CONTENTS
- 1. International Arbitration | Understanding the System and Strategies for Use
- - Comparison of Major Arbitration Institutions
- 2. International Arbitration | Legal Concept and Effect
- - Scope and Requirements of Arbitral Awards
- - Checklist for Drafting Arbitration Clauses
- 3. International Arbitration | Selection of Arbitration Institutions and Arbitration Methods
- - Flow of International Arbitration Proceedings
- 4. International Arbitration | Awards and Enforcement
- - Enforcement of Arbitral Awards
- - Grounds for Setting Aside an Arbitral Award
- 5. International Arbitration | Pre-Arbitration Checklist for Companies
1. International Arbitration | Understanding the System and Strategies for Use
International arbitration is a system that can be used when a method of resolving cross-border disputes is needed as global transactions increase.
Where the contracting counterparty is a foreign company, it is difficult to expect sufficient legal protection through domestic civil litigation alone.
What can be used in this situation is the international arbitration procedure.
International arbitration is a method of resolving a dispute according to procedures and an institution agreed upon in advance by the parties, in place of a court trial, and many companies prefer it because it offers the following advantages in particular.
Comparison of Major Arbitration Institutions
Institution | Headquarters | Advantages |
ICC | Paris, France | Global credibility, suitable for complex cases |
SIAC | Singapore | A neutral country, procedural efficiency |
KCAB | Seoul, Korea | Low cost, Korean available, suitable for small and medium-sized enterprises |
HKIAC | Hong Kong | Specialized in international finance cases |
ICDR/AAA | United States | Favorable for enforcement within the United States |
2. International Arbitration | Legal Concept and Effect
International arbitration is a procedure in which the parties agree in advance to resolve a dispute, when it arises, through a third-party arbitrator rather than a court, and the arbitral tribunal constituted accordingly applies the governing law and renders a legally binding determination (an arbitral award).
In addition, under the New York Convention, an arbitral award rendered abroad is guaranteed to be recognized and enforced in each country.
Scope and Requirements of Arbitral Awards
Where the recognition and enforcement of a foreign arbitral award is needed, the New York Convention applies, and arbitral awards include both awards rendered by a permanent arbitral institution and those rendered by an individual arbitrator.
In addition, an arbitration agreement must be made in writing, and an arbitration clause included in a contract or a separate written arbitration agreement falls within this.
The Convention applies regardless of whether the legal relationship is contractual in nature.
Checklist for Drafting Arbitration Clauses
When inserting clause items related to international arbitration, the following items must be clearly set.
Item | Main content |
Arbitration institution | Designation of an arbitration institution such as ICC, KCAB, SIAC, or HKIAC |
Seat of arbitration | Affects the choice of arbitration procedure and governing law (the seat of arbitration is the physical location where the arbitration hearing proceeds) |
Language of arbitration | The language to be used for handling the dispute (English, Korean, etc.) |
Number of arbitrators and method of selection | Usually 1 to 3. Agreement of the parties or appointment by the institution |
Governing law | The substantive law to be applied to contract interpretation and dispute resolution |
Because international arbitration can be commenced once an arbitration agreement exists in writing, securing the validity of the arbitration agreement is more important than anything else.
3. International Arbitration | Selection of Arbitration Institutions and Arbitration Methods
When a company experiences international arbitration for the first time, choosing institutional arbitration rather than the ad hoc arbitration method is more stable.
