SOUTH KOREA: An Introduction to Dispute Resolution: Arbitration
South Korea’s international arbitration scene has long been known for its intense activity, high number of cases and experienced arbitration counsel. An industrial and creative powerhouse, South Korea currently has the 13th largest economy in the world and a population of around 50 million people. Its economy is highly export-dependent, and tie-ups and transactions with foreign companies are commonplace – as is foreign investment (both into and out of South Korea). Many of the international commercial contracts and investment treaties that undergird such business activity have arbitration clauses, which are frequently invoked by sophisticated South Korean parties or their foreign counterparts.
While not as many new “blockbuster” cases involving Korean entities or the Korean government were filed in 2023, several ongoing major commercial and investor-state arbitration cases made headlines or otherwise garnered public interest. Some notable developments also took shape at the Korean Commercial Arbitration Board (KCAB), the only state-backed arbitration institution in Korea.
International Commercial Arbitration Update
Energy-related cases have long been a staple of the Korean arbitration landscape. This remained the case in 2023. With new nuclear energy power plant projects envisioned in various countries, and in light of South Korea’s abandonment of the previous Moon Jae-in administration’s anti-nuclear policy, the major Korean nuclear industry players have been competing with companies from the USA and elsewhere for mandates to design and build these new plants. In late 2022, Korea Electric Power Corporation (KEPCO) and Korea Hydro & Nuclear Power Co Ltd (KHNP) filed an arbitration against Westinghouse Electric Company LLC. The dispute arose out of KEPCO and KHNP’s plans to imminently export a pressurised water reactor-type nuclear power plant technology to the Czech Republic, Poland and/or the Kingdom of Saudi Arabia.
Also in relation to energy disputes, the global push for net-zero emissions has spurred on renewable energy projects everywhere, and South Korean companies have also engaged in such projects. This has led in recent years (and may increasingly lead) to international arbitration disputes involving South Korean parties in relation to solar plants, wind farms and fuel cells.
In the area of shareholder disputes, a private equity consortium consisting of four financial institutions continued a long-standing and high-profile USD1.7 billion dispute against the chairman of Kyobo Life Insurance Co, Chang-Jae Shin. The currently ongoing arbitration arises from a previous arbitration involving the investors’ exercise of a put option. In the previous arbitration, the tribunal found that a valid put option clause existed. While the tribunal found Shin liable for breach of a shareholders’ agreement, it also concluded that Shin did not have to buy back the shares at a price demanded by the investors.
Additionally, South Korea-based practitioners have expressed keen interest in IP-related disputes, such as cases on life sciences and healthcare, gaming, entertainment and digital assets. The emergence and potential future of such disputes has been widely discussed in the South Korean market, including at the well-attended Seoul ADR Festival in the fall of 2023.
Investor-State Dispute Update
Although no publicly known investor-state dispute (ISD) cases against South Korea were newly filed in 2023 as of late November, some developments in ongoing cases are worth mentioning.
Launched in 2012, the first and largest investment treaty dispute against Korea, the Lone Star saga (LSF-KEB Holdings SCA and others v Republic of Korea (ICSID Case No ARB/12/37)), entered into its next phase. In the underlying case, the investors claimed, among other things, that South Korea’s Financial Services Commission unjustly delayed approval of the sale of the investors’ controlling stake in the Korea Exchange Bank to HSBC and applied pressure on the investors to lower the sale price. Following the ICSID panel’s rejection of 95% of investors’ claims worth nearly USD5 billion in August 2022, both parties applied for at least partial annulment of the final award in 2023. The Lone Star investors also filed for enforcement in the US federal courts.
South Korea has also launched proceedings to reverse the final award in Elliott Associates LP v Republic of Korea (PCA Case No 2018-51), a case governed by the UNCITRAL Rules 2013. The tribunal ordered South Korea to pay approximately USD100 million (including interest) to hedge fund Elliott (which was about 7% of the USD770 million that Elliott had claimed) in a dispute stemming from the 2015 merger of two Samsung Group affiliates. Thereafter, the tribunal granted South Korea’s request for correction of the award. As of November 2023, set aside proceedings are underway in the English courts.
Meanwhile, a hearing on jurisdiction took place in November 2023 in Fengzhen Min v Republic of Korea (ICSID Case No ARB/20/26), a real estate-related dispute. Among other developments, proceedings continued in the second ISD case brought by investors from Iran against South Korea (Mohammad Reza Dayyani et al v Republic of Korea (PCA Case No. 2022-12) on the basis of alleged delays of the South Korean government’s payment of an earlier investor-state arbitral tribunal due to sanctions against Iran, in connection with which a specific licence was issued by the US Treasury’s Office of Foreign Assets Control on 6 January 2022.
In mid-2023, with several ISD cases against South Korea still pending, South Korea’s Ministry of Justice announced it would create the International Legal Affairs Bureau. According to government officials, the bureau will play a role in preventing ISD cases and strengthening the government's capabilities to deal with relevant disputes and lawsuits.
In one of the first cases in which a South Korean investor filed an ISD claim against a foreign state, Korea Western Power Company Limited v Republic of India (PCA Case No 2020-06) proceeded to a merits hearing in January 2023. South Korea’s national oil company also lodged an ICSID claim against Nigeria over an oil and gas enterprise in Korea National Oil Corporation et al v Federal Republic of Nigeria (ICSID Case No ARB/23/19). Cases such as these show that South Korean investors are becoming increasingly familiar with the process of invoking their rights under South Korea’s numerous investment treaties.
KCAB INTERNATIONAL Update
In September 2022, KCAB INTERNATIONAL (the international division of the KCAB) launched a revision process for the International Arbitration Rules, which were last updated in 2016. The Revision Committee, which is composed of prominent international arbitration practitioners and local law experts, has deliberated throughout the past year on various proposed changes.
The topics under consideration include, among others:
- diversity in appointing arbitrators;
- more detailed joinder and consolidation procedures;
- disclosure of third-party funding;
- early determination procedure;
- broadening the authority of the institution;
- virtual hearings;
- electronic signing of an award; and
- expanding the scope and application of the expedited procedure.
It is expected that the draft revised rules will be unveiled and issued by late 2024.
KCAB INTERNATIONAL has also made progress during the past year in growing beyond its traditional case administration function. Besides making efforts to promote the South Korea arbitration brand at various events throughout the world, KCAB INTERNATIONAL has also been making efforts to incorporate KCAB INTERNATIONAL arbitration clauses into contracts with a US government agency, as the institution looks to grow in the US market as well. It has also signed a number of strategic memoranda of understanding with Southeast Asian institutions and entities in Japan to further establish its footprint in the regional market for alternative dispute resolution services.
Looking Ahead
As is evident from the above-metnioned developments, South Korea continues to thrive as an international arbitration disputes hub and South Korean parties continue to be involved in some of the largest and most important international arbitration cases. Notably, at the upcoming ICCA Congress 2024 in Hong Kong, South Korea will be one of a handful of jurisdictions that will be throwing its hat in the ring for the bid to host the International Council for Commercial Arbitration Congress 2028. If South Korea wins the bid, it would be a boon to South Korea’s status and reputation as a leading jurisdiction for arbitration in Asia.