Korea International Cooperation Agency (Law Firm Barun, Attorney Shin Jong-soo, Counsel for defendant-appellant)

Hent Trade Co., Ltd. (Law Firm Namsan, Attorney Lee Dai-soo, Counsel for the plaintiff-appellant)

August 29, 2007

Seoul Central District Court Decision 2006Kadan154252 Decided October 24, 2006

1. The plaintiff's appeal is dismissed.

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

The judgment of the first instance shall be revoked. With respect to the case of Article 0411-031 of the Arbitration of Korean Commercial Resources between the plaintiff and the defendant, the arbitral award in the attached Form as stated by the said arbitral tribunal on February 6, 2006 shall be revoked.

1. Basic facts

The following facts are not disputed between the parties, or can be acknowledged in full view of the purport of the entire pleadings in Gap evidence Nos. 1, 4, 5, and 7:

A. The Plaintiff was established under the Korea International Cooperation Agency Act and established by the Minister of Foreign Affairs in consideration of the income level of the Republic of Korea and the stages of economic development, and established to promote friendly cooperation and mutual exchange with the areas or specific areas of cooperation designated by the Minister of Foreign Affairs, or to support the economic and social development of these areas. The Plaintiff is a corporation that performs various projects for international cooperation, such as free aid. The Defendant is a company that aims to manufacture and sell electrical and electronic parts

B. From August 20, 1996 to December 14, 1998, the Defendant supplied the Plaintiff with various overseas aid goods, including Nowon-gu, Round, computer, reproduction machine, television, etc., which the Plaintiff requested from developing countries to supply at any time to carry out a cooperative project with developing countries (hereinafter “instant goods transaction”).

C. The Defendant directly exported goods for foreign aid purposes to the overseas demand center designated by the Plaintiff, and continues to trade such goods in the way that the Plaintiff received payment from the Plaintiff, while filing a value-added tax for the goods subject to zero tax rate from February 1996 to February 1998. The tax authority also recognized this and recognized that the Defendant did not pay value-added tax for the goods transaction of this case. Since the above transaction was proved not to be subject to zero tax rate, it was subject to the imposition of value-added tax by the tax authority around June 1, 199, and the Defendant paid the above value-added tax around that time.

D. Accordingly, on May 31, 2004, the Defendant filed with the Korea Commercial Arbitration Board an arbitration claim against the Plaintiff for the payment of the above value-added tax (No. 114,242,390 won, and damages for delay, based on the claim for the return of unjust enrichment upon the cancellation of the contract caused by mistake in the area of the Korea Commercial Arbitration Board.

E. On February 6, 2006, the Korean Commercial Arbitration Board partially accepted the Defendant’s claim for damages (the rejection of the claim for payment under the agreement and the claim for return of unjust enrichment), and rendered an arbitral award that “the Plaintiff shall pay to the Defendant 57,121,195 won and the amount equivalent to 6% per annum from June 6, 2004 to the service date of the written arbitral award, and the amount equivalent to 20% per annum from the next day to the full payment date” (hereinafter “instant arbitral award”).

(f) The relevant provisions of the Arbitration Act (wholly amended by Act No. 6626 of January 26, 2002) are as follows:

Article 32 (Form and Contents of Arbitral Award)

(2) An arbitral award shall state the reasons why it forms the basis for the award: Provided, That this provision shall not apply if the parties have agreed, or if the award is a compromise under Article 31.

Article 36 (Action for Setting Aside Award)

(1) Objection to an arbitral award may be raised only by an application for setting aside an arbitral award filed with a court.

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

1. The party making the application proves that:

(d) the fact that the constitution of the arbitral tribunal or the arbitral proceedings have not complied with, or have not complied with, any agreement between the parties that do not conflict with the mandatory provisions of this Act.

2. The court recognizes ex officio that any of the following causes exists:

(b) The recognition or enforcement of the award is contrary to the good morals and other social order of the Republic of Korea;

(4) No action for setting aside an arbitral award may be brought after the approval or judgment of execution rendered by the court of the Republic of Korea has become final and conclusive.

