Arbitration in South Korea

The Republic of Korea ("South Korea" or “Korea”) ratified the New York Convention in 1973. Until the late 1990s, however, there was very little arbitration activity in South Korea owing to its efficient court system, non-litigious culture, and relatively insulated economy.

The Asian financial crisis in 1998 was a watershed moment for international arbitration in South Korea. As foreign investors flooded the market and bought South Korean companies in fire sales, arbitration clauses were introduced in M&A transactions. With the drastic increase in the number of contracts containing arbitration clauses, international arbitration quickly became a well-known mechanism for dispute resolution for South Korean practitioners and members of the business community.

Enacting an arbitration act

With the sudden and rapid growth of arbitration, institutional support and the legal infrastructure for international arbitration also began to grow in parallel. The Korean Arbitration Act (KAA), which was first enacted in 1966, was completely revised in 1999 to adopt the 1985 United Nations Commission on International Trade Law Model Law (the “UNCITRAL Model Law”).

In 2016, further amendments to the KAA were made, incorporating the 2006 amendments to UNCITRAL Model Law into domestic law. In the same year, the Korean Commercial Arbitration Board (KCAB) adopted significant revisions to both its international arbitration rules and domestic arbitration rules. The Arbitration Industry Promotion Act came into effect in 2017, providing for long-term planning and government financial support for the promotion of international arbitration in South Korea.

Pursuant to the Arbitration Industry Promotion Act, the South Korean Ministry of Justice wishes to implement the Master Plan for Promotion of Arbitration Industry for 2019–2023 (the “Master Plan”). The Master Plan aims to promote the arbitration industry, provide support personnel to the KCAB and create policies that will make South Korea an attractive potential arbitral seat or physical venue of hearing. 

In line with these legislative initiatives to foster an arbitration-friendly environment, South Korean courts have also become increasingly supportive of arbitration by consistently upholding arbitration agreements, assisting the arbitral tribunal in taking evidence and enforcing arbitral awards.

Today, arbitration is not merely an alternative to traditional court litigation, but in fact the preferred dispute-resolution mechanism for cross-border disputes in South Korea.

Trends in South Korean Arbitration

Since the 2016 amendments to the KAA and KCAB’s international and domestic arbitration rules, South Korea has seen substantial development in various legal issues related to arbitration.

In recent years, interim relief in arbitral proceedings has generated great interest in the South Korean arbitration industry. This is down to the KCAB’s adoption of the emergency arbitrator system and the 2016 amendments to the KAA, which permit South Korean courts to enforce interim measures ordered by an arbitral tribunal seated in South Korea.

Additionally, with the growth in acceptance and use of third-party funding in international arbitration around the globe, many third-party funders have also begun to express their interest in entering the South Korean market. Although third-party funding remains an issue of increased interest in South Korea, no legislation has been introduced so far in order to directly address this issue. There have also been a number of court cases dealing with arbitration jurisprudence in recent years. Three notable cases are summarised below. 

Daily monetary penalty

In an enforcement proceeding for a foreign arbitral award, the Supreme Court held that an arbitral award ordering the respondent to pay a daily monetary penalty for failing to assign the patent in dispute to the prevailing party was not contrary to South Korean law or public policy (Supreme Court Decision No 2016Da18753, rendered on 29 November 2018).

This case set an important precedent as the first Supreme Court decision to enforce a foreign arbitral award ordering indirect compulsory execution in relation to the respondent’s obligation to declare its intent to effect certain changes in a legal relationship. This is not normally enforceable under the Korean Civil Execution Act.

Validity dispute

In a case where the validity of an arbitration agreement was in dispute (Supreme Court Decision No 2017Da255084, rendered on 26 July 2018), the Supreme Court held that the validity of an arbitration agreement shall be determined by the substantive governing law of the underlying contract if the parties have designated one – or by the law of the seat of arbitration if the parties have not designated the governing law in the contract – pursuant to Article 5(1) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).

Foreign arbitral award related to land

The Supreme Court once again addressed arbitration in a case involving a foreign arbitral award ordering the respondent to pay the claimant an amount equal to 50% of the claimant’s total costs incurred upon the sale of land. This amount included half of the total corporate tax borne by the claimant, which accounted for a third of the awarded amount. However, as a result of the claimant’s subsequent lawsuit against the pertinent tax authorities, the amount of corporate tax was ultimately significantly reduced, thereby also reducing the respondent’s share of the amount.

In the ensuing enforcement proceeding, the Supreme Court acknowledged the need to recalculate the amount that can be enforced against a respondent. The amount should properly reflect the reduction in corporate tax to be borne by the respondent if the enforcement would result in abuse of rights or transgression of public order. This can be determined by considering the substantive legal relationship of the parties, developments leading up to the rendering and enforcement of an arbitral award, and the impact on a party of enforcement (Supreme Court Decision No 2016Da49931, rendered on 13 December 2018).

Seoul Protocol on Videoconferencing in International Arbitration

Since the COVID-19 pandemic began in early 2020, the international arbitration community in South Korea has swiftly adapted to the uncertainty surrounding arbitral proceedings. Prior to the pandemic, the Seoul Protocol on Videoconferencing in International Arbitration (the “Seoul Protocol”) was first prepared by the KCAB in November 2018. In March 2020, within mere weeks of the COVID-19 outbreak, the KCAB released a revised and upgraded version of the Seoul Protocol.

The Seoul Protocol is designed to be a comprehensive guideline instructing parties on navigating tricky issues that may arise during virtual hearings. It addresses indispensable matters such as securing efficient interpretation services and the accessibility of documents to witnesses during examination.

