18 of the same year, Defendant filed an action with the High Court in London, among other things, to confirm that the request for arbitration did not take place after the agreed upon period in Article 15 of the Contract and to extend the period when a request for arbitration could be filed under the Contract based on Article 27 of the English Arbitration Act of 1950; and, the writ of summons for the hearing of the trial thereof was delivered to Plaintiffs and others; and,

      10. (10)  The ordinary period for filing an action under English law is six years and Article 27 of English Arbitration Act of 1950 provides that ‘the High Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may, on such terms, if any, as the justice of the case may require, but without prejudice to the provisions of any enactment limiting the time for the commencement of arbitration proceedings, extend the time for such period as it thinks proper’.

   When an arbitration agreement exists between contracting parties, the parties are prohibited from directly filing an action with the court. Yet an action can be brought if the arbitration agreement is null and void, inoperative or incapable of being performed (Article 3¹¹ of the Arbitration Act). Considering the various provisions in the Contract, the maximum period for the warranty against defects for the Vessel is 24 months and 15 days. If the vessel owner requests a repair of defects within this period, the relevant provisions remain effective until the performance of the obligation hereof (including Article 15 regarding the arbitration agreement). Therefore, we rule that since the vessel owner did not request a repair for defects in this case, the Contract should be interpreted to be completely terminated. Such interpretation is consistent with the purpose of the provisions in the Contract, which had a separate provision for termination.

   Defendant’s counsel argues that since the period to request for arbitration is not clearly provided, the period should be considered six years according to English law, the governing law for interpreting the Contract. Even if this argument is not accepted, they argue the Korean court should not determine whether the arbitration agreement exists until the English High Court renders its judgment since the High Court is currently determining whether the right to request arbitration exists and whether to grant the request to extend the arbitration request period.

   We find, however, that the written statements of the British attorney according to Defendant Exhibits 2-1 (excluding the part deemed credible above), and 3-1 to 4 (Sworn Written Statements) cannot be accepted as they are. As confirmed above, since the arbitration agreement terminated with the expiration of the Contract, the parties are not prohibited from filing an action with the competent court to resolve the dispute. As long as a legal action has been permitted, even if an English court later accepts the request (p. 253) to extend the arbitration period or the action to confirm the right to request for arbitration, an unjustified outcome would occur in terms of judicial economy and protecting the trust of the parties if the case validly proceeding in this court is considered unlawful. Therefore, we hold that Defendant counsel’s above arguments that take the opposite view must be rejected and, in the end, from any given standpoint, Defendant counsel’s defence before addressing the merits is unwarranted.

A respondent to an arbitration challenged a tribunal’s competence and later sought a court review on whether an arbitration agreement existed. One part of the case concerned whether Article 17(6) of the Arbitration Act provided the respondent with a means of redress.

At the same time, we find that the competence to finally determine whether an arbitration agreement exists and whether to permit the use of arbitral proceedings accordingly is ultimately reserved to the courts through a set aside action or enforcement judgment of the arbitral award. In this light, we find that before an arbitral award is rendered a party contending such matters may bring a court action to confirm that the arbitral proceedings should not be allowed due to the lack of an arbitration agreement.¹² Article 17(6) of the amended Arbitration Act provides that if an arbitral tribunal rules as a preliminary matter that it has competence, the party who objected to the tribunal’s competence may request a court to review the issue thereof. A tribunal, however, does not necessarily have to rule on its competence as a preliminary matter just because a party raised an objection. Arbitral proceedings also do not have to be suspended just because a request to review a tribunal’s competence has been submitted to a court. Thus, the above provision by itself is inadequate to provide redress to respondent in the arbitration wrongfully brought against them.

1. 2.  Determination on Defendant’s Defence before Addressing the Merits

   1. A.  Defendant notes that when the Parties entered into the foregoing First Contract and Second Contract they agreed to resort to arbitration if disputes arose regarding the contracts. Yet, without resorting to arbitration, Plaintiff brought this action seeking payment of compensatory damages due to non-performance of the foregoing contracts. Defendant argues that because this action contravenes the foregoing arbitration agreement, it is unlawful.

