2015 Gohap570969 Action for setting aside an arbitral award

Stonton E. L. T. L. L. L.S.T.

South East East Power Development Co., Ltd.

April 14, 2016

April 28, 2016

1. With respect to the case No. 1313-009 of the KCAB between the Plaintiff and the Defendant, the arbitral award in the attached Form No. 1313-009 shall be revoked by the arbitral tribunal on August 26, 2015.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Basic facts

A. On February 3, 2012, the Plaintiff and the Defendant entered into a contract for the supply of non-systems (hereinafter “instant supply contract”) with the Plaintiff to manufacture and supply 1 set of prefabricated for the purpose of maintaining the boiler set forth in subparagraph 2 of the Credit Water Power No. 2 (hereinafter “the instant non-systems”).

B. Article 1.1 of the General Conditions of Contracts, which are part of the instant supply contract, provides for the following dispute settlement provisions (hereinafter referred to as "Dispute settlement provisions of this case"), concerning the occurrence of disputes between the Plaintiff and the Defendant:

Article 1.18: Dispute 1.18.1 shall be determined by the South East-dong Development. The decision shall become final and conclusive when the contractor does not raise an objection to the South-east Development within 30 days from the date on which the contractor is notified of the decision on the South-east Development. Any dispute arising by raising an objection to the decision on the South-east Development shall be settled through consultation and, if the agreement is not reached, shall be settled as follows:

C. According to the instant supply contract, the Plaintiff supplied the first supply portion on March 12, 2012, and the second supply portion on March 31, 2012, and the Defendant paid KRW 1,852,500 and the import volume of KRW 271,161,060 to the Plaintiff from April 5, 2012 to April 26, 2012 after completing inspection of the instant non-facilities.

D. Although the instant non-standing device constitutes a safety-based subject matter under the Occupational Safety and Health Act, the Enforcement Decree of the same Act, and the Public Notice of the Procedure for Reporting Safety Certification and Voluntary Safety Verification (Public Notice of the Ministry of Employment and Labor No. 2012-15), it did not obtain certification from the Industrial Safety and Health Agency. Accordingly, there was a dispute over the safety certification of the instant non-standing device from May 2012 between the Commission and the Defendant. On March 8, 2013, the Defendant filed an application for arbitration with the Korea Commercial Arbitration Board (hereinafter referred to as the “instant arbitration”) pursuant to the instant dispute resolution clause (Korean Commercial Arbitration Board No. 1313-009).

E. On June 5, 2013, the Plaintiff filed an application for suspension of arbitral proceedings with the Defendant for one month on the grounds that the agreement with the Defendant was in progress, and subsequently, requested the KCA to extend the period of suspension of arbitral proceedings on a total of 20 occasions between July 8, 2013 and July 31, 2014 for the same reason, and subsequently, negotiated with the Defendant, but did not reach the final agreement.

F. On December 4, 2014, the Korea Commercial Arbitration Board notified the Plaintiff and the Defendant that the sole arbitrator’s arbitral tribunal was the Gu. On December 29, 2014, the Plaintiff submitted a written reply stating the previous defense to the effect that “The instant dispute falls under the selective arbitration clause, and the Plaintiff has no intent to resolve the instant dispute through arbitration. Therefore, the instant arbitration application should be dismissed as it constitutes the absence of an arbitration agreement.” On May 21, 2015 and June 12, 2015, the Plaintiff submitted each preparatory document stating the grounds for preliminary offset.

G. On August 26, 2015, the Korea Commercial Arbitration Board rejected the Plaintiff’s defense prior to the merits and rendered an arbitral award containing the order of the award stated in the attached Form (hereinafter “instant arbitral award”).

① The instant dispute settlement clause constitutes a selective arbitration clause, and the Plaintiff set up a defense prior to the draft that there is no arbitration agreement by providing a written response.

② However, in the process of presenting a negotiation proposal to the Defendant for the settlement of disputes, the Plaintiff had the intent to proceed with the arbitration without objection if the Plaintiff did not reach an agreement, such as proposing the standards related to the progress of arbitration, including the arbitrator, place of arbitration, language, governing law, etc., the Plaintiff suspended the progress of the arbitration for a long period of time on the grounds of negotiations with the Defendant, and intentionally delayed the arbitration by dismissing his/her arbitrator, etc. around November 2014, and was in bad faith in negotiations with the Defendant. If the Plaintiff had the intent to deny the existence of the arbitration agreement based on the selective arbitration clause, the Plaintiff should have claimed the absence of the arbitration agreement within 30 days after the delivery of the written arbitration application within the response deadline, or within a considerable period of time, the non-existence of the arbitration agreement constitutes a means of attack and defense, and also violates the good faith principle.

3. Therefore, despite the Plaintiff’s non-existence of arbitration agreement, the dispute resolution clause of this case is effective as arbitration agreement, and thus, the arbitral tribunal has the authority to award this case.

