Enforcing Punitive & Liquidated Damages Awards against Korean Companies via Contracts with Foreign Subsidiaries of Korean Companies

A recent amendment of the Korean Civil Procedure Act added Article 217-2. The Amendment has codified a holding by the Seoul Central District Court and other Korean courts noting, in part, that Korean Courts may refuse to “recognize foreign damage awards that clearly exceed amounts considered reasonable in Korea in violation of good morals and the social order of Korea” (99 KaHap 14496, S. Cent. Distr. Court, 10/20/2000).

The Amendment allows Korean Courts, in Korea, the power to not recognize a damage award that the Korean Court’s perceives as “excessive.” This standard-less “standard” leaves much wiggle room for Korean Courts.

A typical situation is a case where an American importer sues a Korean conglomerate in a U.S. Court and damages are awarded to the U.S. company. The damages may include liquidated, punitive and non-“actual” damages. The American importer, then, attempts to enforce the judgment in Korea.

There is a simple way to avoid the risk of your judgment not being enforced in Korea. Don’t require yourself to have a need to enforce your judgment in Korea.

Be smart – sign the agreement, not, with a Korean conglomerate’s Korean HQ, but with the American subsidiary of the Korean conglomerate if, inter alia, the Korean subsidiary is capitalized and has assets to attach. Most Korean companies have substantial assets tucked away in Hong Kong, U.S. and in European companies.

Please have an attorney with significant experience with enforcing judgments against Korean conglomerates review your agreement. Signing an agreement with a subsidiary poses, potentially, other risks.

The reality is, with this amendment and a few noted cases, a foreign judgment may not be fully enforced in Korea. Thus, put strategy to work for you.