2. Determination on this safety defense

A. With respect to the instant lawsuit claiming that the arbitral award in this case should be revoked on the ground that the grounds for the inconsistency with the reasoning and the omission of judgment fall under “where the arbitral procedure is not in compliance with the Arbitration Act” under Article 36(2)1(d) of the Arbitration Act, the Defendant asserted that the lawsuit in this case is unlawful since the failure of reasoning or the omission of judgment does not fall under the grounds for revocation as prescribed by the Arbitration Act. However, the Plaintiff’s ground for seeking the revocation of the said arbitral award is that “the above arbitral procedure is not in compliance with the Arbitration Act.” As examined below, the failure of reasoning and the omission of judgment fall under “where the arbitral procedure is not in compliance with the Arbitration Act.” As such, the Defendant’s argument is without merit.

B. The Defendant asserts that the dispute that was the subject of the instant arbitral award is extinguished by the Plaintiff’s payment of the full amount of the arbitral award in accordance with the instant arbitral award. Thus, there is no benefit to seek the revocation of the instant arbitral award in a procedural manner, and that filing a lawsuit on the dispute already terminated constitutes abuse of right of action. Thus, it cannot be concluded that the Plaintiff renounced its right of action on the ground that the Plaintiff immediately paid the amount of the arbitral award. Thus, the Defendant’s assertion on this part is without merit.

3. Judgment on the merits

A. As to the assertion of the grounds for appeal

(1) Summary of the Plaintiff’s assertion

The plaintiff asserts that the arbitral award in this case should be cancelled in accordance with Article 36(2)1(d)(i) of the Arbitration Act, because it is inconsistent with the reasons set forth below.

① Based on the reasoning of the instant arbitral award, the Defendant had an obligation to take appropriate measures, such as waiver of tax exemption so that the instant goods supply transaction may be subject to value-added tax, even though the exporter of the instant transaction was recognized as the Defendant, by stating that the Defendant exported goods under its name and received the price from the Plaintiff. This constitutes inconsistency with the reasoning.

② Based on the reasoning of the instant arbitral award, the Plaintiff and the Defendant recognized that there was no explicit or implied agreement on the burden of value-added tax, and thus, the Plaintiff cannot be deemed to have any contractual or good faith obligation to take measures, such as waiver of tax exemption for the Defendant, to prevent the Plaintiff from imposing value-added tax, and thus, the Plaintiff has such contractual or good faith obligation as above

③ On the grounds of the instant arbitral award, even if the Defendant was subject to the imposition of value-added tax or paid value-added tax for the instant goods transaction, it was recognized that it was only due to the Defendant’s tax liability, who is the person liable for the payment of value-added tax, and the Plaintiff, who is not the person liable for the payment of value-added tax, has the duty to take certain measures

④ Based on the reasoning of the instant arbitral award, even though the tax authorities found that the instant transaction was subject to zero tax rate, the tax authorities did not take certain measures on behalf of the Defendant on the premise that the tax authorities were erroneous to recognize the zero tax rate, which constitutes inconsistency with the reasoning.

(2) Determination

(A) The main text of Article 32(2) of the Arbitration Act provides that "an arbitral award shall state the grounds on which the award is based," and Article 36(2)1(d) of the same Act provides that "if an arbitral proceeding does not comply with this Act, an arbitral award may be cancelled." If the reasons are not stated, it shall be deemed that the arbitral award does not state the grounds therefor, and even if the reasons are inconsistent in itself, it shall be deemed that the arbitral award does not state the reasons therefor, and thus, it shall be deemed that the revocation of the arbitral award may be sought. However, as long as the arbitral award states the reasons, it is reasonable to consider the judgment as the grounds for the arbitral award as the grounds for the arbitral award is based on fairness, and it does not constitute the above grounds (see Supreme Court Decision 8Da183, 184, Jun. 13, 1989, etc.).