      We observe that putting together Plaintiff Exhibit Nos. 2, 3 and the overall oral arguments, Plaintiff and Defendant made an arbitration agreement when entering into the First Contract that if disputes related to the contract that could not be settled, they would resort to arbitration. The arbitral proceeding would be conducted according to the German Frankfurt Mediation Rules¹³ and ICC arbitration in English, and the outcome of the arbitration would be conclusive and binding upon the parties.¹⁴ We also recognize that when entering into the Second Contract, the parties maintained the validity of this arbitration agreement.¹⁵ Unless special circumstance exists, we hold that Plaintiff’s action herein is contrary to the foregoing arbitration agreement and thereby unlawful.

   2. B.  In this regard, Plaintiff argues that, on 18 August 1999, they filed for arbitration for this case at the KCAB in accordance with the arbitration agreement.¹⁶ On 10 September 1999, the KCAB sent a reply to Plaintiff that the dispute herein must be settled by litigation and not through arbitral proceedings. As a result, it has been determined that the arbitration agreement is incapable of being performed, and Plaintiff’s action herein is lawful.

      We observe that combining all the overall oral arguments and Plaintiff Exhibit No. 5, Plaintiff did submit a request for arbitration with the KCAB at the time they asserted. We also recognize that KCAB sent a reply to Plaintiff indicating that they should consult directly with Defendant regarding issues for settling the dispute including the place of the arbitration but if such consultation was not successful, then it would be advisable to settle the dispute through legal proceedings such as arbitration or civil litigation. We hold it difficult to accept that based only upon KCAB’s response, the arbitration agreement would be incapable of being performed. Because no evidence to find otherwise exists, we hold that we cannot accept Plaintiff’s foregoing argument.(p. 255)

      1. 3.  Conclusion

         Accordingly, we hold that Plaintiff’s action herein is contrary to the arbitration agreement between the Parties and is therefore unlawful. The court hereby dismisses the action before addressing the merits, thus rendering a judgment as set forth in the disposition hereof.

1. 2.  Determination on Defendant’s Defence before Addressing the Merits

   Plaintiff argues that the KCAB tribunal rendered an arbitral award that dismissed the request for arbitration, even though under the contract an arbitration agreement existed between the parties. Plaintiff argues that it brought an action to set aside the award because the ‘arbitral procedure was not in accordance with agreement of the parties, which was not in conflict with a mandatory provision of this Act, or failing such agreement, was not in accordance with this Act’ as provided under Article 36(2)(1)(d) of the Arbitration Act.

   Defendant argues that an action to set aside an arbitral award can only be brought on the grounds provided under the Arbitration Act. Under the contract, the parties did not enter into a separate arbitration agreement. Article 4 (Arbitration Proceedings) of the Arbitration Act only provides for such matters as the place of arbitration, method for submitting the request for arbitration and answer and hearing method. The KCAB’s dismissal of Plaintiff’s request for arbitration was due to the lack of an arbitration agreement. This did not constitute an arbitration proceeding that violated the parties’ agreement or the Arbitration Act and did not fall within any other grounds to set aside an award under the Act. Defendant thus challenges that Plaintiff’s action is unlawful.

   We observe that when an arbitration agreement does exist if one party brings a court action then the court must dismiss it pursuant to the other party’s defence that an arbitration agreement exists.¹⁷ The parties thus may only settle the dispute by arbitration. If an arbitral tribunal, however, dismisses the request for arbitration on the basis that an arbitration agreement does not exist, then the parties do not have any other means for dispute settlement.

   The Arbitration Act provides that an action to set aside an arbitral award may be brought if an award is rendered even if an arbitration agreement is invalid, or if the award dealt with matters not subject to the arbitration agreement or exceeded the scope of the arbitration agreement.¹⁸ The Act also provides that if a party objects to the arbitral tribunal’s authority or the existence or validity of an arbitration agreement during the arbitration proceedings, then the arbitral tribunal must make a decision as a preliminary question or must make a determination during the merits of the arbitral award.¹⁹ If the arbitral tribunal decides that they have authority as a preliminary question, then an objecting party may request a court review concerning the tribunal’s authority.²⁰ As such, the Arbitration Act reserves the final authority to determine the existence and effects of an arbitration agreement to the courts.

