[2] The meaning of "the recognition or enforcement of an arbitral award violates good morals and other social order of the Republic of Korea" under Article 36 (2) 2 (b) of the Arbitration Act as the court may ex officio revoke the arbitral award

In order to constitute a ground for revocation of an arbitral award under the above provision, it is insufficient to simply establish a violation of an agreement or a voluntary provision between the parties, and the degree of infringement of the party’s procedural rights arising from the pertinent arbitral proceeding ought to be considerably unacceptable (Supreme Court Decision 2017Da238837 Decided December 22, 2017 determined to the same effect as to Article 5(1)(d) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter “New York Convention”) that the same provision as the above provision provides).

Article 34 of the UNCITRAL Model Arbitration Act provides for the same ground as that for refusal of recognition or enforcement as stipulated in Article 5 of the New York Convention. Since Article 36 of the Korean Arbitration Act, which was wholly amended by Act No. 6083 on December 31, 1999, enacted the grounds for revocation of arbitral awards based on Article 34 of the UNCITRAL Model Arbitration Act, which has reached the present time, it is reasonable to interpret it as above for the purpose of uniform application of internationally established standards.

[2] In Article 36 (2) 2 (b) of the Arbitration Act, "the recognition or enforcement of an arbitral award violates the good morals and other social order of the Republic of Korea" as provided by a court on grounds that the arbitral award may be revoked ex officio means not all cases where it is erroneous in the fact-finding conducted by the arbitrator, or where the contents of the arbitral award may be deemed unreasonable because the legal judgment of the arbitrator is in violation of the law, but all cases where the arbitral award would violate good morals and other social order of the Republic of Korea.

1. As to the misapprehension of legal principles as to Article 36(2)1 (d) of the Arbitration Act

A. Article 36(2)1(d) of the Arbitration Act provides that one of the grounds for revocation of an arbitral award “the fact that the composition of the arbitral tribunal or the arbitral proceedings did not comply with the agreement between the parties that do not go against the mandatory provisions of this Act, or that such agreement was not complied with by this Act,” is one of the grounds for revocation of the arbitral award. This is derived from the contractual nature of the arbitral proceedings, in principle, from the contractual nature of the arbitral proceedings, the arbitral proceedings are formed by the parties’ autonomy and agreement, but, in the absence of such agreement between the parties

In order to constitute a ground for revocation of an arbitral award under the above provision, it is insufficient to simply establish a violation of an agreement or a voluntary provision between the parties, and the degree of infringement of the party’s procedural rights arising from the pertinent arbitral proceeding ought to be considerably unacceptable (Supreme Court Decision 2017Da238837 Decided December 22, 2017 determined to the same effect as to Article 5(1)(d) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter “New York Convention”) that the same provision as the above provision provides).

Article 34 of the UNCITRAL Model Arbitration Act provides for the same ground as that for refusal of recognition or enforcement as stipulated in Article 5 of the New York Convention. Since Article 36 of the Korean Arbitration Act, which was wholly amended by Act No. 6083 on December 31, 1999, enacted the grounds for revocation of arbitral awards based on Article 34 of the UNCITRAL Model Arbitration Act, which has reached the present time, it is reasonable to interpret it as above for the purpose of uniform application of internationally established standards.

B. The lower court determined that in the instant arbitral proceedings, it is difficult to view that the arbitral tribunal’s closure of the hearing was a cause of revocation as stipulated in Article 36(2)1(d) of the Arbitration Act, solely on the basis of the closure of the hearing without giving the Plaintiff an opportunity to submit an answer for 15 days as stipulated in Articles 16(3), 12(1) and 11 of the Korean Commercial Arbitration Board’s Domestic Arbitration Rules (hereinafter “Arbitration Rules”) concerning the “application for change of the purport of the claim and the cause of the claim.” For that reason, the following circumstances were followed.

(1) In the instant case, the Lessee and the Counterclaim Defendant, a Korean national, agreed in writing to resolve a dispute through arbitration by the KCAB. Article 3 of the Arbitration Rules provides that “If the arbitration rules are applied pursuant to the arbitration agreement between the parties, the arbitration rules form part of the arbitration agreement.” Therefore, there is room to view the matters concerning the arbitration procedures stipulated in the arbitration rules as constituting “a party’s agreement on the arbitration procedure” in itself.

(2) On July 14, 2016, after the arbitral tribunal closed the hearing of the instant arbitral proceeding at the sixth hearing, the counterclaim Defendant submitted an application for the resumption of the hearing and reference documents on July 14, 2016, and urged the counterclaim Defendant to change the purport of the application and the cause of the application to the effect that “the counterclaim Nonparty would pay KRW 4.9 billion to the National Bank, the counterclaim Defendant,” and accordingly, expressed his position to change the purport of the application at the seventh hearing on August 5, 2016, which was resumed. Accordingly, the counterclaim presented a written statement on September 22, 2016, which was the date of the eighth hearing ( September 23, 2016), premised on the change in the purport of the application and the cause of the application, and presented a written statement on September 22, 2016, to the effect that “the counterclaim Defendant will change the purport and the cause of the application.”

