A foreign-based company may for various reasons have a claim against a company in Korea arising out of a commercial dispute. Let us assume the following basic hypothetical situation: Poncho, a foreign seller of clothing has entered into a simple sales contract with Dolly, a Korean-based buyer. While Poncho has preformed his obligation under the contract to deliver the goods to Dolly, Dolly has, for one reason or another, refused to render payment. In such circumstances, in seeking to recover payment, a number of questions will likely be considered by Poncho before it does so, and the following attempts to address those questions, which are typical of those frequently asked by a company such as Poncho in this type of situation.
I. What to do first?
Before taking any formal legal action, Poncho, the foreign seller, may first choose to forward a claim letter to Dolly, the buyer, demanding payment under the sales contract. In Korea, it may be more effective if such a claim letter were sent by a Korean attorney on behalf of Poncho, especially if there appears to be no valid reason for non-payment. If the claim letter is ignored and payment has not yet been made by Dolly, Poncho may wish to exercise its option to initiate a commercial claim against Dolly in Korean courts.
II. Does Dolly have enough assets to pay?
Before instituting a suit on the merits of the case, or even while the case is still pending, Poncho may apply for preliminary attachment with respect to his claim. In other words, in order to secure future judgment against Dolly, its properties may be attached before rendering of a judgment.
For the purpose of securing execution against movables or immovables, arrest may be effected by sequestering the properties belonging to Dolly. The court fees for the application is nominal. Poncho must provide security by depositing cash with the court. (For plaintiffs who have established a residence in Korea, security deposits may be made by a bank guarantee or insurance rather than cash. However, such alternative form of payment is not available to non-Korean residents) The required amount of the security differs from court to court. If the property to be arrested is real property or a vessel, the amount of security usually ranges from one eighth to one tenth of Poncho's claim to be secured. In the case of personal property, the security amount usually ranges from one third to one fifth of the claim. In the case where Poncho has a claim against a third party, the security amount usually ranges from one fifth to one tenth of the claim.
III. What Do Korean Courts Look Like?
If Dolly does not respond to the claim letter and other means of settlement are not fruitful, Poncho can consider instituting a suit on the merits of the case. Provided below is basic information regarding the Korean court system.
A. What is the Structure of the Courts?
The court at the highest level is the Supreme Court. Immediately under the Supreme Court are the High Courts, which are intermediate appellate courts. Under the High Courts are the District Courts which are the courts of general original jurisdiction. The District Courts set up their own Branch Courts in order to divide the workload and try their cases in a more conveniently location for the parties concerned.
B. What are the Necessary Documents for Litigation?
An action is instituted by a plaintiff, like Poncho, filing a written complaint with a district court. The complaint is required to be attached with (i) power of attorney (if issued outside Korea in a foreign language, this should be notarized and/or consularized by a Korean consul, and accompanied by its Korean translation), and (ii) commercial registry extracts regarding the plaintiff and/or the defendant (if the plaintiff and/or the defendant is a corporation, and if the plaintiff is a foreign corporation, this can be substituted with a "certificate as to corporate nationality", which should also be notarized and/or consularized by a Korean consul and accompanied by its Korean translation).
C. What Costs Does the Plaintiff Incur?
The Plaintiff must pay court fees, which will usually be about 0.5% of the claim amount. Payment of court fees is made by affixing revenue stamps in a required amount to the complaint. The plaintiff must obtain consent from the defendant to withdraw a claim or to reduce the amount of the claim.
Additionally, if the plaintiff has no address, office, or other place of business in Korea, the court must order him to provide security for litigation costs, upon an application from the defendant. The purpose of this security is to secure the defendant's claim for reimbursement of the litigation costs to be obtained by him should the non-resident plaintiff lose the case. The defendant may refuse to respond to the case until the plaintiff provides the security. When rendering an order to provide security, the court specifies the security amount and the period within which the security should be posted. The security must usually be provided by depositing cash with the court cash. If the plaintiff fails to provide the security within the period specified by the court, the court may dismiss the suit by a judgment without holding any hearings.