   Taking these points into consideration, if an arbitral tribunal determines that an arbitration agreement does not exist and dismisses the request for arbitration even though such an agreement existed between the parties, then we view it reasonable to interpret that under the Arbitration Act, the arbitration procedure was not in accordance with the arbitration agreement between the parties. We hold that the party that argued that an arbitration agreement existed can bring an action to set aside the arbitral award on this basis. Defendant’s foregoing defence is unwarranted.(p. 257)

2. 3.  Determination on the Merits

   1. A.  Arguments of the Parties

      Plaintiff argues that the award should be set aside because the proceedings violated the arbitration agreement or the Act. It argues that the dispute settlement clause grants a party a choice between arbitration and court procedures. Once a party chooses arbitration, the other party must comply accordingly. Defendant argues that for arbitration to occur under such a dispute settlement clause a supplementary arbitration agreement is required. It asserts that the clause does not exclude court proceedings so does not constitute an arbitration agreement, and thereby Plaintiff’s request for arbitration was lawfully dismissal.

   2. B.  Determination

      We observe that if the parties could not amicably settle the contractual dispute herein, then one party ‘may require’ that settlement of the dispute be referred to a formal method listed in the Contract’s Special Conditions. According to the Contract’s Special Conditions, as provided above, the parties agreed that in a dispute such as the one between the parties where the purchaser and supplier are of the same nationality, the dispute must be referred to court proceedings or arbitration.²¹

      Given the meaning of the wording ‘may require’, and, as long as arbitration has been chosen as one of the methods to settle the dispute, if one party has chosen arbitration, then it would be contrary to the purpose of arbitration as a method to settle the dispute if the other party could avoid arbitration proceedings by objecting to it. In light of these points, under the contract herein, if one party has chosen arbitration to settle the dispute, then we deem it reasonable to argue that it should be interpreted that the other party has an obligation to comply thereof.

      Yet, as provided above, on 30 December 1999, Plaintiff chose arbitration as the method of dispute settlement concerning the contractual dispute by requesting arbitration against Defendant at the KCAB. We find that the KCAB should have deemed that Defendant was bound to Plaintiff’s choice such that ultimately a valid arbitration agreement existed between the parties. Despite this, we conclude that the KCAB tribunal rendered an award that dismissed Plaintiff’s request for arbitration based on the non-existence of an arbitration agreement, in violation of Article 36(2)(1)(4) of the Arbitration Act so the award should be set aside.

1. 1.  Determination of Lawfulness concerning Defendant’s Counteraction

   [Defendant claims that Plaintiff’s employees defrauded and induced them into entering the Contract and swindled and embezzled the wages and training expenses. Pursuant to Article 756 of the Civil Act, Plaintiff, as the employer, is liable for USD 14,440.94 in damages.]

   1. A.  Determination

      A court before which an action is brought in a matter subject to an arbitration agreement shall dismiss the action when a defendant raises as a defence the existence of arbitration agreement.²³ This shall also apply where the place of arbitration is not in Korea.²⁴ An arbitration agreement subject to the Arbitration Act is an agreement between the parties to settle by arbitration all or part of a dispute that has already arisen or may arise in the future between them regarding a certain legal relationship regardless of whether it is a contractual dispute or not. The effects of the arbitration agreement will extend not only to the contract containing the arbitration clause but also to disputes directly or closely related to the establishment, performance and validity of the contract thereof.²⁵ Therefore, in the absence of any special circumstances, it should be deemed that the contracting parties agreed to resolve all disputes arising out of the particular legal relationship between them pursuant to arbitration.²⁶

      As provided above, when Plaintiff and Defendant entered into the Contract, they agreed to resolve disputes that arose between them regarding the Contract by arbitration in Singapore under the Singapore Arbitration Act, making it an arbitration agreement subject to the Arbitration Act. The subject of Defendant’s counteraction includes disputes directly or closely related to the performance, validity, and continuation of the Contract, which falls under the subject of arbitration as provided in the arbitration agreement. Defendant’s counteraction ultimately conflicts with the Contract’s arbitration agreement and should be considered unlawful. We find that Defendant’s defence that raises this point is warranted.

1. 2.  Determination Concerning Defence before Addressing the Merits

   With regard to Plaintiff’s action herein claiming a commission against Defendant based on a 20 October 2006 agency contract related to battery products, Defendant raises a defence before addressing the merits that an arbitral agreement was made thereafter under the 9 January 2008 Agency Contract. In their view, bringing an action in violation thereof was unlawful.