The Seoul Protocol further allows parties to pick and choose certain provisions while customising others, and is accompanied by the technical specifications for technical matters such as video, audio and channels/bandwidth. There are growing expectations that the Seoul Protocol will serve as a useful tool for parties to cut down on arbitration costs even after COVID-19.

Now that South Korea and the rest of the world are emerging from the aftermath of COVID-19 and slowly returning to normalcy, “hybrid” or “semi-virtual” hearings, which combine virtual and physical attendance, are becoming more common in international arbitration. This transitional period will allow those involved in the hearings to be able to participate without having to worry about costs and travel restrictions.

Key industries in South Korea have undoubtedly been affected by the COVID-19 pandemic. Nevertheless, as South Korea emerges as a North-East Asian international arbitration hub, certain industries – such as construction, IT, trade/commerce, IP, maritime and entertainment – are continuing to experience growth in terms of international arbitration activities.

In particular, investment treaty arbitrations involving the South Korean government have experienced rapid growth since 2019. The following investment treaty arbitrations have been filed since 2019.

• On 20 June 2019, a US real estate development company named Gale Investments Co (“Gale”) submitted a notice of intent to submit a claim to arbitration to the South Korean government based on the US–South Korea Free Trade Agreement (“KORUS FTA”). Gale claims that the state unlawfully expropriated a substantial portion of its investment in the Songdo International City development project in Incheon. As a result, it has separately initiated an ICC arbitration against POSCO Engineering & Construction over the project.
• On 10 July 2019, a Malaysian corporation named Berjaya submitted a notice of intent to bring an expropriation claim against South Korea under the Malaysia–South Korea bilateral investment treaty (BIT). The dispute related to Berjaya’s real estate development project, which allegedly failed as a result of a ruling by the South Korean Supreme Court that instructed Berjaya to return land purchased from a South Korean government agency. Berjaya sought damages for the alleged breach of land sale and purchase agreement. It has filed the notice of intent after losing its lawsuit against the government in Seoul Central District Court. Berjaya and the South Korean government eventually agreed to settle their dispute during the summer of 2020.
• In January and February of 2020, certain US citizens initiated two separate investment treaty arbitration claims against the South Korean government based on claims of land expropriation. The land in question was either owned by former South Korean nationals or inherited from South Korean nationals.
• On 18 July 2020, a Chinese national named Fengzhen Min submitted a request for arbitration against the South Korean government under the China–South Korea BIT to ICSID. He is claiming that the South Korean government failed to provide fair and equitable treatment to and unlawfully expropriated his investment in connection with the Grand Central Plaza building in Beijing. This case is especially notable because Fengzhen Min is currently incarcerated in South Korea and is further asking the tribunal to order the South Korean government to release him.
• On 18 October 2021, an Iranian family called the Dayyanis submitted a notice of arbitration against the South Korean government under the South Korea–Iran BIT. The family previously brought a treaty arbitration against the South Korean government in 2015 and was given a favourable award in 2018. In the current case, the Dayyanis are claiming that the South Korean government’s failure to pay the award constitutes another violation of the BIT.

In 2019, the South Korean government introduced the Regulation on International Investment Dispute Prevention and Response (“ISDS Regulation”), a presidential directive that provides for an effective prevention and response system and a channel facilitating the cooperation among relevant government departments. In particular, the South Korean Ministry of Justice has created a response team composed of lawyers and high-ranking officials to effectively prevent and respond to international investment disputes.

The KCAB remains the only officially recognised arbitral institution in South Korea and is often selected by parties in arbitrations seated in South Korea. It is statutorily empowered to settle all types of commercial disputes under the KAA. It also conducts and administers mediation.

The KCAB has adopted separate rules for domestic and international arbitrations. Arbitrations between South Korean parties are conducted pursuant to the domestic arbitration rules of the KCAB in the absence of a specific agreement to the contrary. For international arbitrations in which at least one of the parties has its principal place of business outside South Korea, the KCAB International Arbitration Rules (“KCAB Rules”) apply as the default rules. In April 2018 the KCAB established a separate division, KCAB International, which exclusively manages international arbitration.

Parties choosing South Korea as an arbitral seat often opt for the rules of other leading international arbitral institutions, such as the ICC. The Singapore International Arbitration Centre (SIAC), the Hong Kong International Arbitration Centre (HKIAC) and the LCIA are more frequently used for arbitrations seated outside South Korea.

Although less common, there are also ad hoc arbitrations under the UNCITRAL arbitration rules.

The South Korean judicial system does not have any specific courts designated for disputes related to international or domestic arbitration. However, South Korean judges are generally well versed in international or domestic arbitration.

The primary legislation governing international arbitrations in South Korea is the KAA, which is based on the UNCITRAL Model Law. The KAA governs both domestic arbitrations and international arbitrations that take place in South Korea.

The latest major revisions to the KAA came into effect on 30 November 2016, when many provisions of the 2006 amendments to the 1985 UNCITRAL Model Law were adopted. The primary changes to the KAA in 2016 included:

• expansion of the scope of arbitration to non-property/non-monetary disputes that may be resolved by the parties’ settlement;
• relaxation of the requirements concerning the written form of the arbitration agreement;
• detailed provisions for interim measures ordered by an arbitral tribunal and their enforcement by the South Korean court;
• simplified procedures for recognition and enforcement of arbitral awards in South Korean courts; and
• provisions addressing the South Korean courts’ cooperation in collecting evidence in arbitral proceedings.

The KAA has not been amended since then.

