The Korean System of International Arbitration

Posted on    by Gyu Hyeon (Gwen) Park

The Korean System of International Arbitration

 

Abstract 

International arbitration is extremely effective in resolving international commercial disputes because of its flexibility, neutrality, finality, and enforceability. There are five main players in international commercial arbitration, each with individual characteristics: the CPR, ICC, ICDR/AAA, LCIA, and UNCITRAL. Unfortunately, the Korean Commercial Arbitration Board (KCAB), which runs the Korean arbitration system, is not one of them. Korea only has the KCAB to run its arbitration system and arbitration in Korea has undergone few changes since its initial introduction. One notable change is that international arbitration rules have been separated from domestic arbitration rules, and have been amended twice: once in 2011 and the following in 2016. The newly revised 2016 International Arbitration Rules have three interesting features: the confirmation procedure stated in Article 13, the joining of additional party stated in Article 21 and the consolidation of claims stated in Article 23, and finally the new emergency arbitrator system. The procedure of international arbitration under KCAB rules consist of seven stages: arbitration agreement, request for arbitration, submission of answer, constitution of arbitral tribunal, hearing, delivery of an award and enforcement of an award. Having seen how the Korean international arbitration system works, there seems to be a great potential for Korea to grow further. In spite of the potential, however, Korea must overcome its weaknesses in terms of its conservative structure where change is not welcomed. Constant reinvention of its system and increasing transparency will be the key to make KCAB stand out in the highly competitive field of international arbitration.

 

I. Introduction of Arbitration

  1. General Characteristics

Arbitration, particularly international arbitration, has become one of the “trendy” topics among not just aspiring attorneys-to-be, but also to the governments and the general public. In fact, international arbitration is more than just a “cool” system; it is an extremely effective mechanism for resolving international commercial disputes. Flexibility, neutrality, finality, and enforceability – these are the four characteristics that make arbitration so appealing to interested parties. Guiding through the characteristics, international arbitration firstly is flexible because the parties are given the freedom to decide in what way they wish to resolve the ongoing dispute. The arrangement of meetings, applicable law, and seat of arbitration are some examples of where freedom of choice is granted. Second, it is neutral, because by selecting the seat of arbitration, applicable law, and arbitrators from a neutral background, the dispute resolution mechanism cannot be interfered by nationalities or political influences of any parties. Third, it is final because most domestic laws have restricted an appeal from arbitrators’ awards, with only very limited exceptions. Lastly, arbitration is enforceable; since it is recognized by most domestic laws and several international treaties, arbitral awards can be enforced in most countries throughout the world.[1]

  1. Major Players in the Field of International Commercial Arbitration

To name a few major commercial arbitration providers, there are the International Institute for Conflict Prevention and Resolution (CPR; based in New York), the International Chamber of Commerce (ICC; based in Paris), the International Centre for Dispute Resolution/American Arbitration Association (ICDR/AAA; based in New York), the London Court of International Arbitration (LCIA; based in London), and the United Nations Commission on International Trade Law (UNCITRAL; based in Vienna).[2] These five differ vastly in many areas including arbitrators/tribunal matters[3], the interim[4] and emergency measures of protection[5], conduct of hearings[6], and awards[7]. When settling international commercial disputes, parties are free to choose whatever set of rules they wish to apply in their arbitration process, be it any rule of these five or even those of the KCAB, which stands for the Korean Commercial Arbitration Board.

 

II. International Arbitration in Korea

  1. Korean Commercial Arbitration Board

The Korean arbitration system is under the KCAB, which aims to provide fast, efficient, confidential, and fair resolutions to the international parties that are caught in the middle of commercial disputes. Interested parties can designate the KCAB as the administrator and the appointing authority of their arbitration in their arbitration agreement. This is done either by choosing the KCAB International Arbitration Rules or if under different rules then by designating the KCAB as such.[8] Originally, KCAB applied the same set of arbitration rules in both domestic and international arbitration cases. However, due to the clash risen from applying the same rules in both domestic and international arbitrations, KCAB made separate international arbitration rules and named it the KCAB International Arbitration Rules, which have been first amended in 2011 and most recently in 2016.[9]

  1. Revised 2016 International Rules[10]

­There are three key features in the newly revised 2016 International Rules. First is the introduction of a confirmation procedure for the tribunal appointment made by the parties. The Article 13 of The 2016 International Rules(referred to as the Rules(2016) thereinafter) have made it possible for the secretariat to screen the chosen arbitrator by the parties prior to confirming its position in the tribunal. If the secretariat rejects the nomination, another arbitrator is nominated within the fixed period of time. The Rules(2016) states Article 13 as the following:

Article 13. Confirmation of Arbitrators

  1. The nomination of any arbitrator by the parties or of the third arbitrator by the other arbitrators shall be deemed appointed upon confirmation by the Secretariat. Even if the parties agree to appoint an arbitrator in their arbitration agreement, such agreement is deemed to be an agreement to nominate an arbitrator pursuant to the Rules.
  2. Upon confirmation of any arbitrator, the Secretariat shall, without delay, notify the parties and arbitrators in writing of the confirmation.
  3. If the Secretariat determines, in its discretion, that a nomination is clearly inappropriate, the Secretariat may refuse to confirm the nomination after giving the parties and the arbitrator(s) an opportunity to comment.
  4. If a nomination is not confirmed by the Secretariat, the nominating party or arbitrators shall nominate another arbitrator within the period of time as fixed by the Secretariat.

