1. 3.  Decision Concerning Plaintiff’s Argument regarding Paragraph 1 of the Arbitral Award¹¹

   Defendant asserts that the 2002 Arbitration Act provides a system for enforcement judgments for foreign arbitral awards but does not provide a separate system for recognition judgments. Moreover, the Civil Procedure Act and the 2005 Civil Execution Act¹² only provide for enforcement judgments¹³ for foreign court judgments but do not provide for (p. 334) recognition judgments.¹⁴ As a result, for foreign court judgments, an enforcement judgment cannot be rendered unless a request for a specific obligation that can be subject to compulsory execution has been granted and an order thereof has been issued. Similarly, for foreign arbitral awards, an enforcement judgment can be rendered only if an award includes an order based on a request for a specific obligation. Defendant argues therefore that paragraph 1 of the Arbitral Award does not contain a specific obligation and rendering a recognition and enforcement judgment would thus be improper because no legitimate legal interest to bring such an action for this part exists.

   We find that the Civil Procedure Act and the Civil Execution Act both include an enforcement judgment system for foreign court judgments, but do not have a system for recognition judgments thereof. Yet, Article 37(1) of the Arbitration Act stipulates that ‘recognition or enforcement of arbitral awards shall be made by recognition or enforcement judgment by a court’, and Article III of the New York Convention states ‘each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles’. Therefore, an arbitration award, regardless of whether it is a domestic or a foreign award, can be subject to a recognition judgment and an enforcement judgment.

   Enforcement of an arbitration award is premised on its recognition, yet recognition of an award separate from enforcement of an award could be necessary where an award does not require compulsory execution (e.g. when a request for arbitration has been dismissed). Article 26(1) of the Civil Execution Act provides that ‘a compulsory execution based upon a foreign court judgment may proceed only if a Republic of Korea court has made a pronouncement of its lawfulness by means of an enforcement judgment’.¹⁵ Based on its text, the foregoing law could be interpreted as meaning that a final and conclusive foreign court judgment that will be the subject of an enforcement judgment will be permitted only if it amounts to a judgment granting affirmative relief¹⁶ with enforceability that can be subject to compulsory execution.

   If we consider the practice of lower courts, however, we cannot conclude that an enforcement judgment for an arbitral award is only possible if it can be subject to compulsory execution. In practice, a domestic enforcement judgment is needed to make a correction to, or a report in, one’s Family Registration based on a foreign court judgment to annul or dissolve a marriage. Lower courts in practice will render an enforcement judgment for a foreign court judgment to annul or dissolve a marriage because they will find that the judgment meets the conditions of Article 217 of the Civil Procedure Act even though it does not amount to a judgment granting affirmative relief.¹⁷

   (p. 335) Therefore, we do not accept Plaintiff’s argument that a court can only render an enforcement judgment for a foreign arbitral award if the award stipulates a request for a specific obligation and orders such obligation, or, in other words, if the award can be subject to compulsory execution.

1. 5.  Decision Concerning Defendant’s Offset Defence

   As set forth in the underlying facts, according to the Arbitral Award, Plaintiff has the obligation to pay Defendant a total of KRW 181,168,950 (USD 157,500) consisting of compensatory damages of KRW 166,666,667 (USD 145,000) and delay damages of KRW 14,502,283 (USD 12,600) for the interest thereon for the period from the filing of the response to the notice of arbitration, 13 January 2006, until the date of the Arbitral Award, 13 February 2007, at the rate of 8 per cent per annum. The credit that both Plaintiff and Defendant hold against each other under the Arbitral Award is suitable for an offset as of the Arbitral Award date. Thus, Defendant’s credit against Plaintiff converted to US dollars at the standard exchange rate on the Arbitral Award date amounts to USD 193,432.57. Offsetting this amount with Plaintiff’s credit against Defendant as provided under subparagraph A(2) of the Arbitral Award, Plaintiff’s remaining credit against Defendant is USD 1,164,741.01.

   Plaintiff argues that for Defendant to exercise the credit set forth in the Arbitral Award they must obtain separate recognition and enforcement judgments. We note that if an action objecting to execution against an award creditor’s claim, such as extinguishment of an obligation, could be brought under the enforcing law after an award has been rendered, it would be considered a violation of public policy. Under Article V(2)(b) of the New York Convention, enforcement of the award could be refused. Furthermore, the purpose and function of the offset system is based on the convenience and fairness of the parties. In the current case, where Plaintiff seeks recognition and enforcement judgment of the Arbitral Award, as long as the award satisfies the conditions of recognition and enforcement, we hold that Defendant would not need a separate recognition and enforcement judgment to exercise a right of offset against Plaintiff with regard to their arbitral award credit. We thereby do not accept Plaintiff’s argument thereof.

1. 1.  Reorganization Credit Based upon Arbitral Award

   1. A.  Reorganization procedures under the old Corporate Reorganization Act¹⁹ may commence against a party in a foreign arbitral award subject to the New York Convention after the award has been rendered. A reorganization claim confirmation action may then be brought objecting to a reorganization claim that has been notified pursuant to the foreign arbitral award at the claim inspection date. A foreign arbitral award has the same effect as a final and conclusive judgment with res judicata effect. A competent court in charge of the reorganization action therefore must render a judgment that confirms the reorganization obligations and voting rights as ordered under the foreign arbitral award as long as grounds to refuse recognition and enforcement under the Convention do not exist.

      Article V of the New York Convention restrictively enumerates the grounds for refusing recognition and enforcement. In particular, Article V(2)(b) 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 prevent the recognition or enforcement of the arbitral award from harming the fundamental moral beliefs and social order of the enforcing country, and to protect these concerns. 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. Only when the specific result of recognizing the award is contrary to Korea’s public policy will recognition and enforcement be refused.²⁰

      To determine whether foreign arbitral awards subject to the New York Convention may be refused enforcement under Article V, the enforcing country’s courts can independently examine and determine issues that were determined under the arbitral proceedings to the extent necessary. One ground for refusing enforcement (p. 337) under Article V(1)(b) may be that an arbitral award was deceitfully obtained by fraudulent means. At the same time, Article V lists the grounds for refusing enforcement in a limited fashion and, among other things, excludes errors of fact and errors of law by the arbitrators. Arbitral awards also have the same effect as final and conclusive judgments such that, based on res judicata, claims that have been subject to the award are already deemed final and conclusive between the parties. In light of these points, when an enforcing country’s court needs to examine and determine substantive issues that have already been decided during the arbitral proceedings to determine whether grounds for refusing enforcement exist, they must do so in an exceptional, limited manner [judgment continues in para. 9.96].

1. 1.  Determination Concerning Enforcement Judgment

   1. A.  Korea joined the New York Convention on 8 February 1973 which became effective through Treaty No. 471 of 9 May 1973 with the so-called reciprocity and commercial limitation reservation that limits the application only to awards made in another (p. 338) contracting state and to differences arising out of legal relationships, whether contractual or not, which are considered to be commercial under the domestic law of Korea. We find that the UK, where the Arbitral Award was rendered, also joined the Convention on 24 September 1975.

[The court first quoted Article IV of the New York Convention.]

We clearly find that Plaintiff submitted a duly certified copy of the Arbitral Award between the parties as stated on paragraph 1 of the disposition, a duly certified copy of the arbitration agreement, and translations of the award and agreement thereof certified by a consul of the Korean Embassy in the UK.

1. 2.  The Arbitral Award

   The parties do not contest the following: Plaintiff’s vessel the MS Sun River carried the compound fertilizer that Defendant was exporting and entered the Iranian Port Bandar Khomeni on 31 August 1980 and was loading and discharging when in September of that year, among other things, war erupted between Iran and Iraq. As a result, completing the loading and discharging took longer than originally expected, leading to a longer layday period. A dispute arose between the parties over the payment of the demurrage. Plaintiff filed a request for arbitration at the Japan Shipping Exchange. On 8 July 1983, the Exchange tribunal rendered an arbitral award. Defendant themselves admitted that they already received a copy of the arbitration award.

2. 3.  Applicable Law Regarding Recognition and Enforcement of Foreign Arbitral Award

   This court finds that, on 8 February 1973, Korea clearly joined the New York Convention with a commercial limitation and reciprocity reservation, and, under Article XII(1), after 90 days, on 9 May 1973, became the 42nd member country, and Japan also joined the Convention (in force as of 18 September 1961). The New York Convention has the same effect as a treaty so with regard to the recognition and enforcement of the arbitral awards herein, the Convention applies in priority over domestic law. For matters not provided for under the Convention, Korea’s Arbitration Act applies in a supplementary fashion.

   Defendant argues that because Plaintiff is a Panamanian legal entity and the Panama Republic did not join the New York Convention, the Convention cannot apply in reviewing the conditions for recognizing and enforcing the arbitral award herein. This court observes (p. 339) that the Panama Republic has not joined the Convention, but determining reciprocity under the Convention does not depend on the arbitration parties’ nationality but whether the country where the arbitral award was rendered joined the Convention. Defendant’s foregoing argument is unwarranted. (As a result, whether Korea and the Panama Republic have reciprocity under Articles 477 and 203 of the Civil Procedure Act, as argued by Defendant, is not an issue).

   To facilitate the recognition and enforcement of foreign arbitral awards, however, Article IV(1) of the New York Convention reduces the burden of proof by providing that a party seeking an enforcement judgment fulfils their burden of proof by submitting (1) a duly authenticated original award or a duly certified copy and (2) the original arbitration agreement or a duly certified copy thereof. (Although under Article IV(2) of the Convention, if the arbitration agreement is not made in an official language of the country upon which the award relies upon, a translation certified by an official or sworn translator or by a diplomatic or consular agent shall be submitted.) At the same time, in the case herein, through Plaintiff Exhibit Nos. 1 and 2, Plaintiff submitted an authenticated original of the arbitral award and the original voyage charter party that included the arbitral clause attached with translations certified by a notary public. We find thereby that unless grounds for refusal under Article V(1) (Defendant has the responsibility to prove this assertion) or Article V(2) (matters determined ex officio) of the Convention exist, this arbitral award can be enforced in Korea.

Defendant argues that in essence they will not respond to Plaintiff’s claim because for the arbitral award to be recognized and enforced in Korea not only does the UK, where the award was rendered, but also Italy, the country of Plaintiff’s nationality, has be a member of the New York Convention because Korea made a mutual reciprocity reservation when they joined the Convention.

In general, when applying the New York Convention, a determination on reciprocity will not be based upon the nationality of the parties to the arbitration but will be decided according to whether the country where the arbitral award was rendered joined the New York Convention. As seen above, the UK, where the arbitral award was rendered, joined the New York Convention on 24 September 1975. We find, without a need to consider further, that Defendant’s foregoing argument is unwarranted.

1. 2.  The Second Issue

   Even if SECRC was joint parties with Plaintiff as argued by Defendant, the applicability of the New York Convention will not be determined based on the nationality of the arbitral party but upon whether the country where the arbitral award was made was a member to the Convention.

1. 1.  Determination on the Cause of Action

   1. A.  Applicability of the New York Convention

      We observe that according to the established facts the arbitral award concerns a dispute that arose out of a commercial legal relationship and was rendered in New York in the US. One cannot consider it a domestic award under the Arbitration Act. Therefore, for recognition and enforcement of the arbitral award, the New York Convention that both Korea and the US are contracting parties shall apply.

   2. B.  Enforcement Requirements of the Arbitral Award

      [The court first quoted Article IV(1) of the New York Convention.]

      Where the party requesting recognition or enforcement of the award has submitted these documents or can be deemed to have submitted them, the court of recognition and enforcement must permit compulsory execution based on the award. Exceptions exist under the New York Convention for grounds under Article V(1), where the party seeking recognition or enforcement has the burden of proof (the five grounds such as a party’s incapacity or an invalid arbitration agreement), or under Article V(2), where the court of recognition or enforcement may find ex officio (the subject matter of the dispute cannot be resolved by arbitration under the state’s law or recognition and enforcement of the award would be contrary to the state’s public orders). Except for these cases, the court shall recognize and enforce the arbitral award.

      In this case, we observe that based on the evidence and overall oral arguments we recognize that Plaintiff submitted the original arbitral award and translations. Without any grounds to refuse recognition and enforcement under Article V of the New York Convention, we find that compulsory execution pursuant to the arbitral award should be permitted.(p. 342)

2. 2.  Conclusion

   Therefore, since Defendant has not asserted or proven any grounds under the New York Convention to refuse enforcement based on Article V(1) or regarding the inapplicability of Article V(2), we hold that the compulsory execution should be permitted. This court holds that Plaintiff’s claim regarding the execution should be recognized as stated in the Disposition.

1. 4.  Determination on the Purpose of the Request

   1. (1)  As provided above, the New York Convention applies to the recognition and enforcement of the arbitral award herein. [The court then quoted Articles III and IV(1) of the New York Convention.]

      According to Article IV, a party requesting recognition and enforcement of a foreign arbitral award must submit ‘the duly authenticated original award or a duly certified copy thereof, or the original agreement referred to in art II or a duly certified copy thereof’. If the arbitral award or arbitration agreement has not been made in the official language of the country that is being applied then a ‘duly certified translation’ must be submitted.²⁸

      (p. 343) When a party seeking recognition and enforcement of a foreign arbitral award submits or can be deemed to have submitted these types of documents, the award debtor party must prove under Article V(1)²⁹ or the court ex officio has to recognize under Article V(2) for recognition and enforcement to be refused.³⁰ As long as grounds to refuse recognition or enforcement do not exist, we find it proper for the recognizing and enforcing court to grant compulsory execution of the arbitral award thereto.

   2. (2)  Upon consideration of the case herein, according to the foregoing evidence and the entire gist of the oral argument, we recognize that Plaintiff submitted ‘an authenticated copy of the arbitral award and copy of the amended shareholders’ agreement that included the arbitration clause, a translation of the arbitral award certified by a notary public, and a translation of the amended shareholders’ agreement certified by a notary public’. Since none of the grounds for refusal under Article V(1) or (2) exist, we find that compulsory execution of the award herein should be granted.

      (As will be seen later, Defendants only raise grounds for refusing enforcement of the arbitral award under Article V(2)(b) and do not argue or prove grounds for refusal under Article V(1). In term of ex officio grounds, the arbitral award herein cannot be considered as being ‘subject matter of the difference is not capable of settlement by arbitration under the law of the Republic of Korea’ as provided under Article V(2)(a). We thereby focus on Defendants’ arguments regarding the existence of grounds under Article V(2)(b).

