Kmb Asset Management Co., Ltd. (Law Firm K&C, Attorneys Gyeong-Gyeong et al., Counsel for the plaintiff-appellant)

Counterclaim Defendant 1 and one other (Attorney Choi Chang-hee, Counsel for the plaintiff-appellant)

March 15, 2018

Seoul Western District Court Decision 2017Gahap30989 decided August 17, 2017 (Counterclaim)

1. All appeals filed by the Counterclaim Plaintiff are dismissed.

2. The costs of appeal shall be borne by the Counterclaim Plaintiff.

The judgment of the first instance is revoked. With respect to the arbitration case No. 1511-0024 of the Korean Commercial Arbitration Act between the counterclaim and the counterclaim Defendant, the arbitral award rendered by the arbitral tribunal on October 27, 2016 shall be revoked.

1. Facts of recognition;

The reasons stated in this part are as follows, except for the corresponding part of the judgment of the court of first instance, and this part of the reasoning is cited in accordance with the main sentence of Article 420 of the Civil Procedure Act.

○ 3 pages 16 of the judgment of the first instance court, the term “a person entrusted” is deemed to be “a person entrusted”.

○ 4 pages 11 of the judgment of the first instance court, the phrase “a letter of agreement” in the letter of “a letter of agreement” is regarded as a “a letter of guarantee.”

2. The assertion and judgment

A. The assertion of the Counterclaim Plaintiff

1) Article 3 of the Arbitration Rules established by the KCAB (hereinafter “ Arbitration Rules”) provides that “Where the parties have agreed in writing to proceed with arbitration in accordance with the Arbitration Rules, or the parties have agreed in writing to resolve a dispute by the KCAB, the arbitration rules shall apply to the domestic arbitrator.” In this case, the arbitration rules provide that “In so far as the parties have agreed in writing to resolve a dispute by the KCAB’s arbitration, a national, the Lessee and the counter-defendant, the KCAB’s arbitration rules constitute “agreement between the parties to the arbitration procedure” under Article 36(2)1(d) of the Arbitration Rules. However, according to Articles 11 and 12 of the Arbitration Rules applied mutatis mutandis under Article 16(3) of the Arbitration Rules, the respondent may respond within 15 days from the date of receipt of the relevant written arbitration rules, and the KCAB’s amendment of Article 16(2)1(d) of the Arbitration Rules is not against the purport of the KCAB’s request and its amendment of the 13rd Arbitration Rules.

2) It is impossible to execute the instant arbitral award on the ground that “the Plaintiff is obligated to make a national bank pay the said money to the non-resident (the trustee company) to the (the non-resident) bank.” In addition, the foregoing order is in violation of the right of disposition as it goes against the purport of the counter-party’s application that “the non-resident has given an operating instruction to pay a certain amount of money to the national bank to the counter-party.” Thus, the recognition and enforcement of the instant arbitral award constitutes “the case in violation of the good customs or other social order of the Republic of Korea” as provided by Article 36(2)2(b) of the Arbitration Act. Thus, the instant arbitral award should be revoked.

B. Determination

1) Whether it falls under Article 36(2)1(d) of the Arbitration Act

A) In light of the fact that Article 3 of the Arbitration Rules provides that “if the arbitration rules are applied under the arbitration agreement between the parties, the arbitration rules form a part of the arbitration agreement”, there is no room to view the matters concerning the arbitration procedures provided under the Arbitration Rules as alleged by the counter-party in itself as falling under “a party’s agreement concerning the arbitration procedures” in light of the fact that the parties mutually agree on the settlement of legal disputes by the arbitration of a specific arbitration institution.

B) However, even if the arbitral tribunal’s failure to comply with the arbitral proceedings under the agreement between the parties, it is reasonable to view that the existence of such defect does not immediately constitute the grounds for revoking the arbitral award under Article 36(2)1(d) of the Arbitration Act, but only if the degree of infringement of the right of defense caused by the defect is remarkably unacceptable or the arbitral award affected the result of the arbitral award (see Supreme Court Decision 89Meu20252 delivered on April 10, 190, etc.). In full view of all the following circumstances revealed by the facts and the aforementioned evidence, it is difficult to view that the arbitral tribunal in the instant arbitral proceedings only closed the hearing without giving the non-resident an opportunity to submit a reply for 15 days of “application for changing the purport of the application and the cause of the application” as grounds for revoking the arbitral award under Article 36(2)1(d) of the Arbitration Act, and thus, it is difficult to deem that there exists a ground for revocation under Article 36(2)1(d) of the Arbitration Act.

○ On July 14, 2016, after the arbitral tribunal closed the hearing of the instant arbitral proceeding at the sixth hearing, the counterclaim Defendant submitted a written application for the resumption of the hearing and reference documents on July 14, 2016, and gave an advance notice to the Korean bank that “the counterclaim Nonparty would pay KRW 4.9 billion to the Korean bank,” and accordingly, expressed that he/she would modify the purport of the application and the cause of the application at the seventh hearing of August 5, 2016, which was resumed, and the counterclaim presented his/her position to change the purport of the application to the same purport on the seventh hearing of August 5, 2016. On September 22, 2016, the 8th hearing date ( September 23, 2016), the Counterclaim Defendant submitted a preparatory document (Evidence No. 11) premised on changes in the purport of the application and the cause of the application (Evidence No. 11).

