Enforcement of Arbitral Awards in Korea and Interplay with the Korean Fair Trade Act

A recent decision by the German Federal Court of Justice has spurred interest in the international arbitration community regarding the interplay between a country’s antitrust laws and enforcement of foreign arbitral awards. In BGH KZB 75/21, the German Federal Court of Justice decided on 27 September 2022 that arbitration awards involving antitrust provisions are subject to full judicial review on both the law and the facts. Going against the principle of révision au fond, the court determined that the award violated German public policy because it incorrectly applied German antitrust law. The decision was based in part on the finding that the antitrust rules prohibiting anti-competitive behavior were fundamental laws of the German legal system which protect interests of both the parties and the public. Korean courts have yet to tackle this issue. However, there are several grounds based on which Korean courts may reach a similar conclusion with respect to Korea’s Monopoly Regulation and Fair Trade Act (”MRFTA”).

Arbitral Tribunals Can Apply the MRFTA

A country’s antitrust and competition laws are generally considered to be mandatory laws¹. This is also true for Korea’s MRFTA². Arbitral tribunals are increasingly applying competition laws irrespective of the contractual choice-of-law³. This is partly driven by arbitrators’ duty to uphold and protect the public interest⁴ and to use best efforts to render enforceable awards⁵.

Applying the MRFTA in foreign arbitral proceedings is also consistent with Korean law. Article 3 of the MRFTA states that it applies to ”acts done outside Korea, if such acts affect the domestic market.” Moreover, Article 20 of Korea’s Act on Private International Law requires mandatory provisions like the MRFTA to apply ”irrespective of the applicable laws”, and such mandatory provisions must ”govern the corresponding legal relations even if foreign laws are designated as applicable laws thereof under this Act”. Hence, domestic and foreign arbitral tribunals may and should apply the MRFTA when the Korean market is affected by any conduct or circumstances in dispute.

Arbitral Awards Are Subject to Full Judicial Review on Issues of Public Policy

Generally, full judicial review of final arbitral awards is not allowed as to substantive issues decided on the merits⁶. Nevertheless, according to Supreme Court Decision 2006Da20290, decided May 28, 2009, courts can ”independently examine and judge…as to the issues decided on the merits of foreign arbitral award” to determine whether there is a ground to refuse recognition under Article V of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the ”New York Convention”). The court found that full judicial review was possible to determine whether the award was obtained by deceptive means under Article V(2)(b). This same section is the basis of setting aside arbitral awards on public policy grounds. Article V(2)(b) of the New York Convention allows a court to set aside an arbitral award if it finds that ”recognition or enforcement of the award would be contrary to the public policy of that country”.

Violations of the MRFTA Go Against the Public Policy of Korea

Korean courts can also set aside a foreign arbitral award when it is in ”conflict with the good morals and other forms of social order of the Republic of Korea”⁷. The purpose of this provision is to ensure that awards do not ”negatively influence fundamental moral norms and social order of the enforcing country”⁸. This involves consideration of both the circumstances of the enforcing country and the stability of international transactions⁹.

In Supreme Court Decision 93Da53054, decided Feb 14, 1995, the court held that the mere fact that a mandatory law was violated does not necessarily mean that the award violates public policy. However, in that case, the mandatory law at issue was the statute of limitations. In the past, Korean courts have not found public policy violations in cases involving the statute of limitations¹⁰, payment delays¹¹, the no-fault divorce principle¹², and punitive damages¹³. These cases mainly concern issues that do not have wide-ranging effects on Korea’s legal regime. Moreover, many of these decisions are the consequences of freely bargained choice of law.

In contrast, the MRFTA is more akin to cases where Korean courts have found violations of public policy. While rare, Korean courts have ruled that arbitral awards can be set aside for public policy reasons when there were grounds for demurrer under the Civil Execution Act¹⁴, where enforcement would unjustifiably infringe a creditor’s property rights¹⁵, cases involving historical and ongoing tensions between Korea and Japan (e.g., where a Japanese statute immunized tortfeasors from liability for forced labor during the Japanese occupation of Korea¹⁶, where the party requesting execution committed punishable fraud in the arbitral proceedings¹⁷, and cases involving res judicata with a Korean judgment¹⁸. These cases reach into more fundamental aspects of Korea’s legal system including issues of constitutionality and finality of decisions.

The MRFTA likewise is a fundamental part of Korea’s legal system whose cornerstone is the fundamental notion of fairness. Violations of the MRFTA are deemed to have significant impact not just on the parties but also on the Korean public. This is apparent from its stated purpose ”to prevent the abuse of market dominance…and excessive concentration of economic power and to promote fair and free competition…, thereby encouraging creative business activities, protecting consumers, and promoting the balanced development of the national economy.”¹⁹

Moreover, abolition of monopolies has been a constitutional goal since 1980. Regulation of anti-competitive conduct was necessary to achieve economic democratization and counteract the historical economic concentration in chaebols (large conglomerates often controlled by an individual or family). This remains a goal in the current Constitution which provides, ”The State may regulate and coordinate economic affairs in order to…prevent the domination of the market and the abuse of economic power and to democratize the economy through harmony among the economic agents.”²⁰

As antitrust laws are deemed essential to ensuring a functioning market²¹, to enforce an award in Korea that violates the MRFTA may be construed as undermining the state’s ability to enforce its competition laws within its borders. Korean courts are likely to find that the Korean public would not be adequately protected if they recognize and enforce awards that go against what Korea considers fundamental legal norms, i.e., fairness and free competition.

_{¹Charles H. Brower II, Arbitration and Antitrust: Navigating the Contours of Mandatory Law, 59 Buff. L. Rev. 1127, 1130 (2011)
²Supreme Court Decision 2015Da211128, 2015Da211135 Decided May 11, 2017
³Brower II, supra note 1, at 1134
⁴Mohammad Reza Baniassadi, Do Mandatory Rules of Public Law Limit Choice of Law in International Commercial Arbitration?, 10 BERKELEY J. INT’L L. 59, 63 (1992)
⁵Brower II, supra note 1, at 1136
⁶Supreme Court Decision 2006Da20290 Decided May 28, 2009
⁷Arbitration Act, Article 36(2)2(b)
⁸Supreme Court Decision 2006Da20290 Decided May 28, 2009
⁹Id.
¹⁰Supreme Court Decision 93Da53054 Decided Feb 14, 1995
¹¹Supreme Court Decision 89DaKa20252 Decided Apr 10, 1990
¹²Supreme Court Decision 2009Da22952 Decided Jun 25, 2009
¹³Supreme Court Decision 2018Da231550 Decided Mar 11, 2022
¹⁴Supreme Court Decision 2001Da20134 Decided April 11, 2003
¹⁵Seoul High Court Decision 2007Na122966 Decided Mar 6, 2009
¹⁶Seoul High Court Decision 2012Na44947 Decided July 10, 2013
¹⁷Supreme Court Decision 2006Da20290 Decided May 28, 2009
¹⁸Supreme Court Decision 93Meu1051, 1068 Decided May 10, 1994
¹⁹MRFTA, Article 1
²⁰Constitution of the Republic of Korea, Article 119(2)
²¹MRFTA, Article 1}