SOUTH KOREA: An Introduction to Dispute Resolution: Arbitration

Introduction

International arbitration continues to remain a prevalent method of dispute resolution in South Korea, reflecting the country’s expanding role in global business and cross-border investment market. This growth has triggered high-stakes disputes involving multinational corporations and investors. Korean parties continue to be among the most active users of international arbitration, contributing to a rise in the complexity and diversity of cases, as well as the increasing use of emerging arbitration institutions.

Understanding recent trends in South Korea’s international arbitration landscape is essential for practitioners seeking to navigate this evolving field effectively and crucial for making strategic and well-informed decisions in international dispute resolution.

Increase in Complex Arbitration with Parallel Domestic Litigation

International arbitration practice in South Korea is being exposed to more complex arbitration cases, which often require not only effective representation in the arbitration proceedings themselves but also parallel domestic litigation. This trend is driven by the increasing involvement of sophisticated parties from multiple jurisdictions with assets in different jurisdictions and the efforts of experienced legal counsel to find the most efficient resolution and enforcement mechanisms. It has now become common for counsel teams to collaborate across different jurisdictions and employ innovative legal strategies and procedural tactics to navigate such complex disputes.

For example, a growing number of parties are pursuing parallel court litigation alongside arbitration often through injunctions, civil lawsuits or criminal proceedings in domestic courts. Enforcement actions in civil cases have also become increasingly complex with parties resisting the enforcement of arbitration awards by presenting more intricate challenges related to procedural issues and the tribunal’s authority to render certain decisions, rather than relying solely on traditional public policy arguments. In cases involving partial awards, we frequently experience enforcement proceedings being run in parallel to arbitration proceedings, raising additional disputes over confidentiality – such as the extent to which information can be shared – and whether, or how, a decision in one proceeding should influence the outcome of a related but separate case.

Diversification of Dispute Matters

As international arbitration cases involving investment funds and cryptocurrency-related disputes continue to rise globally, this trend is also becoming increasingly prominent in Korea.

We are encountering more shareholder disputes involving private equity (PE) investors, in relation to issues including but not limited to governance rights, valuation disagreements, exercise of put options and exit strategies. Notably, failed IPOs driven by global geopolitical uncertainties have further fuelled shareholder disputes for PE investors involving valuation and IPOs. Disputes between general partners and investors (limited partners), as well as conflicts between asset management companies and investors, have also intensified. Disputes related to multi-class funds have also gained traction. Many hedge funds have filed investor-state dispute settlement (ISDS) cases against South Korea in recent years, leading to subsequent domestic proceedings in the UK and Singapore.

The cryptocurrency sector is also increasingly subject to international arbitration cases involving Korean parties, primarily due to the uncertain legal status of virtual assets and the lack of clearly established domestic regulations. Parties involved in these disputes tend to favour arbitration as it enables the parties to appoint arbitrators with specialised expertise in the virtual asset industry.

These diverse cases present challenges related to both jurisdiction and merits, often concerning complex contractual issues intertwined with relevant industry practices. For example, multi-class fund disputes typically involve multiple parties across different jurisdictions, different rights and obligations across different classes of investor, and arbitration agreements under multiple contracts. Similarly, cryptocurrency disputes frequently involve virtual asset service providers structured across multiple jurisdictions to navigate regulatory frameworks and taxation policies, making it complex to identify the appropriate counterparty with enforceable assets.

Such complexities often cause significant delay in dispute resolution. As a result, there is growing interest in mechanisms such as consolidation of arbitrations, provisional measures, and strategic co-ordination between arbitration and other judicial proceedings.

Increased Use of the Arbitration Rules of Emerging Arbitral Institutions

While international arbitration has traditionally been dominated by major institutions such as the ICC, LCIA, SIAC, and HKIAC, there has been a noticeable rise in disputes administered under the rules of emerging arbitral institutions. Notably, arbitral bodies such as the Vietnam International Arbitration Centre (VIAC), the Thailand Arbitration Center (THAC), and the Philippine Dispute Resolution Center Inc. (PDRCI) are seeing increased engagement from South Korean entities as regional arbitration frameworks continue to evolve.

This trend is tied to the increasing expansion of Korean foreign direct investment (FDI) in the region. Over the past decade, ASEAN has emerged as one of the major areas of investment for South Korean corporations, surpassing China and ranking just behind the United States and the European Union in terms of FDI stock. As a result, cross-border commercial disputes have increased, reinforcing the importance of international arbitration as a preferred dispute resolution mechanism.

VIAC, in particular, has gained traction among South Korean parties involved in cross-border disputes in Vietnam. In 2020, Korea was among the top three foreign users of VIAC-administered arbitration. By 2022, South Korean entities were involved in approximately 20 cases, representing 7% of VIAC’s total 292 cases, and ranking Korea among the top four foreign users. The growing use of VIAC arbitration underscores the deepening economic ties between South Korea and Vietnam.

As Korean companies continue expanding their presence in the ASEAN region including Vietnam, Thailand and the Philippines, arbitral institutions in these jurisdictions are expected to play an increasingly vital role in cross-border dispute resolution. The rising caseload of these arbitral institutions highlights the need for arbitration practitioners to enhance their expertise in relevant arbitration rules, domestic laws and regulatory frameworks.

Conclusion

The evolving landscape of international arbitration in Korea reflects broader global trends, including the increasing complexity of disputes, diversification of subject matter, and the expanding role of emerging arbitral institutions. As Korean businesses continue to expand their global footprint, their reliance on international arbitration is expected to grow, reinforcing the importance of staying abreast of relevant arbitration developments to deal with the challenges, adopt best strategies and seize new opportunities.