[Reasons for Recognition] The purport of the whole pleadings by evidence of Nos. 1 to 4 (including each number), No. 2 to 22

2. Determination

A. Relevant legal principles

1) Article 3 subparag. 1 of the Arbitration Act provides that "a arbitration agreement means the procedure to resolve a dispute under private law, not by a court's judgment, but by an arbitrator's decision." Article 3 subparag. 2 of the Arbitration Act provides that "An arbitration agreement means an agreement between the parties to a certain legal relationship, regardless of whether it is a contractual dispute, which has already occurred or may occur in the future, through arbitration." Article 8(1) of the same Act provides that "an arbitration agreement may be made in the form of an independent agreement or an arbitration clause in the form of an arbitration." Article 8(2) of the same Act provides that "an arbitration agreement shall be made in writing." Article 9(1) of the same Act provides that "Where a lawsuit is instituted with respect to a dispute which is the object of an arbitration agreement, the court shall reject the lawsuit if the defendant raises an arbitration agreement, but the arbitration agreement is nonexistent or invalidated, or it is impossible to implement it." This provision provides that "an arbitration agreement shall be concluded in the form of arbitration agreement or in writing with the meaning of 20.20(3).

2) The so-called selective arbitration mediation is effective only when one of the parties selects arbitration proceedings against the party and requests resolution of the dispute in accordance with the arbitration procedure, and the other party participates in the arbitration procedure without any particular objection. The other party's request for arbitration is not effective as an arbitration agreement in a case where the other party has actively asserted the existence or validity of the arbitration agreement in the response to the request for arbitration and objects to the resolution by arbitration (see Supreme Court Decision 2004Da42166, Nov. 11, 2004). Meanwhile, Article 17 (2) of the Arbitration Act provides that "any objection to the authority of the arbitral tribunal shall be raised until the submission of the response to the merits." Since the time for raising an objection to the absence of the authority of the arbitral tribunal is directly related to the existence or validity of the arbitration agreement, the "arbit 2 of the arbitral tribunal's authority" as referred to in the above provision shall be submitted within the 20th of the 20th of the 2nd of the 2nd of the 2nd arbitral award agreement.

B. The nature of the dispute resolution clause of this case and the validity of the arbitration agreement

1) The dispute resolution clause of this case provides that "a dispute which the plaintiff raises an objection against the defendant's decision shall be resolved through consultation and shall be resolved by the arbitration of the arbitration agency, the court's ruling, and the procedure (in the case of international tender) prescribed in Articles 28 through 31 of the Act on Contracts to Which the State is a Party". The literal meaning of the dispute resolution clause of this case is that "a dispute shall be resolved by both parties' agreement, but if no agreement is reached, either party may apply for arbitration or file a lawsuit to the arbitration agency, and it shall not be construed that the dispute resolution method between the plaintiff and the defendant should be resolved only by arbitration."

In full view of these points, it is reasonable to view the dispute resolution clause of this case as "selective arbitration clause".

2) Meanwhile, as seen earlier, the fact that the Plaintiff actively asserted that the part of the arbitration agreement regarding the Defendant’s claim for arbitration was set aside at the time of response to the claim for arbitration and opposed to the resolution by arbitration.

Therefore, barring special circumstances, the dispute settlement clause of this case cannot be deemed to be effective as an arbitration agreement.

C. Judgment on the defendant's assertion

1) As to the assertion that the Plaintiff agreed to resolve the dispute through arbitration in the course of negotiations with the Defendant

A) The defendant asserts that since the plaintiff expressed his intention that "in the process of negotiations prior to the submission of the written reply, it will settle the dispute through the arbitration of the ordinary members on the case where the negotiation will be concluded, the arbitration agreement between the committee and the defendant has been concluded.

B) According to Gap evidence Nos. 1 and Eul evidence Nos. 2 through 22, the plaintiff submitted a written application for the suspension of arbitral proceedings on June 5, 2013 to the effect that "the plaintiff and the defendant request the resumption of arbitral proceedings for a period of one month until the plaintiff and the defendant request the resumption of arbitral proceedings." ② The plaintiff's proposal on the arbitrator, place of arbitration, arbitration language, governing law, etc. under the title "the e-mail appended document sent by the plaintiff to the defendant as of July 1, 2013."

① On the other hand, once the arbitral proceedings have commenced upon the Defendant’s request, the suspension of the arbitral proceedings is inevitable to proceed with private negotiations outside the arbitral proceedings, and the arbitral proceedings are to be resumed if negotiations are concluded. ② The Plaintiff presented his opinion on the basic procedural standards and direction for the arbitral proceedings in the course of negotiations with the Defendant, and there is no express opinion on the dispute in this case. ③ At the time of negotiations, the Plaintiff and the Defendant discussed with the focus on the drawing of agreements through negotiations. The discussion on the arbitral proceedings is conducted with the focus on the drawing of agreements through negotiations. ④ Article 8(2) of the Arbitration Act provides that “The arbitration agreement shall be made in writing.” Article 8(3)3 of the Arbitration Act provides that “Where either party claims that there is an arbitration agreement in the content of the document exchanged between the parties, and the other party does not dispute with it, the Plaintiff cannot be seen as having actively presented a dispute between the Plaintiff and the Defendant with respect to the establishment of the arbitration agreement in this case and the Plaintiff’s assertion that this part of the arbitration agreement would not be accepted.