1. B.  According to Plaintiff Exhibit Nos. 1, 2, 7, and 8, we find that Plaintiff, a Liberian corporation, entered into a contract (‘Contract’) with Defendant, a Korean corporation, on 25 September 1995 that provided for Defendant to time charter Plaintiff’s vessel, Oinoussian Seaman. A dispute regarding the termination of the Contract arose. Based on the arbitration agreement of the Contract, on 1 July 1996, an arbitral tribunal consisting of Alexander Kazantzis, Alan Oakley, and Patrick O’Donovan in London, UK rendered the Arbitral Award as attached in the appendix.

2. C.  Defendant argues that Plaintiff submitted a translation of the Arbitral Award that the consul officer of the Korean Embassy to the UK certified but the consul personally did not translate it and did not confirm the accuracy of its translation. They argue thereby that the prerequisites of a translation as provided under Article IV(2) of the New York Convention were not fulfilled.

   (p. 344) We observe that Article IV(2) of the New York Convention stipulates that if the said award or agreement is not made in an official language of the country in which the award is relied upon, a translation certified by an official or sworn translator or by a diplomatic or consular agent shall be submitted. We find the purpose of the provision is not to require that the foregoing translator or diplomat personally translate the arbitral award or other documents. Even if they did not personally translate such documents, it would suffice if they verified that the translated document was a translation of the concerned arbitral award. Verification provided herein is only a factual confirmation that the translated document is a translation of the arbitral award and it does not have to be a verification of the translation’s accuracy.³¹ As we found above, the consul of the Korean Embassy to the UK confirmed the fact that the translation of the Arbitral Award was not different from the original. We thereby find the above translation should be considered a translation of an arbitral award as provided under Article IV(2) of the New York Convention. Therefore, Defendant’s foregoing assertion is unwarranted.

[The court first quoted Article IV(1) of the New York Convention.]

The New York Convention is basically a treaty between Contracting States that was created out of the purpose to facilitate the enforcement of foreign arbitral awards. Internationally, a strong trend exists that supports an interpretation to ease the requirements in Article IV of the Convention. In light of the above, Article IV(1) should not be interpreted to make submission of the documents provided under Article IV(1) a legal requirement for an enforcement judgment action that the court must determine ex officio or to require the submission even when the parties do not contest the arbitral award or the existence or content of the arbitration agreement.

(p. 345) Instead, we deem it reasonable that Article IV(1) should be considered a provision concerning the method of evidence. The documents provided under Article IV(1) constitute the only evidence that can be used to prove when the parties contest the arbitral award or the existence or content of the arbitration agreement. Furthermore, the requirement for submission of the original or certified copy of the award does not mean that the actual version must be submitted as an attachment with the request for enforcement. If a photocopy of this document was submitted instead of the original or certified copy and the other party does not raise any objection and states its ‘acceptance’, then it will be considered lawful submission of an award or certified copy as provided under the Convention.

Furthermore, Article IV(2) of the Convention provides that ‘[i]f the said award or agreement is not made in an official language of the country in which the award is relied upon, the party applying for recognition and enforcement of the award shall produce a translation of these documents into such language. The translation shall be certified by an official or sworn translator or by a diplomatic or consular agent.’

Considering the background of the enactment of the Convention and other circumstances as provided above, the translation that the party requesting recognition and enforcement of the foreign arbitral award must submit is not limited absolutely to the strict forms as provided above.

We deem it reasonable that if the party submitted a translation that did comply with the form as provided above³³ and its content was inadequate, then such submission could be supplemented by such means as having the party who submitted the document commission a translation by a professional translator at their own expense. Therefore, the request for enforcement judgment cannot be denied solely because the translation was not submitted in the form provided for in Article IV(2) above.

1. 1.  The First Issue

   [The court first quoted and paraphrased Article IV of the New York Convention.]

   (p. 346) The purpose of Article IV(2) of the New York Convention that provides the translation of the arbitral award must be certified by an official or sworn translator or by a diplomatic or consular agent is not that the translator or diplomatic agent listed herein must personally translate the arbitral award or other material. Instead, it would suffice if they certify that the translated document is a translation of the concerned arbitral award even if they did not personally translate it. We hold that the term certified in the provision only refers to factual confirmation of the fact that the translated document is a translation of the concerned arbitral award. It does not categorically require signature of a diplomatic or consular agent, and does not mean certification of the accuracy of the translation thereof.

   According to the reasons in the lower court’s judgment, Plaintiff submitted the duly certified copy of the arbitration agreement, the duly certified copy of the arbitral award and the translations thereof duly certified by each diplomatic agent concerned. The arbitral award herein was enforceable in Korea unless there were grounds to refuse it under Article V(1) and (2) of the New York Convention. We are convinced that the lower court’s decision thereof is justified and we do not find that they committed an error of law regarding the provision thereof. We find this argument is groundless.

1. B.  Requisites for an Enforcement Judgment

   [The court first quoted Article IV of the New York Convention.]

   1. (2)  Pursuant to the above evidence, Plaintiff submitted only copies and translations of the Arbitral Award and the Charter Parties. Defendant’s legal representative, however, at the time of the oral argument in these proceedings stated their ‘acceptance’ of these documents such it shall be deemed to be submission of the lawful original or copies under Article IV of the New York Convention. Therefore, since grounds for refusal do not exist under Article V(1) or V(2) of the New York Convention, the Arbitral Award can be enforced.

1. 2.  Parties’ Arguments

   1. A.  Determination of Plaintiff’s Claim

      With regard to Plaintiff’s claim, the New York Convention and Art 39.1 of Arbitration Act would apply.

   2. B.  Conditions for Enforcing the Arbitral Awards

      [The court first quoted Article IV of the New York Convention.]

      Plaintiff submitted to this court a duly certified copy of the arbitral award with a translation certified by a notary public as well as the original version of the Bills of Lading that included the arbitration agreement.³⁶ Even though Plaintiff did not submit a translation of the Bills of Lading, Defendant did not raise any objections concerning the existence and substance of the arbitration agreement. We cannot reject a claim to enforce the arbitral award merely on the grounds that a translation was not submitted. Absent special circumstances, we find the arbitral award can be enforced.³⁷

1. A.  Determination on the Requirements for Enforcement of the Arbitral Award

   [After reviewing the reciprocity requirements, the court quoted Article IV of the New York Convention.]

   If the party seeking recognition and enforcement of a foreign arbitral award has submitted these documents or could be deemed to have submitted them, as long as grounds to refuse the recognition and enforcement of the award do not exist under Article V of the New York Convention, then it is appropriate for the court in the recognizing and enforcing country to approve the compulsory execution of the arbitral award. In this case, Plaintiff submitted the Contract that included the arbitration agreement and a copy and translation of the Arbitral Award, and Defendant did not contest the existence and substance of the arbitration agreement or Arbitral Award. Thus, under these circumstances, we find that it can be deemed that a lawful original or copies and translations thereof were submitted under Article IV of the New York Convention.³⁸

   Therefore, because the Arbitral Award fulfilled all the requirements for enforcement, unless grounds for refusal under Article V of the New York Convention exist, we hold that compulsory execution of the Arbitral Award should be permitted.

1. 2.  Determination of Defendant’s Assertion

   1. (2)  Enforcement of Each Arbitral Award in the Annex

      [The court then cited Article II and Article IV(1) of the New York Convention.]

      When we consider this case, as provided above, the contract concluded between Plaintiff and Defendant IBS included an arbitration clause. According to Plaintiff Exhibit Nos. 1–3, Plaintiff submitted copies and translations of the arbitral award and the contract of this case. Attached was a notarial certificate made and signed by notary public E certifying that these documents were authentic.

      (p. 349) Considering that the member states of the New York Convention basically initiated it with the purpose to facilitate enforcement of arbitral awards rendered in other states, and internationally a trend exists to interpret the requirements under Article IV of the Convention in a more permissive manner, we find it reasonable to conclude that Plaintiff’s submission of the foregoing documents satisfied the requirements of Article IV. Since grounds for refusal otherwise do not exist under Articles V(1) or V(2) of the Convention, compulsory execution of each arbitral award in this case should be granted.

1. B.  Determination Regarding the Claim for Enforcement of the Arbitral Award

   [The court quoted Article II and Article IV of the New York Convention.]

   We observe in this case that as provided above an arbitration agreement was included in the contract. According to Plaintiff Exhibit Nos. 1 and 4, Plaintiff submitted a printed copy of the entire contract and a copy of the entire arbitration agreement. On each copy, notary public A wrote ‘verified as an authentic copy’ and a notarized document was attached with the notary public’s signature and seal. We recognize that Plaintiff submitted a translation of the contract and arbitral award that were each verified by a notary public. Considering together the facts recognized above, we find it reasonable to conclude that Plaintiff submitted duly verified copies of the arbitration agreement and arbitral award pursuant to Article IV of the Convention.

   Therefore, we conclude that the arbitral award fulfilled all of the enforcement requirements, whereby as long as grounds to refuse enforcement under Article V of the Convention do not exist, compulsory execution should be approved.

1. B.  Defendant’s Argument

   1. 1)  Summary of Arguments

      1. A)  The translation of the arbitral award that Plaintiff submitted was inadequate. As a result, it does not constitute a translation in accordance with the purpose of Article IV(2) of the New York Convention.

   2. 2)  Determination

      1. A)  [The court first quoted Article IV(2) of the New York Convention.]

         Considering the background of the enactment of the Convention and other circumstances as provided above, the translation that the party requesting recognition and enforcement of the foreign arbitral award must submit is not limited absolutely to the strict forms provided above. We deem it reasonable that if the party submitted a translation that did comply with the form as provided above and it was found that its content was inadequate, then said submission could be supplemented by such means as having the party who submitted the document commission a translation by a professional translator at their own expense. Therefore, the request for enforcement judgment cannot be denied solely because the translation was not submitted in the form provided for in Article IV(2) above.³⁹

         According to Plaintiff Exhibit No. 5-2 and the overall oral arguments, we recognize that on 23 October 2013 Plaintiff submitted a private deed certified by an attorney in charge of notaries at a notary public law firm regarding the translation prepared by the professional translator F. We do not find the content of the translation was inadequate.

1. 1.  Determination Concerning Principal Claim

   1. A.  The cause of action for Plaintiff’s principal claim herein concerns seeking permission for compulsory execution of the foregoing arbitral award that was rendered between Plaintiff and Defendant. According to the acknowledged facts, as long as a certified copy of the foregoing arbitral award rendered by the AAA was submitted based upon the written arbitration agreement in the parties’ Consulting Contract, the arbitral award can be enforced unless Defendant argues and proves grounds for refusal under Article V(1)(a)–(e) or Article V(2)(a) or (b) of the New York Convention to which both Korea and the US are parties.

   2. B.  Defendant argues that the arbitral award was rendered based on documentary evidence that, among other things, Plaintiff forged or altered and based on false statements by, among others, the witnesses. They argue that these grounds constitute a basis for setting aside the foregoing arbitral award under Article 13(1)(5) of the Arbitration Act and Article 422(6) and Article 422(7) of the Civil Procedure Act such that the award cannot be compulsorily executed.⁴⁷ Yet, not only does no evidence exist to substantiate Defendant’s above assertions, but also enforcement of a foreign arbitral award can only be refused when grounds for refusal under the New York Convention are asserted and proven. Thus, we will not refuse enforcement of an arbitral award just because grounds exist under the Arbitration Act as provided above. Defendant’s foregoing argument is unwarranted.

1. 4.  Determination Concerning Fourth Point on Final Appeal

   According to the reasons in the lower court’s judgment, the lower court dismissed Defendant’s argument that provisional execution should not be allowed for an enforcement judgment of an arbitral award due to its nature for the following reasons: (1) According to Article 2 of the Addenda of the Arbitration Act that was amended by Act No. 6083 of 31 December 1999, for cases where arbitral proceedings were being conducted before the amended Arbitration Act entered into force on 31 December 1999 the previous provisions applied; (2) According to Articles 14(1) and 14(3)⁵⁰ of the 1998 Arbitration Act, an enforcement judgment for an arbitral award must pronounce that considerable security must be provided or that provisional execution may be carried out without any security. The lower court ruled that it was lawful to order provisional execution of the enforcement judgment of the Arbitral Award that was rendered on 24 October 2000 after Plaintiff’s 12 February 1998 request for arbitration.

   In light of the record, we find the lower court’s foregoing determination reasonable. Furthermore, we do not find it convincing that just because Plaintiffs are legal persons (p. 354) of Saudi Arabia that it would not be as easy to recover Defendant’s property compared with a domestic legal person if provisional execution of the property occurred and then it was transferred overseas. As a result, we do not find ‘there is a reasonable ground to disallow the provisional execution’. Therefore, we rule the lower court did not commit an error of law concerning provisional execution in its determination when it ordered provisional execution.

1. 1.  Final Appeal Grounds Related to Arbitration Agreement

   1. A.  [The court first reviewed the reciprocity requirements and then quoted and paraphrased Articles II, III, and IV of the Convention.] These are positive conditions for the enforcement of foreign arbitral awards under the Convention imposing upon the party applying for recognition and enforcement of the above arbitral award the burden of proof.

      According to the record, on 1 May 1981, Plaintiff submitted to the LCIA a duly certified copy of the arbitral award and authenticated translation thereof and copies of the sales contract that included the arbitral clause and translation thereof drafted by Plaintiff and representative of Defendant company. Plaintiff stated that the contract contained a certified written copy of the arbitration agreement and authenticated translation thereof. The enforcing court must determine whether the arbitral clause in the sales contract can be considered an arbitration agreement in writing under (p. 355) Article II of the New York Convention or whether they are simply printed boilerplate or so-called illustrative text as argued.

According to the evidence as admitted by the lower court, the upper left portion of the front of the steel bar sales contract herein that was drafted by Plaintiff and Sang-Jun Lee, the alleged representative of Defendant company (the validity of the representative’s acts are considered later), contained the printed boilerplate ‘Please supply, subject to conditions overleaf’. Article 13 of the conditions overleaf stated that ‘[t]he validity, interpretation and performance of this contract will be governed by English law, and all disputes arising out of or related to the contract including the validity, interpretation and performance herein shall be decided by arbitration under the LCIA Rules on the day of contract’. As the lower court lawfully recognized, Sang-Jun Lee signed the sales contracts fully understanding the content of these provisions. We find that the arbitral clause stated in the overleaf of the sales contract is an ‘arbitral clause in a contract’ as provided under Article II(2) of the New York Convention that should be considered an arbitration agreement in writing to ‘undertake to submit to arbitration … differences’ as provided under Article II(1).

