South Korea

Case updates

Decision of the 33rd Division of Civil Affairs of the Seoul High Court (2018 NA 10878) 20 August 2019

In a Decision of the 33rd Division of Civil Affairs of the Seoul High Court (2018 Na 10878) 20 August 2019, an appellate court in Seoul ordered enforcement of an ICC award in favour of a foreign investment company fund against a government funded corporation following a remand by the Supreme Court in 2016 that the relevant arbitration agreement was valid. 

In 2011, an award was issued in a Japan seated ICC arbitration between Korea Resolution & Collection Corporation (KR&C) (part of a Korean state operated company) and LSF KDIC Investment Company Ltd (LSF KDIC) (a company backed by Lone Star Fund specialising in asset securitisation). The arbitration pertained to a dispute around the process by which the Busan General Cargo Terminal site was sold.

KR&C resisted enforcement of the ICC award by bringing proceedings before the Central District Court of Seoul in September 2012. The Central District Court of Seoul refused enforcement of the award on the finding that enforcement would be contrary to public policy. On appeal, enforcement was also refused on the finding that there was no valid arbitration agreement between the parties. Historically, as Korea is considered a pro arbitration jurisdiction, these decisions initially raised concerns amongst the international arbitration community.

In August 2019, these concerns were allayed. After a series of subsequent appeals (including submissions on corporate tax and interest adjustment), the 33rd Division of Civil Affairs of the Seoul High Court reached a final outcome for this dispute ordering the enforcement of the ICC award.

This decision affirms the pro arbitration regime in Korea as well as the ongoing importance of ICC arbitration.

Other key developments

ISDS Team and Presidential Directives

In the past two decades, Korea has experienced vast growth in trade and investment. The benefits associated with this growth have also come with a recent surge in ISDS cases involving Korea.

In response, Korea has announced the introduction of a presidential directive titled ‘Regulation on International Investment Dispute Prevention and Response’ (ISDS Regulation).

Historically, it is understood that Korea dealt with ISDS cases on an ad hoc basis. With these new regulations, Korea now has a permanent response team tasked with, among other things, the following:

• formulating ISDS response strategies;
• reviewing the adequacy of costs associated with ISDS cases;
• selecting and directing counsel responsible for ISDS cases;
• reviewing and investigating information related to foreign investment in Korea, including the possibility of any new ISDS; and
• launching an educational campaign for government officials on ISDS.

Currently, the response team is comprised of lawyers and high ranking officials. The team has a broad remit, including the ability to interview officers from relevant agencies and institutions. The ISDS Regulation prescribes that administrative agencies and relevant institutions are required to cooperate with the response team and report any events that may trigger an ISDS. In light of the above, we anticipate that Korea’s new approach is likely to affect the current ISDS surgence. In the long term, increased regulation, monitoring and transparency will ultimately enhance foreign investor rights and certainty, thus avoiding unnecessary disputes.

Master Plan for promotion of arbitration industry for 2019-23

In 2016, the Korean arbitration landscape underwent a major transformation. Key to this transformation was the Arbitration Promotion Act, which sought to promote arbitration in Korea.

Pursuant to the Arbitration Promotion Act, the Minister of Justice has recently released the Master Plan for Promotion of Arbitration Industry for 2019–23 (Master Plan).

The Master Plan includes several mechanisms to help bolster the arbitration industry, including, among other things:

• implementing training programs and seminars, both domestically and abroad;
• establishing a specialised educational institution under the KCAB;
• publishing newsletters; and
• creating an advisory council comprised of academics in addition to arbitral and business stakeholders.

The Master Plan also seeks to strengthen the case handling capability of the KCAB by increasing support personnel, reviewing arbitration related laws and collecting information about the industry in order to increase efficiency. The Master Plan also seeks to bolster Korea’s international presence by hosting international arbitration events, publishing promotional materials (including guidebooks) and expanding KCAB’s presence overseas.

KCAB releases its final video conferencing protocol

During the height of the coronavirus pandemic in March, KCAB released a new Seoul Protocol on Videoconferencing in International Arbitration.

Our review of these important updates can be read in our Asia Pacific Arbitration Virtual Hearings publication.

Disclaimer: DLA Piper is restricted for regulatory reasons from practising local law in South Korea, as are all international law firms. This has allowed our team to regularly work with leading local firms to deliver South Korean law advice as needed, while leveraging our knowledge and experience in South Korean advisory, transactional and arbitration work.