[1] Whether the degree of infringement of a party’s procedural right under the pertinent arbitral proceeding may not be readily acceptable in order to constitute grounds for rejection of recognition and enforcement of an arbitral award under Article 5(1)(d) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (affirmative)

[2] Whether enforcement of an arbitral award may be refused at the stage of a judgment on enforcement by applying Article 5(2)(b) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards where grounds for objection arise under the Enforcement Act after the establishment of a foreign arbitral award (affirmative)

[3] Whether enforcement under the arbitral award may be refused solely on the ground that the foreign arbitral award simply violates the substantive legal relationship and is unfair or that the enforcement creditor based on the arbitral award was aware of such circumstances (negative), and whether enforcement under the arbitral award may be refused on the ground that the enforcement constitutes an abuse of rights or goes against public order and good morals (affirmative)

[1] In light of the characteristics of the arbitration system, the composition of the arbitral tribunal is one of the most essential and essential elements of the arbitration agreement and the arbitral proceedings, and if there exists any violation of the agreement between the parties in terms of the composition of the arbitral tribunal, the basis of the authority of the arbitral tribunal may be undermined. Article 5(1)(d) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards provides that the composition of the arbitral tribunal or the arbitral proceedings, which forms the basis of the arbitral award, are not consistent with the agreement of the parties, or may refuse recognition or enforcement of the arbitral award when it violates any discretionary provision. However, in order to fall under the grounds for refusal of recognition and enforcement of the arbitral award as stipulated in the foregoing provision, it is insufficient merely by the fact that the parties violated the agreement or voluntary provision, and the degree of infringement of the party’

[2] Since a foreign arbitral award has res judicata effect as it has the same effect as a final and conclusive judgment, the existence of the claim subject to a final and conclusive judgment is confirmed, and the executory power is granted through a judgment of execution may proceed to compulsory execution procedures under the law of the Republic of Korea. Since a judgment of execution is a judgment that determines the existence or absence of executory power based on the time of the closing of argument, the court may refuse the enforcement of the arbitral award by deeming that it constitutes a violation of public order under Article 5(2)(b) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, in a case where the circumstance where granting compulsory execution procedures based on the written arbitral award is revealed in the course of pleadings of the judgment of execution that the grounds for objection under the Civil Procedure Act arise

[3] The mere fact that a foreign arbitral award is inconsistent with the substantive legal relationship and is unfair or that the enforcement creditor based on the arbitral award was aware of such circumstances cannot refuse enforcement of the arbitral award. However, even if the foreign arbitral award, which has the same effect as the final and conclusive judgment, is a right under the same law, the enforcement of the arbitral award shall be faithfully and faithfully exercised and its enforcement shall not be allowed if it constitutes an abuse of rights or goes against public order and good morals. In a case where the content of the foreign arbitral award is contrary to the substantive legal relationship, the examination of all the circumstances, including the nature and content of the right, the developments leading up to the establishment of the arbitral award, the circumstances leading up to the enforcement judgment after the establishment of the arbitral award, and the impact on the party when the enforcement is permitted, should be taken into account. In particular, in a case where a foreign arbitral award is deemed to have significantly unfair enforcement of the arbitral award on grounds falling under grounds for retrial under the Civil Procedure Act, and thus, it constitutes abuse of rights or is contrary to the public order and good order and thus, it may be deemed as grounds for the application.

[1] Article 5(1)(d) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards / [2] Article 5(2)(b) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards; Article 26(1) of the Civil Execution Act / [3] Article 5(2)(b) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards; Articles 37(1) and 39(1) of the Arbitration Act; Article 2 of the Civil Act

[1] Supreme Court Decision 2017Da23837 Decided December 22, 2017 (Gong2018Sang, 319) Supreme Court Decision 2017Da24091, 24100 Decided April 10, 2018 / [2] Supreme Court Decision 2001Da20134 Decided April 11, 2003 (Gong2003Sang, 1148) / [3] Supreme Court Decision 2004Da8814 Decided December 23, 2005 (Gong2006Sang, 167)

LSF-KDIC Inc. (LF-KDIC Inc., Inc., Ltd., Counsel for the defendant-appellant)