(B) According to the statement of evidence Nos. 1 and 1 of this case, the arbitral tribunal of this case acknowledged that "the exporter of this case is the defendant, and the plaintiff and the defendant did not expressly agree on the value-added tax due to the goods transaction of this case" in the part of "basic facts" of No. 1 of the grounds for the arbitral award of this case, and that "the tax authority recognized the return of value-added tax which is subject to zero tax rate," and after finding that "the plaintiff has the duty to devise measures such as waiver of tax exemption so that the goods transaction of this case can be subject to zero tax rate," in the part of judgment on the claim for damages under Article 2-C (3) of the grounds for the arbitral award, it is difficult to view that the arbitral award of this case itself conflicts with the grounds for the judgment of this case, and there is no other evidence to acknowledge this differently.

Rather, according to Gap evidence No. 1, the arbitral tribunal of this case determined that "in principle, the exporter of the goods of this case to the foreign aid country is the plaintiff, and the foreign aid goods are procured under the plaintiff's initiative, and the price of the foreign aid goods of this case can be determined as the export price to which the value-added tax applies under the plaintiff's overall regulations related to the procurement of the goods, and the plaintiff could not escape from the burden of value-added tax by reporting the waiver of tax exemption regarding the foreign aid transaction of this case. However, since the defendant also traded the goods of this case to the plaintiff for several years without careful attention as to whether the transaction of this case is subject to value-added tax, it can be acknowledged that the plaintiff's liability should be limited to 50% of the plaintiff's liability without considering the fact that the plaintiff's duty to pay the above zero-rate tax is not applied to the plaintiff's goods of this case (the defendant's assertion that it is not easy to recognize that the plaintiff's duty to pay value-added tax was not applied to the plaintiff's goods of this case.)

B. As to the allegation of omission of judgment

(1) Summary of the Plaintiff’s assertion

The plaintiff asserted that the defendant's claim against the plaintiff recognized in the arbitral award of this case is a commercial claim, and even though the plaintiff raised a defense as to the completion of the statute of limitations of commercial claims in the arbitral proceedings of this case, the arbitral award of this case affected the result of the judgment by avoiding the judgment of the defendant and accepting part of the defendant's claim. Thus, the arbitral award of this case must be revoked in accordance with Article 36 (2) 1 (d) of the Arbitration Act.

(2) Determination

(A) If the arbitral award has escaped from the judgment on the means of offence and defense alleged by the party, and had affected the result of the award, such arbitral award shall be deemed to fall under the grounds for revocation under Article 36(2)1(d) of the Arbitration Act, such as in the case of non-statement of the grounds for the arbitral award as seen earlier.

(B) According to the statement of evidence Nos. 4, 5, and 7 of this case, when the defendant applied for arbitration of this case, there was an implied agreement that the plaintiff bears the value-added tax imposed on the above goods price if it is found that the goods transaction of this case is not subject to zero tax later. ② The plaintiff neglected to take the measure of waiver of tax exemption, thereby failing to obtain zero tax rate and paying value-added tax and causing losses equivalent to the amount of the above value-added tax. ③ The defendant's selective payment of value-added tax on the goods transaction of this case due to the taxation measure of the tax office, and the plaintiff acquired profits equivalent to the above amount. ③ The plaintiff's selective payment of the above contract price, claim for damages, and claim for restitution of unjust enrichment is not related to the burden of value-added tax under the above contract of supply of the goods of this case, and it is difficult to acknowledge that the defendant's claim for compensation for damages was extinguished by the short-term extinctive prescription period under Article 163 subparag. 6 of the Civil Act.

