Supreme Court Reaffirms Arbitration-Friendly Stance in Judgment (Supreme Court Decision 2024Da243172, January 23, 2025)

The Supreme Court of Korea has recently ruled that a jurisdiction clause (the “Jurisdiction Clause”) drafted in two different languages (i.e., Korean and English), despite containing deficiencies and inconsistencies between the two languages, constituted a valid exclusive arbitration agreement. The Court emphasized the use of the term “Arbitration” in the Jurisdiction Clause and dismissed the lawsuit accordingly (Supreme Court Decision 2024Da243172, January 23, 2025, the “Decision”).

Background

In this case, the plaintiff filed a claim for monetary restitution against the defendant, a foreign company, alleging that the supply contract between them had been rescinded as a result of the defendant’s breach of contract. In response, the defendant challenged the court’s jurisdiction, arguing that the supply contract contained an exclusive arbitration agreement, rendering the lawsuit inadmissible.

While the lower appellate court (i.e., the High Court) found the Jurisdiction Clause to constitute an optional arbitration agreement, which is not a valid exclusive arbitration agreement, the Supreme Court ultimately held that the Jurisdiction Clause constituted a valid and exclusive arbitration agreement.

2.	High Court’s Decision The supply contract in question was drafted in both Korean and English, without specifying which version would prevail. The contract included the following Jurisdiction Clause:

8. Governing Law [NB. This part was written in Korean] (Arbitration)

This agreement shall be controlled by Korean law or by the Arbitration Committee of International Private Law Trial. [NB. This first sentence was written in Korean]

All disputes, controversies, Claims or Differences arising out of, or in relation to this agreement, or a breath (sic)^[1] hereof, shall be finally settled by Korean Law or in accordance with the Commercial Arbitration committee of International Commercial Law.

The High Court approached the Jurisdiction Clause on the premise that the Korean and English versions should be regarded as having equal authority and should be interpreted in a way that harmonizes them as much as possible. Based on this, the court concluded that the parties had optionally agreed to both arbitration and litigation under Korean law as methods of dispute resolution.

Specifically, the High Court found that:

The English text in the heading “Arbitration” and the clause referring to resolution “in accordance with the Commercial Arbitration committee of International Commercial Law” (and the corresponding Korean provision referring to “controlled by the Arbitration Committee of International Private Law Trial”) supported the conclusion that the Jurisdiction Clause allowed resolution by arbitration.

However, the part of the English text stating “settled by Korean Law” (and the corresponding Korean wording “controlled by Korean law”) was interpreted as also encompassing court proceedings (litigation) under Korean law, since dispute resolution mechanisms (such as litigation) under Korean law are accepted per such wording and the clause did not expressly exclude court proceedings as a method of dispute resolution.

In addition, the High Court held that because both the Korean and English versions of the Jurisdiction Clause link the provision accepting “litigation under Korean law as a dispute resolution mechanism” to the provision accepting “arbitration as a dispute resolution mechanism” with the disjunctive conjunction “or” (i.e., “이나” in Korean), the Jurisdiction Clause constituted an optional arbitration agreement rather than a valid exclusive agreement to arbitrate under Korean law.

Supreme Court’s Decision

In contrast to the High Court, the Supreme Court held that the Jurisdiction Clause constituted an exclusive arbitration agreement.

The Supreme Court agreed with the High Court that, in the absence of a clause specifying a prevailing language, the English and Korean versions of the contract should be interpreted with equal weight. However, the Supreme Court emphasized that: (i) “the inclusion of a clause concerning arbitration in a contract may serve as strong evidence of the parties’ intent to resolve disputes by arbitration,” and (ii) “even if some terms of the arbitration clause are ambiguous or inconsistent, or the clause refers to a non-existent arbitral institution or arbitrator, such flaws alone should not lead to a hasty conclusion that a valid arbitration agreement does not exist.”

Applying this legal principle, the Supreme Court focused on the fact that the Jurisdiction Clause was titled “Arbitration” in English and that both the Korean and English versions stipulated that disputes were to be resolved through arbitral proceedings by addressing “resolution/control by an arbitral body.” The Supreme Court determined that the phrase “controlled by Korean Law” was merely a reference to the governing law and did not suggest that litigation under Korean law was intended as a dispute resolution method.

The Supreme Court further ruled that the mere absence of an express exclusion of court proceedings (litigation) does not justify interpreting the clause as allowing court proceedings (litigation) to be one of the dispute resolution methods. Consequently, it upheld the validity of the Jurisdiction Clause as a binding arbitration agreement.

This decision reaffirms the importance of carefully interpreting bilingual (often in Korean and English) jurisdiction and governing law clauses in international contracts. In cases where no prevailing language is specified, both versions must be closely examined in tandem.

In particular, if there are discrepancies between the Korean and English texts of a jurisdiction clause, procedural disputes over jurisdiction may arise even before the substantive issues are addressed. Therefore, it is advisable to proactively review and confirm such clauses in advance. If a jurisdictional dispute has already arisen, it is crucial to interpret the contract language carefully in light of the surrounding circumstances.

Through this case, the Supreme Court also reaffirmed that the inclusion of a clause concerning “Arbitration” in a contract is sufficient to infer the parties’ intent to resolve disputes through arbitration (rather than court proceedings such as litigation), even if the clause does not explicitly exclude court proceedings (litigation). It further clarified that a valid arbitration agreement can exist despite minor defects or inconsistencies in the clause.

This ruling represents a further development on the Supreme Court’s arbitration-friendly stance, broadly recognizing the validity of arbitration agreements.

Accordingly, when interpreting jurisdiction clauses (including arbitration clauses) under Korean law, the use of the term “Arbitration” in either the Korean or English version may carry significant weight in assessing the validity of the arbitration agreement. Parties entering into international contracts should bear in mind this judicial approach and carefully review their jurisdiction and governing law clauses at the drafting stage to minimize the risk of future jurisdictional disputes.

^[1] The court deemed this to be a typographical error of “breach.”

[Korean Version]

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