   We observe that, as found in the underlying facts, the parties entered into an arbitral agreement under the 9 January 2008 Agency Contract. Yet, before Plaintiff entered into the foregoing Agency Contract, on 20 October 2006, they orally entered into an agency contract regarding Defendant’s battery products and requested a commission as a result. Plaintiff asserts that the 9 January 2008 Agency Contract thereafter was a separate agreement regarding the subject items that did not include the battery products. Thus, we find that the basis of Plaintiff’s claim herein is clearly distinct from the 9 January 2008 Agency Contract, and the arbitral agreement in the 9 January 2008 Agency Contract cannot be directly applied to the 20 October 2006 oral agreement that serves the basis for Plaintiff’s arguments. (Whether an oral agreement was concluded as Plaintiff asserts is an issue that should be determined in the merits.) Defendant’s foregoing defence before addressing the merits is unwarranted.

1. (1)  We find that the interpretation and application of the arbitration agreement should be according to the Arbitration Act. Based solely upon the arbitration agreement, we do not find that we have sufficient basis to recognize it as an agreement not only for the method to select the arbitrators but also as an agreement for ad hoc arbitration such that arbitration under the KCAB would not be permitted. No evidence exists to prove otherwise. Applicant’s argument that is premised on the arbitration agreement being an agreement for ad hoc arbitration is unwarranted in this regard.

2. (2)  Even if Applicant has a right to arbitration according to ad hoc arbitration, based on its nature, we do not believe that it would not be infringed at all by the KCAB arbitration proceeding. Even if the KCAB arbitration proceeding continues, this would not constrain Applicant from proceeding with an arbitration proceeding according to ad hoc procedures. Thus, we do not find that sudden and serious injury would occur to Applicant’s right to receive ad hoc arbitration if the KCAB-based appointment of arbitrators and arbitration proceedings were not suspended.

3. (3)  Moreover, we find that Applicant’s declaratory action regarding the wrongfulness of the arbitration proceedings should not be allowed based on the same reasoning as section (4) below and cannot be asserted as a right to preservative measures. Applicant has not provided an explanation as argued above that the KCAB’s arbitrator appointment procedures are outrageous or that sudden and serious injury will occur if the arbitrator appointment and arbitration proceeding is not suspended. (Applicant can raise their argument concerning the arbitration agreement during the KCAB arbitration proceeding. Even after the proceeding, they can challenge the arbitral award during the enforcement stage under Article 14 of the Arbitration Act or through a set aside action under Article 13 of the same Act. Additionally, as seen above, Applicant is not the one requesting damages for detention and dead freight, among other things, but merely is the one receiving the request. In light of these circumstances, we do not find that Applicant will incur serious and sudden damages if Respondent’s KCAB arbitration proceeding continues.)

4. (4)  Furthermore, we find that as sought by Applicant the KCAB based appointment of the arbitrators and other arbitration procedures cannot be suspended through a provisional (p. 261) disposition.²⁸ The arbitrator appointment procedure conducted according to the KCAB’s Commercial Arbitration Rules after registering Respondent’s request was merely an ancillary administrative procedure carried out for the arbitration by the resulting arbitrators. As seen below, a provisional disposition cannot be allowed against the arbitration by the resulting arbitrators that is inextricably linked to the above procedure. We thus find that a provisional disposition cannot be used to suspend the KCAB’s appointment of arbitrators and other procedures.

   Moreover, we also find that if Applicant seeks a provisional disposition to suspend the arbitration by the arbitrators after they have been appointed, this cannot be allowed. Arbitration is a legal dispute resolution procedure under which the Arbitration Act provides for such matters as its procedures and the validity of an arbitral award. Article 12 of the Act recognizes arbitration as the final means to settle a dispute. Article 10 provides that the lawfulness and appropriateness of a party’s request for arbitration can only be determined within its procedures. For arbitration to fulfil its function as a means for dispute resolution, Article 10 provides that an arbitrator may continue to conduct an arbitration and render an arbitral award even when a party argues that (1) a legally valid arbitration agreement has not been established; (2) the arbitration agreement is not related to the contested matters that need to be determined; (3) the arbitrator does not have the competence to carry out his duties; or, (4) other arbitration procedures should not be allowed. Article 13 provides that in certain cases a party may bring an action to the court to set aside an arbitral award. The Act therefore provides that with regard to arbitration, a court may intervene only when an arbitral award has a material procedural defect or error.

   In light of these circumstances, we hold that the arbitration proceedings of an arbitrator cannot be suspended by a provisional disposition.