Therefore, we find that the lower court’s determination that the arbitral clause herein is an arbitration agreement in writing under the New York Convention is, to a degree, inadequate in the sequence of its determination and explanation of its reasons, but is justified in its conclusion. The argument that the arbitral clause is simply a sample text is groundless.

Defendant further argues that the arbitral clause on the overleaf of the sales contract does not state such matters as the place of arbitration, arbitral institution, and applicable law and thus a valid arbitration agreement does not exist between the parties. According to Article II of the New York Convention, an arbitration agreement that is subject to the Convention is an ‘agreement in writing … to submit to arbitration … differences’ and does not require that the place of arbitration, arbitral institution or applicable law be specified. Furthermore, the arbitral clause herein states ‘all disputes arising out of or related to the contract including the validity, interpretation and performance herein shall be decided by arbitration under the LCIA Rules on the day of contract’. We thus find that this argument is groundless because the place of arbitration, arbitration institution, and applicable law are all specified.

1. 3.  The Third Issue

   According to the lower court’s reasons, Defendant did not argue that the arbitration agreement was void from the outset, but instead argued that the party ultimately lost its status as a party. They argued the main contract incorporating the arbitration agreement clause (p. 356) was completely assigned to a third party, or the arbitration agreement between Plaintiff and defendant became void. The lower court held that the determination of whether an arbitration agreement became void was inextricably tied to the determination of the merits and must be determined by the arbitrator (arbitral tribunal) when the determination on merits is made.

   With regard to this issue, the lower court first premised that the arbitral tribunal decided by majority opinion that the law governing the validity of the assignment of credit herein should be the law of Saudi Arabia that was most closely related to the assignment. The lower court then found that the assignment herein was not valid under the law of Saudi Arabia based upon the position of the Saudi Arabia Committee for Settlement of Commercial Disputes and the Saudi Arabian National Center for Science and Technology. Given that the decision on the governing law, the legal assessment of the facts in the case under Saudi Arabia law and other matters were not clear, the lower court decided that the arbitration award should be respected as long as accepting the tribunal’s interpretation did not contravene fundamental morals and concept of justice in Korea. The lower court rejected Defendant’s arguments on the grounds that the enforcing country’s courts should not review the merits again. Based upon a review of the records, we are convinced that the finding and decision herein of the lower court were justified. We do not agree that there was a lack of sufficient deliberation that violated the rules of evidence or, as argued, that the lower court committed an error of law concerning Article V(1)(a) of the New York Convention that affected the judgment. We find these points unwarranted.

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

   1. A.  The Points Concerning Article V(1)(b) of the New York Convention

      According to Article V(1)(b) of the New York Convention, if the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of (p. 358) the arbitration proceedings or was otherwise unable to present his case then the enforcing country’s court may refuse recognition and enforcement. The provision does not seek to apply to all circumstances when a party’s right to be heard has been infringed based on such grounds. Instead, the provision should be interpreted to be limited to circumstances where the degree of infringement of the right to be heard is seriously unacceptable. Furthermore, guaranteeing an arbitral party’s right to be heard is directly connected with the realization of procedural justice and comprises a part of public policy. It should be determined based upon the statutory standards of the enforcing state. Based on Korean statutes, we will review whether Defendant’s right to be heard was infringed due to the defective notice of the arbitral proceedings.

      According to the conditions as stipulated in Article 13 on the backside of the sales contract that form the arbitration clause between the parties, it is sufficient to deliver notice of the arbitral proceedings to the party’s address as stated in the contract. According to the United Kingdom foreign company registry, the address of Defendant companies’ London office is identical to the address in the contract thereof. It is also recorded that the recipient of the service notice herein was Sang-Jun Lee, the head of the London office.

      At the same time, according to the facts confirmed by the lower court, on 5 January 1979, Defendant reassigned Sang-Jun Lee to work in the main headquarters in Korea. They did not send a replacement and did not directly receive the notice of the arbitral proceedings that the LCIA sent to the London office herein. They thus did not participate in the said proceedings. Based upon the lower court’s admitted evidence and witness testimony, Paul Sieghart, the arbitrator appointed by the LCIA on 23 September 1980, several times sent by registered mail a notice of the arbitral proceedings to Defendant’s London office as provided in the arbitration agreement between the parties. Defendant did not attend the proceedings or submit any memorials. The proceeding was closed on 14 April 1981 and the award was rendered on 1 May 1981.

      After Sang-Jun Lee was assigned to the main headquarters in Korea on 5 January 1979, Defendant’s London office was practically closed. At the same location, Defendant established a 100 per cent wholly-owned subsidiary Koben as a local company that was registered under the foreign company registry. Two of defendant’s employees, Yeong-Jae Chang and Cheol-Jae Lee, were assigned to work there. Defendant’s London office foreign company registry was deregistered on 26 August 1981. According to the record, nothing suggests that the delivered mail was returned and it can be presumed that the notice of the arbitral proceedings was delivered to Defendant’s London office. Furthermore, the evidence provides that Plaintiff on numerous occasions sent telexes to Defendant’s main office as a result of the dispute under the sales contract.

      On 9 October 1979, Plaintiff’s counsel personally came to Seoul and attempted an amicable compromise with a director and manager from Defendant by completing a memorandum of settlement. This, however, eventually failed because Defendant’s board of directors’ approval was not obtained. On 19 May 1980, Plaintiff informed Defendant that within several weeks the LCIA would send notice of commencement of arbitral proceedings. Defendant thus directly received prior notice from Plaintiff of the arbitral proceedings in this case. It can be presumed that Defendant company’s own employees that worked at the London office and its practical reincarnation, the Koben company, sufficiently forwarded the various notices from the LCIA regarding the arbitral proceedings to Defendant company.

      (p. 359) Despite these factors, Defendant themselves did not exercise their right to be heard by such means as submitting the necessary documents during the arbitral proceedings or attending the hearing to provide their views. According to the lower court’s lawfully admitted evidence, Defendant’s main office received service of a copy of the arbitral award from Plaintiff but did not follow any challenge procedures under English law. Combining these circumstances together, we do not find that Defendant’s right to be heard was unjustly denied because the arbitral proceedings in this case were not appropriately notified.

   2. B.  [See para. 5.12 for Article V(1)(d).]

   3. C.  [See para. 5.12 for Article V(2)(b).]

1. B.  Determination

   1. 2)  Argument Concerning Article V(1)(b) of the New York Convention

      According to Article V(1)(b) of the New York Convention, recognition and enforcement of an arbitral award may be refused when ‘the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case’. This provision does not seek to apply to all situations such as the one above where a party was not able to present their case but is limited to situations where the right to present one’s case has been infringed to a strikingly unacceptable degree. Furthermore, guaranteeing an arbitration party the right to present one’s case is directly connected with the realization of procedural justice and comprises a part of public order. Its compliance should be determined according to the standards of the laws of Korea that is the enforcing country.⁵⁶

      Based solely on Defendant Exhibit Nos. 1–5, we do not find enough evidence to conclude that Defendant did not receive proper notice regarding the arbitration proceeding. Evidence to prove otherwise does not exist. Instead, combining together the foregoing established facts and overall oral arguments, we find the Committee conducted the procedures of the arbitration proceeding in a normal manner and provided Defendant a reasonable opportunity to present their case. We cannot find that Defendant’s right to present their case was infringed. We thus find this part of their argument is unwarranted.

1. D.  Plaintiff seeks compulsory enforcement of the Arbitral Award since the foregoing award was rendered between Plaintiff and Defendant. Defendant planned to argue in the arbitral proceedings, among other things, (1) that Defendant’s acts were not a repudiatory⁵⁷ breach of the contract as Plaintiff alleged, and (2) that there should be an offset between their right to claim compensatory damages for the injury to their credibility from the advertising of exaggerated facts after the dispute occurred and Plaintiff’s claims for credit. Defendant argued that the Arbitral Award was rendered only less than one month after Defendant’s arbitrator was appointed and thereby they were denied the opportunity to exercise their right to be heard.

   We observe the circumstances of the Arbitral Award and consider Plaintiff Exhibit Nos. 7 and 8 and the overall oral arguments. We find that the arbitral clause (Article 17) of the Contract provided that ‘if a dispute arises between the parties for any reason, such dispute shall be referred to arbitration in London by an Arbitral Tribunal consisting of three arbitrators. Both parties shall each appoint an arbitrator, and then the third arbitrator shall be appointed by the two designated arbitrators. The award rendered unanimously or at least by two arbitrators shall be regarded as the final determination. To enforce such arbitral award, the Contract hereof may act as the rules for the court (thereafter omitted).’

   The dispute arose when Defendant did not pay Plaintiff USD 15,350 by 29 April 1996 for the charterage from 30 April 1996 until 29 May 1996 as provided under the Contract. Plaintiff thereafter terminated the Contract on 17 May 1996, and requested Defendant to appoint an arbitrator according to the foregoing arbitral clause. Plaintiff appointed Alexander Kazantzis, Defendant appointed Alan Oakley, respectively, and the two arbitrators appointed Patrick O’Donovan as the third arbitrator, constituting the Arbitral Tribunal. Plaintiff sought an arbitral award from the Arbitral Tribunal for payment of USD 586,130.06 for the unpaid charterage, additional fees and compensation for damages arising out of Defendant’s failure to perform the Contract and also payment of damages for the repudiatory breach of the Contract. Arguing that there was nothing to contest, Plaintiff at first sought a partial award for the foregoing USD 586,130.06, but later reduced the amount and sought a partial award for USD 244,880.06.

   The Arbitral Tribunal demanded that Defendant respond to the request for a partial award within 10 days by 17 June 1996. If a hearing was held, the tribunal set the due date for a response by 19 June 1996. Defendant argued in a memorial submitted to the Arbitral Tribunal that it would be inappropriate to render a partial award without first (p. 361) establishing the existence of their obligations and also that they had not terminated the Contract. Yet, Defendant did not submit to the Arbitral Tribunal any evidence or any points that could prove these assertions. The Arbitral Tribunal established 19 June 1996 at 17:00 as the hearing date and notified both parties thereof, but both parties did not attend the hearing. The tribunal determined Defendant had a clear obligation to perform under the Contract and rendered a partial arbitral award for USD 217,346.26 and standard interest thereon. Out of the total amount that Plaintiff requested, the tribunal excluded the disputed USD 25,005.72 that Defendant deducted from the charterage as compensation for cargo damages in December 1995 and excluded USD 2,510.10 that were communication expenses from 1 April 1996 until 17 May 1996 that Defendant did not have a chance to review.

   The effect of the partial arbitral award was conclusive, but the tribunal declared that it reserved the right to decide later in the final arbitral award Defendant’s other additional claims that they did not determine, and no rebuttal evidence existed otherwise. Accordingly, the Arbitral Award only covered uncontested or clearly recognized issues with regard to the existence of payment obligations between the parties. Although the tribunal gave Defendant, who was negatively affected by the Arbitral Award, the chance to respond and substantiate their position regarding Plaintiff’s request for a partial arbitral award, they did not properly provide their arguments and proof and did not even attend the hearing. Therefore, even if the time permitted for Defendant to respond was a bit short, we cannot conclude that Defendant’s opportunity to exercise their right to be heard was infringed. Hence, Defendant’s foregoing argument is unwarranted.

2. E.  In addition, Defendant argues that the arbitration proceedings were unilaterally conducted to Plaintiff’s advantage. Defendant raised the defences as provided in para C⁵⁸ above but the tribunal omitted to decide and did not provide any reasons thereof. Defendant argues that allowing enforcement of the Arbitral Award would be against public order and thereby such enforcement should not be allowed.

   As we have seen above, we do not find that the arbitration proceedings were unilaterally conducted to Plaintiff’s advantage. The Arbitral Tribunal reserved the right to determine again in the final arbitral award the issues that were, or possibly might be, contested by the parties. Moreover, concerning the above reasons behind Defendant’s assertion, Defendant did not reveal any evidence or issues thereof. Therefore, just because the Arbitral Award did not make determinations beyond what it explained, we do not find that the recognition or enforcement of the foregoing arbitral award would be against the public policy of Korea. Defendant’s above argument thereby is unwarranted.

1. C.  Determination of Defendant’s Defence

   1. 1)  Defendant defends that enforcement of the arbitral award should be refused in accordance with Article V(1)(b) of the New York Convention because they could not appropriately exercise their right of defence in the arbitral proceedings. Among other things, they could not appoint counsel for the arbitration proceedings and their representative director could not participate in the hearings in Hong Kong because their business was suspended due to Plaintiff’s denial of an extension of the contract and because of insufficient funds due to Plaintiff’s provisional seizure of all their bank accounts.

      Accordingly, we observe that pursuant to Article V(1)(b) of the New York Convention, the enforcing country’s court may refuse recognition and enforcement of the award, if the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case. This provision does not seek to apply to all situations such as the one above where a party was not able to present their case but is limited to situations where the right to present one’s case has been infringed to a strikingly unacceptable degree.⁵⁹

      We consider together Plaintiff Exhibit No. 4 and the overall oral arguments and note the following:

      1. (1)  With regard to the arbitral award, Gavin Denton, who was appointed on 25 October 2011 by the HKIAC as a sole arbitrator, notified Defendant on 28 October 2011 that the arbitrator acquired jurisdiction over Plaintiff’s request for arbitration and that if they did not agree to this they should raise an objection pursuant to the UNCITRAL Arbitration Rules; on 4 November 2011, Defendant answered to the effect that the HKIAC had jurisdiction and they did not raise an objection;

      2. (2)  On 11 November 2011, during a preliminary meeting by international conference call to discuss the scheduling of the arbitral proceeding, Defendant requested time to appoint counsel; the Tribunal granted a week, but Defendant could not appoint counsel;

      3. (3)  With regard to the draft procedural schedule that the arbitral tribunal sent on 18 November 2011, Defendant brought an action concerning the current matter at the Korean courts and replied that they would participate in the arbitral proceedings after the court action was resolved. The arbitral tribunal requested that they provide an explanation for the basis of suspending the arbitration due to the proceedings pending Korean court, but Defendant did not provide an answer thereof;

      4. (p. 363) (4)  Accordingly, on 28 November 2011, the arbitral tribunal decided the arbitration procedural schedule and notified the parties, and extended the time for Defendant to submit the answer and counterclaim against Plaintiff. On 15 December 2011, Defendant submitted their answer and counterclaim against Plaintiff.

