Mark Benton of AHNSE Law Offices takes part in Negotiating Effective Contracts & Dealing with Disputes

QUESTION ONE – Which techniques are typically used by international counterparties in your experience to overcome challenges in the negotiation process?

The aphorism that the business culture is different but the same commercial considerations always apply would be relevant. Like many cultures, Korea is a relationship-based society. This is reflected a certain extent in attitudes to contracts.

One explanation for this is that Korea’s main crop is rice. In the pre-mechanised era, it took a lot of cooperation to successfully produce a crop. By contrast, the production of wheat, the western staple, is a much more individualistic pursuit.

While this may be somewhat apocryphal, there is always an element of truth in there somewhere and this is arguably manifested to a certain extent in the attitude towards contracts. In western cultures, parties who did not know each other often entered into lengthy and detailed contracts.

In Korea, the relationship was the first step. The contract was perhaps less important. Contracts tended to be much shorter and perhaps less detailed. This situation has changed somewhat with Korea’s economic development and increasing globalisation, but there is certainly a delta where east meets west and it is often not the most comfortable one for a western hemisphere lawyer.

There are certain obvious prophylactic actions you can take when the attitude to contracts is perceived to be less important. Two obvious ones spring immediately to mind. The first is that you should do your due diligence and make sure you strike a good commercial deal – mitigate commercial risk. The other is to pay a lot of attention to managing the contract well.

QUESTION TWO – Is there anything special or peculiar about commercial contract law in your country that General Counsel should be aware of?

I think it is helpful to look at Korea through a historical lens. Depending on how far you go back, Korea’s legal system can probably be traced back to Roman law, upon which the Napoleonic Code was based. Boney was rather successful in disseminating his brand across Europe and it made its way across the Germanic states.

A little later, Emperor Meiji of Japan was looking to update and improve his country’s legal system. He sent envoys across the world to benchmark various legal systems, and it was determined that the Prussian system was the best – this was broadly adopted in Japan. Japan subsequently occupied Korea from 1910 to 1945 and imposed various of its institutions on the country including its legal system.

Korea is a civil law jurisdiction and its contract laws are enshrined in the Civil Code. The system itself is excellent and has been translated into English, which makes it accessible to foreigners. The main provisions affecting commercial law are contained in the Civil Act and Commercial Act. While the legal system has its roots in Europe, it has also been influenced by a number of different levels by the USA.

Korea was partitioned in 1945 and was decimated by the war from 1950-3. It was then one of the poorest countries in the world; now it is one of the most technologically advanced and the 11th richest by GDP. This is known as the Miracle on the Han, the river which bisects Seoul.

Korea’s growth was characterised initially by large family-owned conglomerates known as chaebol initially in heavy industries but later more broadly in technology, automobiles etc. The Korean economy is characterised by these relatively small number of companies, which have a large degree of horizontal and vertical integration. These companies – Samsung, LG, Hyundai etc. dominate the Korean economy; they are also household names across the world.

It is hard to point with conviction to specific legislative changes within the context of this small piece. If I point to one, there will be others left out. I think therefore that it is better to look at Korea on a more structural level.

Korea is also a Confucian society which means, among other things, that its workplaces tend to be very hierarchical. It does have a highly educated and technologically savvy workforce, though there are frequent accusations (sometimes misplaced) of a lack of creativity. On many levels, it is international in its outlook and is keen to become a significant hub for business and commerce in East Asia.

QUESTION THREE – What recent legislative developments in your jurisdiction affect commonly drawn up contracts such as articles of incorporation, shareholder agreements or executive remuneration? Can you provide any relevant case law to illustrate this?

I failed in the previous question to do much justice to Korea’s recent history. However, I think it is helpful to put things in their historical context. Korea effectively became a true liberal democracy in 1987. It has been going through the growing pains since.

On one level, the country has sought inward investment. In order to do this, it has taken significant steps to educate its workforce and make them English friendly. It once used to be called the Hermit Kingdom, but now it is much more outward looking.

On another level, it has sought, over a period of time, to root out the evils of the previous military dictatorships and the nexus of the political and economic elites. Unfortunately, each of the three previous presidents has been in trouble for various levels of corruption. One jumped off a cliff, another has just been released from gaol, and the last incumbent is serving out a lengthy jail term.

The country’s population is, however, engaged and will no longer stand for endemic corruption. Several months of demonstrations led to the ouster of the previous incumbent. It is also reflected in the fairly recent ‘Kim Young Ran’ law which seeks to crack down on corruption.

Of course, it is essential for a country to be seen as open and fair, while not favouring local companies, vis-a-vis foreign ones. In this regard, it is significant to note that the Korea Commercial Arbitration Board is going to great lengths to position itself as a hub for arbitration in East Asia. This is perhaps a bellwether of how far the country has come.

TOP TIPS FOR: Successful negotiations

Do your due diligence. This really is a truism. The sine qua non of any negotiation is to be fully prepared. There are no shortcuts.

Define your role. When I was a trainee, my principal said that it is the lawyer’s role to advise on and document what has been commercially agreed between the parties. As I have aged, I think it should be more than this. We are often provided with our mandate after the commercial terms have largely been agreed, however, I think we should still be able to provide value. In most cases, the earlier we become involved in the transaction, the better the service we can provide to our clients.

Everyone has a weak spot. Know and understand what makes people tick. What will make them break!

Don’t be transactional. In the Brothers Karamazov, Dostoevsky posited that we are all guilty of each other. One interpretation of this is that we should not just seek short-term benefit; but rather consider the bigger picture. Obviously, we have to act in our clients’ best interests, but equally, we need to set this against whether there are actually greater benefits in the long run for both our clients and ourselves by trying to look beyond the deal.