Litigation in Korea – Article 2

Introduction

It is proposed to allude briefly to strategy and a legal device known as a Preliminary Attachment.

Background

We have represented many foreign litigants in both criminal and civil proceedings. There are some surprising features of these cases. Or perhaps it is because these cases are litigated that their common features are more profound.

• We see many cases in which there is limited, or more commonly no contractual documentation. Transactions will take place on the basis of Purchase Orders and invoices involving hundreds and thousands of dollars, sometimes more.

• Clients rarely, if ever, do proper due diligence on the companies they are transacting with. The relationship starts off well and then it suddenly deteriorates usually due to the Korean company’s financial issues. It is simple and cheap to do due diligence before the relationship starts and on an ongoing basis. We can assist.

An example:

Defendants are often trading companies; they tend to be intermediaries. As such, they will generally have few, if any assets. They often take huge sums of money from buyers before purchasing the products themselves for sale to the buyer. The ratio of assets (or paid in capital) to sums transacted is often astonishing.

Litigation Strategy

We advise our clients on legal strategy. What is the end goal they are trying to achieve. What resources do we have to achieve it. Is it realistic. This obviously involves a frank discussion with the client. Once we have determined our legal strategy, we can work towards implementing it. We frequently use the following tactical measures.

Fraud

In the example described above, the trading company is often small with limited assets. It might have a sole shareholder and one or two directors. The company will receive money but will not deliver the product. They hide behind the corporate veil. In these circumstances, criminal proceedings in fraud may become appropriate. They tend to be a powerful tool in coercing recalcitrant defendants.

Preliminary Attachments

A preliminary attachment is kind of a lien. If it is perceived that a potential defendant has assets e.g. cash at bank, property, deposit on a lease etc. we can apply to the Court for a Preliminary Attachment. This will prevent the defendant from dealing with that property.

Obviously, this is somewhat of an extraordinary measure. The Court will generally require the plaintiff to pay a deposit pending resolution of the dispute. This is to prevent vexatious litigants and the defendant will be protected against their legal costs.

Generally the deposit ranges between 30-50% of the amount claimed. If the asset being attached to is cash, then the deposit is at the higher end of the scale.

The word “preliminary” means just that. It is a temporary injunction. It needs to be followed up with a main suit’ If you are successful in that, then the Judgement can be enforced relatively easily in most circumstances.

One added benefit of the Preliminary Attachment is that the defendant’s creditors will be alerted. This often prompts them to pay more quickly.

Summary

Prevention is obviously better than cure. However, if you are required to litigate against a Korean defendant, there are options open to you.