      5. (5)  On 12 April 2012, the arbitral tribunal conducted a pre-hearing review, according to the foregoing procedural schedule and the procedural schedule partially amended on 10 April 2012, but Defendant did not participate;

      6. (6)  The Tribunal allowed the parties to submit their memorials prior to the actual hearing scheduled for 26 April 2012 and Defendant accordingly submitted witness statements and documentary evidence on 25 April 2012 but did not submit any separate memorials;

      7. (7)  On 24 April 2012, Defendant notified the arbitral tribunal that due to the lack of funds they could not appoint counsel and could not attend the hearing to be held on 26 April 2012. They did not attend the foregoing 26 April 2012 hearing.

      According to the foregoing recognized facts, although Defendant could not appoint counsel for the arbitral proceedings and the representative director did not personally attend the Hong Kong hearing, we do not find that Defendant’s right of defence was unjustly infringed so Defendant’s foregoing argument is groundless.

   2. 2)  Defendant defends as follows:

      1. (1)  Generally in a licence contract, the custom is for the contract to be automatically extended at the time of expiration, but Plaintiff unilaterally notified that they would not extend the contract and did not recompense any of the investment costs for Defendant’s business and equipment;

      2. (2)  Plaintiff unjustly collected USD 2 million in licensing fees during the contract period for reception from hotels, public offices and other places even though they were not subject to the licensing fees under the contract;

      3. (3)  After expiration of the contract period, Plaintiff still used the IRD⁶⁰ that Defendant installed at their own expense under the contract but did not pay Defendant any expenses and usage fees. Defendant submitted a claim to the arbitral tribunal that Plaintiff should pay them for the costs of purchasing and installing the equipment relating to the use of the IRD. The tribunal determined that Defendant’s claim was all within the contract period and rejected the claim;

      4. (4)  The arbitral award ordered payment of interest that is larger than the principal of the licensing fee and also an excessively large amount of arbitration costs and legal fees; it is an unjust award that only accepted Plaintiff’s claims; and,

      5. (5)  Just as Defendant was about to recover losses from 10 years of investment and profits were being generated, Plaintiff, among other things, unilaterally terminated the licence contract and did not recompense the investment costs and recognize the domestic business rights that Defendant requested. The rights of Defendant, a domestic company, should be rightfully protected through domestic law. Yet, they were infringed by a unilateral arbitral unilateral decision in Hong Kong so the enforcement of the arbitral award should be refused.

         (p. 364) As a result, we observe that the New York Convention that applies to the arbitral award stipulates that enforcement can be refused only under the grounds as provided in the paragraphs of Article V. Yet, we find that the foregoing grounds that Defendant assert do not fall under the grounds for refusal as provided under Article V and no evidence exists to indicate otherwise so Defendant’s foregoing defence is also unwarranted.

1. 3.  Defendant’s Claim and Determination

   1. A.  The Argument that Enforcement of the Arbitral Award Violates Public Policy [see para. 9.92]

   2. B.  The Argument that Defendant’s Right to be Heard was Violated During the Arbitral Proceedings

      1. 1)  Defendant’s Argument

         Defendant received notification of the initiation of the arbitral process from TOMAC and appointed a Japanese attorney, who actually resigned prior to the first hearing date. As a result, Defendant’s representative director D tried to enter Japan to appoint a new attorney or to personally participate in the hearing date but was denied entry due to visa problems. At Defendant’s request, TOMAC petitioned the Immigration Bureau of Japan but D still was unable to obtain a visa. At Defendant’s request, TOMAC again asked the Japanese immigration authority to take measures to assist in D’s entry into Japan but D was unable to receive a visa. TOMAC then requested Defendant to send another employee to attend, but Defendant responded that no employee other than D really knew about the accident. They again requested TOMAC to take measures so that D could enter the country. TOMAC, however, did not take any further action regarding this matter. The proceeding continued and the arbitral award was rendered without anyone from Defendant’s side attending. Thus, Defendant could not sufficiently argue that the cause of the accident was Dongkuk’s inappropriate loading and lashing. Their right to present their case was infringed so the enforcement of the arbitral award should not be approved.

      2. 2)  Determination

         Article V(1)(b) of the New York Convention states that recognition and enforcement of an arbitral award may be refused when ‘the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case’. The purpose of this provision is not to apply to all situations such as the one above where a party (p. 365) was not able to present their case, but is limited to situations where the right to present one’s case has been infringed to a strikingly unacceptable degree. Furthermore, guaranteeing an arbitration party the right to present one’s case is directly connected with the realization of procedural justice and is part of public order. Its compliance should be determined according to the standards of the laws of the enforcing country Korea.⁶²

         Even according to Defendant’s arguments, from the beginning, they were well aware of the fact that the arbitral proceeding was ongoing when they hired an attorney to contest it. Although Defendant received notice of the hearing date from TOMAC, its Japanese lawyer resigned before the first hearing, and their representative director did not attend the hearing because he could not enter the country due to visa problems. Defendant could have appointed another attorney or could have sent an employee as a representative to sufficiently present their position at the arbitral proceeding. But, they relinquished these rights on their own accord. As a result, they cannot argue that their right to present their case was infringed. Furthermore, TOMAC does not have an obligation to take measures to ensure a party’s entry into Japan.

1. 3.  Determination Regarding the Main Claim

   1. B.  Determination concerning Defendant’s Arguments

      1. (1)  Defendant argues that enforcement of the Arbitral Award should be refused pursuant to Article V(1)(b) of the New York Convention because, while they were located in Korea, they were unable to appoint a legal representative and were not (p. 366) properly notified of the Arbitral Proceedings. They also could not participate in the arbitral proceeding because they were occupied, among other things, bringing a criminal action against Plaintiff for its fraudulent acts.

         According to Article V(1)(b) of the New York Convention, the enforcing court may refuse recognition and enforcement of the award when the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present its case. The purpose of this provision is not to apply to all situations such as the one above where a party was not able to present their case but is limited to situations where the right to present one’s case has been infringed to a strikingly unacceptable degree.⁶³

         Considering together Plaintiff Exhibit Nos. 2 and No. 3 and all the oral arguments, we recognize the following facts: (i) Defendant appointed an attorney as their representative right after the arbitral proceeding started, but that representative resigned after attending the pre-conference meeting because they were unable to receive instructions from Defendant; (ii) the arbitrator requested Defendant to notify whether they would reappoint a new legal representative, and Defendant notified that they would not appoint a legal representative and would directly participate in the arbitral proceeding; (iii) while conducting the arbitral proceeding, the arbitrator notified Defendant to submit written statements and related documents and repeatedly extended the deadlines thereof; (iv) Defendant submitted written statements and closing statements on 29 February 2012 and 28 March 2012, respectively; and, (v) the arbitrator notified Defendant about the pre-hearing conference, hearing date and other dates and granted them opportunities to attend.

         We find that Defendant did not have reasonable grounds to not participate in the arbitral proceeding based on these facts or based on their criminal complaint against parties related to Plaintiff and the fact that such proceedings were pending. Overall, we do not find it convincing that Defendant’s right to present their case was unreasonably infringed upon in the arbitral proceeding, and since no evidence exists to the contrary we find Defendant’s arguments hereof are groundless.

1. (6)  Defendant argued that the arbitral award disregarded or violated or did not consider, among other things, the obligatory deposit period for treasury stock, the legal principles (p. 368) concerning concurrent performance and delay of performance, the legal principles concerning the calculation period for compensatory damages, the provision prohibiting restriction of transfers of shares under the Commercial Act, and the ability of Plaintiff to complete payment of the purchase amount. Defendant argued that recognition and enforcement of the award thereby would be contrary to Korean public policy such as its legal system and social norms.

   The lower court confirmed that according to Article V.2(b) of the New York Convention, ‘[r]ecognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that … [t]he recognition or enforcement of the award would be contrary to the public policy of that country’. The provision seeks to prevent the recognition and enforcement of the arbitral award from harming the fundamental moral beliefs and social order of the enforcing country, and to protect these concerns. The determination thereof must together 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. Only when the specific result of recognizing the award is contrary to Korea’s public policy and reached a socially unacceptable degree will recognition and enforcement be refused.⁶⁹

   The lower court then considered various circumstances revealed in the foregoing established facts such as the relationship between Plaintiff and Defendant, the background behind the dispute and the profit Defendant gained by disposing the foregoing stock. They concluded that even if, as Defendant argues, the arbitral award contains points that in part contradict Korean laws and regulations, Supreme Court precedents or other matters, the specific result of recognizing the arbitral award would not by itself amount to being contrary to the public policy of Korea, and no evidence to prove otherwise exists.

1. 2.  We note that the purpose of Article 36 of the 2005 Construction Industry Framework Act⁷⁰ and Article 16 of the 2005 Fair Transactions in Subcontracting Act⁷¹ is to protect (p. 369) subcontractors. We deem that the purpose of these provisions is not to prohibit the parties from agreeing and paying an amount for a subcontract that is higher than the amount in the general contract. From the same perspective, we hold that the lower court’s determination was justified when they found that enforcement of the arbitration award was not against the public policy of Korea. We find they did not commit an error of law concerning the interpretation of the foregoing two statutes, as argued in the final appeal.

1. 4.  The Fourth Issue

   Article V(2)(b) of the New York 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 prevent the recognition and enforcement of the arbitral award from harming the fundamental moral beliefs and social order of the enforcing country, and to protect these concerns. The determination thereof must together take into consideration not only consider the perspective of the domestic circumstances but also the stability of the international trading order and must be based on narrow interpretation.⁷² If the foreign law that applies to the foreign arbitral award violates mandatory laws and regulations under Korean substantive law, this does not automatically constitute grounds for refusing recognition of the award. Only when the specific result of recognizing the award is contrary to Korea’s public policy will recognition and enforcement be refused.

   First, according to the lower court’s reasons, even if the 30-year statute of limitations under the law of Netherlands Antilles, the governing law of contract in this arbitral award, was longer than the statute of limitations under Korean law, which was also a mandatory provision, these factors alone would not necessarily mean that enforcement of the foreign arbitral award in Korea would contravene the public order of Korea.

   Second, the arbitral tribunal herein rendered the arbitral award in this case after recognizing its arbitral jurisdiction based upon the premise that Plaintiff’s rights against Defendant that derived from the 8 November 1978 know-how licensing agreement were not assigned to SECRC. The lower court was convinced by the arbitral tribunal’s determination and found (p. 370) that this determination did not violate the principle of estoppel in contravention of the public policy of Korea.

   Third, the lower court found it could not recognize that Defendant was threatened and cajoled by Plaintiff based solely upon Defendant Exhibit Nos. 7-1 and 2 and 8 (the evidence only consisted of letters from Plaintiff or its representatives to Defendant that demanded payment of the technical royalties in this case). The lower court also determined that just because the content of the contract was disadvantageous to Defendant does not mean that one could not conclude that this amounted to an unfair practice and just because the exercise of rights was delayed this did not amount to a violation of good faith.

   Therefore, the lower court held that one could not find that recognition and enforcement of the arbitral award herein would harm the fundamental moral beliefs and social order of Korea. They rejected all of Defendant’s arguments claiming a violation of the public order of Korea.

   Based upon a review of the record, we are convinced that the finding and decision herein of the lower court were justified. We do not agree, as argued, that they committed an error of law concerning the public policy under Article V(2)(b) of the New York Convention that affected the judgment. We find all these points unwarranted.

2. 5.  The Fifth Issue

   As grounds for its final appeal, Defendant argues that the arbitral award violated public policy under Article V(2)(b) of the New York Convention. According to Defendant, the know-how agreement in this case was a patent licensing agreement. Although patent rights are a specially recognized system under the patent law for the public interest and can not be created by a simple agreement between parties, the arbitral award has the same effect as creating patent rights among individuals. Furthermore, Defendant argues that the arbitral award not only directly conflicts with Korean court precedents but also is contrary to the fundamental principles and concept of justice of Korean civil procedure. It allowed subjective and preliminary joinder of parties that is not recognized by the Korean Supreme Court.

   We find these arguments do not constitute valid grounds for a final appeal because they raise new facts that were never argued before the closing of the hearing of the lower court. We find these points unwarranted.

1. 3.  According to Article V(2)(b) of the New York Convention, 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 prevent the recognition and enforcement of the arbitral award from harming the (p. 371) fundamental moral beliefs and social order of the enforcing country, and to protect these concerns. 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. If the foreign law that applies to the foreign arbitral award violates mandatory laws and regulations under Korean substantive law, this does not automatically constitute grounds for refusing recognition of the award. Only when the specific result of recognizing the award is contrary to the public policy of Korea will recognition and enforcement be refused.⁷³

   According to the reasons of the lower court, the lower court explained the primary content of the arbitral award. They then ruled that they did not find it convincing that the arbitral award violated mandatory substantive Korean laws or regulations or that the specific result of recognizing the award would be against the public policy of Korea. Grounds did not exist under Article 422(1)(9) of the Civil Procedure Act that the award omitted to decide when making its determination concerning Defendant’s arguments or counterclaims.

   In light of the record and foregoing legal principles, we hold that the lower court’s finding of facts and determination are correct and there are no errors as argued in the final appeal.

Next, Defendant objects that in exchange for introducing clients to Plaintiff the non-litigant Harry Fox received a certain amount of compensation from Plaintiff. While hiding this relationship with Plaintiff, around April 1990, Fox entered into a contract with Defendant to be in charge of sales and consulting of the US region for Defendant’s manufactured computer products. As though it was part of the consulting, he recommended that the prospective market potential for Plaintiff’s software products was good. He falsely promised that he would personally sell and purchase all the computers that were installed with Plaintiff’s software products. He got Defendant, who mistakenly believed this, to execute a licensing agreement with Plaintiff. When the agreement was executed, Plaintiff already knew that the US computer market was not only in an extremely weak situation but also that their software products had lost competitiveness compared to the products of other competitor companies and were being ignored by consumers.