C&C Co., Ltd. (Law Firm LLC et al., Counsel for the defendant-appellant)

Supreme Court Decision 2013Da74868 Decided October 29, 2015

Seoul High Court Decision 2015Na29277 decided October 25, 2016

The part of the lower judgment against the Defendant regarding USD 32,601,248 is reversed, and that part of the case is remanded to the Seoul High Court. The Plaintiff’s appeal and the Defendant’s remaining appeals are all dismissed.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the Defendant’s ground of appeal

A. Ground of appeal No.1

(1) In light of the characteristics of the arbitration system, the composition of the arbitral tribunal is one of the most essential and essential elements of the arbitral agreement and arbitral proceedings, and if there is any violation of the agreement between the parties in the composition of the arbitral tribunal, the basis of the authority of the arbitral tribunal may be shaking (see, e.g., Supreme Court Decision 2017Da24091, 24100, Apr. 10, 2018). Article 5(1)(d) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter “New York Convention”) provides that the composition of the arbitral tribunal or arbitral proceedings, which forms the basis of the arbitral award, are not consistent with the parties’ arbitration agreement, or may refuse the recognition or enforcement of the arbitral award when it violates any discretionary provision. However, in order to fall under the grounds for refusal of recognition and enforcement of the arbitral award, it is insufficient merely by the parties’ agreement or voluntary provision that it violates the parties’ procedural rights under the relevant arbitral proceeding, and it can be readily acceptable (see, e.g., Supreme Court Decision 2012837Da27.

(2) On the following grounds, the lower court determined that there was no ground for refusal of recognition and enforcement stipulated in the New York Convention in the composition of the instant arbitral tribunal.

(A) The instant dispute is subject to arbitration under the instant arbitration clause, and the Plaintiff and the Defendant are the parties thereto. The instant arbitration clause does not stipulate the right to select an arbitrator, unlike the Defendant, to the Plaintiff. The Plaintiff and the Defendant agreed to “in the event that the parties are unable to settle pursuant to other provisions, pursuant to the arbitration clause, pursuant to the International Commercial Conference Arbitration Rules” under Article 10(c) of the instant arbitration clause, to “in the event that the parties are unable to settle pursuant to other provisions, by arbitration, pursuant to the International Commercial Conference Arbitration Rules, the composition of the instant arbitral tribunal ought to be conducted in accordance with the International Commercial Conference Arbitration Rules.

(B) Pursuant to Article 8(4) of the Arbitration Rules of the International Commercial Conference, the Plaintiff and the Defendant are entitled to nominate an arbitrator as the party to the arbitration. The Plaintiff exercised its authority by designating Nonparty 1 as the applicant arbitrator in the instant arbitration application, and the Defendant reserved the objection and designating Nonparty 2 as the respondent. The International Commercial Conference appointed Nonparty 1 as the arbitrator on behalf of the Plaintiff, confirmed Nonparty 2, who was appointed by the Defendant, as the arbitrator. On April 16, 2009, the International Commercial Conference confirmed Nonparty 2 as the arbitrator, who was appointed by the Defendant, and confirmed Nonparty 2 as the arbitrator. On April 16, 2009, on the basis of the instant arbitration clause, the two arbitrators nominated by the parties, through consultation within 30 days, appointed Nonparty 3 as the presiding arbitrator.

(C) In light of the foregoing facts, the arbitral tribunal of the instant case was established in accordance with the Arbitration Rules of the International Commercial Conference, taking into account the following: (a) although the arbitral tribunal did not directly select a chair, it did not respect the intent of the parties to the arbitration and designated the method of selecting the chair; and (b) Article 7(4) of the Arbitration Rules of the International Commercial Conference grants the final authority in the appointment of arbitrators.

(D) Since the Plaintiff and the Defendant agreed to comply with the Arbitration Rules of the International Commercial Conference in the instant arbitral clause, there is no ground for refusing recognition and enforcement as stipulated in Article V(1)(d) of the New York Convention in the composition of the instant arbitral tribunal, such as “non-conformity with the agreement between the parties.”

