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:
- Jurisdiction. The Korean court must be convinced that the foreign court had proper jurisdiction over the controversy settled by the judgment.
- 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.
- 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.
- 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.
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Brendan --
Does Korea have fraudulent transfer claims or can someone really just clean out a corporate coffer for and give the money to the shareholders and just shut down, leaving all creditors and plaintiffs high and dry?
Yes, there is a doctrine of fraudulent conveyance but to be frank, the evidentiary problems of figuring out where the money goes (it can be converted to cashier’s checks and fraudulently given to putative “takers without notice") and proving conspiracy to defraud makes it all much more work than it’s worth. Frauds of around US$1 million are generally considered small potatoes by Korean prosecutors, so there’s not much help from the state.
Brendan, great stuff throughout the blog. Unfortunately in law school (UPR 1977), I spent more effort on learning how to try a case than I did on how to collect. Big shocker to discover that even more effort is needed to convert that simple piece of paper noting “judgment for the plaintiff” into cold hard cash. In retrospect, how to execute a judgment should have been a class in itself.
lirelou, thanks for the kind words. It’s true that getting the judgment turned into money in your pocket is fabled “last mile” of the marathon. And the Korean system is different enough from the American system that clients need to protect themselves at the outset of the relationship, rather than finding out at the end of the line that they won’t be able to collect.
Sometimes accounting rules or an insurance company will dictate that litigation through to judgment is required anyway. Those cases will always go forward.
California has enacted a new statue for enforcement of Foreign Country judgments. The new law creates a statute of limitations as the lesser of (1) 10 years and (2) the period during which the judgment is enforceable in the rendering country ... MY QUESTION: How long does a judgment remain enforceable in Korea? Judgment was based on a business dispute. Thank you.
Ian, I wrote you separately on this, but failed to leave it here in the comments. Judgments are enforceable for 10 years.
Brendan -
In the US once a Judgment is entered it can then be recorded in the county of the debtor’s residence. Is there any comparable way in Seoul, Korea of recording a Judgment. Would it have any effect?
Thanks,
Emily
Emily, there is no means to register or record judgments in Korea. They’re not public record. Now, if a company is publicly traded there are financial-reporting thresholds which require disclosure—so the judgment might be found that way. But for non-public companies there is no means to access records of litigation.
My partner Doil says there is a pending amendment which would allow “academic research” to access records of judgments; however, only researchers would be allowed to get into those records—which leaves ordinary commercial due diligence still out in the cold.
Sorry this took so long to reply—I got busy last week and forgot this was in the queue.