Hyun Kim
Sechang & Co, Seoul
hyunkim@sechanglaw.com

This article explores the law of Korea regarding the public policy exception to the enforcement of foreign arbitral awards in Korea. Korea is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (the 'New York Convention'). Foreign arbitral awards are to be recognised and enforced by Korean courts if: (1) the award is from a country that has ratified the New York Convention; (2) the opponent party received proper notice of arbitration proceedings and had an opportunity to present its case; (3) the award is not contrary to Korean public policy; and (4) the dispute was commercial in nature under Korean law.

It is noted that the probability of the Korean court rejecting the recognition and enforcement of foreign arbitral awards is low where Korean courts have traditionally been deemed as 'arbitration recognition friendly'. The Korea court proceeding for obtaining a recognition or enforcement order for a foreign arbitration award was simplified, to a degree, in 2016 to further facilitate winning arbitral parties obtaining a recognition or enforcement order by the Korea courts.

However, recognition and enforcement orders by Korean courts for foreign arbitral awards are not granted by Korean courts if any of the following are found:

1. when there is incapacity of a party or invalidity of the arbitration agreement under the governing law;
2. when there is a lack of proper notice of the appointment of the arbitrator or arbitral proceedings, or otherwise an inability to present the case on substantive issues;
3. when the award deals with a dispute that is not the subject matter of the arbitration agreement or that is beyond the scope of the arbitration agreement;
4. when the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties; or,
5. when the award is contrary to (Korean) public policy.

As for the public policy exception in the context of the recognition and enforcement of foreign awards (or a foreign court ruling, for that matter) by a Korean court, the Supreme Court has held that:

• Enforcement will not be permitted if it would constitute an abuse of power or be contrary to public policy. If the court finds that it is contrary to the basic principles of Korean law to allow a claimant to pursue enforcement proceedings on the arbitral award, the court may refuse to enforce the arbitral award as it would constitute a violation of public order under Article V(2)(b) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
• Enforcement cannot be refused merely because the foreign arbitral award is unreasonable because it is inconsistent with substantial facts.
• In order to determine whether the content of a foreign arbitral award is inconsistent with public policy, the court is to examine: the nature and content of the rights, the circumstances leading up to the award, the circumstances leading up to the enforcement judgment, and the impact on the parties when enforcement is granted.
• In particular, only in cases where the court finds that the foreign arbitral award is so compellingly contrary to justice shall the court dismiss the enforcement application.

In October 2004, the Supreme Court defined 'public policy' exception to mean that a Korean court may deny granting an enforcement order not only when the foreign judgment itself is not consistent with the 'good public morals and social order' of Korea but also when the procedure establishing the foreign judgment is not consistent with good morals and social order. Although the case dealt with the enforcement of a foreign court judgment (as opposed to a foreign arbitral award), the rationale behind the above ruling, certain local experts suppose, may be expanded to foreign arbitral awards. However, local courts have been reluctant to have such an expansion for decades.

In a 2023 ruling, the Seoul High Court applied a public policy exception in the enforcement of a foreign arbitral award of approximately $1bn. The reason for the application of the exception was that the winning parties already received a partial payment (approximately $1m) from certain losing parties, where the court ruled that the winning parties cannot demand a double payment of such $1m so far as the partial payment was paid as such a double payment is contrary to justice. The winning parties did, however, receive enforcement for the remaining portion of the total awarded amount. This was a rare case where a local court invoked the public policy-based exception in an enforcement proceeding. The reason for invoking the public policy-based exception is that the court is not entitled to examine the merits of the foreign case whereby the method of the court to deny double payment was through invoking the public policy exception.

The Seoul Southern District Court rejected an allegedly public policy-based exception in 2023. In that case, the respondents submitted that the designation of the arbitral body (premised in Singapore, which is the jurisdiction where the opposing parties reside) in the arbitration agreement was so unjust and unfair to them that said arbitration agreement is to be deemed as a breach of public policy. The court found that the respondents' above allegations are insufficient to show breach of public policy or to deny the validity of the said arbitration agreement.

As exampled by the above rulings, a public policy-based exception is applied sparingly and invoked when it is obvious to the court that enforcement is compellingly contrary to public policy, or invoked as a means to prohibit unjustified benefit to a party, without examining the merits of the foreign case.

Although the Korean judiciary will maintain its 'arbitration friendly' approach, there may be certain limited occasions where it would invoke the public policy-based exception as the case may require. Only a scant number of rulings have been published addressing the public policy exception. Hence, this is evidence that the invocation of the public policy exception to deny the enforcement of a foreign arbitral award is quite limited and rare.