It should be noted that the KAA, as amended in 2016, and the UNCITRAL Model Law are not completely identical. In particular, the KAA does not incorporate Article 34(4) of the UNCITRAL Model Law, which allows a court to suspend its set-aside proceedings at the request of a party in order to give the arbitral tribunal an opportunity to resume arbitration or to eliminate grounds for set-aside grounds. The KAA also does not limit its application to solely “international” or “commercial” arbitrations, which in turn broadens its application.

Additionally, Article 17 of the KAA also deviates from the UNCITRAL Model Law by providing that, where an arbitral tribunal rules on its jurisdiction or scope of authority at the preliminary stage, either party may appeal the decision by challenging the arbitral tribunal’s jurisdiction to the South Korean district court within 30 days.

Further to the aforementioned most recent amendments to the KAA in 2016, South Korea’s Act on Private International Law is facing comprehensive revisions for the first time since its complete amendment in 2001. Notably, the revised Bill includes new provisions on the general and special jurisdiction of South Korean courts and the jurisdiction clause in a contract.

The Bill was submitted to the National Assembly after it was approved by the State Council of South Korea in November 2018, but is still awaiting examination by the Legislation and Judiciary Committee of the National Assembly.

Article 8 of the KAA, in line with Article 7 of the UNCITRAL Model Law, requires an arbitration agreement to be in writing either as an arbitration clause included in a contract or as a separate agreement.

An arbitration agreement is considered to be "in writing" when:

• the terms and conditions of an arbitration agreement have been recorded, regardless of whether such agreement was made orally, by conduct, or by any other means;
• an arbitration agreement is evidenced by electronic communication; or
• one party asserts that an application or a written answer exchanged between the parties contains an arbitration agreement, and the other party does not deny such assertion; likewise, a reference in a contract to a document containing an arbitration clause (such as general terms and conditions) can constitute a valid arbitration agreement.

As is the case in many other jurisdictions, matters of criminal law, family law and administrative law are not arbitrable in South Korea.

To date, there is no clear South Korean court precedent on whether claims related to economic regulatory laws (eg, antitrust and insolvency regulations or IP rights) are arbitrable. Legal commentators, however, have noted a trend in international arbitration favouring the arbitrability of disputes in such areas, and at least one South Korean court has enforced a foreign arbitral award (in 1995) based on a licensing agreement that allegedly violated South Korean fair trade laws.

The KAA does not provide specific rules for determining the arbitrability of claims. However, the 2016 amendments to the KAA extended the definition of “arbitration” to include a procedure to settle a dispute over “non-property rights” (non-monetary), which can be resolved by settlement of the parties, as well as “property rights” (monetary). Based on this revision, commentators believe certain disputes that arise in public law may be arbitrated in South Korea, as long as the nature of the dispute allows the parties to settle.

The Act on Private International Law, which provides for certain jurisdictional protections in the case of international consumer and employment disputes, is silent on whether such disputes can be referred to arbitration or not.

South Korean courts generally respect the parties’ agreement to arbitrate. Pursuant to Article 9 of the KAA, if one party brings an action in court against another party when they are bound by an arbitration agreement and the other party moves to compel arbitration, the court is required to dismiss the action – unless it finds that the arbitration agreement is null and void, inoperative, or incapable of being performed.

South Korean courts tend to interpret arbitration agreements broadly. They are also considered generally friendly toward arbitration. However, what is commonly referred to as an "optional" arbitration clause, which merely gives parties an option to pursue arbitration in lieu of court litigation, will not be deemed a valid agreement to arbitrate by the South Korean courts.

Regarding the question of the governing law of arbitration agreements, the South Korean Supreme Court held that the validity of an arbitration agreement shall be determined by the substantive governing law of the underlying contract if the parties have designated one. Otherwise, it will be determined by the law of the seat of arbitration if the parties have not designated the governing law in the contract, pursuant to Article 5(1) of the New York Convention (Supreme Court Decision No 2017Da255084, rendered on 26 July 2018).

South Korean academics and practitioners are also noting recent developments on this issue outside South Korea – the UK Supreme Court’s decision in Enka v Chubb.

Article 17(1) of the KAA provides that when an arbitral tribunal is ruling on its own jurisdiction, the arbitral tribunal shall treat the arbitration clause as separate and independent from the main contract in which the arbitration clause is included. In essence, the KAA adopts the principle of separability by allowing the arbitral tribunal to exercise jurisdiction over the dispute with respect to the validity of the arbitration agreement.

The South Korean courts, however, can review the decision of an arbitral tribunal on its own jurisdiction at the request of a party within 30 days of the decision, as per Article 17(6) of the KAA.

The KAA does not limit the parties’ autonomy to select arbitrators and there are no set legal requirements when it comes to the number, qualifications and characteristics of arbitrators. Therefore, there are no restrictions on who may serve as an arbitrator. Parties are free to agree on the specific qualifications of potential arbitrators and the procedure for appointing them. While the KCAB maintains an active roster of domestic and international arbitrators for the purpose of facilitating arbitrations, the parties are free to appoint other arbitrators who are not listed in the roster.

Parties are free to agree on the procedure for selecting arbitrators. When their chosen method fails, or in the absence of such an agreement, Articles 11 and 12 of the KAA provide default mechanisms for the constitution of arbitral tribunals for arbitrations seated in South Korea.

One such example is the provision in Article 11 that for cases where the parties fail to determine the number of arbitrators, the number shall be three. Article 12(3) provides that where the parties fail to agree on the procedure for appointing arbitrators, they shall be appointed as follows.

