The Price You Have to Pay to Prove that You are Not a Malicious Creditor

As in other countries, Korean Court often requires creditor to deposit a certain amount of collateral in the course of preliminary injunction or civil lawsuit. The examples of court deposit are as follows:

-Court Deposit at Preliminary Injunction

-Court Deposit at Civil Lawsuit

When a foreign creditor commences legal proceedings in Korea, the Korean Court usually sets higher bar, more strict standard, which sometimes becomes a significant obstacle for foreign creditors to collect its credit in South Korea.

Firstly, as regard to Court Deposit at Preliminary Injunction, the court renders an order of court deposit, half of total amount by cash, remaining half by buying a bond at guarantee insurance company. For your information, the price of guarantee insurance bond is very cheap and actually only half of deposit is really made.

The situation is quite different for foreign creditors. The Korean Court often does not allow the purchase of bond from guarantee insurance to foreign creditors, actually, guarantee insurance company do not usually sell its bond to foreign creditors and the court do not include guarantee insurance clause onto its award.

In particular, in case of preliminary injunction on credit, a higher rate of 20 ~ 50% is ordered to creditors to deposit. It is too harsh for foreign creditors, to deposit above amount all in cash.

Secondly, Court Deposit at Civil Lawsuit is also a burden for foreign creditors. Pursuant to Korean Civil Procedure Act, the court orders court deposit according to the application of the other party in certain cases. And when a foreign creditor commences civil lawsuit in court, the court usually accepts the defendant’s application for court deposit.

The purpose of this court deposit to prevent losing party’s not paying litigation costs (refers to court fees and attorney fees) after losing the case. We understand that foreign creditor needs more authentication in proceeding civil lawsuit in Korea because the court needs to confirm the foreign party is in good standing and excersing its legitimate rights against bad debtors.

The problem is the method of calculating the amount of court deposit for foreign creditors. Pursuant to current court practice, the court deposit includes court fees and attorney fees from 1st instance throughout 3rd instance, the Supreme Court. That is right, the Korean Court assumes that the plaintiff loses all of the three cases and not willing to bear the liabilities of losing party’s compensation. In this situation, foreign creditor shall deposit all the costs for all the three level trials when the 1st pleading date for 1st instance is not held.

When the court renders above order, most foreign creditors have no option but to deposit ordered amount because they have already filed lawsuits and it is ongoing at the court. This court deposit are often more than several times the attorney fees paid for 1st instance lawsuit. That’s right, this is a burden for foreign creditors.

Hopefully, insurance guarantee for international payments and inter-governmental information sharing on parties will help solve above problems. We should remember that the purpose of court deposit is to secure potential payments and preventing malicious creditors to proceed lawsuit, not to give burden to foreign creditors who are considering legal actions in South Korea.