Nevertheless, to list Plaintiff company’s shares under more advantageous conditions, around July 1990, through their attorney Harry Fox, Plaintiff lured Defendant into signing the licensing agreement with them. The licensing agreement was executed through Plaintiff (p. 372) and Fox’s deceit and through Fox’s representation of both parties in violation of Articles 103, 110 and 124 of the Civil Act. It was ultimately against the public policy of Korea. Defendant objects that enforcement of the arbitral award was contrary to the public policy of Korea. This constituted a ground to refuse enforcement of the award under Article V(2)(b) of the New York Convention.

We observe and consider together Plaintiff Exhibit No. 2, Defendant Exhibits No. 2-1–2, 5–39, the partial testimony of the court of first instance witness [OOO]-Ho Kim and the current court’s witness Dong-Yeul Seo. As argued by Defendant, in exchange for introducing clients to Plaintiff, Fox received a certain amount of compensation from Plaintiff but hid this relationship with them. Instead, while being in charge of sales and consulting of the US region for Defendant’s manufactured computer products, he strongly recommended that Defendant should execute the licensing agreement with Plaintiff.

When rendering the arbitral award, the arbitrators reduced the amount of money that Plaintiff claimed by USD 200,000 when determining the damages out of consideration of fairness because Fox represented Plaintiff and secretly participated from behind the scenes in the transaction. Yet, with regard to the other matters that Defendant argued, such as whether Fox or Plaintiff defrauded Defendant or whether Fox represented both sides in the licensing agreement, we do not believe the partial testimony of the witnesses that appear to imply this and we otherwise do not find any evidence to recognize this. Unless special circumstances exist, we find it difficult to conclude that based solely upon the foregoing established facts that the licensing agreement conflicted with the provisions of the Civil Act or that enforcement of the arbitral award would be against the public policy of Korea. We do not accept Defendant’s objection.

Defendant then asserts that the licensing agreement provides that every three months a 10 per cent licensing fee must be paid as a licensing fee and sales volume guarantee for each software program and also as a total sales volume guarantee. This provision sets a certain sales volume and then makes it mandatory that the amount must be sold. It constitutes an unfair transaction prohibited under the Monopoly Regulation and Fair Trade Act and the Fair Trade Commission Notice Regarding the Types and Standards for Unfair Transactions and is contrary to Korea’s public policy. Defendant objects that enforcement of the arbitral award is contrary to the public policy of Korea constituting a ground to refuse enforcement of the award under the New York Convention in Article V(2)(b).

We hold that even if we find that such grounds violate public policy according to the standards of the Korean legal order, given the special international characteristics to maintain stability of the international trading order, refusing enforcement of an international commercial arbitral award for a violation of Korea’s public policy must be restrictively considered.⁷⁴ Even if, as Defendant argues, the licensing agreement violates [the] Monopoly Regulation and Fair Trade Act and the Fair Trade Commission’s Notice Regarding the Types and Standards for Unfair Transactions, we note that it was at least validly established according to the law of California, the applicable law. When we also consider the stability of the international trading order, we find it difficult to deny the legal effects of the licensing agreement based only upon the foregoing arguments. Furthermore, we do not find it contrary to the public policy of Korea. Defendant’s foregoing defence is also unwarranted.

1. C.  Argument Concerning the Unenforceability of Paragraph 6 of the Arbitral Award

   Defendant claims that Paragraph 6 of the Arbitral Award that provides that ‘Defendant is ordered to transfer or make transferable to Plaintiff the approval to manufacture that they acquired on 16 April 1998, 1 June 1999, and 22 March 2000’ cannot be executed under current Korean law so its enforcement must be refused

   Combining the results from the court’s factual inquiry from the Minister of Food and Drug Safety and the overall oral arguments, any drug manufacturer or importer qualified under (p. 374) Article 26 and Article 34 of the Pharmaceutical Affairs Act can obtain approval to manufacture and import an item after completing the documents required for drug approvals under Article 23 of the Enforcement Decree of the Pharmaceutical Affairs Act. But a non-domestic manufacturer or importer from a foreign country cannot directly obtain such approval. At the same time, according to the same evidence, a foreign pharmaceutical company can establish a subsidiary or a branch office within Korea. If that subsidiary or branch office becomes a drug manufacturer or an importer under Article 26 and Article 34 of the Pharmaceutical Affairs Act, it can directly obtain drug approval through that subsidiary or branch office.

   Thus, in light of the circumstances above and based only on the foregoing established facts, we find it difficult to conclude that the enforcement of Paragraph 6 of the Arbitral Award is impossible under current Korean law. We find no evidence to acknowledge any grounds to refuse enforcement of Paragraph 6 of the Arbitral Award and hold Defendant’s contention unwarranted.

1. 3.  Determination Regarding Defendant’s Arguments

   1. A.  Defendant argues that Arbitral Award was rendered by an arbitral tribunal that was constituted to represent only the interests of AFMA members, was based on an invalid arbitration agreement that was forced upon Defendant without any choice, and was determined through the arbitrator’s excess of authority. Defendant claims an enforcement judgment of the Arbitral Award cannot be allowed because of the ‘defect in the composition of the arbitral tribunal’, ‘non-existence of a valid arbitration agreement’, and ‘arbitrator’s excess of authority’. All of these are grounds for refusing enforcement under Article V(1) of the New York Convention.

      We rule, however, that witness Jun Ro Kim’s testimony alone is insufficient to establish that the arbitration agreement related to the Contract is invalid, and evidence to establish otherwise does not exist. We also find evidence does not exist to prove a defect in the appointment of the arbitrators or that the arbitrator’s rendered the Arbitral Award in excess of their authority. We thus find Defendant’s above arguments are unwarranted.

   2. B.  Secondly, Defendant argues that an enforcement judgment of the Arbitral Award should not be allowed since grounds to bring a set aside action exist under Article 13(1)(3) and (4) of the Arbitration Act. As a result, Defendant argues that the Arbitral Award in the end does not contain a persuasive explanation of its reasons or the reasons behind how it was determined were contradictory and it orders that legally prohibited acts be carried out. Defendant argues that the Arbitral Award erred in its finding of fact in that it ① denied that an agreement existed regarding the performance date of the Contract; ② confused the sample cassette with the 35mm censored version of the motion picture; and, ③ improperly determined who was responsible for importing the pirated versions and misinterpreted the Contract while establishing the facts. In terms of applying the law, the award also erred in numerous ways by misapplying the law of the state of California, the governing law of the Contract.

      We find that foreign arbitral awards like the Arbitral Award, however, shall only be refused enforcement when grounds stipulated under the subparagraphs of Article V(1) and (2) of the New York Convention exist, whereas the grounds for refusal stipulated under the Arbitration Act of Korea do not apply. We find that the grounds to refuse recognition above or other grounds based upon the Korean Arbitration Act that Defendant argued such as ‘the arbitral award calls for legally prohibited action’⁷⁷ or ‘no reason is attached to the arbitral award’⁷⁸ clearly do not constitute grounds for refusal under Article V(1) and (2) of the Convention. We find Defendant’s arguments above, which rely upon a contrary premise, lack merit.

   3. C.  Thirdly, Defendant argues that the recognition and enforcement of the arbitral award is contrary to the public policy of Korea and thus an enforcement judgment is not permissible based upon the following facts:

      1. (a)  Plaintiff entered the Licensing Contract with Defendant for the right to distribute motion pictures within Korea; prior to performance, they had a duty to take measures to protect their own rights and prevent infringement if a pirated edition of the contracted motion picture was brought into the country by another person and widely sold in the form of a videotape. But they did not take any measures. (p. 376) As a result, Defendant could not possibly perform the Contract without being at fault. Despite this, by ordering Defendant to perform the Contract, the Arbitral Award seriously lacks in fairness and is contrary to the notion of justice;

      2. (b)  If Defendant performed the obligations ordered under the Arbitral Award, they would have to violate relevant regulations in Korea’s Foreign Trade Act, the Motion Pictures Industry Promotion Act, and the Foreign Exchange Control Act; the Arbitral Award forces Defendant to violate these laws;

      3. (c)  After entering into the Contract, Plaintiff threatened Defendant and forced them to perform work that they were not obligated to do; and,

      4. (d)  By ultimately filing the request for arbitration herein, Plaintiff definitely expressed their internal motive to force Defendant to act in violation of the relevant regulations of the Foreign Trade Act, the Motion Pictures Industry Promotion Act, and the Foreign Exchange Control Act.

         Under Article V(2)(b) of the New York Convention, 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. In making this determination, it will not directly constitute grounds to refuse enforcement just because the foreign law applied to the foreign arbitral award violates mandatory laws and regulations that are substantive laws in Korea. Instead, recognition and enforcement can be refused only where the specific consequences of confirming the concerned arbitral award would be contrary to Korea’s public policy.

         According to the evidence above, the Arbitral Award found Defendant liable to compensate Plaintiff’s damages based upon the following factors: (a) According to the facts that transpired between the parties in relation the Contract and the customs and conventions of the motion picture industry, even after receiving the Long Form Agreement from Plaintiff, Defendant did not conclude it within an appropriate time or did not engage in faithful negotiations to conclude it; (b) Even though Defendant had a good faith duty to request necessary materials from Plaintiff to take the steps for censorship approval, by doing so in a careless manner, Defendant allowed the piracy to occur. Based upon the foregoing grounds that were Defendant’s responsibility, the Arbitral Award found Defendant liable to compensate Plaintiff for damages.

         We rule no basis exists to find that this determination by the arbitrator was contrary to the public policy of Korea. Moreover, the Arbitral Award orders compensation for damages incurred due to the failure to perform of the Contract. It does not order Defendant to perform their contractual obligations. We find the Arbitral Award does not force Defendant to violate the relevant regulations of Korea’s Foreign Trade Act, the Motion Pictures Industry Promotion Act, and Foreign Exchange Control Act. At the same time, regarding the point that Plaintiff threatened and forced Defendant to do non-obligatory work, we find we cannot recognize this based solely upon Defendant Exhibit Nos. 8 and No. 25 and no evidence exists to prove otherwise. We also find that just because Plaintiff requested the arbitration herein to seek the compensation for damages after determining that the Contract became impossible to perform due to fault attributable to Defendant, this did not force Defendant to take actions that would violate relevant regulations of the Foreign Trade Act, the Motion Pictures Industry Promotion Act, and the Foreign Exchange Control Act. We thereby do not find that the recognition and enforcement of the Arbitral Award would (p. 377) harm the fundamental moral beliefs and social order of Korea. We rule that Defendant’s above assertions are unwarranted.

   4. D.  Lastly, Defendant argues that the Arbitral Award cannot be enforced under the Agreement of the International Monetary Fund (‘IMF Agreement’)⁷⁹ based on the following:

      1. (a)  Article VIII, Section (2)(b) of the IMF Agreement stipulates that ‘exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member’;

      2. (b)  Korea and the US are both member countries of the IMF and thus are both subject to the IMF Agreement;

      3. (c)  To complete payment for importation of foreign motion pictures, an import recommendation must be obtained under the Motion Pictures Industry Promotion Act;

      4. (d)  Under the Foreign Trade Act, an import recommendation is also required for videos and motion pictures because they are restricted import items;

      5. (e)  After meeting these requirements, the foreign currency payment requirements under the Foreign Exchange Control Act must also be fulfilled;

      6. (f)  Contrary to the Contract that took into consideration all these laws and provided payment for concluding the Long Form Agreement, obtaining the import recommendation and being censored, the Arbitral Award ordered payment even though the Long Form Agreement remained unconcluded. As provided above, providing payment in this manner is not allowed under Korea’s Foreign Exchange Control Act.

Yet, we find Defendant’s foregoing argument that is premised on the Arbitral Award ordering performance of obligations under the Contract itself lacks merit. As seen above, the Arbitral Award does not order performance of obligations under the Contract itself but only orders compensation of damages arising from Defendant’s failure to perform the Contract due to Defendant’s fault (Moreover, even if it was considered a contractual obligation, if a dispute arose and an arbitral award, judgment, or other method confirms that payment should be made, it would not constitute a payment according to the ‘exchange contract which involve the currency’ under the IMF Agreement).

1. B.  Determination Concerning Defendant’s Arguments

   1. (2)  Defendant claims that they were misled into entering into the Contract by Plaintiff’s employee D and the deceitful acts of others and the Contract is an extremely unfair agreement that is invalid. Defendant also argues that Plaintiff deceitfully obtained the Arbitral Award through fraudulent means such as through the false testimony of D and Plaintiff’s representative F. Therefore, the enforcement of the Arbitral Award is contrary public policy so pursuant to Article V(2)(b) of the New York Convention enforcement thereof must be refused.

      [The court extensively quotes Majestic Woodchips (I) concerning the public policy grounds under Article V. See para. 10.02.]

      In this case, we observe that Defendant’s arguments based on such grounds as fraud and unfairness are in essence contesting the substance of the Arbitral Award. We cannot permit this court to re-examine these arguments because it would be contrary to the purposes of the New York Convention and the Arbitration Act. Even if the facts argued by Defendant are accepted, we do not find the specific result of recognizing and enforcing the Arbitral Award would be contrary to Korea’s public policy to a socially unacceptable degree. Furthermore, no objective evidence exists to prove that Plaintiff committed punishable fraudulent acts in the arbitral proceedings related to important issues in the arbitral award, or that Defendant through no fault of their own did not know thereof and could not have raised a defence thereof.

      In conclusion, we hold that enforcement of the Arbitral Award cannot be deemed to be contrary to the public order of Korea, and therefore Defendant’s arguments hereof are unwarranted.

1. 2.  Determination Regarding the Final Appeal Grounds

   1. A.  Article 1(1) of the Order in the Arbitral Award

      1. (1)  The arbitral award in this case is a foreign arbitral award under the New York Convention, and under Article 37(1) and Article 39(1) of the Arbitration Act the enforcement must be carried out through an enforcement judgment by application of the New York Convention. Article V of the New York Convention restrictively enumerates the grounds for refusing enforcement. Article V(2)(b) 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 prevent the recognition and enforcement of the arbitral award from harming the fundamental moral beliefs and social order of the enforcing country, and to protect these concerns. The determination thereof must take into consideration not only the domestic circumstances but also the perspective of the stability of the international trading order and must be based on a narrow interpretation. Only when the specific result of recognizing the award is contrary to the enforcing country’s public policy will recognition and enforcement be refused.⁸¹

         Enforcement judgments confer enforceability upon foreign arbitral awards to allow the compulsory execution procedures to proceed under Korean law. The trial determines whether enforceability exists based upon its status at the conclusion of the oral pleading. After an arbitral award has been rendered, action objecting to execution could be brought under the Civil Execution Act based on such grounds as expiration of the obligation. It may then be revealed during the oral pleadings of the enforcement trial that permitting the compulsory execution procedures to continue would contravene fundamental principles of Korean law. In this case, the court may refuse enforcement of the arbitral award thereof by finding that it would violate public policy under Article V(2)(b) of the New York Convention. Instead of contesting the award through a separate action objecting to execution after the enforcement judgment has been confirmed, this interpretation better accords with (p. 380) litigation economy. Furthermore, it is appropriate under the Korean legal system that enforcement judgments should proceed by means of a judgment based upon an oral pleading.