(3) Examining the reasoning of the lower judgment in light of the aforementioned legal principles and records, the lower court did not err by misapprehending the legal doctrine on the composition of the arbitral tribunal, contrary to what is alleged in the grounds of appeal

B. Ground of appeal No. 2

Based on its stated reasoning, the lower court determined that the Plaintiff did not violate the Asset-Backed Securitization Act (hereinafter “Asset-Backed Securitization Act”) and, even if having violated the Asset-Backed Securitization Act, it did not constitute a violation of public order as a ground for refusal of approval and enforcement under Article V(2)(b) of the New York Convention.

Examining the reasoning of the lower judgment in light of the relevant legal principles and records, the lower court did not err by misapprehending the legal doctrine on violation of public order under the New York Convention, contrary to what is alleged in the grounds of

C. Ground of appeal No. 3

(1) (A) The existence of a claim subject to a foreign arbitral award has res judicata with the same effect as a final and conclusive judgment. The existence of a claim subject to a foreign arbitral award becomes final and conclusive, and the executory power is granted through a judgment of execution may proceed to compulsory execution procedures under the laws of the Republic of Korea. Since a judgment of execution is a judgment that determines the existence of executory power based on the time of the closing of argument, a ground for objection under the Civil Procedure Act arises after the establishment of the arbitral award, and the circumstance that allowing a compulsory execution procedure based on the written arbitral award contradicts the basic principles of the law of the Republic of Korea is revealed in the pleadings of the judgment of execution, the court may refuse the enforcement of the said arbitral award by deeming it a violation of public order under Article 5(2)(b) of the New York Convention (see, e.g., Supreme Court Decision 2001Da20134, Apr.

(B) The mere fact that a foreign arbitral award is inconsistent with the substantive legal relationship and is unfair or that an enforcement creditor based on the arbitral award was aware of such circumstances cannot refuse enforcement of the arbitral award (see Supreme Court Decision 2004Da8814, Dec. 23, 2005, etc.). However, even if a foreign arbitral award has the same effect as the final and conclusive judgment, it must be exercised in good faith and sincerity, and such enforcement is not allowed if it constitutes an abuse of rights or goes against public order and good morals. As to whether the content of the foreign arbitral award is in conflict with the substantive legal relationship, it should be examined in full view of all the circumstances such as the nature and content of the right, the circumstance leading up to the establishment of the arbitral award, and the impact on the party when the enforcement is permitted. In particular, it can be said that the enforcement of the foreign arbitral award constitutes a ground for retrial under the Civil Procedure Act, and thus, it constitutes abuse of rights, and thus, it can be deemed that the enforcement of the arbitral award constitutes an abuse of rights.

(2) Review of the reasoning of the lower judgment and the evidence duly admitted reveals the following facts.

(A) The instant arbitral award determined that the Defendant is obligated to pay to the Plaintiff the amount equivalent to 50% of the Defendant’s share of the expenses incurred from the sale of the instant site in accordance with the instant arbitral award. This includes KRW 11,861,411,345, including corporate tax imposed in relation to the sale, etc. of the instant site, which is KRW 23,72,822,822,690, and KRW 11,861,41,345, which is 50% of the total amount of the arbitral award.

(B) The Plaintiff filed a lawsuit against the director of the tax office seeking revocation of imposition of corporate tax for 204 business year, etc. (i.e., the Seoul Administrative Court Decision 207Guhap47176, Nov. 6, 2009) regarding the sale of the instant building site + KRW 205, and the amount exceeding KRW 165,036,610, and the amount exceeding KRW 641,266,130, and the amount exceeding KRW 95,275, and the amount exceeding KRW 260,565, and the amount exceeding KRW 206,565, and the amount exceeding KRW 205, and the amount exceeding KRW 206,565, and the amount exceeding KRW 306,565, and the amount exceeding KRW 205,70,000 was revoked and remanded to the lower court for 2065,205,206,2965, respectively.

(C) Meanwhile, on August 11, 2009, the Plaintiff reported the closure of business to the Korean branch.

(3) The lower court determined that the grounds for objection cannot be deemed to exist on the sole basis of the circumstance that the tax incurred in the course of the instant project was refunded, since the refund amount on the tax claim ought to be distributed to ○○○ Fund 3 and the Defendant through liquidation dividends, which is a corporate legal procedure, pursuant to the instant contract between the shareholders after the refund of the amount based on the instant arbitral award.