2) As to the plaintiff's assertion that the non-compliance defense of the arbitration agreement violates the principle of good faith, etc.

A) The defendant asserts that the plaintiff's prior defense prior to the merits is invalid because it is against the principle of no speech or against the principle of good faith, and that the dispute resolution of this case became final and conclusive as an arbitration agreement (as seen earlier, the decision to the same purport is made on the ground of the plaintiff's intentional delay in arbitral proceedings, etc.).

B) However, in light of the legal principles and circumstances like learning, the defendant's above assertion and the judgment of the arbitral tribunal cannot be accepted.

(1) An arbitration is a procedure for resolving a dispute under private law not based on a court’s judgment but by an arbitrator’s decision (Article 3(1) of the Arbitration Act). An arbitration agreement is premised on the parties’ unity of intent not to exercise the right to claim a trial as provided by Article 27(1) of the Constitution. In addition, a party’s rejection of a defense is limited to the other party’s constitutional right to claim a trial even though the other party actively claims the existence of a non-party’s claim for an arbitration agreement. Thus, the rejection of a non-party defense of an arbitration agreement must be carefully conducted in accordance with strict standards only where the clear grounds exist in statutes

② As seen earlier, the Plaintiff merely discussed the basic matters regarding the arbitral proceedings in response to the Defendant’s application for arbitration, and did not express his/her intention to ultimately resolve the instant dispute in accordance with the arbitral proceedings. Furthermore, Article 17(2) of the Arbitration Act provides that “A party may raise an objection even if he/she has appointed an arbitrator or participated in the procedures for appointment.” In such a case, a party may raise an objection even if he/she has appointed an arbitrator or participated in the procedures for appointment.” In light of the fact that the arbitration law provides that the party participating in the arbitral proceedings has the right to object to the appointment of an arbitrator, etc. prior to the submission of the written response, the absence of an arbitration agreement defense may not be deemed as contrary to the principle of no agreement or the principle of good faith, on the ground that the Plaintiff has proposed and discussed basic matters concerning the arbitral proceedings, such as the appointment of an arbitrator, prior to the submission of the written response.

③ The reasons for the instant arbitral award are as follows: (a) the Plaintiff intentionally delayed the arbitral proceedings; (b) thereby increasing the costs of arbitral proceedings and causing economic loss to the Defendant; (c) however, the repeated extension of the period of arbitral proceedings is due to the delay in negotiations between the Plaintiff and the Defendant; and (d) there is no ground to deem that the Plaintiff intentionally delayed the arbitral proceedings or caused economic loss due to the delay in the proceedings. Furthermore, insofar as the Plaintiff applied for extension of the period of arbitral proceedings to the KCA according to legitimate procedures with the consent of the Defendant and the KCAB was accepted by the KCAB, the circumstance that the arbitral proceedings were suspended for a prolonged period, or that the response stating the grounds for non-existence of the arbitral agreement was submitted later cannot be the grounds for rejecting the non-existence of the defense.

④ Although a final agreement was not reached between the commission and the Defendant’s negotiation, it is difficult to readily conclude that the cause of failure to reach an agreement was attributable to the Plaintiff’s unfaithful negotiation attitude. Even if the Plaintiff had been in bad faith in the negotiation process, the Plaintiff’s defense prior to the merits cannot be denied in the arbitration procedure, which is a separate dispute resolution procedure, for reasons of the problem framework in the private negotiation process.

C) Therefore, the Plaintiff’s non-existence of an arbitration agreement is valid, and the instant dispute settlement clause has no validity as an arbitration agreement.

D. Sub-determination

Ultimately, the arbitral award of this case shall be set aside when it deals with a dispute which is not an internal aspect of the arbitration agreement (Article 36 (2) 1 (c) of the Arbitration Act).

3. Conclusion

Therefore, the plaintiff's claim is reasonable, and it is decided as per Disposition.

Judges Kim Young-hoon

Judges Lee Jin-hee

Judges Suspension Board

Order of Award

1. The respondent shall pay 1,852,500 dollars to the applicant simultaneously with the receipt of devices listed in the Schedule from the applicant.

2. The applicant's remaining claims are dismissed;

3. The arbitration costs (gold 48,650,418) shall be ten minutes and the 1 (gold 4,865,042) shall be the applicant's and the 9 (gold 43,785,376 won) shall be the Respondent's charges. The end shall be the Respondent's charges.

A person shall be appointed.

A person shall be appointed.

A person shall be appointed.