• Sole arbitrator arbitration – if the arbitrator is not appointed within 30 days of a party receiving the counterparty’s request to appoint the arbitrator, the competent court or arbitral institution designated by the competent court shall appoint the arbitrator at the party’s request.
• Three-arbitrator arbitration – each party shall appoint one arbitrator, and the two party-appointed arbitrators shall agree on the third arbitrator. If one party fails to appoint its party-appointed arbitrator within 30 days of the counterparty’s request – or if the two party-appointed arbitrators fail to agree on the third arbitrator within 30 days of their appointment – the competent court or arbitral institution designated by the competent court shall appoint the third arbitrator upon a party’s request.

Article 12(4) of the KAA applies where the parties have agreed on the procedure for selecting arbitrators but the method fails. A court’s decision on the appointment of an arbitrator is not subject to appeal.

The international arbitration community in South Korea has recently witnessed increased interest in multi-party arbitrations. To date, the KAA does not provide default mechanisms for selecting arbitrators in multi-party arbitrations. However, the 2016 amendments to the KCAB Rules do include such default procedures for multi-party arbitrations under Rule 12(3).

The South Korean court may intervene at the request of a party in the following matters prescribed under the KAA:

• appointing arbitrators under Articles 12(3) and (4);
• challenging the appointment of arbitrators under Article 14(3);
• terminating the mandate of an arbitrator, if there is a dispute between the parties, under Article 15(2);
• reviewing the jurisdiction of the arbitral tribunal under Article 17(6); and
• recognising and enforcing the interim measures rendered by the arbitral tribunal under Article 18(7).

The South Korean court may also provide assistance for evidence gathering, pursuant to Article 28.

Article 13 of the KAA provides that an arbitrator may be challenged if:

• there are circumstances that give rise to justifiable doubts about the arbitrator’s impartiality or independence; or
• if the arbitrator does not possess qualifications agreed by the parties.

Under Article 14 of the KAA, the parties are free to agree on a procedure for challenging an arbitrator. Failing such an agreement, the party challenging an arbitrator shall send a written statement of the grounds for challenge to the arbitral tribunal within 15 days:

• from the date of the constitution of the arbitral tribunal; or
• from when the party becomes aware of the grounds for the challenge.

If the challenged arbitrator does not withdraw, or the other party does not agree to the challenge, the arbitral tribunal shall decide on the challenge. If the arbitral tribunal does not uphold the challenge, the challenging party may file an objection with the competent court within 30 days of receiving the arbitral tribunal’s decision, pursuant to Article 14(3) of the KAA. The court’s decision on the challenge cannot be appealed.

Regarding the deadline for challenging arbitrators, the South Korean Supreme Court has held that even if circumstances give rise to justifiable doubts as to an arbitrator’s impartiality or independence, which are not as severe as grounds for challenging judges under the South Korean Civil Procedure Act, such circumstances do not constitute grounds for setting aside an arbitral award unless they were raised in a timely manner (Supreme Court Decision No 2005Da47901, rendered on 29 April 2005). Therefore, any challenge against an arbitrator must be raised within the period set forth in Article 14 of the KAA.

Article 14 of the KCAB Rules also sets forth similar grounds for the challenge of arbitrators, and Article 15 of the KCAB Rules deals with the replacement and removal of arbitrators.

The KAA requires potential arbitrators to disclose all circumstances likely to give rise to justifiable doubts as to their impartiality or independence. The South Korean Supreme Court has ruled that the disclosure requirement is a mandatory provision, meaning that it cannot be waived by the parties. The KAA also includes a mandatory provision (Article 19) that parties must receive equal treatment during arbitral proceedings, the failure of which can result in a set-aside of the final award under Article 36 of the KAA.

Similarly, KCAB Rules provide that all arbitrators must be impartial and independent and remain so at all times. Arbitrators can be challenged or precluded from serving on a case for lack of independence or lack of impartiality. The KCAB has also issued a Code of Ethics for Arbitrators that all arbitrators appointed to hear arbitrations administered by the KCAB must accept and abide by.

The KAA does not address subject-matter arbitrability. Article 3(1) of the KAA nonetheless sheds some light on the scope of arbitration by defining the term "arbitration" as a procedure to resolve property/monetary or non-property/non-monetary disputes that can be settled between parties. Therefore, as in most other jurisdictions, matters that are not capable of being settled by agreement between the parties – such as matters of criminal law, family law and administrative law – are generally considered non-arbitrable.

On the other hand, the arbitrability of matters relating to IP, insolvency and antitrust remains unclear under South Korean law. Although IP licensing disputes are generally considered arbitrable, there are conflicting views on whether validity claims of registered IP rights (eg, patents) can be referred to arbitration.

The principle of competence-competence is recognised under Article 17(1) of the KAA, under which an arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.

Pursuant to Article 17(1), the challenging party must raise its jurisdictional objections to the arbitral tribunal no later than its submission of the statement of defence on the merits. However, if the party’s jurisdictional objection is that the arbitral tribunal exceeded the scope of its authority, the objection must be raised as soon as it occurs. The arbitral tribunal may rule on the jurisdictional challenge either as a preliminary matter or as a final award on the merits.

However, Article 17(6) of the KAA authorises South Korean courts to determine an arbitral tribunal’s jurisdiction when said arbitral tribunal rules on its jurisdiction as a preliminary matter – regardless of whether the arbitral tribunal accepts or declines jurisdiction – by allowing a party to appeal an arbitral tribunal’s decision on its own jurisdiction within 30 days of receiving notice of such decision. The 2016 amendments to the KAA now explicitly allow the court to review the arbitral tribunal’s decision, even denying its own jurisdiction.

Although the arbitral tribunal may rule on its own jurisdiction under the competence-competence rule, Article 17(6) of the KAA bestows the final decision-making authority on the South Korean courts by allowing a party to appeal an arbitral tribunal’s jurisdictional ruling.