Article 10 of the Arbitration Act provides that an arbitrator may conduct an arbitration proceeding and render an award even if a party argues that the arbitration should not be allowed. In light of this purpose, even if a particular arbitration proceeding in fact should not be allowed, we hold a party cannot directly apply to a court for a provisional disposition to suspend the arbitration proceeding based on its wrongfulness. We deem it a separate issue whether the party may bring against the counterparty an action on the merits seeking a declaration of the errors in the arbitration proceedings, or may contest the wrongfulness (p. 262) of the arbitration proceedings by bringing an action to set aside the arbitral award after it is rendered.

Although the reasons stated by the lower court are partially inadequate, their determination that Applicants may not seek a suspension of the arbitral proceedings is, in the end, justified.²⁹ We do not find any errors as argued.

1. 1.  Defendant’s Defence before Addressing the Merits

   1. A.  According to Defendant, when Plaintiff entered into the Contract herein, they agreed that if a dispute arose that was related to the Contract, they would abide by the KCAB.³⁰ Despite this, Plaintiff did not make a request for commercial arbitration, but rather filed the action herein that seeks payment for the completed construction under the Contract and compensation for damage incurred due to Defendant’s failure to perform their obligations, or seeks restitution from rescission of the Contract. Defendant thereby defends that Plaintiff has no legal interest in bringing an action.³¹

      (p. 263) Combining the overall gist of arguments with Plaintiff Exhibit No. 1, we confirm that Plaintiff and Defendant entered into an arbitration agreement when concluding the Contract as Defendant asserts above and that no counterevidence exists otherwise. Hence, unless special circumstances exist, Plaintiff has no legitimate interest to bring the legal action herein.

   2. B.  As we have seen above, however, Defendant sought the court order requiring Plaintiff to file a legal action on the merits as part of their request for provisional seizure³² to secure execution of Defendant’s obligation to pay the completed construction costs under the Contract. As a result, when the court ordered Plaintiff to file a legal action, Plaintiff filed the action herein regarding the merits of the case as part of their request for provisional seizure. Given this situation, Plaintiff asserts that the arbitration agreement regarding the Contract was rescinded by implicit agreement. Furthermore, even if the arbitration agreement was not rescinded at that time, Plaintiff argues that it is contrary to good faith for Defendant to request the order for Plaintiff to file a legal action as part of the case for provisional seizure and then assert the existence of the arbitration agreement in the present case on the merits as its defence before addressing the merits.

      Based solely on the circumstances that Plaintiff asserts above, we find it difficult to conclude that the arbitration agreement concerning the Contract was rescinded by implicit agreement. When a court orders an obligee of a provisional seizure to file an action on the merits, the action typically takes the form of a legal action seeking a court judgment. Yet, we note that an arbitrator’s arbitral award rendered through arbitral proceedings has the same effect as a final and conclusive court judgment. A request for arbitration secures the final confirmation of the right to preservative measures. As a result, a request for arbitration thereby should also be considered as granting a party standing to file a legal action on the merits.

      Even if a court decides to order provisional seizure to secure execution of an obligation based on a contract and such a decision has been notified, a civil action cannot be brought to obtain confirmation of the right to preservative measures, if an arbitration agreement exists in the contract. Thus, we deem it reasonable that the obligee of a provisional seizure must seek an action on the merits concerning the provisional seizure through arbitration. Plaintiff filed the legal action herein based on a court order that Defendant requested in response to the case for provisional seizure.

      We nevertheless rule it difficult to find that Defendant’s defence before addressing the merits against Plaintiff, who filed the legal action with the court and did not seek arbitration in disregard of the arbitration agreement in the Contract, should be considered as being contrary to good faith. Therefore, we hold that all of Plaintiff’s foregoing arguments are unwarranted.

An argument that an arbitral determination must occur in advance must be raised before the defence on the merits of a case are submitted. Without submitting such a defence, Defendant instead submitted a defence during the merit phase. We find that such a defence cannot be submitted after the merits proceeding has commenced. In this case, we rule that it is clear under the record that Defendant did not argue that an arbitral determination had to occur in advance and instead submitted its briefs on the merits and testified. Defendant for the first time submitted its defence against the action after the court of first instance commenced its merits proceeding and after its fifth hearing on the merits. We hold that the lower court’s rejection of Defendant’s defence was justified.

