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

2023.04.03

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 laws.1   This is also true for Korea’s MRFTA.2  Arbitral tribunals are increasingly applying competition laws irrespective of the contractual choice-of-law.3  This is partly driven by arbitrators’ duty to uphold and protect the public interest4 and to use best efforts to render enforceable awards.5 
 
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 merits.6  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 transactions.9 
 
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 limitations,10 payment delays,11 the no-fault divorce principle,12 and punitive damages.13  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 Act,14 where enforcement would unjustifiably infringe a creditor’s property rights,15 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 Korea,16 where the party requesting execution committed punishable fraud in the arbitral proceedings,17 and cases involving res judicata  with a Korean judgment.18  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 market,21 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. 
 
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