C. As to the claim for setting aside an arbitral award regarding damages

(1) Summary of the Plaintiff’s assertion

The plaintiff held that "the plaintiff and the defendant are liable to compensate the plaintiff by filing a declaration of waiver of tax exemption with respect to the external assistance transaction of the goods of this case." However, in the arbitral proceedings of this case, the plaintiff did not have any discussion about the claim for damages due to the above waiver of tax exemption, etc., and ② The arbitral award of this case seems to have been liable to compensate the plaintiff for damages due to non-performance of commercial obligations in light of the fact that the statutory interest rate for calculating damages was set at 6% per annum, but the defendant merely asserted damages due to tort in the arbitral proceedings of this case and did not have any assertion for damages due to non-performance of commercial obligations. Accordingly, the arbitral award of this case is inconsistent in its reasoning by determining the grounds for non-performance of the parties. or because the party seeking the revocation of the arbitral award of this case did not have any proper notice concerning the appointment of the arbitrator or the arbitral proceedings, it constitutes "Article 36 (2) 1 (b) of the Arbitration Act."

(2) Determination

According to the evidence Nos. 1, 4, and 8, the defendant argued to the arbitral tribunal of this case that "the defendant was aware of the fact that the defendant supplied the goods of this case at pure goods prices not included in the value-added tax, and the exporter of the goods to foreign aid countries is obligated to take measures to waive the zero-rate tax rate so that the goods of this case can be applied to the goods transaction of this case so long as the plaintiff is the plaintiff, the defendant is liable to compensate for damages equivalent to the value-added tax because he did not perform such obligations." The plaintiff is liable to compensate for damages due to default or tort. The plaintiff argued to the effect that "the plaintiff did not neglect and take appropriate measures despite being able to get the defendant to be subject to zero-rate tax rate by waiver of tax exemption, the plaintiff is liable to compensate for damages due to the plaintiff's negligence or tort." The plaintiff also submitted the legal brief to the arbitral tribunal of this case, and the plaintiff's assertion that the plaintiff did not have any obligation to compensate for damages due to the plaintiff's tort or default, and thus, the plaintiff's claim can be justified.

D. As to the assertion that it violates good morals and other social order

(1) Summary of the Plaintiff’s assertion

The decision of the Supreme Court regarding the supply transaction of overseas aid goods between the plaintiff and a third party rendered a decision that the plaintiff does not have any contractual obligation or duty under the good faith principle to take certain measures on behalf of the other party to the transaction, and thus is inconsistent with the arbitral award in this case. The plaintiff asserts that the arbitral award in this case clearly contradictory to the consistent decision of the Supreme Court in terms of legal stability falls under Article 36 (2) 2 (b) of the Arbitration Act (when the recognition or enforcement of the arbitral award is contrary to the good customs

(2) Determination

According to Article 36(2)2(b)(b) of the Arbitration Act, a court may, on its own initiative, revoke the arbitral award if it considers that the recognition or enforcement of the arbitral award constitutes “when it violates the good morals and other social order of the Republic of Korea” with respect to the pertinent arbitral award. This does not refer to whether the grounds for the arbitral award or evaluation made by the arbitrator violates the good morals and other social order of the Republic of Korea, but rather, focus on whether the result of the order of the arbitral award violates the good morals and other social order of the Republic of

In the instant case, “the Plaintiff shall pay to the Defendant 57,121,195 won and the amount equivalent to 6% per annum from June 6, 2004 to the service date of the written arbitral award of this case, and 20% per annum from the next day to the full payment date.” As such, the enforcement of the arbitral award of this case cannot be deemed to violate good morals and other social order of the Republic of Korea, and thus, this part of the Plaintiff’s assertion is without merit.

In addition, it is also permissible to determine the arbitral award based on the principle of fairness regardless of the positive law as a case (see Supreme Court Decision 2004Da67264, 67271, May 13, 2005). Therefore, it cannot be readily concluded that the arbitral award in this case has grounds for revocation solely on the ground that the Supreme Court’s judgment and conclusion differ in the same case.

4. Conclusion

Therefore, the plaintiff's claim shall be dismissed as it is without merit, and the judgment of the court of first instance shall be just and it shall be dismissed as it is without merit. It is so decided as per Disposition.

【Omission of Indication of Arbitration Award】

Judges Ko Young-han (Presiding Judge)