Paragraph 1 of Article 398 of the Civil Act provides that parties to a contract can agree to certain liquidated damages in case of a breach of contractual obligations by either party. The basis of any liquidated damages does not have to be provided at the time of execution of a contract, and the amount of liquidated damages is usually upheld if the reasonableness of such amount is objectively verifiable at a later time. However, Paragraph 2 of Article 398 of the Civil Act does provide that a court may reduce the amount of such damages if it is deemed unduly excessive.
It is noted that a court may reduce the amount of liquidated damages based on all circumstances surrounding a specific contract, such as the relative economic power of creditor and debtor, the purpose and terms of the contract, the reason for setting the liquidated damages, the ratio of the debt to the amount of the liquidated damages, the anticipated amount of damages, and the trade practices at the time of execution of the contract, etc. If and when the court, based on the foregoing factors, deems that the liquidated damages specified in the contract would impose undue pressure to the debtor who is in an economically disadvantageous position, thereby leading to an unfair result, then the court would reduce the amount of the liquidated damages.
In one court case involving a contract for delivery of certain electric vehicles, the court reduced the liquidated damages from 17 Billion KRW to 7 Billion KRW on the ground that the stipulated damages are unreasonably large when taking into account the amount of actual loss by the creditor, the category of the contract in question, and the relative economic powers of the parties concerned. The rate of liquidated damages provided in the contract was 1.5/1000 of the value of the contract and the liquidated damages amount accrued represented some 38% of the total contract value, whereas the reduced liquidated damages amount represented 15% of the total contract value.
However, we still note that the courts would not automatically reduce certain liquidated damages just because the rate of the liquidated damages is set a little higher than usual. The rate of the liquidated damages would be given a full legal effect, provided that there is a valid ground on which the rate was agreed by the parties concerned.
We first note that Korea became a signatory in 1973 to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereafter referred to as the Convention) with a reservation to the effect that the Convention will be applicable to arbitration cases involving commercial disputes under Korea Law and that arbitration awards rendered only in the Convention member states will be enforced in Korea.
In view of the foregoing, the foreign arbitral award coming from a member state and which would satisfy the reservation requirements of Korea would likely be recognized and enforced by Korean courts without further review. However, the foreign arbitral award still may not be enforced if the party against whom the arbitral award is being enforced makes proof that the award had not been rendered properly due to such factors as incapacity of the parties, lack of proper notice, compensation of the arbitral procedure not adhering to the agreement of the parties, or the award being contrary to the public policy of the country in which the award is being enforced, etc. (Article 5 of the Convention).
We note that in case where a foreign arbitral award is originated out of a non-contracting state to the Convention, Korean arbitration laws have no relevant provisions relating to the foregoing issue; so, in this case, we would need to rely on Korean law provisions pertaining to the enforcement of the foreign judgments seeking enforcement in Korea.
Specifically, under Article 217 of the Civil Action Laws of Korea, it is stipulated that the Korean courts should recognize and enforce a foreign judgment, provided that (a) such judgment was a final and conclusive judgment given by a court having valid jurisdiction, (b) the party against whom such judgment awarded received service of process in conformity with the laws of the jurisdiction of the court rendering judgment otherwise than by publication or responded to the action without being served with process, (c) such judgment has not been obtained by fraud, is not contrary to public policy of Korea and has not been obtained in proceedings which were contrary to natural justice and (d) judgments of the courts of Korea are accorded reciprocal treatment under the laws of jurisdiction of the court rendering such judgment.
So, as for both the arbitral award coming from a non-contracting state to the Convention and the foreign judgment seeking recognition and enforcement in Korea, Korean courts would apply the legal principles described immediately above to decide whether such foreign award or judgment should be enforced.
The Seoul High Court issued a combined ruling on January 26, 2006 on two cases (2002Na32662, 2002Na32686) that Dow Chemical Company and Monsanto Company, the US manufacturers of the defoliant known as Agent Orange, pay 63 billion won (about US$62 million) in medical compensation to Korean veterans of Vietnam War and their families. This ruling marks the first time that a Korean court has awarded reparations to the Korean veterans by recognizing a casual relationship between the defoliant and some of the illnesses of the plaintiffs which Agent Orange has been known to cause.