Prior to the 2016 amendments to the KAA, only affirmative decisions (eg, an arbitral tribunal’s decision that jurisdiction exists) were appealable. However, Article 17(6) has been amended to allow parties to challenge not only affirmative jurisdictional decisions but also an arbitral tribunal’s negative decision (eg, refusal to find jurisdiction).

The provision, however, is not often invoked in practice. Courts are generally reluctant to intervene and overturn the decision of the arbitral tribunal on its jurisdiction.

Pursuant to Article 17(2) of the KAA, a challenge to the jurisdiction of the arbitral tribunal must be raised with the arbitral tribunal no later than when the statement of defence on the merits is submitted. A party disputing the arbitral tribunal’s jurisdiction can raise such an objection even after the party has participated in the process of constituting the arbitral tribunal.

An appeal against the arbitral tribunal’s jurisdictional ruling before the national court under Article 17(6) of the KAA must be filed within 30 days of receiving notice of such ruling.

South Korean courts conduct a de novo review of an arbitral tribunal’s jurisdiction. Therefore, courts are not bound by the arbitral tribunal’s decision on its own jurisdiction.

Whether a claim is arbitrable or whether the claim falls within the scope of the arbitration agreement between parties is also reviewed de novo by the courts when there is any challenge to the arbitral award or award enforcement proceedings.

South Korean courts will not review questions about the nature of the claim and its admissibility in the arbitration (other than questions about arbitrability or scope) or questions about the admissibility of evidence, as these matters concern the merits of the case.

When a party commences court proceedings in breach of an arbitration agreement, the defendant may raise a defence based on the existence of an arbitration agreement and request the court to dismiss the lawsuit pursuant to Article 9(1) of the KAA. This must be done before the first submission on the merits to the court is filed.

Under Article 9(1), a court must dismiss the legal action brought in violation of the arbitration agreement unless the court finds the arbitration agreement to be null and void, inoperable or incapable of being performed.

The KAA does not address whether an arbitral tribunal may exercise jurisdiction over a third party that is a non-signatory to the arbitration agreement.

Further, there are no clear precedents on whether the "group of companies" or "piercing of the corporate veil" doctrines can be used to exercise jurisdiction over non-signatories to the arbitration agreement.

Group of Companies Doctrine

There is no clear court precedent that allows arbitral tribunals to exercise jurisdiction over a third party on the grounds that the third party is an affiliate company of the contracting party (eg, parent or subsidiary).

Piercing of the Corporate Veil Doctrine

Although South Korean courts generally recognise the process of piercing of the corporate veil, courts have yet to rule on whether this doctrine allows an arbitral tribunal to exercise jurisdiction over third parties. Some commentators have argued that where the corporate veil is lifted in the case of a party to an arbitration agreement, an arbitral tribunal may assume jurisdiction over the third party (individual or entity) behind the corporate veil – particularly if said third party is without substantial business activities of its own and is the parent of a contracting party.

However, a third party may be bound to an arbitration agreement as a successor, heir or assignee to the contracting party. There is at least one lower court decision in which the court held that the assignee of receivables under a contract containing an arbitration clause is entitled to raise the existence of an arbitration agreement as a defence to a civil action pursuant to Article 9(1) of the KAA (Seoul Western District Court Judgment 2001GaHap6107, rendered on 5 July 2002).

Furthermore, third parties may definitively be bound to an arbitration agreement by their subsequent consent – whether by affirmative consent in writing at the request of a party or by failure to object to the jurisdiction of the arbitral tribunal. These rules apply equally to foreign third parties.

The KAA allows the arbitral tribunal to award preliminary or interim relief, as deemed necessary, at the request of either party.

The 2016 amendments to the KAA incorporated more detailed provisions on the types of interim relief that an arbitral tribunal can order. Article 18(2) of the KAA provides that an arbitral tribunal may order interim measures requiring either party to perform any of the following actions:

• maintain or restore the status quo until an arbitral award is rendered on the merits of the case;
• adopt measures to prevent an existing or imminent danger or impact to the arbitral proceeding itself, or prohibit measures that are likely to endanger or impact the arbitral proceeding; 
• provide methods for preserving assets subject to the enforcement of an arbitral award; and
• preserve evidence relevant and essential to the resolution of the dispute.

An interim measure issued by an arbitral tribunal is binding and can be enforced upon application to the competent court if the arbitration is seated in South Korea (Article 18(7) of the KAA).

South Korean courts play two major roles in interim relief procedures in arbitration:

• granting interim measures; and
• recognising and enforcing the interim measures issued by the arbitral tribunal.

First, in accordance with Article 10 of the KAA, courts are permitted to issue interim measures upon a party’s request made before or during the arbitral proceedings. Although Article 10 is silent on the type of interim measures that courts may grant, interim measures issued by the courts have commonly included preliminary injunctions and orders to provisionally attach the respondent’s assets. A court may issue interim measures regardless of whether the arbitration is seated in South Korea or another jurisdiction.

Second, in accordance with Article 18(7) of the KAA, courts assist with the recognition and/or enforcement (eg, compulsory execution) of interim awards issued by the arbitral tribunal upon the request of the parties.

South Korean courts can issue an interim measure under Article 10 of the KAA, regardless of the place of arbitration – or even when the place of arbitration is yet to be decided, as Article 10 may apply where the arbitration is seated outside South Korea or if its seat is yet to be decided (Article 2 of the KAA). However, South Korean courts may only recognise and enforce the interim relief issued by the arbitral tribunal under Article 18(7) of the KAA if the arbitration is seated in South Korea.

