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Seoul: Arbitration’s rising star?
While companies are increasingly turning to international arbitration to settle their disputes, South Korea has often been overlooked as a potential venue. However, the establishment of the Seoul International Dispute Resolution Centre (SIDRC) in May is set to put Seoul on the map as a viable alternative. Furthermore, it has been more than a year since Korea’s free-trade agreements with the U.S. and EU took effect, and the entry of foreign law expertise is likely to spur the growth of international arbitration in Korea. The stage is set. However, several challenges still remain, and educating Korea’s fast-expanding corporations as well as the international community will be essential in transforming Seoul into an arbitration hub.
A new centre
The SIDRC, which has adopted a similar model to Singapore’s Maxwell Chambers, was launched in May by the Korean Bar Association and the Korean Commercial Arbitration Board (KCAB). Although the complex is smaller than its counterparts in Hong Kong and Singapore, a number of institutions have already taken up an address, including the International Chamber of Commerce (ICC), Singapore International Arbitration Centre (SIAC), Hong Kong International Arbitration Centre (HKIAC), American Arbitration Association/International Centre for Dispute Resolution (AAA/ICDR) and the London Court of International Arbitration (LCIA). In fact, the SIDRC has already hosted its first case – an ICC arbitration between a Korean party and a European party.
As Korean companies ramp up overseas operations, several are finding themselves caught up in legal tussles. This is inevitable, given the size of Korean companies and the scope of their business dealings around the world, says Benjamin Hughes, an independent arbitrator in Seoul who serves on the SIDRC’s executive committee. “Korean companies are embracing arbitration as a good way to settle their disputes,” he says.
Indeed, Korean companies are active participants in international arbitration. According to Kevin Kim, a partner at Bae, Kim & Lee and secretary general of the SIDRC, South Korean parties have been involved in a large number of ICC arbitrations in the last decade, ahead of parties from Japan and Singapore and behind only India and China. Kim adds that while many Korean companies used to turn to ICC to settle their disputes, their choice has diversified in recent years. “This does not mean that the number of ICC arbitrations is going down, but just that we are now seeing more arbitrations in other centres like SIAC and HKIAC,” he says. Kim adds that as a result of this diversification, he is seeing an increasing number of arbitrations being seated in Asia.
Diversification of arbitration venues and the shift towards Asia signal encouraging signs for Korea. Furthermore, the ability of Korean companies to compete on a global scale allows them to wield greater bargaining power in deals. This applies to dispute resolution as well, says Hughes, who adds that Korean companies will be more likely to convince parties to seat arbitrations in Seoul.
As it stands, almost all arbitrations that pass through Seoul involve at least one Korean party. The SIDRC wants this to change, and hopes to ultimately attract cases between non-Korean parties. Supporters of the centre point to Seoul’s proximity to China, Japan and Russia as a unique selling point. “Ultimately, the goal is to have arbitrations that have no nexus in relation to Korean parties or Korean law,” says John Rhie, managing partner of Quinn Emanuel Urquhart & Sullivan’s Hong Kong office, and head of the firm’s international arbitration practice in Asia.
The goal seems an achievable one, but several challenges still remain. One major concern has been the perceived unfriendly stance of the Korean courts towards arbitration. In February, the Seoul Southern District Court did not enforce an arbitration award against KT Skylife, a state-owned company. The courts also refused to enforce an award won by Dallas-based company Lone Star Funds. For his part, Rhie says that every jurisdiction has some anomalies which arise in relation to enforcing arbitral awards. “The vast majority of arbitral awards in Korea are enforced with no problems, and quicker than in most jurisdictions. I do not expect these decisions to be the norm. I expect the courts to be what they have always been, which is pro-arbitration,” says Rhie. Kim agrees: “Interestingly, these decisions happened back to back, so people might have the wrong perception that all of a sudden the Korean courts are aggressive against arbitration. I don’t think this is the case."
Nonetheless, the cases are still in the judicial process and are awaiting the Korean Supreme Court’s decision. Several market observers believe that the decisions will be reversed by the Supreme Court. However, Hughes says the damage will have already been done. “Most of these decisions at the lower court level do eventually get corrected at the Supreme Court level. But that requires the party who has already won their arbitration to go through three stages of litigation, which takes years and lots of money and stress to enforce their award,” says Hughes.
To tackle this concern, Hughes adds that there have been talks among arbitration practitioners about directing all international arbitration-related cases to one court to develop a court with greater experience in arbitration. “This is just one idea being discussed to address this problem, and I'm not sure it will ever come to pass, but it is at least a good discussion to have,” adds Hughes.
Another key issue is over the Foreign Legal Consultant act, which bars lawyers in international firm offices from advising on arbitrations in Korea if they involve local law. The act essentially restricts lawyers who are registered as foreign legal consultants to advising on arbitrations that are governed by their home jurisdiction’s law, says Hughes. “Attorneys working in foreign offices on the ground in Seoul are actually subject to more regulations and restrictions than people from jurisdictions who have no free-trade agreement with Korea,” says Hughes.
Nonetheless, the liberalisation of Korea’s legal market last year saw around 20 international law firms set up shop in Seoul. While current restrictions prohibit these firms from hiring Korean attorneys and practising local law, international firms are expected to become more active as the five year restriction period draws to a close. “Although there will be more competition in Korea, at the end of the day, it will help the overall growth of the arbitration market. That was the case in Singapore and Hong Kong,” says Kim.
Certainly, as Korean companies expand and awareness of Seoul as a viable option for arbitrations grows, there will be more opportunities for foreign and local firms to get involved in international arbitration. In fact, many large domestic firms have grown their international arbitration practices in recent years.
Besides market consolidation, Hughes suggests that as Korea’s legal market matures and specialises, this could open the doors for the emergence of boutique firms. “You might see people spinning off from some of the big firms and setting up some boutique firms like you see in the U.S. and Europe, and even in Singapore and Hong Kong. I think it won’t be too long before we see a boutique arbitration practice spring up in Seoul,” predicts Hughes. Boutique firms with a specialisation could be a lucrative option for larger law firms looking to procure practice-specific expertise. Acquiring a boutique arm may be a viable and less conflicted proposition for international firms that are looking to enter the market after five years.
While the SIDRC has the physical infrastructure in place, lawyers emphasise that educating the international community is essential to the growth of Seoul as an arbitration hub. “The people I have met and spoken with don’t seem to have a negative perception about Korea as a place for arbitration. They had just never thought about seating an arbitration in Seoul,” says Kim. Quinn Emanuel’s Rhie adds that while Korean companies are wielding greater bargaining power, they need to understand how to use it. “It is an education process on all accounts. Part of that process is for private practitioners to educate clients that they can leverage negotiation power to have Seoul as a viable seat for arbitration,” says Rhie.
Indeed, education will be key to positioning Korea as an arbitration hub. At the same time, the legal community acknowledges that Korea’s ambitions are not overreaching. “Korea is not trying to become some predominant power as an arbitration hub, but just as a viable alternative. The SIDRC is a cooperative effort with other arbitral institutions to help make Seoul an alternative. If that is the goal, then I think it is certainly an achievable goal. In relation to that, a little more government backing would go a long way,” says Rhie.
With a clear goal in mind, the stage is set for Seoul to grow as an arbitration hub. Singapore and Hong Kong may have a longer history of handling arbitrations, but with ample education of the international community, and with support from the Korean courts and government, it may not be long before Seoul emerges as a strong contender. One thing is for sure – the future is bright for the disputes market in Korea. “The golden age of arbitration in Korea is still yet to come,” says Kim.
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