Some 20,000 Korean veterans had filed two separate lawsuits in 1999 against the US companies, seeking more than 5 trillion won in damages, but the district court in charge of the cases ruled in favor of the US companies. The ruling by the Seoul High Court, however, overturns the lower court’s decision, and it appears likely that the US companies would appeal the High Court’s decision, sending the cases to the Supreme Court of Korea.
In issuing the combined ruling, the Seoul High Court appears to have relied on the facts that (i) the Agent Orange contained dioxin, one of the strongest toxic substances known, at the higher levels than standard, (ii) a report of the US National Academy of Science points to a causal relationship between the toxic defoliant and 11 diseases including Non-Hodgkin’s lymphoma, skin disease, bone marrow disease, and lung, larynx and prostate cancers, and (iii) the Korean troops were stationed in areas where the defoliant were sprayed, so it was likely that they would have been exposed to the toxic chemical.
However, the High Court did not recognize a causal relationship between Agent Orange and peripheral neuropathy, the most widespread disease suffered by the Korean veterans and 2nd generation of the veterans, and so rejected a related suit (2002 Na 34679) against the US companies filed by 15 children of the veterans. The children had claimed that they suffer from peripheral neuropathy because their father had been exposed to the chemical.
It is notable that the Seoul High Court ruling comes at a time when there has been no court in the world which has rendered a judgment in favor of Vietnam veterans on an Agent Orange claim in the various court cases during some 20 years since the first Agent Orange claims were filed and settled in the US back in 1984. The Korean veterans were not parties to the out-of-court settlement in 1984 which involved Australian, Canadian and New Zealand veteran plaintiffs, and the US manufacturers have so far refused to settle with the Korean veterans on the grounds, among other things, that the 1984 settlement was reached without defendants admitting any liability, and that any settlement with Korean veterans would invite more Agent Orange claims in Korea as the current cases are not a class action suit.
Under Korean civil law, when a minor (under age 20) enter into legal acts, a parental consent or consent of a court-appointed representative is required for such acts to be given legal effect.
The Supreme Court recently ruled in a case involving confirmation of non-existence of credit card debt of minors (2003 Da 60297; Decision rendered April 15, 2005) that even if the credit card usage agreement between a minor and a credit card company may be deemed without any effect, the minor has an obligation to return the amount of unjust enrichment gained as a result of the credit card usage. Thus, the Court confirmed the lower courts?decisions that had required the minors who used their credit cards (that were obtained without the consents required under applicable law) to pay back the amounts of the credit card they used.
This case was started back in April of 2002 when several minors filed an action for confirmation of non-existence of credit card payment obligation, arguing that the credit cards that were issued to them as minors are invalid.
The Supreme Court stated in the above decision that the individual sale and purchase contracts between the credit card members and the stores that are affiliated with relevant credit card were independent of the cancelled credit card usage agreement and were thus still effective, and that the minors were thus required to return the unjust enrichment gained by the relevant credit card company having made the credit card payments to the stores at which the minors used their credit cards.
The following summarizes a gist of evidentiary and litigation rules operating in Korean trial court setting. At the outset, it should be noted that there is no jury system in court trials in Korea. (Provided, however, that in 2008, Korea will introduce jury system in limited criminal court cases, but the jury decision will not have any binding effect on judge and can be used only as reference by judges.)
Therefore, an attorney does not have chance to be theatrical in front of the jurors, and there is less drama than trials in the U.S. Also, in Korea, the judge in fact acts as the jury, investigator and judge, all in one. In Korean litigation case, the following evidentiary rules apply:
1. The judge, rather than the parties' lawyers, takes the main responsibility for gathering and sifting the evidence.
2. By law, the judge can freely request or take evidence that has not been requested, offered, or introduced by the parties.
3. By law, the judge has the legal obligation to actively investigate the facts until she deems that the information gathered is sufficient to justify a judgment (rather than being constrained by the evidence presented by the parties.)
