2016 Gohap580574 Action for setting aside an arbitral award

Eastern ENC

Korea SPS Limited Liability Company

January 11, 2018

January 23, 2018

1. The plaintiff's claim is dismissed.

2. The costs of lawsuit shall be borne by the Plaintiff.

With respect to arbitration cases under Article 15113-0027 of the Arbitration Act between the Plaintiff and the Defendant, and Article 16112-013 of the Arbitration Act, the arbitral award made by the said KCA on October 17, 2016 shall be revoked.

1. Basic facts

A. The Plaintiff is a company established at Vietnam around 2008 at 51% of Vietnam’s capital and 49% of foreign capital for the purpose of running a building project in Vietnam. The Defendant is a company established at Vietnam around June 2012 for the purpose of manufacturing Handphonephones.

B. On June 18, 2012, the Plaintiff entered into a “NGHE 2E design and construction work contract” (hereinafter “instant contract”) with the Defendant with the purport to newly construct the Defendant’s public forum on the Southern Chewing Corporation. Of the terms and conditions of the instant contract, the part relating to the instant case is as follows.

1. The name of the contractor: NGHE NBE construction work (including design, construction and supervision); 2. The construction site: Zone Coneone-am An Anarst Zast Zast Zast Z (the Southern Zast Zast Zan) 3. The construction period: the contract amount from July 1, 2012 to February 28, 2013: US$ 4,356,650 (Separate Value-Added Tax), main text of Article 25 (Settlement of Disputes, etc.) and (1) if there is no dispute in the interpretation of this contract or other written data, the plaintiff and the defendant shall mutually agree in writing and resolve if there is no such dispute in the interpretation of this contract. (2) When this contract and the subsequent agreement on this contract are concluded by the Republic of Korea, the final arbitration committee of the Republic of Korea shall be bound by the arbitration rules of the Republic of Korea, and if there is no other dispute between the KAB and the KAB.

C. As the Plaintiff failed to complete the construction work under the instant contract by February 28, 2013, the construction period was extended by June 30, 2013 under an agreement with the Defendant. The Plaintiff was suspended from construction work on July 2013 because it did not complete the said construction work even before June 30, 2013, and the Defendant notified the Plaintiff of the termination of the instant contract on October 29, 2013.

D. On June 29, 2015, the Defendant filed an application with the Plaintiff for arbitration seeking an excessive payment of construction costs, additional construction costs, and the amount equivalent to wages for factory workers, and interest in arrears thereof, as the KCAB No. 1513,772,531 (U.S.) of the KCAB 1515 (U.S.) of the KCAB 1612-013 (Counterclaim) of the KCAB 16555,458 of the KCAB 2015, and the Defendant filed an objection seeking interest in arrears against the Defendant on May 10, 2016. The Plaintiff filed an application with the Defendant for objection to the payment of the unpaid construction costs of KRW 808,755,458 and its interest in arrears. The Plaintiff’s application for interest in arrears was dismissed on September 8, 2015.

[Ground of recognition] Facts without dispute, Gap evidence Nos. 2, 3, and 8, the purport of the whole pleadings

2. Related statutes;

The entry in the attached Form is as specified in the relevant statutes.

3. The plaintiff's assertion

A. The Plaintiff is a company of the Republic of Korea in substance against the Plaintiff’s appointment as a local company in Vietnam. Thus, if the provisions of Article 25 of the instant contract (hereinafter “the instant provision”) set the governing law of the said contract by law of the Republic of Korea and set the governing law of the said contract so that it would be made an arbitral award from the Korean Commercial Arbitration Board in the Republic of Korea, it is unilaterally unfavorable to the Plaintiff. The Defendant was aware that the Plaintiff had no experience in entering into the contract, other than the instant contract, and made use of the said provision. Accordingly, the said provision is null and void in violation of Article 103 of the Civil Act, and the instant arbitral award has the grounds for cancellation under Article 3

B. In the arbitral award procedure of this case, the arbitral tribunal was constituted as a sole arbitrator even though there was no agreement between the Plaintiff and the Defendant, which is unlawful against Article 11 of the Arbitration Act. Accordingly, the arbitral award of this case has grounds for revocation under Article 36(2)1 (d) of the Arbitration Act.

4. Determination

A. Whether the provision of this case is null and void

On the other hand, it is difficult to recognize that the provision of this case violates Article 103 of the Civil Act solely on the ground that the Plaintiff’s assertion is unilaterally disadvantageous to the Plaintiff. Rather, each of the following facts or circumstances acknowledged by adding the aforementioned evidence, evidence set forth in subparagraphs 7 through 10, and evidence set forth in subparagraphs 1 and 2-1 and 2-2, namely, the Plaintiff’s representative appears to be Korea. The contract of this case was made using Korean language, and it was made by the Plaintiff’s law or institution established in Vietnam rather than resolving disputes by the law of Vietnam or an institution established in Vietnam.

