First Supreme Court Decision Allowing Enforcement of Arbitral Award Which Orders a Daily Monetary Penalty in Korea

Yulchon successfully represented Euro Apex B.V. (“Apex”), a Dutch manufacturer of heat exchangers, in a Supreme Court proceeding for enforcement of a Dutch arbitral award against a Korean defendant, a manufacturer of similar products.

Apex sought an enforcement decision for an arbitral award rendered under the Arbitration Rules of the Netherlands Arbitration Institute (the "Award"), which ordered the defendant (i) to transfer all of the Korean, Indian and United States patents it acquired using Apex’s technology, and (ii) to pay a daily monetary penalty (i.e., an indirect compulsory performance penalty) if it fails to transfer the said patents. Central to the dispute was whether a daily monetary penalty ordered by an arbitral tribunal can be enforced in Korea.

The Incheon District Court, the court of the first instance, allowed enforcement of the Award which ordered a daily monetary penalty and the defendant appealed against the decision. The Seoul High Court, the appellate court, upheld the decision of the Incheon District Court.

The defendant lodged an appeal against the high court decision, and argued before the Supreme Court that the Award ordering a daily monetary penalty cannot be enforced under Korean law since it is contrary to public policy under Article V(2)(b) of the New York Convention, based upon the following grounds:

• As it is prohibited under the Korean Civil Execution Act for a decision on the merits to order a daily monetary penalty, it should also be prohibited for an arbitral award to order the same penalty;
• It is prohibited under the Korean Civil Execution Act for a daily monetary penalty to be imposed for failure to fulfill an obligation to transfer patents since it is an “obligation to declare intention”;
• A daily monetary penalty cannot be imposed for failure to fulfill an obligation to transfer a patent which was registered as expired and thus became non-transferrable; and
• The daily monetary penalty imposed on the defendant is contrary to public policy given its excessive amount.

The Supreme Court, however, dismissed the defendant’s appeal, accepting all of Apex’s arguments as follows:

• A daily monetary penalty ordered by an arbitral tribunal is not against the Korean Civil Execution Act or any other laws of Korea;
• Even if a daily monetary penalty cannot be imposed under Korean law for failure to fulfill an “obligation to declare intention,” it does not necessarily mean that the same principle applies to a foreign arbitral award;
• Even if a patent was registered as expired and thus became non-transferrable, it is not contrary to the public policy of Korea to impose a daily monetary penalty for failure to fulfill an obligation to transfer the patent up to the date the patent expired; and
• There is no reason to consider whether a daily monetary penalty is prohibited under Korean law or contrary to the public policy of Korea.

In conclusion, the Supreme Court ruled that the Award can be enforced in Korea as there is no ground under the New York Convention to refuse enforcement of a foreign arbitral award ordering a daily monetary penalty.

Yulchon, representing Apex, finally obtained an unprecedented Supreme Court decision allowing enforcement of a daily monetary penalty ordered in a foreign arbitral award. This Supreme Court decision is another indication of the Korean courts’ arbitration-friendly attitude.

Sae Youn Kim, Jeong Hye Ahn and So Young Jeong of Yulchon’s International Dispute Resolution Team represented Apex in this case.