1. 3.  Whether Acting as a Representative in an Arbitration in Violation of the Attorney-at-Law Act Renders the Arbitration Proceedings Unlawful

   As an alternative claim, Plaintiff argues that even if the arbitration clause in this case is valid as an arbitration agreement, the arbitration herein is unlawful because non-litigant Korea Construction Information System Corporation (‘KCIS’), which lacked the authority to conduct legal services, completed the arbitration request. Furthermore, between 26 March 2011 and 2 May 2011, a non-litigant employee of KCIS attended two hearings at the KCAB’s arbitration chambers as a representative of Defendant and acted as a representative in the arbitration.

   We observe that according to Plaintiff Exhibit Nos. 7-1 and 2, Nos. 9–11, No. 12-1–5, Nos. 13–20, No. 13-1–9, No. 14-1–12 and the overall oral arguments, Mr Kim, the representative director of KCIS, although not an attorney, entered into a contract on 21 October 2000 to act on Defendant’s behalf for all the proceedings involved in the dispute between the parties at the site office for Incheon International Airport Area a-5. His role included performing consultation for legal issues, providing advice on the arbitration, consulting on such matters as a valuation of the possible claim amount, and completing the relevant documents for the arbitration. He performed these tasks and received a commission of KRW 20 million (USD 17,400) on 30 October 2000 and KRW 20 million (USD 17,400) on 30 January 2001. Furthermore, on 26 March 2001 and 12 May 2001, an employee of KCIS participated in the arbitration hearings at the KCAB’s arbitration chambers as an observer for Defendant. As a result, the Seoul District Court found Mr Kim guilty of violating the Attorney-at-Law Act and, following an appeal, a court proceeding is currently pending.

   At the same time, Mr Park, the non-litigant CEO of Joongang Consulting Corp., has been indicted for violating the Attorney-at-Law Act for providing consultation on Plaintiff’s claim regarding the Incheon International Airport Area e-5,³³ offering consultation and advice on the procedures for the arbitration, completing documents related to the arbitration and acting as a representative at the arbitration hearings.

   We hold that even if the acts by Messrs Kim and Park and others violated the Attorney-at-Law Act, we do not find that the arbitration proceedings could be considered unlawful because the way they were conducted or the way the arbitral tribunal was constituted did not comply with the Arbitration Act or because they did not comply with an agreement of the parties that was not contrary to the Arbitration Act’s mandatory provisions. Therefore, Plaintiff’s alternative argument is also unwarranted.

1. 2.  Applicant’s Arguments

2. 3.  Determination

   1. A.  Regarding the Procedural Law Applicable to the Arbitration

      An arbitration agreement is an agreement to settle, by arbitration, all or part of a dispute between the parties that has occurred or might occur in the future with regard to a judicial legal relationship over which the parties have the right to dispose. If an agreement exists between the parties to the arbitration agreement regarding the substantive and procedural law and related matters that governs the dispute, priority should be given to such agreement when conducting the arbitration proceedings.

      However, as provided above, when entering into the arbitration agreement with Respondent Berendina regarding the ship’s repair herein, Applicant agreed that all disputes under the Repair Contract would be referred to the KCAB and its rules, whose award would be final and binding upon both parties. Article 9(1) of the KCAB Arbitration Rules provides that ‘where the parties agreed through a contract containing an arbitral clause to arbitration under these Rules or to arbitration under the KCAB, then provisions concerning the commercial arbitration procedures of these Rules will be deemed as part of the arbitration agreement’.³⁷ Therefore, considering the foregoing arbitration agreement and rules, we find that the provisions for arbitration proceedings in the KCAB Arbitration Rules are part of the arbitration agreement between the parties and shall be given priority in their application to the request for arbitration procedures herein.³⁸(p. 268)

   2. B.  Contents of the Arbitral Award

      Article 49(1) of the KCAB Arbitration Rules provides that the arbitral award shall be made in writing, and shall state certain particulars and be signed by the arbitrators, and the disposition of the award is a particular in subparagraph 3 that should be included. Article 52(1) states that ‘the Tribunal may order in the award the specific performance of a contract, grant equitable and reasonable damages or other relief which falls within the scope of the arbitration agreement of the parties’. Article 52(2) states that ‘the Tribunal shall render a decision on the assessment of arbitration costs as provided in Chapter IX³⁹ to be borne by the responsible party or parties’.

