Model Clause: The Korean Commercial Arbitration Board

1. Form and Contents of Agreement (Clause)

The Arbitration Act is applicable when the parties have reached an agreement to settle their disputes of a private nature through arbitration. The agreement shall include both an arbitral clause and a submission to arbitration. 

Valid arbitration agreements must be in writing and signed and sealed by the parties involved. The Act governing the use of seals by alien entities stipulates that "..in such cases a signature shall be effective without a seal." Correspondence or telegrams stipulating arbitration shall be considered as valid arbitration agreements. Agreements by telex or other form of telecommunication shall be considered as valid arbitration agreements only if properly documented, while oral agreements are unacceptable. 

Standard arbitration clauses are recommended by various organizations and relevant government authorities such as the Ministry of Finance and Economy, which oversees capital inflows and outflows. For example, the standard arbitral clause recommended by KCAB reads as follows: 

"All disputes, controversies, or differences which may arise between the parties, out of or in relation to or in connection with this contract, or for the breach thereof, shall be finally settled by arbitration in Seoul, Korea, in accordance with Arbitration Rules of the Korean Commercial Arbitration Board and under the Laws of Korea. The award rendered by the arbitrator shall be final and binding upon both parties concerned." 

Any legal person recognized under public law as a party is entitled to resolve a dispute through commercial arbitration, provided that such legal person is engaged in a business activity that can be defined as a "commercial act." 

2. Severability of Arbitration Clause

There is no stipulation in the Act on the right of arbitrators to examine and determine the validity of the basic contract in which an arbitration clause is included. In our opinion, an inserted arbitration clause should be considered void when and if the basic contract in question is duly declared to be null and void through appropriate legal means or through an agreement of the parties concerned. 

However, if the basic contract is annulled due to non-performance, or becomes invalid due to fraudulent execution or deliberate fraud, the arbitration clause remains valid; it is in this case independent and in effect severable from the basic contract. 

3. Effect of the Agreement

Article 9 of the Act stipulates that the parties to an arbitration agreement shall abide by the arbitral award. A suit may be filed in a court of law, only when the said arbitration agreement is invalid or of forfeited effect or incapable of execution. This Article explicitly provides that the parties concerned give up their right to bring the subject dispute before a court of law from the moment they enter into a valid arbitration agreement.