In light of the fact that it appears to have consented to the provisions of this case, and the arbitral award of this case can not be unilaterally disadvantageous to the plaintiff in light of the following: (a) the parties have been guaranteed the right to participate in the procedure at the stage of the proceeding and the considerable number of evidence, and it appears that the arbitral award of this case was based on the judgment; and (b) the reasons leading to the conclusion of the arbitral award of this case are detailed and the grounds for its conclusion are also reasonable.

There is no evidence that the instant provision is invalid. Accordingly, the Plaintiff’s assertion that there exists a ground for revocation under Article 36(2)1(a) of the Arbitration Act in the instant arbitral award is without merit.

B. Whether the arbitral award is unlawful by a sole arbitrator

1) The fact that the arbitral award in this case was made by the arbitral tribunal composed of a single arbitrator, and the fact that the number of arbitrators is three if there is no agreement between the parties under Article 11 of the Arbitration Act.

2) However, the following facts and circumstances are acknowledged in full view of the purport of the entire arguments in each of the above evidence.

A) According to Article 11 of the Arbitration Act, the agreement is preferentially applied to the light of agreement between the parties concerning the number of arbitrators. Paragraph 3 of the instant provision provides that, in the event of a dispute, the number of arbitrators under the Arbitration Rules enacted by the Korea Commercial Arbitration Board is based on the agreement between the parties. Therefore, since the number of arbitrators under the Arbitration Rules enacted by the Korea Commercial Arbitration Board is based on the agreement between the parties, it is determined that Article 11 of the Arbitration Act shall prevail. The Korea Commercial Arbitration Board shall apply the International Arbitration Rules enacted by the Korea Commercial Arbitration Board in the commencement of arbitral proceedings concerning the instant arbitral award, and the Plaintiff did not raise any objection thereto.

Article 11 provides that, in principle, the arbitral tribunal shall be constituted as a sole arbitrator. Ultimately, it is determined that there was an agreement between the Plaintiff and the Defendant on the fact that the instant arbitral award would be governed by the sole arbitrator pursuant to Article 11(3) of the instant provision.

In addition, on July 6, 2015, the Korea Commercial Arbitration Board notified the Plaintiff of the fact that “if there is no other agreement between the parties as to the instant arbitral award, the sole arbitrator will be examined.” As such, the Plaintiff became aware of not only that the instant arbitral award is governed by the sole arbitrator, but also that it is not final and conclusive, that multiple arbitrators may be appointed by mutual agreement with the Defendant. However, the Plaintiff did not raise any objection to the number of arbitrators even after receipt of the said notification. On September 8, 2015, the Plaintiff did not raise any objection against the arbitrator even after receiving the notification from the Korean Commercial Arbitration Board that A was appointed as the sole arbitrator. In light of the foregoing, even if it is difficult to recognize a direct agreement under paragraph (3) of the instant provision, the Plaintiff is judged to have impliedly consented to the fact that the instant arbitral award was received by the sole arbitrator.

B) Furthermore, even if the Plaintiff and the Defendant did not agree on the arbitral award of this case, Article 11 of the Arbitration Act provides that the number of arbitrators shall take precedence over the agreement of the parties, as seen earlier, and Article 5 of the Arbitration Act provides that "if the arbitration procedure violates the discretionary provisions of the Arbitration Act, the parties shall, without delay, raise an objection or, if they do not raise an objection within the prescribed period of time, lose their right to raise an objection." Thus, as long as the Plaintiff did not raise an objection against the number of arbitrators from the time of receipt of the notice of appointment of the sole arbitrator until the time of issuance of the arbitral award of this case, the Plaintiff would lose its right to raise an objection pursuant to the above Arbitration Act.

In conclusion, even if there is a defect that the arbitral award in this case was tried by a sole arbitrator, it is cured due to the loss of the party's right to object, so the arbitral award in this case cannot be deemed unlawful. The plaintiff's assertion on this part is without merit.

5. Conclusion

The plaintiff's claim is dismissed as it is without merit. It is so decided as per Disposition.

Judges Lee Jae-soo

Judges Ahn Jin-jin

Judges Do residents-ho

Related statutes

Arbitration Act

Article 5 (Forfeiture of Right to Object)

If a party fails to raise an objection without delay despite being aware of a violation of any provision of this Act or an agreement between the parties with respect to arbitral proceedings, or fails to raise an objection within the prescribed period for raising an objection and proceeds with arbitral proceedings, the party shall lose its right to raise an objection.

Article 11 (Number of Arbitrators)

1. The number of arbitrators shall be determined by agreement between the parties.

(2) Unless agreed under paragraph (1), the number of arbitrators shall be three.

Article 36 (Action for Setting Aside Award)

(2) The court may set aside an arbitral award only in any of the following cases:

1. The party making the application proves that:

(a) The fact that a party to the arbitration agreement was under disability at the time of the arbitration agreement under the applicable law, or that the arbitration agreement is null and void under the law to which the parties have designated, or failing such designation, under the law of the Republic of Korea;

(d) the fact that the constitution of the arbitral tribunal or the arbitral proceedings have not complied with any agreement between the parties that do not violate the mandatory provisions of this Act, or that such agreement has not been complied with under this Act;