By BC Yoon (Partner, Kim & Chang)

With the growing number of Korean companies entering the overseas markets, international disputes are on an increasing trend.

With respect to disputes among entities based in different nationalities, although it is generally more advisable to resort to international arbitration, there are also many cases where such disputes must be resolved through cross-border litigation.

In instances where a lawsuit is brought in a "developed" country such as the U.S., it is necessary to fully understand as a matter of urgency the relevant procedural rules as they are usually not only very detailed but also applied strictly.

One needs to be careful as there are an increasing number of cases where a company is disadvantaged from the outset by handling litigation in a foreign country in the same manner as one would handle domestic litigation.

For instance, company B, a competitor of company A, a Korean electronics company, filed a lawsuit against the latter in the U.S. court. After the lawsuit had proceeded for more than a year, B suddenly questioned whether A “had taken necessary measures within the company to preserve documents immediately after receiving the written complaint.”

The U.S. court’s procedural rules require a company against which a lawsuit has been filed, or which reasonably anticipates that a lawsuit may be filed, to immediately send out document preservation notices to its officers and employees so as to ensure that any and all documents and computer files associated with the lawsuit are preserved without undergoing any change.

Since there is no such obligation in domestic litigation in Korea, A had not taken any measures to preserve its documents.

As a result, A was continuously attacked throughout the litigation as having deliberately concealed unfavorable evidence. This case is indicative of how actions taken (or not) by a Korean company can easily be misunderstood by the U.S., or another foreign court, and even by its own counsel due to differences between the Korean litigation system and the foreign litigation system.

Further legal preparation associated with businesses expanding into overseas markets entails more than simply appointing the relevant local counsel. When foreign litigation arises, one must put a great deal of effort into smooth communication with the local counsel so as to prevent any misunderstanding from developing during discussions on the direction of the defense or fact-finding.

Among Korean companies, while there are large enterprises that have teams of in-house counsel or make full use of domestic law firms, some other large enterprises and a great number of mid-sized enterprises still tend to fully entrust their legal future with local counsel and passively follow that counsel's lead.

Even if a Korean company advances into a foreign market, its work processes or document preparation is still subject to the Korean codes of legal procedure and Korean laws and regulations on information security.

Accordingly, in cross-border litigation it is essential to comprehensively analyze the relevant Korean laws and relevant foreign laws and fully explain the differences between the respective laws and legal systems of the two countries.

The volume of Korean investments and transactions abroad has grown incomparably to that of even five years ago, but the legal risks in overseas expansion have grown in proportion thereto.

It is now time for Korean companies to protect themselves against the uncertainties dwelling in overseas markets through thorough and proactive legal analyses.