Korea: Underrated as seat of commercial arbitration

South Korean companies prefer seats of arbitration in other countries over domestic ones to resolve disputes even for the cases that could be settled at home, said an arbitration specialist, potentially putting them at a disadvantage by exposing them to unfamiliar foreign laws.

For local dispute cases with domestic peers, an increasing number of Korean firms resort to foreign arbitration experts, causing an increase in settlement costs and delays in the arbitration proceedings.

Further, they may not be able to persuade foreign arbitrators to consider the business environment in Korea in settling their cases.

Touching on such concerns, Chiann Bao, a Chartered Arbitrator and CEDR-accredited mediator, said that South Korean arbitration experts are highly qualified to handle corporate disputes.

“South Korea is an important player in the international arbitration community. It could be bigger, by convincing corporate users to see Seoul as the seat of arbitration,” she told The Korea Economic Daily this week, when asked what South Korea needs to become a preferred seat for arbitration.

“Korea's strengths are its people. Most of the law firms in the Korean market are known to the international arbitration community," she said on the sidelines of the biennial conference of the International Council for Commercial Arbitration (ICCA), the world’s leading arbitration institution.

"Not only are its users and clients enthusiastic about arbitration as a form of dispute resolution, but the culture of the legal community is also very pro-arbitration," She added.

HOME GROUND ADVANTAGE

Bao co-chaired the Programme Committee for ICCA 2024 Hong Kong, which took place on May 5-8 under the theme of “International Arbitration: A Human Endeavor.” She is also vice chair of the International Bar Association’s International Arbitration Committee.

Companies choose the governing laws and an arbitration body when entering into contracts in case disputes arise between them.

Settlement through international arbitrators often gives other countries the home ground advantage and leaves Korean companies vulnerable to foreign laws, working in favor of foreign business partners.

Still, Korea falls behind in the priority of governing laws and as a seat of arbitration.

The number of arbitration cases handled in South Korea has decreased.

In 2022, 38 arbitration cases between domestic and foreign companies were filed with the Korea Commercial Arbitration Board, about half of the 70 cases filed in 2019.

"In the global market, our companies have sufficient bargaining power, but they overlook the importance of a seat of arbitration," said Chung Hong-sik, a law professor and head of the International Legal Affairs Department at South Korea's Ministry of Justice.

The ministry launched the legal affairs bureau last year to better cope with corporate disputes and oversee arbitration proceedings. 

There are no restrictions for choosing an arbitration body and governing laws to settle disputes. Thus domestic companies may as well make good use of South Korea's solid arbitration capabilities, said arbitration specialist Bao.

Write to Si-On Park at ushire908@hankyung.com
Yeonhee Kim edited this article.