South Korea: Two arbitral awards refused enforcement this year

Mark Smith, Associate, Tokyo

Speedread:

In August, the South Korean courts refused to enforce an international arbitral award for the second time this year. We briefly summarise the available reports of the two cases, and consider their impact on South Korea's recent push towards establishing itself as a venue for international arbitration.

LSF-KDIC -v- KR&C

On 16 August of this year, the Seoul High Court refused to enforce an arbitral award against Korea Resolution & Collection Corporation (KR&C), part of Korea Deposit Insurance Corporation (a state-operated company).

The award in the amount of US$35 million had been made in 2011 in a Japan-seated ICC arbitration between KR&C and LSF-KDIC Investment Company, Ltd. (LSF-KDIC), a company backed by the Lone Star Finance private equity fund.

The arbitral tribunal had founded their jurisdiction on an arbitration clause in a shareholders' agreement to which KR&C and LSF-KDIC were both party. In finding jurisdiction, the tribunal had applied the Bermudian governing law of the shareholders' agreement to the arbitration agreement.

KR&C sought to resist enforcement of the arbitral award by LSF-KDIC through the South Korean courts. At first instance, in September 2012, the Central District Court of Seoul refused to enforce the award, ruling that enforcement of the award would be contrary to public policy.

On appeal, the High Court in Seoul took a different view in refusing to enforce the award. Applying the Japanese law of the seat of arbitration to the arbitration agreement, the court cited the lack of a valid arbitration agreement between the parties as the basis for its decision.

We understand that LSF-KDIC is considering an appeal to the Supreme Court.

NDS -v- KT Skylife

Earlier this year in January, the District Court of South Seoul also refused to enforce an arbitral award. This case concerned a software supply agreement entered into between NDS Limited (NDS), a UK-based software provider, and KT Skylife Limited (Skylife), a Korean broadcaster.

A dispute arose in relation to the supply agreement, which was referred to arbitration in Seoul under the UNCITRAL Rules. In the arbitration, NDS sought confirmation that the agreement had been validly terminated, whereas Skylife claimed that the supply agreement was still in effect and it therefore had the right to use the software.

In July 2012, the three-member tribunal delivered their award holding that the supply agreement had been terminated in 2010, and ordered Skylife to comply with its termination obligations as set out in the supply agreement.

Skylife failed to comply with the award, and NDS commenced enforcement proceedings in South Korea under the Korean Arbitration Act. On 31 January of this year, the South Seoul District Court delivered its judgment, refusing to enforce the arbitral award on the basis that it was not sufficiently specific as to the nature of the obligation to be performed by Skylife.

The court stated that an arbitral award must clearly detail the obligation to be performed, so that it could be enforced by the courts without reference to further documents. In this instance, the award referenced the relevant termination provisions of the supply agreement, but did not explain the scope of such obligations.

NDS has appealed the judgment to the Seoul High Court.

Comment

South Korea has recently been making positive efforts towards establishing itself as an arbitration-friendly jurisdiction. In 2011, the Korean Commercial Arbitration Board introduced new International Arbitration Rules, and we have also recently reported on the opening of the Seoul International Dispute Resolution Centre which hopes to promote South Korea as a venue for international arbitration.

While the South Korean courts are generally considered to be supportive of arbitration, these two cases may serve to undermine that reputation. Commentary in the arbitral community questions whether these cases reflect any formal policy shift in South Korea. Not surprisingly, therefore, the results of the appeals in both cases are anticipated with interest.

Please click on the links below for the other articles in the November 2013 Arbflash:

• Arbitration in Australia and ACICA
• Anyone for baseball? The rise of "baseball arbitration" in FRAND patent disputes
• "Public policy of India" - not an easy excuse any more
• English High Court decision highlights the need for caution when drafting for expert determination
• Australian Federal Court enforces LMAA award
• International news