      2. (2)  We note Defendant had an obligation to replace the machine as ordered in Article 1(1) of the arbitral award. The lower court found that Defendant attempted to perform its obligation to replace the embroidering machine but that the machine could not be replaced and installed because Plaintiff refused to accept it. The machine is currently being stored with an import agent. We put aside whether by this fact alone Defendant placed Plaintiff in a position of mora creditoris⁸² because they lawfully provided performance. We do not find that Defendant’s obligation to provide a replacement machine was fully performed and extinguished and that an action against Plaintiff’s claim could be brought. Based upon the record, we do not find any other grounds for an action against Plaintiff’s claim.

         Nevertheless, the lower court found a public policy violation under Article V(2)(b) of the New York Convention. They found an action against Plaintiff’s claim could be brought in relation to Defendant’s obligation to replace the machine as ordered in Article 1(1) of the arbitral award. We find that the lower court committed an error of fact concerning the rules of evidence and an error of law concerning the public policy violations under Article V(2)(b) of the New York Convention that affected the judgment. The final appeal that asserted these points is warranted.

1. 3.  Defendant’s Claim And Determination

   1. A.  The Argument that Enforcement of the Arbitral Award Violates Public Policy

      1. 1)  Defendant’s Argument

         Defendant argued that the carriage of the goods was supposed to occur under FIO (Free In and Out) conditions but the consignor Dongkuk’s improper loading and lashing of the cargo led to the accident. The arbitral award recognized liability against Defendant who was not negligent in causing the accident. The award contravened the principle of liability based on fault and Korea’s public policy. Moreover, the terms of conditions of the bill stipulated that ‘the consignor will be exempt from responsibility unless there is a request for arbitration within a year after the shipment of goods’. The request for arbitration occurred after one year from 28 September 2007 (p. 381) when the vessel arrived in Korea. The arbitral award is unlawful and enforcement would contravene Korea’s public policy.

      2. 2)  Determination

         For an arbitral award to be contrary to the public policy of Korea, mere violations of a mandatory law will not suffice. Instead, the specific result of recognizing the arbitral award must be contrary to Korea’s public policy to a socially unacceptable degree.⁸⁴

         The arbitral tribunal recognized Defendant’s responsibility for the following reasons. In other words, with regard to the carriage of the freight, Dongkuk appointed the stevedore who carried out the loading operations in accordance to the FIO conditions. In the process, Defendant directly carried out the lashing operations. Even if Dongkuk carried out all of the loading and lashing operations under the FIO conditions, the carrier still had the duty to ultimately confirm that the stowage would withstand the conditions for carriage. Defendant could not deny their responsibility based upon the FIO conditions.⁸⁵

         If so, the basis for Defendant’s argument actually concerns the rightfulness of the arbitral award. For the court to re-examine this would be contrary to the purposes of the New York Convention and Arbitration Act. Even if Defendant was not negligent, as they argue, we do not find that enforcement of the arbitral award would contravene Korea’s public policy such as its good morals or other social order.

         Furthermore, the vessel in this case arrived in Port Pohang in Korea on 28 September 2007, and Plaintiff requested for the arbitration on 22 September 2008.⁸⁶ In other words, the request for arbitration was made within a year of the delivery of the cargo, and complied with the filing deadline provided in the overleaf of the Bills of Lading.

1. 4.  Determination Concerning Defendant’s Argument

   [(1) covered in para. 5.35, (2) covered in para. 4.22, (3) covered in para. 6.55.](p. 382)

   1. (4)  Violation of Public Policy

      1. 1)  In the arbitration proceedings, Defendant argued that the long-term demurrage of the MS Sun River arose out of the outbreak of war between Iran and Iraq and was due to force majeure grounds so should be clearly exempted. In response to Defendant’s argument, the arbitral award found that even if night-time discharging became impossible due to the outbreak of war and constituted force majeure grounds, the voyage charter party executed by the parties did not contain an exemption provision for force majeure (the only stipulated grounds under which laytime could be interrupted were weather, Fridays, and holidays). The arbitral award found that Defendant did not have grounds to assert an exemption for force majeure and rejected this assertion. Defendant argued that the foregoing voyage charter party did not have a provision that the charterer must pay demurrage if force majeure grounds arose. Furthermore, according to Korea’s Commercial Act in Articles 782(2), 782(3), 798(2), 798(3), and 802(2), when a charter party states the loading and discharging period for the cargo such period will be calculated starting from day after the notice of readiness and the days when loading and discharging cannot occur due to force majeure are not included. The principle of exemption for force majeure grounds are a fundamental tenet of the Korean legal system and the outbreak of war is a representative example of force majeure grounds. Defendant thereby argues that recognition and enforcement in Korea of the Japan Shipping Exchange arbitral award that rejected their foregoing exemption argument would violate Korea’s public policy.

         We observe that the spirit of the New York Convention seeks to exclude barriers between nations and facilitate the recognition and enforcement of foreign arbitral awards. Article V(2)(b) of the Convention, which provides that ‘the recognition or enforcement of the award would be contrary to the public policy of that country’, thus should be restrictively interpreted. The provision applies to cases where the fundamental order of politics and economics of the recognizing country is violated or a conflict exists that, from a fairness standpoint, under no circumstances can be condoned. In making this determination, not only the domestic standpoint but also the international standpoint must be considered. In particular, the reality of the international trading sector that seeks to expeditiously and reasonably resolve disputes that arise in commercial transactions between nations through the arbitration system, the purpose of the commercial arbitration system and other matters must be taken into consideration. Hence, refusing the recognition and enforcement of an international commercial arbitration award for the reason that it violates a domestic country’s public policy must be carried out on an exceptional basis. Defendant’s foregoing arguments, in the end, basically amount to asserting that the Japan Shipping Exchange arbitrators rendered an unjust arbitral award because they incorrectly interpreted the agreed upon provisions and the exemption principles based on force majeure grounds of the demurrage payment under the voyage charter party. Even if the Japan Shipping Exchange rejection of Defendant’s exemption argument was contrary to Korea’s Commercial Act provisions or general legal principles, we find it difficult to consider that the recognition and enforcement of the arbitral award would violate Korea’s public policy based upon such grounds. We rule that Defendant’s foregoing argument is unwarranted.

      2. 2)  Defendant also argues that the Japan Shipping Exchange determined that they had the competence to arbitrate the dispute between the parties regarding the demurrage because Plaintiff’s representative director submitted to the Japan (p. 383) Shipping Exchange a falsified notarized witness statement. As a result, an arbitral award that should not have been rendered was rendered and its recognition and enforcement would violate domestic public policy.

         We observe that according to Defendant Exhibit No. 2 (Witness Statement), Plaintiff’s representative director the non-litigant Eul-Ho Kim submitted a notarized witness statement (Defendant Exhibit No. 2) to the Japan Shipping Exchange that ‘[i]n drafting the voyage charter party, Plaintiff sought the Japan Shipping Exchange as the place of arbitration and Defendant sought Seoul, but as a result of negotiations both sides agreed to arbitrate wherever was chosen, in either Japan or Korea’. With regard to whether this witness statement is really false, we find it difficult to simply believe the witness Myeong-Hak Park’s corresponding testimony and no other evidence exists to establish this fact. Even if the foregoing witness statement was false, a review of Defendant Exhibit No. 3 (Partial Award) that was presented earlier shows that the Japan Shipping Exchange arbitrators reasonably interpreted the meaning of Article 43 of the special terms and conditions of the voyage charter party in determining that the Japan Shipping Exchange had arbitral competence. They did not reach this conclusion solely based upon the foregoing witness statement as argued by Defendant. We find that the foregoing witness statement did not affect the outcome of the arbitral award. Therefore, a violation of the public policy did not occur.

Therefore, under the pretext of reviewing whether the award was deceitfully obtained, a court in the enforcing country will not be allowed to completely re-examine the correctness of an arbitrator’s substantive determinations such as his finding of facts and application of the law and then refuse enforcement of the award by finding it was deceitfully obtained by fraudulent means. Yet, if all of the following factors can be satisfied, then enforcement of the foreign arbitral award can be refused directly without resort to separate set aside or suspension procedures: (i) it can be definitely established through clear and convincing evidence⁸⁷ that the party requesting enforcement of the foreign arbitral award (hereafter Requesting Party) (p. 384) engaged in punishable fraudulent acts during the arbitral proceedings; (ii) the counterparty, through no fault of their own, could not assert a defence thereof during the arbitration proceeding because they did not know of the Requesting Party’s fraudulent acts; and, (iii) the Requesting Party’s fraudulent acts were significantly related to the issues in the arbitral award.⁸⁸

At the same time, the opposing party may request that the foreign arbitral award subject to the New York Convention be set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. In this case, if the court of the enforcing country considers it proper under Article VI of the Convention, then it may adjourn the enforcement court proceeding of the foreign arbitral award and may order the opposing party to post a suitable security on the application of the Requesting Party. If the opposing party asserts that the foreign arbitral award was deceitfully obtained through fraudulent means and prevails in the court proceeding to set aside or suspend the award, then, on that basis, they may assert that the enforcement of the award should be refused under Article V(1)(e) of the Convention.

1. B.  According to the reasons and the record of the lower court, Donghae Pulp, before its reorganization commenced (hereafter ‘old Donghae Pulp’), sold its subsidiary Dauphin Products Inc. in Alabama, US to Plaintiff. In return for Dauphin Products Inc. factory and business facilities, old Donghae Pulp received a payment of USD 5 million from Plaintiff. They entered into an exclusive woodchip supply contract (hereafter Contract) under which they granted Plaintiff the exclusive rights to supply woodchips for 10 years in return for a USD 5.19 million discount in the supply price.

   Thereafter, on 28 March 1996, Plaintiff filed their first request for arbitration at the ICC against old Donghae Pulp. Plaintiff argued that they suffered damages because old Donghae Pulp failed to meet its minimum purchase quantity. On 23 July 1996, Plaintiff filed their second request for arbitration at the ICC against old Donghae Pulp. They argued that the Contract was terminated because old Donghae Pulp breached it due to a fault attributable to them. Plaintiff argued that they supplied the woodchips to old Donghae Pulp at a price below the international price. They sought payment for, among other things, damages for the lost profits of the remaining Contract period and an adjustment compensation in the amount of the difference in price at which the woodchips were supplied to old Donghae Pulp in 1994 and 1995.

   The foreigner who was appointed as arbitrator conducted the arbitration proceedings in Hong Kong, the place of arbitration. The arbitrator drafted a terms of reference signed by the parties. Thereafter, the arbitrator had the parties submit and exchange with each other all evidentiary documents, statutory material, and other matters concerning the issues. The arbitrator examined the evidence by conducting concentrated hearings and examining the witnesses requested by the parties. After the hearing, the arbitrator granted the parties an opportunity to submit briefs, and Plaintiff and old Donghae Pulp both submitted detailed briefs.

   (p. 385) In the arbitration proceedings, Plaintiff made the following arguments and submitted evidence thereof: (1) breach of the Contract because of old Donghae Pulp’s failure to meet the minimum purchase quantity in 1994 and 1995; (2) breach of the Contract and termination as a result based on old Donghae Pulp’s refusal to accept shipment and open a letter of credit and the infringement of Plaintiff’s rights as an exclusive supplier due to the purchase of woodchips from a third supplier; (3) failure to form an agreement under the Korean contract; (4) invalidity of Article 9.2 and Article 9.3 of the Korean contract based on its unfairness and violation of good faith or cancellation thereof as a result of mistake or fraud; (5) validity of the English contract that deleted such things as Article 9.2 and Article 9.3 of the Korean contract; and, (6) the scope of damages and overall expenses that Plaintiff incurred due to old Donghae Pulp’s breach of the Contract.

   In response, old Donghae Pulp made the following arguments and submitted evidence thereof: (1) validity of the Korean contract and invalidity of the English contract due to the fictitious declaration made in collusion;⁸⁹ (2) raised an objection regarding the credibility of Plaintiff’s witnesses, denied non-performance of the Contract and asserted Plaintiff’s breach of the Contract; (3) Plaintiff’s estimated damages based on Article 9.2 and Article 9.3 of the Korean contract do not exceed a maximum of USD 5.19 million; (4) setoff of the USD 5.19 million for the exclusive supply rights against Plaintiff’s damages claim; and, (5) impeachment of evidence regarding the scope of Plaintiff’s damages, and exclusion of the award in the arbitration regarding the adjustment for the woodchip supply price.

   On 21 January 1998, the arbitrator examined, among other things, the actual purchase price of Dauphin Products Inc., the characteristics of the USD 5.19 million for the exclusive supply rights, whether Article 9.2 and Article 9.3 of the Korean contract was unreasonable and the level of understanding and awareness of Shin-Yong Kang, Plaintiff’s representative, regarding the meaning of these provisions. The arbitrator rendered the first arbitral award (‘First Arbitral Award’) that held that the valid agreement that would apply to the Contract between Plaintiff and old Donghae Pulp was the English contract that deleted the unreasonable Article 9.2 and Article 9.3 of the Korean contract. It also held that the annual minimum supply amount between them was 200,000 tons as provided in the English contract.

   On 2 April 1998, the second arbitral award (‘Second Arbitral Award’) ordered that old Donghae Pulp should pay Plaintiff USD 2,741,341 out of the 1994 and 1995 woodchip adjustment price and delay damages thereof that Plaintiff claimed. On 14 July 1998, a final arbitral award (‘Final Arbitral Award’) held that old Donghae Pulp breached the Contract and was liable to Plaintiff for refusing to accept shipment and open a letter of credit and for receiving supply of woodchips from a third supplier. The award ordered old Donghae Pulp to pay Plaintiff USD 5.5 million in lost profits from 1997 to 1999 and delay damages thereof and USD 392,260 in arbitration costs.