Emergency Arbitrator

Recently, the notion of the "emergency arbitrator" in the context of expedited proceedings for parties to obtain interim measures has gained much attention. To date, the KAA is silent on whether an emergency arbitrator may be nominated. However, the 2016 revisions to the KCAB International Arbitration Rules (the “KCAB 2016 Rules”) introduced proceedings for an emergency arbitrator in Appendix 3, under which a party may seek interim measures through an emergency arbitrator.

The appeal arises from the fact that, once appointed, emergency arbitrators must make a decision within 15 days of its appointment

The types of relief that can be granted by an emergency arbitrator are the same as the types of relief that an arbitral tribunal may grant under Article 18 of the KAA. The parties are bound by the decision of the emergency arbitrator until the main arbitral tribunal – once constituted – modifies, suspends or terminates such decision. The decision of the emergency arbitrator is not binding for the arbitral tribunal.

Courts and arbitral tribunals are both authorised to order security for costs with respect to the parties’ requests to obtain, recognise or enforce interim measures under the KAA. 

Under Article 18(4) of the KAA, an arbitral tribunal may order the party requesting interim measures to provide security. Similarly, if deemed necessary, South Korean courts are empowered under Article 18-7(3) of the KAA to order security against the party requesting recognition or enforcement of interim measures when the arbitral tribunal has not ordered to provide security, or when there is a risk of infringing the rights of a third party.

Generally, parties are free to choose their own procedural rules either by agreement or by the rules of the chosen arbitral institution.

Where parties fail to agree on certain procedural terms (eg, place of arbitration, language to govern arbitration), arbitral tribunals have wide discretion to determine how the arbitration should proceed under Article 20(2) of the KAA. 

In tandem with the parties’ agreement and arbitrators’ discretion, the KAA also provides applicable procedural rules – for example, the KAA provides certain default procedural rules, such as formality requirements for arbitration agreements under Article 8. Further, the KAA authorises courts to help facilitate arbitration (eg, taking evidence or enforcing arbitration agreements). Lastly, the KAA also provides mandatory procedural rules to ensure that arbitrations conducted in South Korea comply with notions of fair due process, such as Article 19’s requirement that all parties receive equal treatment during the proceedings and be given a full opportunity to present their cases.

In line with the principle that arbitration is a creature of "consent," procedural steps are generally implemented by the agreement of the parties or rules of the applicable arbitral institution.

In the absence of such an agreement, the KAA provides for a general arbitration process for an arbitration seated in South Korea as per the following.

• Commencement of Arbitration (Article 22) – arbitral proceedings shall commence on the date the respondent receives the request for arbitration.
• Submissions (Article 24) – the parties shall submit their respective written submissions, laying out their claims and defences to the other party’s claims within the timeframe agreed by the parties or decided by the arbitral tribunal. The parties may submit, along with their statements of claim or defence, all documents they consider to be relevant or which may indicate other evidence they will use in the documents.
• Hearings (Article 25) – subject to any contrary agreement by the parties, the arbitral tribunal shall decide whether to hold oral hearings or to render an award solely based on written submissions and documents. 
• Failure of Parties (Article 26) – subject to any contrary agreement by the parties, the arbitral tribunal shall terminate arbitral proceedings if the claimant fails to submit its statement of claim. If the respondent fails to submit its statement of defence, the arbitral tribunal shall continue the proceedings without treating such failure in itself as an admission of the claimant's allegations.

The KAA grants powers to an arbitral tribunal to decide on matters of its jurisdiction, order interim relief, determine the admissibility and weight of the evidence, and issue awards on the dispute referred to arbitration.

Under the KAA, arbitrators are required to provide equal treatment to the parties during the proceedings and the parties must be allowed sufficient opportunity to argue their case. Arbitrators are also required to disclose any circumstances that may raise doubts as to their fairness or independence.

The KAA does not prescribe particular qualifications or other requirements for legal representatives appearing in arbitrations seated in South Korea. Legal representatives appearing in arbitrations seated in South Korea are not required to be members of the South Korean Bar.

In principle, the agreement between the parties shall prevail over default provisions and be recognised as the dominant rules of the arbitration. Parties are free to agree on the specific procedures for the submission and collection of evidence, and the KAA operates as a default rule where there is no agreement between the parties.

The KAA does not provide specific procedures for the collection and submission of evidence at the pleading or hearing stage. It does, however, provide that:

• parties may submit evidence together with their written submissions (Article 24);
• the arbitral tribunal should give sufficient advance notice to the parties of any oral hearing and of any meeting for the purpose of inspection of other evidence (Article 25(2));
• all statements, documents or other materials submitted by either party to the arbitral tribunal should be conveyed to the other party without delay (Article 25(3)); and
• any expert report or evidentiary document on which the arbitral tribunal intends to rely in making its decision should be conveyed to both parties (Article 25(4)).

Parties are free to agree on the scope and procedure for “discovery” during the arbitral proceedings. It is common practice in international arbitrations seated in South Korea or involving South Korean parties to include some form of document production. In such cases, the scope of production would be much broader than the scope allowed in South Korean court proceedings. The International Bar Association Rules on the Taking of Evidence in International Commercial Arbitration (the “IBA Rules”) – although not binding – are generally taken into account in international arbitrations seated in South Korea.

It is also common for parties to arbitrations in South Korea to submit witness statements as part of the pleading stage. Parties may also appoint their own experts and submit expert reports, if necessary, during the pleading stage. These witnesses and experts may be cross-examined at the hearing.