4. By law, the judge can refuse to collect or admit evidence requested by the parties, if she deems it irrelevant to the case.
5. By law, the judge can refuse to collect or admit evidence requested by the parties, based on considerations of time and efficiency.
6. Statements of fact that were not directly known or perceived by the witness, but only heard from a third person, may be admitted as evidence.
7. Expert witnesses (specialist court advisors) are NOT appointed or presented by the parties. Instead, they are selected by the judge herself from an independent list of outsiders.
8. By law, the judge does not need to pre-qualify the questions before they are asked to the witnesses. However, questions are submitted in advance to the judge, and the judge may limit the questions.
9. By law, there must be a written or magnetic record of all evidence introduced at trial.
10. In relation to admissibility of documentary evidence at lower-level civil trial courts in Korea, simple or uncertified copies are admissible even if there is evidence against their authenticity, in which case their probative value may be reduced.
11. In relation to weight of documentary evidence at lower-level civil trials in Korea, the authenticity and probative value of all admissible documentary evidence is freely weighted by the judge.
In view of the above-noted rules, a foreign company bringing a lawsuit in Korea could become frustrated by the lack of discovery system where a party to the lawsuit could require the other party to produce evidence. So, prior to filing a formal action, it becomes more important for a party (contemplating to file a lawsuit) to review all evidence available for proving its claims because, without sufficient evidence that could be presented to a Korean court, any successful outcome of a lawsuit could be in doubt.
If you require any legal assistance in connection with filing a lawsuit, please contact Hoon Lee (hoonlee@sigonglaw.com), a foreign attorney working at Sigong Law P.C. (www.sigonglaw.com).
Let's assume you (a foreign-based individual or company) have a legal claim against a company or individual in Korea arising out of a commercial dispute. What are the proper steps?
I. Send a formal demand letter. This is the same as what you would normally do in the United States or in any Western country. However, for certain cultural reasons, keep in mind that such a demand letter may be more effective if sent by a Korean attorney.
II. Do an asset check on Defendant. This is also the same as what you would normally do in the United States.
III. If you discover that Defendant has sufficient assets to satisfy any probable judgment, you might consider applying for a preliminary attachment against Defendant's properties before filing a lawsuit or even while the case is pending. You have to, however, provide security or bond with a Korean court by depositing cash with the court. (If you have established a residence in Korea, security deposit may be made by a bank guarantee or insurance rather than cash.) The required amount of the security varies from court to court. If the property to be attached is a real property or vessel, the amount usually ranges from one-eighth to one-tenth of your claim amount. In case the property to be attached is a personal property, the security amount usually ranges from one-third to one-fifth of the claim amount.
IV. Let's assume you are forced to sue the Defendant in Korea. What do you need to do?
You first have to file a written complaint with a district court with the following documents attached: 1) power of attorney properly notarized and translated; 2) if you and/or Defendant are corporations, commercial registry extracts of Defendant corporation and a "certificate as to corporate nationality", properly notarized and translated. You also have to pay a court stamp fee to file a lawsuit. The amount is usually around 0.5% of the claim amount, and you can pay this amount by affixing revenue or payment stamps (this is a stamp showing the amount you paid to file a lawsuit) in the required amount to the Complaint document. If you have no address, office, or other place of business in Korea, the court will order that you provide security for litigation costs, if Defendant requests it. The purpose of this security amount is to secure the Defendant's claim for reimbursement of the litigation costs expended by Defendant should you lose the case. You should understand that because the Korean trial system does not use pre-trial discovery methods such as depositions and interrogatories, evidence is mostly gathered during trial. Therefore, a typical Korean trial consists of many hearings scheduled two to four weeks apart conducted over a lengthy period of time. Most of the evidence-gathering is conducted between hearings and the parties are permitted to present their evidence up to the close of the hearings.
V. Interest can be recovered from the judgment. Although there are laws specifying the permissible rate of interest, in practice, the court usually declares the 25 percent rate applicable from the date of judgment.