   Thereafter, on 31 August 1998, old Donghae Pulp received a decision from the Ulsan District Court of the commencement of corporate reorganization. Plaintiff notified its reorganization claims within the Reporting Period for Reorganization Claims based on the Second Arbitral Award and Final Arbitral Award (‘Arbitral Awards Credit’).(p. 386) It also notified its claim based on the damages from the liability it assumed toward Keoyang Shipping when it could not perform its long term charter party with Keoyang Shipping following the termination of the Contract. Donghae Pulp’s custodian objected to all of these claims on the Claims Inspection Date on the basis that no payment duty existed.

2. C.  The Second Arbitral Award and Final Arbitral Award are awards rendered in Hong Kong subject to the New York Convention that concern a dispute that arose out of a commercial legal relationship. The awards thereby are foreign arbitral awards subject to the Convention. Defendant argues that the Second Arbitral Award and Final Arbitral Award were deceitfully obtained through Plaintiff’s fraudulent means. In light of the legal principles above, based on the record during the arbitration proceedings, we do not find clear and convincing evidence that Plaintiff fooled the arbitrator and engaged in punishable, fraudulent acts with the intent to deceitfully obtain the arbitral award regarding the following issues: (1) whether Article 9.2 and Article 9.3 of the Korean contract was valid; (2) whether old Donghae Pulp breached the Contract; and, (3) whether Plaintiff and old Donghae Pulp reached an agreement regarding the 1994 and 1995 woodchip supply price and whether the right to request arbitration was lost.

   Furthermore, old Donghae Pulp itself was given an opportunity to rebut the arguments and evidence that Plaintiff submitted with regard to the above issues during the arbitration proceedings. Old Donghae Pulp submitted detailed arguments and evidence and contested these issues. We do not find that old Donghae Pulp, through no fault of their own, could not assert a defence thereof during the arbitration proceeding because they did not know of Plaintiff’s fraudulent acts.

   The lower court found that their fact-finding and legal determination was different from the arbitral award’s fact-finding and legal determination. Based solely on those circumstances, they immediately concluded that Plaintiff deceitfully obtained the arbitral award through fraudulent means. They ruled that enforcement under Article V(2)(b) of the Convention should be refused. They held that, contrary to the Second Arbitral Award and Final Arbitral Award, they could not render a judgment confirming a reorganization claim and voting rights based on the Arbitral Awards Credit. This did not change when non-litigant ‘2’, who represented Plaintiff at the time of the Contract, was indicted for abusing the right to complete⁹⁰ a blank bill of exchange, and pronounced and confirmed guilty for falsifying a security and using such security in a criminal judgment after the Second Arbitral Award and Final Arbitral Award. He had received a sample promissory note from old Donghae Pulp with a blank amount and date and was holding it. Then, on 14 June 1996, he wrote KRW 54.9 billion (USD 47.7 million) in the space for the amount in the blank bill of exchange.

   Despite this, the lower court independently considered together the evidence and did a complete fact-finding and a legal determination. Based on this, contrary to the Second Arbitral Award and Final Arbitral Award, they rejected Plaintiff’s claim that sought to confirm a reorganization claim and voting rights based on the Arbitral Awards Credit. They ruled that recognition and enforcement under Article V(2)(b) of the Convention should be refused because Plaintiff submitted false arguments (p. 387) and evidence and deceitfully obtained the Second Arbitral Award and Final Arbitral Award through fraudulent means that fooled the arbitrator, even though objectively and clearly Plaintiff’s arguments in the arbitration proceedings differed from the facts. We hold that the lower court’s determination committed an error of law regarding the interpretation and application of Article V(2)(b) of the New York Convention that affected the judgment.

   The lower court dismissed as unlawful the reorganization claim and voting rights in the same amount based on the Arbitral Awards Credit. Yet, regarding the part concerning delay damages, Plaintiff did not submit any grounds in the final appeal. The final appeal thereby on the delay damages part of the claim cannot be accepted. Therefore, we hold that the arguments on final appeal are warranted only with regard to the principal part of the Arbitral Awards Credit.

1. A.  The First Issue on Final Appeal

   Enforcement judgments confer enforceability upon foreign arbitral awards to allow the compulsory execution procedures to proceed under Korean law. The trial determines whether enforceability exists based upon its status at the conclusion of the oral pleading. After the arbitral award has been rendered, an action objecting to execution could be brought under the Civil Execution Act on such grounds as expiration of the obligation. It may then be revealed during the oral pleadings of the enforcement trial that permitting the compulsory execution procedures to continue would contravene fundamental principles of Korean law. In this case, the court may refuse enforcement of the arbitral award thereof by finding that it would violate public policy under Article V(2)(b) of the New York Convention.⁹²

   Under proceedings pursuant to the arbitration agreement, the debtor raised an offset argument against the counterparty based upon an obligation separate from the arbitration agreement before the awards were rendered. If such an argument was rejected, however, we find that enforcement of the arbitral awards will not be refused if a party reasserts the (p. 388) same offset argument after the arbitral award has been rendered and claims that compulsory execution of such award would violate the fundamental principles of our law or public policy under New York Convention Article V(2)(b).

   The lower court considered together the evidence that was raised in its judgment. First, in the initial arbitral proceedings, Defendant asserted an offset claim based upon the remaining sale proceeds of USD 5.19 million against the claim of the other party. With regard to this argument, the arbitral tribunal found in the First Arbitral Award that the entire Korean contract was not binding, including the provisions that were asserted to be the basis of the USD 5.19 million remaining sale proceeds. Based on this finding, the lower court, among other things, rendered the Second and Final Arbitral Awards and dismissed the same offset arguments in both arbitration proceedings. In the action seeking enforcement of these awards, the lower court determined that enforcement of the awards could not be refused based upon Defendant’s reassertion of the offset claim pursuant to the remaining sale proceeds of USD 5.19 million that was an object of the arbitration agreement.

   Based on the legal principles and record above, we find that the lower court’s finding of facts and determinations were justified. They did not commit an error of fact or error of law as argued in the final appeal regarding the offset argument that could serve as grounds to refuse enforcement of the arbitral awards.

2. B.  The Second Issue on Final Appeal

   The lower court considered together the evidence that was raised in its judgment and recognized the facts as ruled thereof. They held that Plaintiff did not acknowledge its obligation to pay USD 5.19 million during the 15th oral pleadings of the court of first instance. The lower court similarly found that they could not conclude that Plaintiff acknowledged its obligation to pay the USD 5.19 million just because they submitted the Korean contract as evidence as part of their request for provisional disposition.

   Furthermore, the lower court determined that the key fact recognized by the criminal judgment against Plaintiff’s intervening successor was that he exceeded the stipulated scope in completing the bill of exchange and forged it. The criminal judgment did not recognize that Defendant had an obligation to pay Plaintiff USD 5.19 million.

   Defendant then argued that the arbitral awards were clearly erroneous so that exercising rights based upon them would amount to an abuse of rights and recognizing and enforcing such awards would cause the court to assist in the exercise of rights that conflicted with a final criminal judgment. The lower court ultimately rejected Defendant’s arguments that this would be a public policy violation such that enforcement of the arbitral awards should be refused under New York Convention Article V(2)(b).

   We find the disposition of the lower court persuasive. They did not commit an error of fact or error of law as argued in the final appeal that violated public policy and could serve as grounds to refuse enforcement of the arbitral award.

1. (3)  Determination Regarding the Argument that it is Contrary to Public Policy

   Article V(2)(b) of the New York 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 prevent the recognition and enforcement of the arbitral award from harming the fundamental moral beliefs and social order of the enforcing country, and to protect these concerns. 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. Only when the specific result of recognizing the award is contrary to the enforcing country’s public policy will recognition and enforcement be refused.⁹³

   We observe that even if the arbitral award issues an injunction order that persons other than Defendant should be subject to such order or it is impossible to specify those subject to such order we find no grounds to refuse recognition and enforcement of the award. We also hold that the grounds above and the grounds that certain factual evidence such as whether Defendant copied Plaintiff’s products are contested by themselves would not constitute a case where the specific results of recognizing the award would be contrary to Korea’s public policy. We therefore do not accept this part of Defendant’s arguments as well.

1. D.  Argument Regarding Public Policy Violation of Article 4 of the Arbitral Award

   1. (1)  Defendant claims that Article 4 of the Arbitral Award which provides that ‘Defendant is prohibited from manufacturing and/or selling and/or using drugs that are sold directly and indirectly under the trademark of Acamprol within Korea or anywhere in the world’, is contrary to the principle of proportionality and in violation of essential aspects of fundamental rights under Article 37(2) of the Korean Constitution. The order is excessively (p. 390) expansive and unlimited in scope and unreasonably infringes their freedom to conduct business. After April 2004, Defendant argues that other manufacturers can easily obtain approval to manufacture and sell a generic product. The award violates their right to equality to prohibit them from manufacturing and selling the product in an unlimited manner. Furthermore, Plaintiff can establish a subsidiary or use another Korean company to sell its product and has little to gain by prohibiting Defendant’s manufacturing and sale whereas Defendant will suffer serious harm. Enforcement of the award thereby should be refused under Article V(2)(b) of the New York Convention because it violates Korea’s public policy.

      1. (2)  We observe that Article V(2)(b) of the New York 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 prevent the recognition or enforcement of the Arbitral Award from harming the fundamental moral beliefs and social order of the enforcing country, and to protect these concerns. The determination thereof must take into account 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.⁹⁴ For an arbitral award to be contrary to the public policy of Korea, mere violations of a mandatory law will not suffice, and instead the specific result of recognizing the arbitral award must be contrary to Korea’s public policy to a socially unacceptable degree.

         In light of the above legal principle, we must comprehensively consider all relevant circumstances such as the relationship between Plaintiff and Defendant, the background behind the parties entering into the Confidentiality Agreement and the dispute thereafter, and the benefits that Defendant enjoyed as holder of the rights to manufacture Acamprol since they, among other things, manufactured and sold Acamprol ever since they obtained approval to manufacture the new drug around April 1998. Based only on the grounds above that Defendant asserts, we hold it difficult to conclude that if we recognize Article 4 of the Arbitral Award the specific consequences would be contrary to Korea’s public policy. We have no evidence to prove otherwise and hold Plaintiff’s argument is unwarranted.

1. 5.  Defendant’s Arguments and Determination

   1. A.  Defendant’s Arguments

      Defendants argues that recognition and enforcement of the award is ‘contrary to the public policy’ of Korea. First, a shareholder’s agreement is only valid within the scope of mandatory laws and regulations or public order and good morals. Under the Commercial Act, shareholders do not have the authority to distribute dividends so the dividend provision are not legally binding. Only board of directors can approve financial statements and this authority cannot be delegated to a standing committee. The standing committee consisting of directors had an obligation to distribute dividends and their decision to distribute 20.4 per cent of the 2006 accounting year’s profits as dividends violated the shareholders’ agreement. Such a distribution infringes the mandatory laws and regulations governing stock corporations. Second, the award infringes the principle of proportionality between the violation of an obligation and the sanction thereof. Based on the finding that Defendant violated the amended shareholders’ agreement, it had to relinquish its control and sell its Hyundai Oilbank stock at a KRW 5,000 (USD 4.3) per share discount resulting in KRW 857.8 billion (USD 745.9 million) in economic losses. Third, the award requires the directors to distribute the dividends based on an obligation to shareholders and improperly applies Article 150 of the Civil Code to find that the dividend threshold was fulfilled.

   2. B.  Determination

      1. 1)  The Scope of Review of the Enforcing Country’s Court

         [The court cites Majestic Woodchips (II) concerning the application of Article V. See para. 9.10.]

      2. 2)  Meaning of ‘the recognition or enforcement of the award would be contrary to the public policy of that country’

         [The court cites the first paragraph in the Fourth Issue of Adviso concerning public policy grounds that can be found in para. 9.76.]

         In considering the meaning of ‘against public policy’ as a grounds for refusing recognition and enforcement of an arbitral award, we note the following:

         1. (1)  Arbitration is the quintessential means of alternative dispute resolution to settle a dispute between the parties through party agreement and not by a court’s judgment but by an arbitrator’s arbitral award. Given its binding nature, it is particularly an effective means for settling disputes arising out of international commercial transactions in place of litigation;

         2. (2)  When parties by consent decide to use the international commercial arbitration system at the time they enter into an arbitration agreement, in most cases, it is premised upon equal standing;

         3. (3)  If the courts of all countries sought to refuse enforcement of arbitral awards or interfere in arbitral proceedings under the name of ‘public policy’ for the protection of their country or the interests of their people, then international transactions would become extremely uncertain and the arbitration system could lose its utility; and,

         4. (4)  As seen above, the background and purpose for adopting the New York Convention was to clarify the scope of foreign arbitral awards with guaranteed (p. 392) enforceability and the conditions of enforcement and recognition and to guarantee even wider recognition and enforcement between the contracting parties.

         Considering these factors, the foregoing ‘public policy’ is a different concept from domestic legal public policy as provided under Article 103 of the Civil Code. We find public policy should mean ‘a fundamental principle of the domestic legal order, a fundamental ideal that supports the domestic legal order, or a fundamental consideration, value or other matter of the legal system that cannot be compromised even considering international factors (hereafter “international public policy”)’. Therefore, we deem it proper to consider that a situation contrary to ‘international public policy’ hereto refers to a situation ‘contrary to the public policy of that [enforcing] country’ herein under the New York Convention.

      3. 3)  Determinations Concerning This Case

         We examine and determine Defendant’s arguments based upon the legal principles of 1) and 2) above.

         1. A)  Determination Regarding the Contrary to the Fundamental Order of the Stock Corporation System Argument

            • ①  The first shareholders’ agreement and the amended shareholders’ agreement in this case were agreements in advance concerning matters such as the election of directors by Plaintiffs, who were existing shareholders, and Defendants, who became the new shareholders, the method of settling disputes, and the restrictions on the transfer of shares when Defendants paid the funds to acquire new stock in Hyundai Oilbank. These types of shareholders’ agreements generally cannot directly bind the decision-making of a company or the organs of a company, but, based upon the freedom of contract principle, they would be effective between shareholders that were the contracting parties.