The losing party has to bear the costs of litigation. If the court renders a judgment in favor of only a part of the claim, the court may determine the percentage of the costs to be borne by each party. Attorneys' fees may, within limits prescribed by regulations of the Supreme Court, be included in the calculation of the litigation costs.
D. Are There Any Pre-Trial Procedures?
Formal pre-trial evidence-gathering rarely takes place. Because evidence is mostly gathered at trial, the Korean system does not use pre-trial discovery devices such as depositions and interrogatories.
E. What Happens at Trial?
A typical Korean trial consists of a number of hearings conducted over a relatively lengthy period of time, with intervals between hearings being two to three weeks. The actual dates for hearings are set by the presiding judge according to his or her own schedule. Most of the evidence-gathering is conducted between hearings and the parties are allowed to present their evidence up to the close of the hearings. The parties are also allowed to present an argument (by stating facts or legal points or by presenting evidence) at any time up to the close of the hearings. Any document to be submitted to the court which is in a foreign language, must be accompanied by a translation into Korean.
Because there are usually too many cases to be heard by a judge in one day, oral presentations by the parties are rarely allowed. Instead, the litigating parties usually submit written briefs prior to a hearing. A judge who is well-prepared will read the briefs prior to the hearing and may ask the parties to clarify certain legal or factual points contained in the briefs or may urge the parties to present evidence supporting the arguments contained in the briefs.
At the first hearing, the plaintiff usually makes a simple statement to the effect that what he/she wants to state is in the written brief which has been submitted, and in response, the defendant would simply state that he/she denies totally or partially the facts and the legal arguments presented by the plaintiff. The plaintiff may submit documentary evidence at the first hearing, either at its own initiative or pursuant to the judge's instructions. The length of the first hearing is usually very short and the judge would designate the next hearing date at the conclusion of the first hearing.
F. Can Interest Be Recovered From the Judgment?
The court judgment is rendered by the judges who have participated in the hearings. Typically, there is an interval of two to four weeks between the closing of hearings and rendering of the judgment.
The default interest rate for a monetary obligation is the higher of (i) the rate prescribed in the Civil Code (5 per cent) or in the Commercial Code (6 per cent, applicable if the monetary obligation has been incurred in connection with commercial acts), or (ii) the rate previously agreed upon between the parties. In practice, the court usually declares the 25 per cent rate applicable from the date immediately following the date on which the judgment is pronounced.
K. What Happens if the Judgment is not Favorable?
An appeal from a judgment of a three-judge court of a district court of original jurisdiction is made to a high court. A judgment of a single-judge court of a district court must be appealed to a three-judge court of the same district. An appeal is required to be instituted within two weeks after the date of service of the original judgment. The court fees for instituting an appeal are twice that of commencing a suit.
A subsequent appeal of a judgment of the court of second instance can be made to the Supreme Court. In civil cases, the grounds for appeal to the Supreme Court are limited to constitutional and legal issues which are material to the case. A written motion for an appeal must be filed within two weeks after the date of the service of the original judgment. The court fees for instituting an appeal to the Supreme Court are three times that of commencing a suit.
IV. What Other Alternatives are Available ? - Arbitration
As an alternative to having the merits of the case decided by the Korean courts, Poncho, the foreign seller, may choose to have its case against Dolly heard before an arbitration board in Korea under the Korean Commercial Arbitration Board rules. The final decision of the arbitration board is not officially binding on the parties until an enforcement judgment therefor is obtained by the Korean courts. Korea has been a member to the New York Convention for the enforcement of arbitration awards since 1973.
In conclusion, commercial disputes in Korea can be approached in various different manners, ranging from alternative dispute resolution to filing a lawsuit. In making its decision, foreign plaintiffs like Poncho should be aware that filing a lawsuit in Korea is not uncommon and can expect the results of the decision to be fair and just.
Writer: Kap-You Kim
Partner
Member of Korean and New York Bar
LL.M. (Harvard 1993).