According to the Arbitration Rules, if requested by the Arbitral Tribunal with respect to any pleadings, etc. that have not been submitted to the Arbitral Tribunal at the time of the trial, the Secretariat shall accept them and deliver them to the Arbitral Tribunal (Article 39(1)). At the time of the closure of the trial of this case, the Arbitral Tribunal was ordered to submit them as soon as possible, and at the time 30 days have passed after the closure of the trial of this case, the Arbitral Tribunal rendered the instant arbitral award. Thus, the Lessee 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” of the Counterclaim Defendant within 15 days after the completion of the trial. If such written response was submitted, the Arbitral Tribunal reviewed the written response of the Lessee, which was served in accordance with Article 39(1) of the Arbitration Rules, and the Lessee did not submit any written response after the completion of the trial of this

○ In addition, according to 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 (Article 44(1)). In the instant arbitral proceedings, two times at the request of the counter-defendants pursuant to the said provision, the hearing was resumed. However, after the completion of the instant arbitral proceedings, the counter-appellant did not request the arbitral tribunal to resume the hearing in order to respond appropriately to the purport of the request and the reasons for the request of the counter-defendants.

C) Therefore, this part of the Plaintiff’s assertion is without merit.

2) Whether it falls under Article 36(2)2(b)(b) of the Arbitration Act

A) First, in light of Article 36(2)2(b) of the Arbitration Act as to whether the instant arbitral award constitutes “when the recognition or enforcement of the arbitral award is contrary to good morals and other social order of the Republic of Korea” under Article 36(2)2(b) of the Arbitration Act by which a court may ex officio revoke the arbitral award, it is difficult to view that there is a ground for revocation of the arbitral award under Article 36(2)2(b) of the Arbitration Act solely on the ground that the order of the arbitral award does not have to be limited to an arbitral award with the content of compulsory execution, even if it is impossible to obtain a decision of enforcement under the content of the arbitral award.

B) Next, we examine whether 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” as provided by Article 36(2)2(b) of the Arbitration Act, because the instant arbitral award is contrary to the purport of the counterclaim Defendant’s application.

As seen earlier, the arbitral tribunal of this case rendered an arbitral award that “the counterclaim shall give the Korean bank with an operating instruction to pay the Counterclaim amounting to KRW 4.9 billion and 6% interest per annum from July 14, 2016 to the date of completion of payment” with respect to the purport of the application that “the Counterclaim shall give the Korean bank with an operating instruction to pay the Counterclaim amounting to KRW 4.9 billion and the amount equivalent to 6% interest per annum from July 14, 2016 to the date of completion of payment” and that “the Counterclaim shall confirm that the Respondent has an obligation to pay the above amount to the Korean bank by making an operating instruction to pay the Counterclaim amounting to KRW 4.9 billion and the amount equivalent to 4.9 billion interest to the Counterclaim bank from July 14, 2016 to the date of completion of payment.” However, the purport of the written arbitral award is that the Respondent’s obligation to give an instruction can not be included in the purport of accepting compulsory execution order.”

Unlike a civil judgment based on the principle of allocation of burden of proof or strict principle of disposition by the parties, the arbitral award has procedural characteristics that can seek flexible and reasonable solution, such as civil procedure, and thus, it seems impossible to decide whether to cancel the arbitral award in accordance with strict standards, such as civil procedure. The arbitral tribunal may order fair and reasonable compensation or other remedy within the scope of the arbitral agreement (Article 52(1)). In light of the purport of the above provision, it can be said that there is a wide range of room to make flexible decisions taking into account equity compared with civil judgment in the arbitral award. The arbitral award of this case does not add a new text that is not entirely related to the purport of the application, but rather, the arbitral tribunal tried to seek confirmation of the duty of instruction instead of imposing the duty of instruction, taking into account the possibility of compulsory execution, and ② it is difficult to conclude that the order of operation of the Counterclaim, which is an asset management company, violates the duty of management instruction by taking into account the content that the Lessee would pay the funds corresponding to the assets of the fund into account, and ③ it is difficult to conclude that the Defendant is not liable for other Counterclaim.

Meanwhile, Article 36(2)2(b) of the Arbitration Act provides that "the recognition or enforcement of an arbitral award is contrary to the good morals and other social order of the Republic of Korea" as a ground for revocation of the arbitral award ex officio by a court means not all cases where it is erroneous in the fact-finding conducted by an 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 and regulations, but "the result of the arbitral award order" refers to the case where the contents of the arbitral award violate good morals and other social order of the Republic of Korea (see Supreme Court Decision 2007Da73918, Jun. 24, 2010). Even if the order of the arbitral award of this case is contrary to the principle of disposition authority, such circumstance alone does not constitute "the case where the results of the arbitral award order violate good morals and other social order of the Republic of Korea".

C) This part of the Plaintiff’s assertion is without merit.

3. Conclusion

Therefore, all of the counterclaim claims against the counterclaim Defendant of the counterclaim should be dismissed as it is without merit. Since the judgment of the court of first instance is just in conclusion, the appeal by the counterclaim Plaintiff is dismissed as it is without merit. It is so decided as per Disposition by the assent of all.

Judges B.OBS (Presiding Judge) Credit

1) In this regard, the standard time of res judicata does not include a necessary oral argument, such as in the case of a judgment, and thus, the view that the time of the last oral hearing should not be based, but should be based on the time when there was an opportunity to submit evidence after that time is not based on the time of the last oral hearing (State Arbitration Act, the Korean Commercial Arbitration Board, the Korean Commercial Arbitration Board, the Korean Commercial Arbitration Board, the 2005 and the 186 pages ( Nonparty 1 and Nonparty 2)).