Enforcement of Foreign Judgments in Korea—Tips and Traps

by Brendon Carr

China Law Blog (I read it every day, and you should too) from time to time will touch on the profound misunderstandings that American and foreign (but, really, mostly American) clients and colleagues have about suing a Chinese defendant. For some reason, they often think it’s a great idea to sue in the United States (American courts are better, after all) and are egged on by US lawyers to plow through to a default judgment when the Chinese defendant doesn’t turn up. I’m sure they think Aha! Gotcha, you bastards! when that default judgment is in their hands.

But the default judgment is basically worthless, as Dan Harris explains:

Caller: I have a two million dollar judgment against Chinese company X in China, can you help me enforce it?

Me: Is it a default judgment here in the United States?

Caller: Yes.

Me: The Chinese courts don’t enforce United States’ judgments and though they often at least look at the basis for a United States judgment on the merits, they don’t give any credence whatsoever to United States default judgments. To collect against this company in China we will need to sue them anew in China. Did you discuss this possibility with your U.S. lawyer before you sued here?

Caller: [long silence] .... Yes. He told me getting a judgment here couldn’t hurt?

Me: Did he charge you to get it?

Caller: Yea. I had to pay him and I had to pay all sorts of people to get that company served in China.

Me: Sorry.

I have had this exact same conversation dozens of times from my vantage point here in Seoul, including cases where the client’s US lawyer in Bakersfield or somewhere like that has persisted in US litigation despite the existence of an arbitration clause in the agreement.

See Chinese Companies Can Say, “So Sue Me”, and Enforcing Foreign Judgments in China—Let’s Sue Twice for background.

The foreign-judgment enforcement picture in Korea is not as bleak as in China, in that Korea’s Code of Civil Procedure expressly recognizes conditions for the enforcement of foreign judgments, namely:

  1. Jurisdiction. The Korean court must be convinced that the foreign court had proper jurisdiction over the controversy settled by the judgment.
  2. Proper Service of Process. The defendant, if Korean, must have actually received service of process by methods not improper under Korean law—i.e., not service by notice or publication. In this regard, at the commencement of planning litigation against a Korean defendant, counsel are cautioned to take note of Korea’s accession to the Hague Service Convention, which prescribes methods of delivering judicial process. Ignore this at peril of an unenforceable judgment.
  3. Not Contrary to Public Policy. The statute says enforcement of a foreign judgment “should not be contrary to the public order and good morals of Korea”, which is a matter difficult to define. In principle, it means that certain matters of mandatory Korean law—such as matters concerning property rights, family law, etc.—should not be settled by foreign courts. But there is a trap here for the default-judgment holder, and that is the Korean court is generally pretty lenient about rescheduling or suspending procedures where the defendant does not respond. Getting a default judgment in the US based on failure to appear presents the possibility of a public-policy objection to enforcement in Korea.
  4. Reciprocity. The foreign state issuing the judgment must afford Korean judgments reciprocal recognition and enforcement. Any state which is found not to enforce Korean judgments—or, in some cases, which cannot be proved to have enforced Korean judgments—will find judgments of its courts not enforceable here.

In my experience, reciprocity between US courts and Korean courts is not a problem, and in commercial disputes public-policy considerations rarely are raised. That leaves jurisdiction (check the clauses of your agreements, and get an opinion on Korea’s Private International Law Act), and service of process. By far, the most common and tragic mistakes I see involve the US lawyer’s ignorance of the Hague Service Convention, or (worse) unwillingness to let the time required for proper service delay the commencement of proceedings.

But even if you do everything right, none of it matters if there’s nothing in the cupboard when you get your judgment. Over at China Law Blog, in the comments to “Chinese Companies Can Say, ‘So Sue Me.‘“, I left a comment that bears repeating here:

Although there are a lot of laws which aren’t respected, when it comes time to enforce your [foreign] judgment you’ll find that limitation of liability by share capital is one which is observed all around the world.

So your judgment against XYZ Co., Ltd. in Seoul doesn’t do you a bit of good if the managers of XYZ clear the bank accounts out once they know a dispute is possible (you should silently file a pre-judgment attachment against accounts and against shares in the company, then start blustering about possibly taking legal action) or if the company is basically an insolvent shell.

Always, always, always take reliable security in advance. If your partner can’t get a domestic financial institution or insurer to put up a letter of credit or a performance bond, that should be a signal to you. Where nobody in China wants to be this guy’s unsecured creditor, why should you volunteer?

In future days I’ll post some tips on how to take good security. Only a few will see them before opening trading relations, however. So at a bare minimum, if you can’t take good security in advance, at the very least before commencement of proceedings do a thorough due diligence on why you’re suing, and whether you can gain anything from the process.

July 22, 2007 | Filed Under Civil Litigation and Arbitration | 8 comments

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