Category | Institutional arbitration | Ad hoc arbitration |
Definition | Conducted under the rules and administrative supervision of an arbitral institution | Conducted without the involvement of an arbitral institution |
Examples | ICC, KCAB, SIAC, HKIAC, and the like | Based on the UNCITRAL Arbitration Rules |
Advantages | Procedural stability, expertise, and enforceability | Flexible procedure, with possible cost savings |
Disadvantages | Costs such as institutional fees arise, and the procedure is complex | Concern about inefficient procedural progress in the event of conflict between the parties |
Flow of International Arbitration Proceedings
1. Commencement of arbitration
- Arbitration commences when the claimant submits a request for arbitration or an application for arbitration
- In the case of institutional arbitration, the institution serves the documents or oversees the conduct of the procedure
- An overview of the dispute, the requested relief, and a copy of the arbitration agreement and the like must be submitted
2. Appointment of arbitrators
- Generally, a panel of 3 arbitrators is constituted
- Each party nominates 1 arbitrator, and the third arbitrator is selected by agreement
- Where selection is difficult, the arbitral institution designates them (because neutrality is important, nationality, interests, and field of expertise are considered)
3. Preparation of the procedure
- Document exchange, the schedule for submitting written pleadings, the document production procedure and the like are agreed in advance
- SIAC and others actively use online meetings to improve procedural efficiency
4. Document production and submission of evidence
- A party may request the other party to submit materials, and upon refusal, grounds such as lack of relevance or materiality are required
- Even protected documents may be submitted under a confidentiality undertaking
- The facts may be proven through documents, witnesses, expert statements, and the like
5. Hearing
- The parties begin with opening statements
- Arguments are developed through examination of witnesses, cross-examination, expert testimony, and the like
- It may proceed for up to 2 weeks, and where necessary, it may be replaced by a documentary hearing
4. International Arbitration | Awards and Enforcement
An award rendered through international arbitration has the same effect as a court judgment.
Once the written award is sent in writing, the parties must perform the award without delay.
It should be noted that international arbitration is, in principle, a single-instance system in which appeal is not possible.
Enforcement of Arbitral Awards
Grounds for Setting Aside an Arbitral Award
However, an objection to an arbitral award can be pursued by filing an action with a court to set aside the arbitral award.
The criteria for judgment are whether procedural legitimacy and legality and public order have been impaired.
A party seeking to set aside an arbitral award may file within 3 months from the date of receiving an authenticated copy of the arbitral award, and after the court’s recognition and enforcement decision has become final, even filing an action to set it aside is prohibited.
A court may set aside an arbitral award when the following grounds exist.
- The arbitration agreement is invalid or was concluded by a person without capacity
- The respondent did not receive proper notice of the arbitral proceedings or was deprived of the opportunity to defend
- The content of the award goes beyond the scope of the arbitration agreement
- The composition of the arbitrators or the procedure violates the parties’ agreement or the law of the relevant country
- The award has not yet become final, or has been set aside or suspended
- The nature of the dispute is a matter that cannot be resolved by arbitration under local law, or enforcement is contrary to public order
5. International Arbitration | Pre-Arbitration Checklist for Companies
Checklist Item | Considerations Before International Arbitration |
1. Suitability of the dispute for arbitration | -Whether there is an arbitration clause in the contract -Suitability for arbitration by nature (criminal and urgent provisional injunction matters are not suitable) |
2. Whether other means such as negotiation or mediation have been attempted in addition to arbitration | Assessment of whether time and cost savings are possible |
3. Whether contractual preliminary procedures (such as consultation) have been performed | A claim may be dismissed if the conditions for commencing arbitration are not met |
4. Securing sufficient evidence and documents | Likelihood of supporting evidence such as contracts, notices, emails, and work logs |
5. Reasonableness of the expected return relative to cost | Proceeding with arbitration after including attorney fees, arbitrator and institutional costs, expert fees, and similar expenses |
6. The other party's ability to pay | Review of whether asset tracing is necessary |
7. Enforceability of the award in the country where the other party's assets are located | Review of whether the country is a party to the New York Convention, the public policy exception, and similar matters |
8. Whether the statute of limitations or the claim period has expired | Attention to the limitation periods of each country |
9. Consideration of political and economic circumstances | Consideration of risks such as elections, exchange rates, and sanctions |
10. Consultation with an expert specializing in arbitration | -Attorneys in general litigation and attorneys specializing in arbitration perform their work in different ways -Room for negotiation, whether to strategically delay, and similar strategies can be formulated |
International arbitration is not merely an alternative to litigation but a safeguard that should be strategically designed from the contract conclusion stage.
The presence of an arbitration clause, the clarity of its content, the choice of the seat of arbitration, and even the language and institution can all affect gains or losses ranging from hundreds of millions to tens of billions of won.
Depending on the prior formulation of strategy, document management, and use of arbitral institutions, international arbitration provides enforceability for the protection of a company's rights.
It is advisable to consult an attorney who understands the governing law of each country and has experience with international arbitration cases, and to begin by obtaining an assessment of the practical merits of international arbitration.
