Jong Ku KANG Esq.

BAE, KIM & LEE    

1. Introduction

Although any businessman (or woman) expects when concluding an international sales contract that the contracted goods will safety arrive at destination and be duly delivered to the buyer, and that the price will be paid as invoiced, not every contract has such a happy ending; a certain number of these contracts inevitably go away , leading to trade disputes of one kind or another. For instance, the seller ships the goods too late; the goods are found not to be in conformity with the contract terms: the buyers defaults in payment; etc. Given the statistical inevitability if such disputes arising at one time or another, it is essential for the parties to the contract to be well prepared, from the outset, for the possibility of such circumstances arising.

From the business lawyer's point of view, one of the most important tasks is to provide in the contract for a specific method of dispute resolution: whether to resolve the matter by way of court proceedings or arbitration, and where, etc. To do so gives the parties to the contract a measure of predictability with respect to the means of the disputes can vary from case to case, depending upon the respective countries of the parties to the contract, the parties must exercise care when deciding upon the method of dispute resolution.

The most typical resolution methods tend to be court proceedings and arbitration, either in the foreign party's own country, in Korea or in a third party country. Although mediation may also be considered, it has not yet fully taken hold, and it is important to note that a mediation decision may not have any legal enforceability as such. The following attempts to examine the first two methods from a practical perspective, giving some guidelines from the legal point of view to foreigners who have or may have a claim against a Korean party, or are contemplating selecting either of those methods in their contract with a Korean company.

2. Enforceability

A. General

The first factor to be considered in determining the method of dispute resolution is the enforceability of any resulting judgment/award in the country where the losing party's assets are located (needless to say, a Korean court judgment is enforceable in Korea). One must note that not all arbitration awards or court judgment rendered in a particular country are automatically enforceable in another country. If the contract provides for court proceedings in a specific country but the defendant has no assets in that country, against which the judgment may be enforceable, the plaintiff will have to try to enforce the judgment in the country where the defendant's assets are located. However, the courts of that latter country may not necessarily recognize and allow enforcement of the judgment, since it is, by definition, a foreign judgment. Each country has formulated its own tests (whether by statute or otherwise) for determining whether to recognize and allow enforcement of a foreign arbitration award or court judgment.

Similarly, and party to a contract with a Korean party who would prefer arbitration or court proceeding in his or her own country (which is usually the case) or in any third country must check whether any arbitration award or court judgment rendered in that country will be enforceable in Korea, particularly when the Korean party does not have any assets in that country or in any other place where such award or judgment is enforceable.

B. Court judgment

A foreign court judgement is not as such immediately enforceable in Korea. Instead, the party who seeks enforcement of a foreign judgment must take legal steps to obtain an enforcement judgment from a Korean court in order to enforce the foreign judgment in Korea. Korean law sets forth certain conditions for the enforceability in Korea of a foreign court judgement. First, jurisdiction (namely, the legitimate power to hear the case) of the court which rendered the judgment must never have been denied by virtue of a law of, or treaty entered into by, Korea. One example would be a case which belongs to the exclusive jurisdiction of a Korean court. Further, such foreign court must have recognized that it had jurisdiction over the case. In practice, however, one need not worry too much in this context as it is less likely that enforcement of a foreign judgement in Korea will be rejected insofar as commercial disputes are concerned. Next--particularly when the losing party is a Korean--either the Korea party must have been served a writ if summons other than by way of a public notice or, if such was not the case, the Korean party must have voluntarily appeared before such foreign court to answer the case. The method of service of process(i.e. formal delivery of legal papers notifying the defendant of a lawsuit) on a Korean party must be a legitimate one under Korean law. People from most common law countries (for example, the U.S., the U.K.,Australia,etc.) may be used to service by a private person, such as the plaintiff's lawyer or a "service of process" agent. However, as Korean law only deems service by the court to be legitimate, it should be noted that the foreign plaintiff must have the writ of summons served by the Korean court. The Korean court serves a foreign writ of summons upon a Korean party upon the request of a foreign court, such request being made through diplomatic channels. The failure to observe this requirement is a common ground for foreign judgments being held unenforceable in Korea.

Further the foreign judgment must not contravene the "public policy" of Korea. Here the public policy relates not only to the merit of the dispute itself, but also to the procedural aspects of the case. The Korean court, as the case may be, may refuse to recognize and enforce the foreign judgment when the jurisdiction or procedures of the court which rendered such foreign judgment are found to be deficient in terms of economy, convenience, propriety, fairness and speed of the proceedings, taking into account the substance of the dispute. However, in practice it is not particularly often the case that enforcement of a foreign judgment in Korea is rejected for this reason so far as commercial disputes are concerned.

The most important test is reciprocity. That is, the Korean courts will (subject to the previous tests being satisfied) recognize and enforce judgment only if the foreign country where the judgment was rendered itself recognizes enforces a Korean judgment under the same conditions as, or less strict conditions than, under Korean law (a sort of legalistic "you scratch my back and I'll scratch yours"). Korea has thus far been stricter with respect to confirming whether any foreign judgment which a foreign seeks to enforce in Korea satisfies this requirement than the other requirements mentioned above.

Even if a foreign party has obtained a judgment against a Korean party from the court of his or her own country pursuant to a contract which provides for court proceedings in such country as a method of dispute resolution, there is still a risk that enforcement of that judgment in Korea against the Korean party may not be possible if that judgment is lacking in any of those requirements.