Second, the Rules(2016) have become more adept in dealing with multi-party and multi-contract disputes. According to Article 21, an additional party can now take part in the arbitration if a party requests so with the written agreement from all parties. Thanks to Article 23, so long as the parties involved remain unchanged, the tribunal can permit consolidation of claims. The Rules(2016) states Article 21 and 23 as the following:

Article 21. Joinder of Additional Parties

  1. The Arbitral Tribunal may allow third parties to be joined in the arbitration proceedings by application of a party, provided that one of the following conditions is met. A third party being joined as a party shall hereinafter be referred to as the “Additional Party”.

(a) All parties and the Additional Party have all agreed in writing to the joinder of the Additional Party to the arbitration proceedings; or

(b) The Additional Party is a party to the same arbitration agreement with the parties and the Additional Party has agreed in writing to the joinder in the arbitration proceedings.

  1. Even if an Additional Party is joined by the decision of the Arbitral Tribunal, this shall not affect the constitution of the Arbitral Tribunal.
  2. Even if the requirements under Paragraph 1 are satisfied, the Arbitral Tribunal may refuse joinder of an Additional Party where there is a reasonable ground to do so, such as a delay of the arbitration proceedings.
  3. Article 8 shall apply mutatis mutandis to an application for joinder and claims against the Additional Party, and Article 9 to the corresponding Answer and counterclaims.
  4. This Article shall apply only to arbitrations in which an arbitration agreement was entered into by the parties after the effective date of the Rules.

Article 23. Consolidation of Claims

  1. The Arbitral Tribunal may, at the request of a party, consolidate claims made in a separate but pending arbitration if such arbitration is also under the Rules and between the same parties. Provided that, the Arbitral Tribunal may not do so if any one arbitrator of an arbitral tribunal has been appointed in such separate arbitration proceedings.
  2. The Arbitral Tribunal shall, in determining whether or not to consolidate claims under Paragraph 1, give the parties a reasonable opportunity to make submissions, and shall take into account the arbitration agreement(s), the nature of the claims, and any other relevant circumstances.

The third key feature is the emergency arbitrator system. This new system allows parties to have an interim relief before the arbitral tribunal is constituted. A party can file a motion in request for an emergency arbitrator at the same time or subsequent to the filing of arbitration proceedings. The secretariat can appoint an emergency arbitrator within two working days after the Request for Arbitration is received. Then, the arbitrator has 15 days to conclude whether this case needs an emergency measure or not. In its 2016 revision, the Rules(2016) provided an additional provision/clause that states the deadlines regarding the appointment of the emergency arbitrator and whether or not emergency relief should be accepted.

  1. International Arbitration Procedure Under the Rules of KCAB[11]

(1) Arbitration Agreement

When the contract in question contains an effective arbitration agreement or when both parties have agreed in writing to settle their disputes through arbitration, the parties can start the arbitration procedure by filing a “request for arbitration.” If one party has its business based outside of Korea or the venue of arbitration is outside of Korea, the case becomes “international” and the International Arbitration Rules will apply automatically unless it is decided otherwise by the parties.

(2) Request for Arbitration

The payment of the fixed filing fee by the claimant is done upon submission of the request for arbitration. The secretariat will then notify the respondent who will now have 30 days to turn in an answer. The secretariat will then give a pre-estimate of the expenses for the arbitration, which incorporates both the administrative and arbitrator fees. Both parties will pay an equal amount of the fee before the proceedings begin. Once the proceedings come near to the end, the expenses will be re-calculated and responsible shares will be arranged accordingly.

(3) Submission of Answer

As the respondent submits an answer in response to the claimant’s request for arbitration, the respondent can file a counterclaim as well, which will then be merged with the existing claims. A separate filing fee will be charged for the respondent when a counterclaim is submitted. If the respondent disagrees with the jurisdiction of the arbitral tribunal or believes that there is no such ground for arbitration, this can be incorporated in the answer.

(4) Constitution of Arbitral Tribunal

Unless both parties have agreed otherwise, disputes are in principle settled by a sole arbitrator designated by the parties. Parties should ask the secretariat for a list of arbitrators that possess the necessary expertise and fairness. If parties cannot choose an arbitrator, the secretariat can make the decision for them. The KCAB may also receive assistance from the International Arbitration Committee (IAC) regarding the appointment of a tribunal. If one party is not content with the appointment of an arbitrator, the secretariat will make the decision after consulting with the IAC.