      Considering the foregoing rules and the arbitration agreement, when rendering the arbitral award for the arbitration herein, the arbitral tribunal should have included in the disposition of the award a determination concerning the disputed matter and a determination regarding the apportionment of the arbitration costs as provided in Chapter IX. The tribunal could not render a decision regarding matters that went beyond the scope above. (Applicant asserts that according to Article 52(1) of the KCAB Arbitration Rules, the Tribunal may order other relief. Such relief thereof could include attorney fees incurred by a party to the arbitration. Attorney fees thereby should be included in the disposition of the arbitral award. Yet the purpose of the foregoing provision is not to settle disputes under the strict existing dispute settlement procedures. Instead, in arbitration, which settles disputes based on the parties’ agreement, the purpose of the provision is to allow tribunals to render arbitral awards more flexibly than it can through the existing dispute settlement procedures. We do not find that the purpose is to include matters regarding attorney fees in the other relief mentioned above.)

   3. C.  Arbitration Costs

      Chapter IX of the KCAB Arbitration Rules regarding arbitration costs consists of Articles 62 through 66. Article 62(1) states that, ‘the costs of arbitration comprise the fees, the expenses and the allowances as prescribed in Article 63 through Article 65 of these Rules’. Article 63(1) stipulates that ‘the fees shall be categorized into the administrative fee and the hearing postponement fees’. Article 64(1) provides that the term ‘expenses’ includes ‘all expenses required for an arbitration, including the expenses of the arbitrators and Clerk, the expenses of any proofs produced, the expenses of witnesses or expert witnesses, the expenses of inspection, interpretation or translation, tape recording, stenographic recording or all transcripts thereof’. Article 65 stipulates ‘allowances’ are ‘the payment for the allowances for the arbitrators that the KCAB decides’.⁴⁰

      Considering the foregoing rules respectively, we find that attorney fees are not included in the arbitration costs under the KCAB Arbitration Rules. As a result, the arbitral tribunal in this arbitration herein could not order the apportionment of attorney fees that are (p. 269) not included in the arbitration costs under the KCAB Arbitration Rules because Applicant and Respondent agreed upon conducting the arbitration proceedings according to the KCAB Arbitration Rules. (In many cases, matters such as the request of arbitration are delegated to and conducted by attorneys. Arbitration work has become specialized and technical, requiring a high degree of specialized knowledge and experience and a legal response thereof. Nevertheless, as long as attorneys are not mandated, under the KCAB Rules, attorney fees expended by an arbitration party shall not be included in the arbitration costs. Yet, we defer judgment in the case where a separate agreement exists in the arbitration agreement regarding such fees or whether one could claim compensation for damages related to a request of arbitration or the response thereof which themselves constituted a tortious act.)

   4. D.  Relationship between Article 9 of the 1998 Arbitration Act and Article 109 of the Civil Procedure Act

      Article 9 of the 1998 Arbitration Act provides that ‘upon request of an arbitrator or a party concerned, the court shall carry out the duties concerning any action deemed necessary by an arbitrator for an arbitration award which the arbitrator himself cannot take. In this case, the Civil Procedure Act shall be applicable mutatis mutandis.’

      Based on this article, the applicable law for the arbitral proceedings are the KCAB Rules. The issue becomes whether, based on Articles 117 and 107 of the Civil Procedure Act, Respondent could seek security for the attorney fees to be furnished by Applicant in an arbitration or in court when Applicant has no domicile, office or business place in Korea. (This issue is related to whether Respondent could refuse to respond to the request for arbitration until Applicant furnishes the foregoing security, and furthermore whether the arbitral tribunal or the arbitrator could dismiss the request for arbitration because the foregoing security was not provided.)

      Article 9 of the 1998 Arbitration Act stipulates that upon the request of an arbitrator or a party concerned the court shall carry out the work concerning any such request under the condition that it is ‘an act deemed necessary by an arbitrator in rendering an arbitral award that the arbitrator cannot directly do’. As section C above provides, in the arbitration herein, the arbitrator could order attorney fees as part of the arbitration costs when rendering the arbitral award, making it a matter not deemed necessary in rendering an award. Even if security for attorney fees could be deemed necessary in rendering the award, the arbitrator could require Applicant to provide security in the arbitration herein. We find that this does not constitute a situation where the arbitrator cannot directly do something. In the end, the arbitration herein does not fulfil the conditions under Article 9 of the Arbitration Act. We thereby hold that according to the rules above, Applicant cannot seek from the court Respondent’s provision of security for attorney fees.