With respect to experts, Article 27 of the KAA allows the arbitral tribunal to appoint one or more experts for consultation on specific issues, unless agreed otherwise by the parties. In such cases, the arbitral tribunal may require a party to provide the expert with any relevant information or to produce – or provide access to – any relevant documents, goods or other articles for inspection. A challenge to the expert appointed by the arbitral tribunal can be made on the same grounds and through the same process as a challenge to the appointment of an arbitrator.

South Korea does not have specific rules of evidence that apply to arbitrations for either domestic or international arbitrations. Rules of evidence in arbitration are generally determined in accordance with the rules under which the arbitration is being conducted, and at the discretion of the arbitral tribunal. Although not automatically binding, the IBA Rules are commonly adopted in international arbitrations seated in South Korea.

Article 28 of the KAA, as amended in 2016, provides that an arbitral tribunal may – either on its own initiative or at the request of a party – request the South Korean court to examine evidence or cooperate in examining evidence.

When an arbitral tribunal requests a court to directly examine evidence, the arbitrators or the parties involved may attend the examination of evidence with the permission of the presiding judge. When a court is requested to cooperate in the examination of evidence, it may order witnesses, holders of documents, or others (including non-parties to the arbitration) to make an appearance before the arbitral tribunal. Alternatively, the court may order them to submit the necessary documents to the arbitral tribunal.

The KAA does not contain any provisions relating to the confidentiality of arbitral proceedings. In addition, there is no South Korean Supreme Court precedent addressing this issue. Thus, there is no automatic requirement of confidentiality in arbitrations seated in South Korea unless the parties agree otherwise – for instance, by entering into a separate confidentiality agreement or by adopting institutional rules that require confidentiality of arbitral proceedings. Despite the absence of a specific provision in the KAA, arbitral proceedings in South Korea have generally been treated in strict confidence.

For its part, Article 57 of the KCAB Rules provides that the arbitral procedure and records are confidential and that the arbitral tribunal, the Secretariat, the parties, and their representatives and assistants are prohibited from disclosing facts related to the arbitration or facts learned through the arbitration, except where disclosure is consented to by the parties or required by law or court proceedings.

Article 32(1) of the KAA provides that the award shall be made in writing and signed by all the arbitrators. Where a minority of the arbitral tribunal has any reason not to sign the award, the award shall become effective with the signature of the majority of the arbitrators and the reason for the failure or refusal to sign will be stated in the award.

In accordance with Article 32(2) of the KAA, the award shall state the reasons upon which it is based unless the parties have agreed otherwise or the award is a consent award on agreed terms of a settlement between the parties under Article 31 of the KAA. The award shall also state its date and place of arbitration (Article 32(3) of the KAA). The KAA, however, does not specify any time limit for rendering the award.

For KCAB arbitrations, Article 38 of the KCAB Rules provides a time limit for a final award (eg, within 45 days from the date the final submissions are made or the hearings are closed, whichever is later). This may be extended.

The KAA does not place any restrictions upon an arbitral tribunal in terms of the types of remedies that may be granted. In practice, the arbitral tribunal must take into consideration the enforceability of its award in South Korea, as it may be challenged if the award is in violation of the public policy of South Korea.

South Korean courts do not allow punitive damages as a matter of public policy, for example, unless expressly allowed under applicable laws such as the South Korean Product Liability Act. Therefore, an arbitral award ordering punitive damages for breach of contract or tort liability would not be enforced in South Korean courts.

Additionally, if the award is to be enforced in South Korea, the parties and the arbitral tribunal should be careful in specifying the relief in sufficient detail to allow enforcement under applicable laws (eg, specifying the exact asset to be transferred, the monetary amount to be paid or the actual action a party must perform).

In one case, the Seoul High Court found that, although an award was enforceable, the decision of the arbitral tribunal was not specific enough to be executed by the execution officer (Seoul High Court Judgment 2013Na13506).

With respect to interest, claimants generally seek interest on the principal claims and related costs from the respondent, and the arbitral tribunal must decide on such claims. Pursuant to Article 34(3) of the KAA, the arbitral tribunal may order either party to pay pre- and/or post-award interest after considering all the circumstances of the relevant arbitration case if deemed appropriate – unless the parties have agreed otherwise.

As for arbitration costs, unless the parties have agreed otherwise, an arbitral tribunal has explicit authority under Article 34(2) of the KAA to allocate arbitration costs between the parties, taking into consideration all pertinent circumstances of the case. The "loser pays" rule generally applies to arbitrations in South Korea, but the arbitral tribunal has discretion to decide otherwise in light of relevant factors.

An arbitral award has the same effect on the parties as a “final and conclusive judgment of the court” under Article 35 of the KAA, unless the court refuses to recognise or enforce the award under either Article 38 (awards made in South Korea) or Article 39 (awards made in foreign jurisdictions) of the KAA. This means that parties may not appeal an award per se. Nevertheless, parties may file a lawsuit to set aside the award under Article 36 of the KAA, which closely mirrors Article 5(1) of the New York Convention.

In order to set aside an award, parties must file a lawsuit with the court within three months of its receipt of the duly authenticated copy of the award (Article 36(1) and (3) of the KAA) and state the grounds upon which the party seeks to set aside the award. Grounds for setting aside an award must be proven by the party seeking the set-aside and are limited to the following:

• a party to the arbitration agreement was incapacitated when the agreement was entered into, or the arbitration agreement is not valid under the law selected by the parties to govern the agreement (or, failing any such indication, under South Korean law);
• the party making the application was not given proper notice of the appointment of arbitrators, or of the arbitral proceeding, or was otherwise unable to present its case;
• the award deals with a dispute not contemplated by the parties or not subject to the arbitration agreement, or contains decisions on matters beyond the scope of the arbitration agreement; or
• the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or the KAA.