(5) Hearing

In hearings, the tribunal has the full control. Unless the tribunal has given different directions, all communications – be it written, or verbal – will be of that between the two parties or between each party and the tribunal.

(6) Delivery of an Award

Once the hearing is done and all expenses for the arbitration have been paid, the secretariat will deliver the award that has been rendered by the tribunal to the parties.

(7) Enforcement of an Award

The award that has been rendered by the tribunal will bind both parties. The award will be delivered to the competent court by the secretariat along with a copy of the document confirming that both parties have received the award. Based on the award, a writ of execution can be obtained by the parties either in a Korean Court or a court abroad.

 

III. Prospects for Arbitration in Korea

The Korean arbitration system under KCAB was founded for political reasons so that it could meet new demands from the rapidly growing transactional environment, and it sure does have the potential to be recognized as one of the main players in the field of international arbitration.[12] In order to reach that potential, the system must surpass its competitors including Japan, Singapore, and China. Unfortunately, considering how the Korean legal profession still clings to protectionism and efforts to reform almost being non-existent, there is still doubt as to whether the Korean arbitration system can rise to the occasion.[13] So how can the Korean international arbitration system thrive? The answer is simple and clear; by continuing reinvention and readjustment to rapid changes in trend and creating an environment where skilled arbitrators can be trained. The KCAB should also work towards building credibility and legitimacy in its international commercial arbitration by being more transparent.[14] The changes made in 2016 International Arbitration Rules is notable, but that should not be the end. Only when these efforts are executed can KCAB join the main players in the field of international commercial arbitration along with the giants like the ICC, LCIA, and UNCITRAL

 

 

References

“Administration.” KCAB, KCAB, www.kcab.or.kr/jsp/kcab_eng/arbitration/arbi_312_ex.jsp. Accessed 8 July. 2019.

“Arbitration Procedure.” KCAB, KCAB, http://www.kcab.or.kr/jsp/kcab_eng/arbitration/arbi_03_ex.jsp. Accessed 8 July. 2019.

Bun-Tae Kim and Tae-Woo Sohn, Study on the Features and Development Trends of the Commercial Arbitral Institution in Korea, Law Review, Vol. 53, Issue 2, 245, 258 (May 2011).

Certilman, Steven A. “Comparison of Selected International Arbitration Rules, 2018 Edition.” Alternatives to the High Cost of Litigation, vol. 36, no. 5, 66, 67-77 (May 2018).

Greenberg, Simon, et al. International Commercial Arbitration: an Asia-Pacific Perspective. Cambridge University Press, 2011.

“International Arbitration Rules.” KCAB, KCAB, http://www.kcab.or.kr/jsp/kcab_eng/law/law_02_ex.jsp. Accessed 8 July. 2019.

Michelle Kwon, International Commercial Arbitration in Asia: A Comparison of Arbitral Institutional Development in Japan, Korea, and Singapore, Inha Law Review, Vol. 14, Issue 3, 217, 236-241 (Nov 2011).

Yong Eui, Kim. The Current Status of Commercial Arbitration in Korea Focusing on the Arbitrability, DONG-A Journal of IBT Law, Vol., Issue 22, 47, 48 (July 2018).

 

[1] Greenberg, Simon, et al. International Commercial Arbitration: an Asia-Pacific Perspective. Cambridge University Press, 1 (2011).

[2] Certilman, Steven A. “Comparison of Selected International Arbitration Rules, 2018 Edition.” Alternatives to the High Cost of Litigation, vol. 36, no. 5, 66, 67-77 (May 2018).

[3] Id. at 69.

[4] Id. at 71.

[5] Id. at 72.

[6] Id. at 74.

[7] Id. at 75.

[8] “Administration.” KCAB, KCAB, www.kcab.or.kr/jsp/kcab_eng/arbitration/arbi_312_ex.jsp. Accessed 8 July. 2019.

[9] Yong Eui, Kim. The Current Status of Commercial Arbitration in Korea Focusing on the Arbitrability, DONG-A Journal of IBT Law, Vol., Issue 22, 47, 48 (July 2018).

[10] “International Arbitration Rules.” KCAB, KCAB, http://www.kcab.or.kr/jsp/kcab_eng/law/law_02_ex.jsp. Accessed 8 July. 2019.

[11] “Arbitration Procedure.” KCAB, KCAB, http://www.kcab.or.kr/jsp/kcab_eng/arbitration/arbi_03_ex.jsp. Accessed 8 July. 2019.

[12] Bun-Tae Kim and Tae-Woo Sohn, Study on the Features and Development Trends of the Commercial Arbitral Institution in Korea, Law Review, Vol. 53, Issue 2, 245, 258 (May 2011).

[13] Michelle Kwon, International Commercial Arbitration in Asia: A Comparison of Arbitral Institutional Development in Japan, Korea, and Singapore, Inha Law Review, Vol. 14, Issue 3, 217, 236 (Nov 2011).

[14] Id. at 241.

Posted in Autumn 2019.