C. Arbitral Award

As in the case of foreign court judgment, an arbitral award, regardless of whether it was rendered in Korea or not, is not as such enforceable in Korea. A party who seeks to enforce in Korea an arbitral award which he or she has obtained must obtain an enforcement judgment from a Korean court. Again, little need be said, in general, with regard to enforcement of a Korean arbitral award in Korea. However, some discussion is necessary with regard to enforcement of a foreign arbitral award in Korea.

Although Korea does not have any statutes which provide for the recognition and enforcement of the foreign arbitral award, the same principles as in the case of foreign court judgment will apply. Some readers may well feel that enforcement of a foreign arbitral award is not always guaranteed. However, the enforcement is in fact relatively straightforward in some circumstances. Specifically, Korea is a contracting state to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Award, 1958("New York Convention"), which provides for the guarantee by the "contracting states" of the recognition and enforcement of arbitral awards properly rendered in any contracting states in accordance with the terms of the New York Convention. Therefore, at least if the country where the arbitral award was rendered is a contracting state to the New York Convention, enforcement in Korea is basically assured.

3. Speed and Cost

Our experience indicates that court proceedings in Korea tend to be speedier than in many other industrially developed countries, such as the U.S., U.K., Japan, Germany, etc. Further, Korea has recently established special groups of judges who normally hear cases involving commercial disputes of an international nature. Those judges have an extraordinarily broad understanding of the practice in various types of international commercial transactions. Since then, court proceedings have become even speedier than ever in Korea. So far as arbitration is concerned, as the procedure for arbitration is quite similar to that of other developed countries, particularly that of the International Chamber of Commerce in Paris, the speed of arbitration proceedings in Korea is somewhat similar to that in most other countries.

One further point to note is that court proceedings in the plaintiff's country or in any third country against a Korea party would be definitely more time-consuming than in Korea due to the procedural necessity for service if a writ of summons by a foreign court upon a Korean defendant. Therefore, if any foreign person anticipates the need for prompt dispute resolution in the event that a Korean party subsequently defaults in its contractual obligations, it is worthwhile considering commencing proceedings in Korea, to speed up the process. Further, it is generally understood that arbitration is speedier than court proceedings, particularly in that, generally speaking, there is no regular appeal procedure in an arbitration.

It is not easy to compare legal costs for court proceedings and those for arbitration in Korea, nor is it easy to make such comparisons between Korea and foreign countries, as such costs will typically vary depending upon practices in each country. However, proceedings in Korea may well be more costly to a foreigner than in his or her own country, specifically in terms of document translation, communication, etc. On the other hand, proceedings in the foreign country may well also be costly in that the judgment is not enforceable as such in Korea, and, as mentioned above, the foreign party must obtain an enforcement judgment from a Korean court in order to enforce it against a Korean defendant in Korea. In short, one cannot generalize as to which method of dispute resolution is more economical, between court proceedings in Korea and in a foreign country, in satisfying a foreigner's claim against a Korean defendant.

4. Fairness and Propriety

It is a commonly-held assumption, applied through the world, that a foreign court is biased in its judgments in favor of a party belonging to its own country. In fact, this is a source of some suspicion in some countries. Such comments do not appear to have validity in Korea. Suspicion by some foreign parties with respect to court proceedings in Korea rather would appear to have been caused by the difficulty in communication and the difference in judicial structures between Korea and the country of such foreign parties, compounded by the small numbers of Korean lawyers both able to explain these problems to foreign clients in a common language and possessing a full understanding of the judicial structure of foreign countries. As there are, these days, already sufficient numbers of such Korean lawyers, such difficulties are, or should be, a thing of the past. It cannot therefore be said that a foreign party must insist on court proceedings in his or her own country on the basis that Korean court proceedings may be biased in favor of the Korean party. It is worth noting that, if anything, arbitration in Korea merits little comment in this regard since the arbitration rules and appointment of arbitrators largely depend upon the decision of the parties in the contract. In short, there is no real difference in terms of the place of arbitration, except for the administration costs.

On the other hand, there may well be a substantial difference between court proceedings and arbitration. It is generally understood that a court judgment is more legal than commercial while an arbitral award is the opposite. Sometimes a legal decision may be preferable to a commercial one, but, depending upon the circumstances, this is nit always so. Therefore, it is not easy to say in general which method of dispute resolution is preferable, as each case, each dispute is different.

5. Conclusion

Undoubtedly, any party will have some emotional tendency toward choosing court proceedings in his or her own country, as opposed to a foreign country. Most lawyers would recommend to their clients proceedings on their home turf. However, there may well be good reason for a foreigner to choose court proceedings in Korea, in terms if enforceability, speed, and appropriateness, in order to seek satisfaction of a claim against a Korean defendant where such Korean defendant does not have any assets in the foreign country. These days, virtually the only concern is--or should be--to identify a suitable Korean lawyer( in addition to , of course, the issue of cost ). Since, these days, most established and competent commercial lawyers have easy access to various worldwide networks of lawyers, it should be easy to select a competent and suitable Korean lawyer even by contacting one's lawyer in the home country. If a foreigner nonetheless insists on court proceedings in the home country, some care must be exercised, as mentioned above.

Insofar as arbitration is concerned, there would appear to be no specific reason for choosing one place of arbitration over another if the place in question belongs to a contracting state to the New York Convention. However, if such place is not located in a country which signed the New York Convention, the same conclusion as in the case of court proceedings would apply. Ultimately, however, the basic choice between court proceedings and arbitration will very much depend upon the circumstances.

                Written by Jong Ku KANG Esq.
                Partner
                Member of the Korean and Seoul Bar