(4) However, examining the above facts in light of the legal principles as seen earlier, the following conclusion can be derived.

(A) The amount equivalent to 50% of the Plaintiff’s expenses incurred in selling the instant land for which the Defendant deemed liable to pay to the Plaintiff in the instant arbitral award included the part of the Defendant’s burden among taxes including corporate tax for the business year 2004 imposed in relation to the sale of the instant land. As such, the disposition of imposing corporate tax, etc., based on which the instant arbitral award was rendered, was considerably reduced by the lawsuit of revocation of imposition and the disposition of revocation of imposition by the tax

(B) Article 451(1)8 of the Civil Procedure Act provides that an administrative disposition, which forms the basis of a final and conclusive judgment, has been altered by a different judgment or administrative disposition, as one of the grounds for retrial. In cases where an arbitral award having the same effect as a final and conclusive judgment was changed to another judgment or administrative disposition after the establishment of the arbitral award, it is necessary to examine whether recognizing the validity of the arbitral award and allowing it to proceed to compulsory execution procedures based on the arbitral award does not contravene the fundamental principles of Korean law.

(C) The right established in the instant arbitral award is related to the settlement of expenses incurred in the course of the sale of the instant land in accordance with the instant written arbitral award, and the content of the arbitral award became inconsistent with the substantive legal relationship as a result of a substantial reduction of taxes, such as corporate tax that reaches one-third of the arbitral award amount among the expenses. In addition, considering the special characteristics of arbitral award for which no lawsuit for retrial is recognized, it is reasonable to allow the Defendant to contest such circumstances at the judgment of execution on the instant arbitral award. In full view of all the circumstances, including the effect that executing an arbitral award different from the substantive relationship, even though the Plaintiff’s Korean branch had already been already closed, it is considerably improper to allow the execution based on the instant arbitral award to the Defendant, and it is reasonable to deem that there exists a ground for objection since allowing the Defendant to receive the enforcement thereof constitutes an abuse of rights and is contrary to public order and good morals, contrary to the definition of allowing the Defendant to file a new application for arbitration against the Plaintiff after the final judgment of execution, and it is reasonable to interpret it in light of the form and form of Korean judgment.

(5) Therefore, the lower court erred by misapprehending the legal doctrine on the grounds of objection, which constitutes a violation of public order under Article 5(2)(b) of the New York Convention, thereby adversely affecting the conclusion of the judgment. The Defendant’s ground of appeal assigning this error is with merit.

2. Plaintiff’s ground of appeal

In light of the relevant legal principles and records, the court below is just in rejecting the Plaintiff’s claim for damages for delay on the arbitral award of this case on the grounds as stated in its reasoning, and there is no error of law by misapprehending the legal principles on applicable law to determine the existence of damages for delay, application and interpretation of relevant statutes, and application and interpretation of Article 10 of the Private International Act, or omitting judgment. Furthermore, as long as the mandatory provision that damages for delay should be imposed regardless of applicable law exists in Korea, the application of the governing law of the court below to interpret that damages for delay on the principal amount of the arbitral award of this case does not occur in the Republic of

3. Scope of reversal

Of the part of the lower judgment against the Defendant, the part of the claim on the Defendant’s portion of the corporate tax imposed in relation to the sale, etc. of the instant site ought to be reversed. However, the instant arbitral tribunal ordered the Defendant to pay USD 32,601,248 as the Defendant’s share of the total expenses incurred in the process of selling the instant site, including the part on the Defendant’s share of the said corporate tax, etc. on the said corporate tax

In light of the purport of the above reversal, it is necessary to re-calculated the Defendant’s share of the above corporate tax, etc. among USD 32,601,248, and thus, to reverse this part in its entirety.

4. Conclusion

Therefore, the part of the lower judgment against the Defendant regarding USD 32,601,248 is reversed, and that part of the case is remanded to the lower court for further proceedings consistent with this Opinion. The Plaintiff’s appeal and the Defendant’s remaining appeals are all dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Kim Jae-hyung (Presiding Justice)