South Korea

Case updates

Seoul Central District Court, decision 2020 KAGI 418, dated 4 september 2020 In a recent decision, the Seoul Central District Court upheld an arbitration clause that referred to a non-existent arbitration institution.

This case concerned a dispute resolution clause in an all risk insurance policy issued in favour of a Japanese generator supplier by a Korean insurer, which provides that any disputes shall be referred to “Non-Life Insurance Arbitration Committee”, which does not exist. The Seoul Central District Court was asked to appoint an arbitrator and had to consider whether it had jurisdiction as the seat of arbitration was not specified in the arbitration clause and the insurance policy was governed by Bangladesh law as well as whether the reference to a non-existent arbitration institution rendered the clause pathological and invalid.

The Court concerned that even though Bangladesh law, which is the governing law of the insurance policy, also applies to the validity and interpretation of the arbitration agreement in the insurance policy, this does not mean that Bangladeshi courts would have exclusive jurisdiction to appoint an arbitrator, particularly where neither party of the insurance policy was located in Bangladesh. The Court also held that it would be reasonable to construe the arbitration agreement drafted by the parties to be valid to the extent possible and considered that there was sufficient indication that the parties had agreed to refer the dispute to arbitration by referring to an arbitration committee in the dispute resolution clause.

Supreme court decision 2020 DA 225442 dated 5 november 2020 and Seoul Central District Court decision 201 NA 63343 dated 1 april 2020 In another recent decision, the Supreme Court upheld the validity of an arbitration agreement, in an international franchise agreement which was argued to have contravened abuse of position and unfair trading laws in Korea.

This case concerned a dispute between a restaurant franchisor in the Netherlands and a Korean franchisee. The franchise agreement was governed by Dutch law and the arbitration agreement stipulated that disputes shall be resolved by arbitration in New York administered by the International Centre for Dispute Resolution (ICDR).

The Korean party invoked the provisions under the Fair Transactions in Business Franchise Act and the Act on the Regulation of Terms and Conditions and argued that the relevant provisions protected franchisees operating in Korea and made the arbitration agreement in the franchise agreement voidable.

Applying Dutch law for the interpretation of the arbitration agreement, the Korean court found that there was no ground to challenge its validity and considered that there was no evidence of any legislative intent that statutory provisions invoked by the Korean party should intervene in contracts governed by foreign laws. The case brought by the Korean party was therefore dismissed in favour of arbitration.

Investor-state arbitrations

A number of investment treaty arbitrations involving South Korea were commenced in 2021. For instance, it has been reported that:

• the Iran Central Bank has threatened South Korea with an investment treaty claim in relation to a dispute relating to Iranian funds held in two Korean banks which the banks have declined to release citing sanctions imposed by the U.S. Government;
• an Iranian family launched a claim against South Korea for failure to satisfy an arbitral award obtained in 2018; and
• a US national has threatened to bring a claim against South Korea over the forced sale of his apartment to make way for a port city redevelopment plan.

Other key developments

KCAB expanded its panel of International arbitrators

On 25 June 2021, KCAB International announced the inclusion of seventy six new arbitrators into its Panel of International Arbitrators expanding the panel to a total of 583 arbitrators from both civil and common law jurisdictions. Each appointed arbitrators will serve as a panel member for a term of three years.