(3) At the time of the closure of the instant arbitral proceeding, the arbitral tribunal ordered both parties to submit the instant arbitral proceeding as soon as possible, and rendered the instant arbitral award more than 30 days after the closure of the trial. The counterclaim appears to have been given sufficient time and opportunity to submit a reply corresponding to the “written request for change in the purport of the motion and the cause of the motion,” within 15 days after the closure of the trial.

According to Article 39(1) of the Arbitration Rules, if requested by the Arbitral Tribunal with respect to any briefs, etc. that could not be submitted to the Arbitral Tribunal at the time of the hearing, the Secretariat shall accept them and serve on the Arbitral Tribunal. If the Counterclaim submits a written reply, the Arbitral Tribunal shall review the written reply served in accordance with Article 39(1) of the Arbitration Rules and make an arbitral award. However, the Lessee did not submit any written statement after the completion of the hearing of the instant arbitral proceedings

(4) According to Article 44(1) of the Arbitration Rules, the arbitral tribunal may, ex officio, reopen the hearing at any time before the award is rendered if one of the parties files an application for considerable reasons. In the instant arbitral proceedings, the hearing has been resumed two times at the request of the counterclaim Defendant pursuant to the said provision. After the closure of the instant arbitral proceedings, the counterclaim did not request the arbitral tribunal to resume the hearing in order to respond appropriately to the purport of the motion and the reasons for filing the motion.

C. The lower court’s determination is justifiable on the basis of the foregoing legal doctrine. In so determining, the lower court did not err by misapprehending the legal doctrine on the grounds for revocation of an arbitral award under Article 36(2)1(d) of the Arbitration Act, contrary to what is alleged in the

2. As to the misapprehension of legal principles as to Article 36(2)2(b) of the Arbitration Act

A. Article 36(2)2(b) of the Arbitration Act provides that “Where the recognition or enforcement of an arbitral award is contrary to the good morals and other social order of the Republic of Korea,” the court may ex officio set forth in Article 36(2)2(b) of the Arbitration Act, “the recognition or enforcement of the arbitral award violates the good morals and other social order of the Republic of Korea” refers not to all cases where the arbitral award is found to be erroneous in the fact-finding made by the arbitrator, or where the content of the arbitral award is deemed unreasonable because the legal judgment of the arbitrator is in violation of the law, but to cases where the arbitral award’s order violates good morals and other social order of the Republic

B. According to the reasoning of the lower judgment, the following facts are revealed.

With respect to the purport of the application, the arbitral tribunal rendered an arbitral award stating that “The counterclaim is obliged to make the Korean bank pay the amount of KRW 4.9 billion and the amount calculated at the rate of KRW 6% per annum from July 14, 2016 to the date of completion of payment” to “the counterclaim is obligated to make the Korean bank pay the amount of KRW 4.9 billion per annum to the Korean bank, and the amount of KRW 4.9 billion and the amount calculated at the rate of KRW 6% per annum from July 14, 2016 to the date of completion of payment.”

C. The court below held that although the instant arbitral award is different from the purport of the counterclaim Defendant’s application, it cannot be readily concluded that the instant arbitral award constitutes “when the recognition or enforcement of the arbitral award is contrary to the good morals and other social order of the Republic of Korea” under Article 36(2)2(b) of the Arbitration Act.

(1) Unlike civil judgments based on strict disposition authority, the arbitral award has procedural characteristics that can seek flexible and reasonable solutions, and Article 52(1) of the Arbitration Rules provides that “The arbitral tribunal may order the fair and reasonable compensation or other remedies within the scope of the agreement, as well as the actual performance of the contract within the scope of the agreement.” Therefore, there is a wide room for the arbitral award to make flexible decisions taking account of equity compared with the civil judgment.

(2) The instant arbitral award does not add a new text, irrespective of the purport of the application, but rather intends to seek confirmation of the duty of instruction instead of imposing the duty of instruction, taking into account the possibility of compulsory execution into account. The main text of the instant arbitral award itself does not, in addition to the management instruction to the Korean bank, which is the trustee company, impose the duty of monetary payment on the counterclaim Defendant through other property of the counter-appellant, and thus, it is difficult to readily conclude

(3) Even if the text of the instant arbitral award is contrary to the principle of disposition, such circumstance alone cannot be deemed as a result of ordering the arbitral award to be contrary to the good morals and social order of the Republic of Korea.

D. Examining the reasoning of the lower judgment in light of the aforementioned legal doctrine, the lower court did not err in its judgment by misapprehending the legal doctrine on the grounds for revocation of arbitral awards under Article 36(2)2(b) of the Arbitration Act, contrary to what is alleged in the grounds of appeal

3. Conclusion

The appeal by the Counterclaim Plaintiff is dismissed in entirety as it is without merit, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices.

Justices Lee Dong-won (Presiding Justice)