VI. What can you do if you lose the trial? You can appeal to an appropriate court. An appeal from a judgment of a three-judge court within the district court is made to a High Court. A judgment of a single-judge court of the district court must be appealed to a three-judge court of the same district. It depends on the amount of claim and type of claim whether or not your claim will be heard by a single judge or three judges. The court fees for filing an appeal are twice that of the amount you had to pay to originally file the claim at the district court. If you lose on appeal, you can appeal to the Supreme Court, although in civil cases, the grounds for appeal to Supreme Court are limited to constitutional and legal issues which are material to the case. You have to pay three times the court fees to appeal to the Supreme Court.
In conclusion, there are established legal avenues in Korea to seek your claims.
Hearsay is the legal term that describes statements made outside of court or other judicial proceedings. With few exceptions, hearsay is not allowed as evidence in the U.S.
However, in Korea, hearsay evidence would be admissible and have probative value in court at least in civil proceedings if accepted by courts as evidence, and, therefore, hearsay is indistinguishable from any other evidence in how Korean courts treat evidence:
Under Korean law, hearsay refers to any matter experienced by a person which forms a basis for establishing certain fact and which is offered in court as evidence by any means other than direct testimony of the person at a legal proceeding.
Article 202 of the Civil Procedure Act provides that “The court shall determine the truth of the matters asserted pursuant to its free convictions, consistent with social justice and equity and keeping in line with principles of logic and experience and taking the whole purport of pleadings and the results of the evidence investigation into consideration.” This is so called “the principle of free conviction.” That is, court judges are given total, free discretion to choose or throw out any evidence which come before them, or how much admissibility or value should be given to each evidence accepted.
So, under Korean legal system, it would be solely up to court judges who would exercise their free convictions on whether to accept certain hearsay in a case to the extent such exercise of free convictions does not violate the principle of logic and experience.
The Supreme Court of Korea stated in one case that the total denial of the admissibility of hearsay evidence in civil proceedings is in contravention of the principle of taking evidence (at the court’s sole discretion) (Supreme Court decision 67Da67; March 21, 1967) and also stated in another case that the date of purchasing real estate could be established by hearsay evidence even if such hearsay would contradict witness’ statements (Supreme Court decision 79Da395; December 26, 1979).
In sum, such hearsay evidence as government reports, any public statements by government or banking officials, government and bank website materials, scholarly reports, and bank reports would not be limited in terms of their admissibility or probative value in court.
According to views of the Supreme Court, once a court makes its decision to accept certain evidence having exercised its free convictions, it is only sufficient for the court to express the acceptance of the evidence, and the court is not required to give the basis of its decision for such acceptance (Supreme Court decision 96Da16247; June 28, 1996). In this connection, when a court makes its decision in a case and provides its opinion of the case, it would be difficult to identify from such opinion how much weight were given to any hearsay evidence submitted to the court (assuming that any such evidence was accepted by the court).
There are two kinds of mediation that could take place in the course of litigation before a Korean court, which we briefly note below.
Under Korean law and practice, courts sometimes suspend pending litigation to request that the parties in the litigation try to reach a settlement. The courts may take such measure even after the close of hearing. The courts often rely on such procedure, which is called court-sponsored meditation, when the legal issues are highly complex or are not clear-cut, or if they believe that the dispute is better suited to a settlement rather than a decision entirely in favor of one party. In such a procedure, the court will typically hold a mediation session in court. If the parties cannot reach a settlement, then the mediation is stopped, the suspension on litigation is lifted, and litigation resumes.
It is also noted that there exists a less voluntary variation on court-sponsored mediation (so-called court-ordered mediation). Under this approach, rather than request the parties to try to reach an agreement, the court may present a settlement proposal for consideration of the parties after listening to the parties during the mediation hearing(s). In such case, any party can reject the settlement order within 2 weeks of receiving the written notice of settlement order. However, if neither party files their objection within the 2-week period, the order of the court becomes final. It is then entered into court records as the final decision in the case. If any party rejects the settlement order, the mediation is dissolved and litigation resumes.