1. 3.  Assertions and Determination(p. 270)

   1. C.  Grounds to Set Aside under Article 36(2)(i)(d) and Article 36(2)(ii)(b) of the Arbitration Act

      1. (A)  Plaintiff’s Argument

         With regard to Plaintiff’s request for arbitration, the arbitral tribunal determined that ‘even if the German court did not accept Defendant’s request for discovery due to the arbitration clause, it does not necessarily mean that Defendant lost its case. Furthermore, the German court could still determine the litigation costs that resulted from the German court proceedings. We do not find that Defendant has the obligation to pay the attorney fees that Plaintiff paid.’ Yet, the award’s determination was clearly contrary to the parties’ agreement under the Licence Agreement and the basic principles of contract interpretation, and lacking in common sense. It falls under Article 36(2)(1)(d) which provides the ‘arbitration procedures was not in accordance with the agreement of the parties’ and under Article 36(2)(2)(d) which states that ‘[t]he recognition or enforcement of the award would be contrary to the public policy’.

      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 such that one could figure out how the arbitrators reached their determination.⁴¹

         We first consider whether, as Plaintiff argues, the arbitral award falls under the case of ‘arbitration procedure was not in accordance with the agreement of the parties’ as provided under Article 36(2)(1)(d).

         The Licence Agreement provides that the applicable law is Korean law and that if a related dispute arises, then the dispute will be settled by arbitration at the KCAB. The parties agreed that if a party needed to appoint an attorney to enforce or defend any issue or claim related to the Licence Agreement, then the prevailing party would have the right to reclaim from the other party the commensurate costs incurred as a result of the proceedings. Defendant requested preservation of evidence in the German courts. But, as provided above, ultimately only the part concerning disclosure of the German Appraisal Report to Defendant was not granted.

         At the same time, according to Plaintiff Exhibit No. 1, the arbitral tribunal dismissed Plaintiff’s request for arbitration in their disposition of the award because they determined that ‘it is hard to deny the need for Respondent’s request for preservation of evidence that was a legal process brought in the German courts to determine whether Claimant’s First Oven imitated the Second Oven. Even if the German courts requested an appraisal and they did not approve its disclosure because of the arbitral clause, we do not find that Respondent lost their action. Regarding the litigation costs in the German litigation, the German courts may make a determination. We do not find that Respondent has the obligation to bear the attorney fees that Claimant incurred in the foregoing preservation of evidence proceedings.’

         According to the foregoing established facts, the arbitral award considered Plaintiff’s request for arbitration that sought attorney fees related to Defendant’s request for (p. 271) evidence preservation in the German courts as a subject of the arbitration agreement provided under the Licence Agreement. In Defendant’s request for preservation of evidence in Germany, their request for an appraiser was accepted and only their disclosure of the German Appraisal Report was not accepted. Overall, we do not find that Respondent lost their action. We find it reasonable to interpret the arbitral award as dismissing the original request for arbitration under which Plaintiff sought the attorney fees related to the request for the preservation of evidence in the German courts. Also, the arbitral award determined that Plaintiff’s original request for arbitration was subject to the arbitration agreement as provided under the Licence Agreement. While finding that the request was subject to the arbitration, the arbitral award stated in its reasons that ‘[r]egarding the litigation costs in the German litigation, the German courts may make a determination’. We find that the arbitral award stated this only because the arbitral tribunal and the German court could make different determinations concerning the subject of the arbitration agreement under the Licence Agreement. We do not find, as Plaintiff argues, that a determination lacking in common sense existed that clearly conflicted with the parties’ agreement under the Licence Agreement and fundamental principles of contract interpretation. We hold that this part of Plaintiff’s argument lacks merit.

         We next consider whether the arbitral award should be set aside under Article 36(2)(2)(b) for the reasons that Plaintiff asserts.

         Article 36(2)(ii)(b) provides that when ‘the recognition and enforcement would be contrary to the public policy’ an award may be set aside. This provision does not refer to all situations where the arbitrator’s fact finding was mistaken or where the arbitral award is unreasonable because the arbitrator’s legal determination violates the law. Instead, it concerns when the result ordered by the arbitral award conflicts with the public policy of Korea. In other words, it applies when the obligation imposed on Claimant or Respondent under the arbitral award cannot be allowed because it directly violates mandatory laws or regulations or public policy.⁴²

         We conclude that the wording of the arbitral award in this case not only does not contain anything that directly conflicts public policy, but also no evidence exists that could establish that recognition and enforcement of the award would conflict with public policy. Therefore, we hold Plaintiff’s foregoing argument lacks merit.