"Even If Korean and English Arbitration Clauses Differ, No Litigation Allowed If Mutual Agreement Exists"

[Supreme Court Ruling]

The Supreme Court has ruled that even if there are some discrepancies in the dispute resolution clauses of a supply contract written in both Korean and English, it should be recognized as a valid exclusive arbitration agreement if, from the overall context of the clauses, it can be seen that the parties agreed to resolve disputes through arbitration.

Seoul Central District Court / Photo by Moon Honam munonam@

Legal experts have assessed that this decision reaffirms the Supreme Court's long-standing position of broadly recognizing the validity of arbitration agreements from an arbitration-friendly perspective.

The Civil Division 1 of the Supreme Court (Presiding Justice Noh Taeak) overturned the appellate court's decision and dismissed the plaintiff's appeal in a supply contract dispute between a foreign company and a domestic company (Case No. 2024Da243172) on January 23, stating, "The jurisdiction clause in this case constitutes an exclusive arbitration agreement."

[Facts]

Domestic company A entered into a contract with a German-affiliated company to receive two steel pipe threading facilities for 2.8 million euros. The contract was written in both Korean and English. The Korean version stated, "Subject to Korean law or the control of the International Judicial Arbitration Committee," while the English version stated, "All disputes shall be finally resolved in accordance with Korean law or the Commercial Arbitration Committee." However, such institutions did not actually exist.

Company A terminated the contract citing Company B's non-performance of obligations and filed a lawsuit demanding the return of goods worth 2.52 million euros. Company B countered that "since there is an exclusive arbitration agreement in the contract, the court litigation is inadmissible."

[Lower Court Rulings]

The court of first instance accepted Company B's argument, recognizing the existence of an exclusive arbitration agreement and dismissed the lawsuit. However, the appellate court, based on the premise that "the English and Korean versions should be interpreted equally," rejected Company B's claim, stating, "The phrase 'subject to Korean law' can be understood as accepting trial by a Korean court, and since the conjunction 'or' places this in parallel with arbitration, it is merely an optional clause allowing either litigation or arbitration."

[Supreme Court Decision]

The Supreme Court overturned the appellate court's decision, recognizing the existence of an exclusive arbitration agreement and dismissed Company A's appeal. The Supreme Court focused on the fact that the contract included a separate arbitration clause.

The court stated, "The fact that the contract contains a separate clause on arbitration can serve as strong evidence of the parties' intention to resolve disputes through arbitration," and added, "Even if some wording in the arbitration clause is ambiguous or conflicting, or if a non-existent arbitration institution or arbitrator is designated, such circumstances alone should not lead to the easy conclusion that there is no valid arbitration agreement."

The court further noted, "The English heading of the jurisdiction clause in this case is 'Arbitration,' and both the Korean and English versions stipulate 'control by an arbitration institution,' indicating that the parties expressly intended to resolve disputes through arbitration procedures."

Additionally, the court explained, "The expression 'by Korean Law' does not allow litigation as a means of dispute resolution, but merely designates the governing law," concluding that the clause in question is a valid arbitration clause.

[Litigation Representative's Opinion]

Lee Chulwon (52, Judicial Research and Training Institute Class 28), an attorney at Kim & Chang, stated, "It is significant that the issue of jurisdiction was prioritized and reviewed before the merits in the first trial, allowing for a relatively swift Supreme Court decision."

He explained, "When the defendant raises the issue of jurisdiction under the arbitration clause, some courts review jurisdiction first and make an immediate decision, while others review it together with the merits and later conclude that they lack jurisdiction. In the latter case, years may be spent litigating the merits only to end up with a decision of no jurisdiction, resulting in wasted time and costs, and even issues with the statute of limitations may arise."

Attorney Lee added, "Going forward, I hope that when the opposing party raises an arbitration defense, courts will establish a practice of determining jurisdiction first to reduce unnecessary costs and delays, rather than considering the merits together. In addition, when arbitration and litigation overlap, it is also worth considering an anti-suit injunction as a possible solution."

Reporter Ahn Jaemyung, The Law Times

※This article is based on content supplied by Law Times.

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