              Under the Commercial Act the decision to distribute dividends of a stock corporation must follow procedures such as receive board of director approval of the financial statements including the statement of retained earnings (Article 447), auditor audit of the statement of retained earnings (Article 477(3)–(4)), and shareholder approval of the statement of retained earnings (Article 447). During the shareholders’ meeting when the statement of retained earnings is approved, the shareholders may decide to amend it and the dividend distribution will be finalized when approved at the meeting. Under these legal principles and circumstances, at the time of the amended shareholders’ agreement herein, we find that Plaintiffs and Defendants, who each held 50 per cent of the Hyundai Oilbank’s stock, were in a position to decide the amount of dividend distribution out of distributable profits through a decision at the shareholders’ meeting. We find that the dividend provision that was included in the amended shareholders’ agreement had binding legal effect upon Plaintiffs and Defendants, who were the contracting parties.

            • ②  In addition, as found above, according to the amended shareholders’ agreement, the standing committee consisted of directors designated by Plaintiffs and Defendants. Unless prohibited by Korean law, board of director decisions have been delegated to the standing committee (p. 393) to the maximum extent possible. Yet, under the foregoing agreement, matters that under Korean law require a board of director decision or approval have not been delegated to the standing committee but shall be decided by the board of directors after the standing committee has reviewed and approved it. Furthermore, for important matters, including the distribution of dividends, Plaintiffs and Defendants provided that after the standing committee’s initial review and approval then board of director approval and a decision at the shareholders’ meeting would occur. They agreed that they would exercise their voting rights at the board of directors’ and shareholders’ meeting according to the standing committee’s decision. In light of these facts, we find the standing committee consisted of Hyundai Oilbank’s directors and was in charge of coordinating in advance the position of Plaintiffs and Defendants, who were the shareholders, regarding the items that were placed on the agenda of the board of directors and the shareholders’ meeting. Therefore, we find that the standing committee cannot be viewed as an organ that decided board of director matters in place of the board of directors or a committee within the board of directors. We find that the arbitral award herein took into consideration the status of the standing committee and the relationship with Defendants, who were shareholders, to rule that Defendants violated the amended shareholders’ agreement. In its relations with Plaintiffs, Defendants were obligated to set the amount of Hyundai Oilbank’s dividends according to the requirement of the dividend provision herein. They instead set the 2006 dividends as 20.4 per cent of net profits at the 15 February 2007 Standing Committee in breach of the requirement hereto.

            • ③  In the end, the arbitral award herein recognized that Defendants were responsible for violating the amended shareholders’ agreement by failing to perform their obligations to make sure that the dividend distribution would comply with the dividend provision herein pursuant to the amended shareholders’ agreement. The award thus recognized the party’s responsibility for violating the agreement according to pacta sunt servanda one of the fundamental legal principles of contract law. The award did not make a determination regarding the effects of corporate law such as the effects of an exercise of voting rights or a shareholders’ meeting decision that was contrary to the shareholders’ agreement. We find the award thereby did not contravene the mandatory laws or regulations regarding the structure and management of a stock corporation such as the separation of ownership and control, the independence and fiduciary duty of directors, the distribution of authority among corporate organs, and the profit sharing dividend procedures. Therefore, we hold that the possibility that the results of recognizing the arbitral award herein can be viewed as contravening the ‘international public policy’ as defined above is even further minimized.

         2. B)  Determination Regarding the Argument that Proportionality between the Violation of an Obligation and the Sanction was not Followed

            As seen above, the deemed offer provision herein presumes that when one party violates the shareholders’ agreement then the violating party is presumed (p. 394) to have offered to sell the shares they possess to the other party. It imposes an obligation upon the violating party to sell their shares at a certain discounted amount below a fair price. If a party materially breaches the shareholders’ agreement, the cooperative relationship between the shareholders will be difficult to sustain due to the breakdown in reciprocal trust. Plaintiffs and Defendants therefore took this point into consideration to deter contract violations when they compelled termination of the joint investment relation as stated above. Pursuant to the deemed offer provision that stipulated the legal implications arising from the consequences of contractual non-performance, the arbitral award herein applied the fair price that Plaintiffs and Defendants decided by agreement and recognized the effect of the deemed offer. Accordingly, Defendants assumed the obligation to sell the shares that they had purchased around 1999 and 2005 for KRW 4,500 (USD 3.9) and KRW 5,000 (USD 4.3) per share, respectively, to Plaintiffs at KRW 15,000 (USD 13) per share. Given these circumstances, we do not find that the arbitral award herein, as Defendants argued, did not comply with the ‘proportionality between violation of an obligation and the sanction’ such that the specific result was contrary to ‘international public policy’ as defined above.

         3. C)  Determination Regarding the Argument that Article 150 of the Civil Code was Arbitrarily Applied

            As an initial matter, as we found above, we do not find that the arbitral award contravened the mandatory laws and regulations that apply to the structure and management of stock corporations. It recognized that Defendants had an obligation to make a distribution of dividends according to the requirement of the dividend provision herein and also violated this obligation. Furthermore, the arbitral award herein only deemed that the dividend threshold was reached according to Article 150 because Defendants’ foregoing violation of their obligations thwarted the fulfilment of the conditions. It did not determine that the existing preferred shares had been converted into common shares but only decided that Defendants had an obligation to take measures to convert the common shares. As found in the legal principles above, we hold it difficult to find that the arbitral award’s appropriateness should be subject to the enforcing country’s courts’ actual re-examination of the merits. We also do not find, as Defendants argued, that the terms of the award arbitrarily apply Article 150 of the Civil Code such that the specific result is contrary to the ‘international public policy’ as defined above.

         4. D)  Sub-conclusion

            In other words, we hold that all of Defendants’ foregoing arguments that recognition and enforcement of the arbitral award herein should be considered as a situation where ‘the recognition or enforcement of the award would be contrary to the public policy of that country’ under Article V(2)(b) of the New York Convention are unwarranted. Even ex officio, we do not find any circumstances to recognize Defendants’ arguments.

Article V of the New York Convention states 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’.⁹⁶ The provision seeks to prevent the recognition and enforcement of the arbitral award from harming the fundamental moral beliefs and social order of the enforcing country, and to protect these concerns. The determination thereof must take into consideration not only the perspective of domestic circumstances but also the stability of the international trading order and must be based on a narrow interpretation. Only when the specific result of recognizing the award is contrary to Korea’s public policy will recognition and enforcement be refused.

Enforcement judgments confer enforceability upon foreign arbitral awards to allow the compulsory execution procedures to proceed under Korean law. The trial determines whether enforceability exists based upon its status at the conclusion of the oral pleading. After the arbitral award has been rendered, an action objecting to execution could be brought under the Civil Execution Act based on such grounds as expiration of the obligation. It may then be revealed during the oral pleadings of the enforcement trial that permitting the compulsory execution procedures to continue would contravene fundamental principles of Korean law. In this case, the Korean court may refuse enforcement of the arbitral award thereof by finding that it would violate the foregoing provision under the New York Convention.⁹⁷

(p. 396) Yet, in the case herein, Defendant’s asserted grounds⁹⁸ not only arose before the arbitral award, but the award itself already concluded that the grounds were unwarranted.⁹⁹ Thus, Defendant’s asserted grounds did not constitute a basis for an action objecting to execution against Plaintiff’s claim. In addition, no evidence exists that allowing compulsory execution according to the arbitral award would be contrary to the fundamental principles of Korean law. We do not accept Defendant’s arguments.

1. 3.  Determination Concerning Defendant’s Arguments

   Defendant argues that allowing an enforcement judgment is unjust due to the following reasons: (a) the AFMA is just an incorporated association and it would thereby be unjust to deliver an enforcement judgment of an arbitral award rendered at such a place; (b) Defendant objected to Plaintiff the very next day after Defendant mistakenly entered into the Contract with Plaintiff; (c) Defendant demanded renegotiation based on the potential for additional negotiation to (p. 397) conclude a main contract because the Contract was merely a provisional contract in the form of a Deal Memo; Plaintiff disregarded Defendant’s objection and did not respond any further to negotiation; Plaintiff instead requested the arbitration herein; and, (d) the Arbitral Award ordered Defendant to pay the minimum security deposit of USD 200,000 to Plaintiff as compensation damages even though Plaintiff did not suffer any damages under the Contract.

   Article V of the New York Convention restrictively enumerates the grounds for refusing enforcement,¹⁰⁰ and an arbitral award may be refused enforcement only occur when one of the grounds listed under Article V exists.

   We not only do not find it convincing that Defendant’s foregoing asserted grounds could fall under any of the grounds under Article V of the New York Convention but we also find no evidence that they could be so considered.

   Thus, without any further no need for examination, we rule that Defendant’s foregoing argument is not correct.

1. C.  The Argument that Plaintiff’s Request under the Arbitral Proceedings is Unjust

   1. (1)  Defendant claims that they failed to receive USD 35,412.20 of charterage from Ji Mei Hua Shipping under the Charter Parties. They also claim that Plaintiff’s request for the brokerage commission without Plaintiff taking the necessary measures as a broker to resolve Ji Mei Hua Shipping’s unpaid charterage is an unlawful claim that violates a broker’s obligation of good faith.

      In light of the Charter Parties, however, we find it difficult to conclude that Defendant can reject Plaintiff’s request for payment of the brokerage commission for the charterage that was already paid just because Defendant did not receive payment of part of the charterage from Ji Mei Hua Shipping. Moreover, such grounds cannot constitute a lawful defence to Plaintiff’s request for enforcement of the Arbitral Award. (Even if we favourably interpret Defendant’s argument based on a public policy violation under Article V(2)(b) of the New York Convention, we cannot conclude that Plaintiff violated a broker’s obligation of good faith or Korea’s public policy by claiming from Defendant payment of the brokerage commission for charterage that was already paid.) Thus, no matter how one views it, Defendant’s above argument lacks merit.

   2. (2)  Furthermore, Defendant contends that after they refused to pay the commission under the Arbitral Award Plaintiff filed an action against them at ‘J(K)’¹¹⁰ of the UK. After Defendant explained to ‘J’ the inappropriateness of Plaintiff’s argument, Defendant claimed ‘J’ deferred their determination. Defendant argues either the enforcement of the Arbitral Award was suspended as a result or Plaintiff’s claim is unjust.

      We observe that if we combine the overall oral arguments with Defendant Exhibit No. 2, we find that Plaintiff notified ‘J’ of Defendant’s refusal to pay the charterage. Article V(1)(e) of the New York Convention, however, stipulates that ‘recognition and enforcement of the award may be refused when the award has not yet become binding, on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made’. We hold that, contrary to Defendant’s assertions, ‘J’ is a company in London that manages the world shipping and charter market and is not an institution that could set aside or suspend the Arbitral Award. Therefore, Defendant’s foregoing argument that the enforcement of the Arbitral Award was suspended lacks merit. Defendant’s basis for its arguments cannot constitute a lawful defence against Plaintiff’s request for enforcement based on the Arbitral Award. No matter how one views it, Defendant’s foregoing arguments thereby lack merit.

1. 2.  Determination Regarding Plaintiff’s Arguments

   As the basis for their claim Plaintiff argues that execution of the enforcement judgment would be an abuse of right that should not be permitted because the enforcement judgment and the Arbitral Award included manifestly unreasonable items such as KRW 11.9 million (USD 10,350) for items that Defendant never delivered (LED light bulbs and stabilizers), KRW 2.3 million (USD 2,000) for installation costs that Defendant never performed and KRW 2.15 million (USD 1,900) for value added tax where Defendant did not issue a tax invoice.

   In principle, we observe that an action objecting to execution of a judgment can only be brought if the basis occurred after the conclusion of oral pleading (if no oral pleadings were provided, then after the judgment is delivered).¹¹³ Nevertheless, where a final and conclusive judgment conflicts with the substantive legal relations, the execution debtor may request an action objecting to execution of the judgment. The court must consider together the overall circumstances such as the characteristics and substance of the confirmed rights that would be executed under the judgment, the background behind the judgment and (p. 401) the circumstances after judgment until its execution, and the effects of the execution upon the parties. Where execution of the final and conclusive judgment would be extremely unreasonable and manifestly against justice for the other party to endure to the extent that it would be considered unacceptable from the viewpoint of social living norms, then such execution would be an abuse of rights that should not be permitted.¹¹⁴

   In this case, we do not find that it would be an abuse of rights if Defendant obtained execution of the enforcement judgment, based on the following: (i) as seen above, the Arbitral Award was rendered based on the arbitration agreement between Plaintiff and Defendant; (ii) for domestic arbitral awards, as long as grounds to set aside under Article 36(2) of the Arbitration Act do not exist, the court must render an enforcement judgment; and the Arbitral Award does not contain any matters that would constitute grounds for such a set aside; and, (iii) Plaintiff Exhibits No. 3 and No. 4 by themselves are insufficient to demonstrate as argued above that the enforcement judgment manifestly contradicts substantive legal relations and no clear evidence to the contrary exists. Therefore, we find Plaintiff’s arguments groundless.

1. 2.  Determination

   We observe that Korea has not denied by law or treaty the jurisdiction of US courts. The foregoing US judgment not only does not violate the public policy of Korea but also no references exist otherwise to establish that the US court did not lawfully summons Defendant. Furthermore, both the U.S. Supreme Court’s Hilton v Guyot, 159 US 113 (1895) and Article 98 of the Restatement of the Law, Second, Conflict of Laws (1971) overall have the same purpose as Articles 203, 476, and 477 of Korea’s Civil Procedure Act.¹¹⁵ We find the (p. 402) conditions to enforce a Korean judgment in the US are the same as in Korea. We decide that with regard to the effectiveness of foreign judgments the US and Korea have mutual reciprocity. According to the foregoing facts, the US judgment meets all the conditions of Article 203 of the Civil Procedure Act. We recognize its effect in Korea and its compulsory execution should be permitted.

2. 3.  Defendant’s Argument

   Defendant argues that the party that entered into the agreement with Plaintiff was not Defendant but Defendant’s employees, the non-litigants Il Hwang and Seong-Il Choi, who had entered the agreement in their personal capacity. In the alternative, after entering into the agreement with Defendant, Plaintiff entered into a side agreement by, among other things, entering into an agreement with another company in Korea, the non-litigant Yuseong Films, and even accepting a deposit. Defendant argues that Plaintiff hid this fact from them while seeking performance of the agreement so the agreement with them is invalid.

   We find that in this action that we can only review whether the US judgment met the necessary conditions for recognizing a foreign judgment and whether the litigation procedure was lawful. We cannot substantively review whether the US judgment was justified. We find, without need for further determination, that Defendant’s foregoing argument is unwarranted.