The court may also set aside the award if it finds, on its own initiative, that the subject matter of the dispute is not arbitrable under South Korean law, or that the award is in conflict with the public policy of South Korea. South Korean courts tend to interpret such grounds for setting aside narrowly.

An application to set aside an arbitral award is filed at a district court of first instance. Thereafter, an appeal of the district court’s judgment may be pursued at the applicable appellate court, followed by the Supreme Court. Generally, however, an enforcement order issued by the district court will be provisionally enforceable even if any appeal is pending.

The grounds for setting aside an arbitral award are limited to the grounds explicitly provided in Article 36 of the KAA. To date, no precedent exists as to whether the parties may agree to expand or limit such a scope.

The merits of the final award are not reviewable by the courts because they cannot review the arbitral tribunals’ findings of law and facts. This means that errors of law or fact generally do not qualify as grounds for setting aside an arbitral award.

South Korea signed the New York Convention on 8 February 1973, which came into effect on 9 May 1973.

South Korea is also a signatory to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the “ICSID Convention”) on 21 February 1967, which came into effect on 23 March 1967.

Article 37

Under Article 37 of the KAA, an arbitral award may be enforced only by a court's decision to enforce it upon the request of the parties. The party applying for recognition or enforcement of an arbitral award must submit the authentic award or a copy of the award. A South Korean translation must also be provided if the award is in a foreign language.

Once the application for recognition or enforcement of an award is filed with the court, it will set a hearing date for both parties to present their case. The court’s decision on the recognition or enforcement of an award must contain the reasons for the decision. 

The 2016 amendments to the KAA allowed enforcement based on a "decision" of the district court rather than a "judgment". The purpose of this amendment was to further expedite enforcement proceedings.

Under Article 37(1) of the KAA, courts must recognise an arbitral award unless any of the grounds of refusal under Article 38 or Article 39 of the KAA exist. 

Article 38

Article 38 of the KAA provides that an arbitral award made in South Korea must be recognised and enforced unless a party proves that:

• there are grounds for setting aside the award;
• the award is yet to be effective and binding upon the parties; or
• the award has already been set aside by a national court. 

The court can also, at its own discretion, refuse to recognise and enforce the arbitral award made in South Korea if the dispute is not arbitrable under South Korean law, or the recognition or enforcement of the award is in violation of public policy. 

Article 39

Article 39(1) of the KAA provides that arbitral awards made outside South Korea shall be recognised or enforced according to the requirements under the New York Convention where it applies. And arbitral awards made outside South Korea where the New York Convention does not apply shall be recognised or enforced in accordance with the criteria set forth in the applicable South Korean law, such as the Civil Procedure Act and the Civil Execution Act regarding the recognition and enforcement of a foreign court judgment (Article 39(2) of the KAA).

As state immunity is not a ground for resisting enforcement of arbitral awards under the New York Convention or under South Korean law, a state or state entity is unlikely to successfully raise a defence of sovereign immunity to prevent the enforcement of an arbitral award in South Korea.

Finally, there is no clear indication of whether South Korean courts would enforce an award that is subject to ongoing set-aside proceedings at the seat of arbitration. Presumably, however, the court concerned would adjourn enforcement proceedings per Article 6 of the New York Convention.

South Korean courts will generally recognise and enforce arbitral awards unless there are clear grounds for setting aside the award under the KAA. Furthermore, courts tend to interpret the grounds for setting aside very narrowly and are generally reluctant to refuse enforcement of foreign arbitral awards based on public policy grounds.

The KAA is silent on the issue of whether class-action arbitration is permitted. There is also no precedent from the South Korean courts on this issue.

Under the KAA, there are no mandatory ethical codes or professional standards applicable to either counsels or arbitrators. The KAA does, however, require arbitrators conducting proceedings in South Korea to disclose whether there are any circumstances likely to give rise to justifiable doubt about their impartiality or independence in advance. Arbitrators are subject to challenge if any such circumstances exist.

The KCAB has also issued a Code of Ethics for Arbitrators, which must be accepted by all arbitrators appointed to hear arbitrations administered by the KCAB.

There is currently no express rule or restriction on third-party funders in South Korea, nor is there a law that specifically allows for it. Despite the growing interest in third-party funding in South Korea, there are also no notable precedents on this issue. However, financial regulations may be applicable to third-party funders conducting business in South Korea.

The KAA does not expressly preclude or permit the consolidation of separate arbitral proceedings. 

Nevertheless, Article 23 of the KCAB Rules provides for "consolidation of claims", under which an arbitral tribunal may – at a party’s request –consolidate claims brought in separate but pending arbitrations if such arbitrations are all:

• under the KCAB Rules;
• between the same parties; and
• no arbitrator has been appointed in any of the arbitrations.

Article 22 of KCAB Rules also allows a "single arbitration under multiple contracts". This means claims arising under multiple contracts may proceed as one single arbitration. Under Article 22, claims arising under multiple contracts will be conducted in one single arbitration if all multiple contracts – to the satisfaction of the Secretariat – provide for the KCAB Rules, contain arbitration agreements that are compatible with one another and the claims arise out of the same transaction or series of transactions.

The KAA is silent on the issue of whether an arbitral tribunal may assume jurisdiction over a non-signatory to the arbitration agreement, regardless of the non-signatory’s nationality. To date, there is no clear instruction from the courts on the type of doctrines a court may adopt in exercising jurisdiction over third parties. More information on this topic may be found in 5.7 Third Parties. 

Regarding a similar issue involving third parties, there have been recent discussions on whether the arbitral award may be enforced against non-signatories to the arbitration agreement. However, South Korean courts have yet to rule on this issue.