South Korean Courts Twice Refuse to Enforce International Arbitral Awards

In our two previous blogs¹ on South Korea we commented on the opening of the Seoul International Dispute Resolution Centre and noted that this, together with the liberalisation of its legal market and the introduction of the Korean Commercial Arbitration Board's (KCAB) International Arbitration Rules, meant that a new phase for international arbitration in South Korea was beginning. We further commented on the possibility that Seoul could become a hub for international arbitration in East Asia if the local courts are supportive of international arbitration.

However, this year the South Korean courts have twice refused to allow the enforcement of international arbitral awards. This is contrary to their usual approach where they have generally refused to query awards and have instead recognized and enforced them in accordance with the New York Convention.

The first refusal was highlighted in a previous blog and concerned arbitral proceedings between an English company, NDS Group Ltd (NDS), and the state-invested monopoly broadcaster in South Korea, KT Skylife. In that instance the Seoul Southern District Court declined to enforce an arbitral award obtained by NDS against KT Skylife on the basis that it was not specific enough.

More recently, in a decision on 16 August 2013, the Seoul High Court refused to enforce an arbitral award obtained by KSF-KDIC Investment Company (KSF-KDIC) against Korea Resolution & Collection Corporation (KR&C) which is a state-run insurance company. The Seoul High Court found that there was no arbitration agreement between KSF-KDIC and KR&C. It followed a first instance judgment by the Seoul Central District Court in which the court refused to enforce the same award on a different basis, namely that it was contrary to public policy as it breached South Korean law on asset-backed securitisation.

The underlying arbitral award was made in 2011 by a tribunal composed of Klaus Sachs, Neil Kaplan QC and VV Veeder QC with jurisdiction being based on an arbitration agreement in a shareholders agreement entered into by the investment company, KSF-KDIC, and its two backers: KR&C and Lone Star Funds. Lone Star Funds is well known within South Korea for initiating the first ever ICSID claim against the country in November 2012. Lone Star Funds has also previously been subject to public criticism and regulatory sanction for their involvement with Korean Exchange Bank.

The Skylife case has been appealed to the Seoul High Court and is expected to be heard later this year. We also understand that LSF-KDIC may appeal. International arbitration practitioners in South Korea and elsewhere will keenly await both judgments.

For further information, please contact Thomas Walsh, Senior Associate, Seoul or your usual Herbert Smith Freehills contact.

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